UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-QSB**





(Mark
      One) ****




xQUARTERLY
      REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter
      ended
      September 30, 2005




oTRANSITION
      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 2600


Atlanta,
                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 o No x





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





The
      issuer had 35,543,629 shares of common stock outstanding as of September 30,
      2005












**Quarterly
      Report on Form 10-QSB**


**Quarter
      Ended September 30, 2005**





**Table
      of Contents**


PageReport
                of Independent Registered Public Accounting Firm
            
            
            1PART
                I - FINANCIAL INFORMATIONItem
                1.  Financial Statements:Balance
                Sheet as of September 30, 2005 (Unaudited) and December 31,
                2004
            
            
            2Statement
                of Operations and Accumulated Deficit (Unaudited)for
                the Three and Nine Months Ended September 30, 2005 and
                2004and
                from inception to September 30, 2005
            
            
            3Statements
                of Cash Flows (Unaudited) for the Three and Nine MonthsEnded
                 September 30, 2005 and 2004and
                from inception to September 30, 2005
            
            
            4Statement
                of Stockholders’
                Deficit
            
            
            5Notes
                to Financial Statements
            
            
            6Item
                2.  Management's Discussion and Analysis or Plan of
                Operation
            
            
            19Item
                3.  Controls and Procedures
            
            
            24PART
                II - OTHER INFORMATIONItem
                1.  Legal Proceedings
            
            
            25Item
              2.  Unregistered Sales of Equity
              Securities and Use of Proceeds
            
            
            27Item
                3.  Defaults Upon Senior Securities
            
            
            27Item
                4.  Submission of Matters to a Vote of Security
                Holders
            
            
            27Item
                5.  Other Information
            
            
            28Item
                6.  Exhibits and Reports on Form 8-K
            
            
            28SIGNATURES
            
            
            28EXHIBIT
                INDEX
            
            
            29







iii





**Report
      of Independent Registered Public Accounting Firm**


To
        the
        Board of Directors
 Winsonic
        Digital Media Group, Ltd.
 Atlanta,
        Georgia
  We
        have
        reviewed the accompanying balance sheet of Winsonic Digital Media Group,
        Ltd. (A
        Development Stage Company) as of September 30, 2005 and the related statements
        of operations, stockholders’ deficit and cash flows for the three and nine
        months ended September 30, 2005 and Inception to September 30, 2005, included
        in
        the accompanying Securities and Exchange Commission Form 10-QSB for the period
        ended September 30, 2005. These financial statements are the responsibility
        of
        the Company's management.
  We
        conducted our review in accordance with standards established by the Public
        Company Accounting Oversight Board (United States). A review of interim
        financial information consists principally of applying analytical procedures
        to
        financial data and making inquiries of persons responsible for financial
        and
        accounting matters. It is substantially less in scope than an audit conducted
        in
        accordance with the standards of the Public Company Accounting Oversight
        Board
        (United States), the objective of which is the expression of an opinion
        regarding the financial statements as a whole. Accordingly, we do not express
        such an opinion.
  Based
        on
        our review, we are not aware of any material modifications that should be
        made
        to the accompanying financial statements for them to be in conformity with
        accounting principles generally accepted in the United States.
  The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As discussed in Note 5, conditions exist
        which
        raise substantial doubt about the Company's ability to continue as a going
        concern. The financial statements do not include any adjustments that might
        result from the outcome of this uncertainty.
  
 /s/
        De
        Joya Griffith & Company, LLC
 De
        Joya
        Griffith & Company, LLC
 Las
        Vegas, Nevada
 March
        28,
        2006




-1-


**PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1. Financial Statements**


WINSONIC
        DIGITAL MEDIA GROUP, LTD.
 (A
        DEVELOPMENT STAGE COMPANY)
 **BALANCE
        SHEETS**
 AS
        OF
        SEPTEMBER 30, 2005 & DECEMBER 31, 2004 (Restated)
 (UNAUDITED)
  Unaudited
                
                Audited**9/30/2005**
                
                **12/31/2004**(Restated)**ASSETS**ASSETS:Current
                    assets:Cash
                
                $
                2,596
                
                $
                436,749Deposit
                
                
                78,000
                
                
                82,490**Total
                    current assets**
                
                
                **80,596**
                
                
                **519,239**Fixed
                    assets:Computer
                    equipment
                
                
                1,583,474
                
                
                1,577,269Infrastructure
                
                
                320,000
                
                
                320,000Software
                
                
                165,515
                
                
                160,000Furniture
                    & fixtures
                
                
                13,040
                
                
                13,040Less:
                    accumulated depreciation
                
                
                (807,755
                )
                
                (550,955
                )Total
                    fixed assets
                
                
                1,274,274
                
                
                1,519,354Equity
                    Investment
                
                
                2,000,000
                
                
                —TOTAL
                    ASSETS
                
                **$**
                **3,354,870**
                
                **$**
                **2,038,593****LIABILITIES
                    AND STOCKHOLDERS' DEFICIT**LIABILITIES:Current
                    liabilities:Accounts
                    payable and accrued expenses
                
                $
                1,825,393
                
                $
                1,514,625Accrued
                    payroll and related taxes
                
                
                1,232,925
                
                
                781,575Legal
                    settlement liabilities
                
                
                1,020,000
                
                
                1,020,000Loans
                    payable
                
                
                376,413
                
                
                357,506Loan
                    payable -related party
                
                
                568,603
                
                
                683,726Note
                    payable
                
                
                847,000
                
                
                847,000Accrued
                    interest on notes payable
                
                
                139,825
                
                
                101,640Derivative
                    liability related to convertible debentures
                
                
                116,163
                
                
                652,254Warrant
                    liability related to convertible debentures
                
                
                199,670
                
                
                614,609Convertible
                    debentures
                
                
                991,849
                
                
                37,871**Total
                    current liabilities**
                
                
                **7,317,841**
                
                
                **6,610,806**Long-Term
                    liabilities:
                
                
                —
                
                
                —Total
                    long-term liabilities
                
                
                —
                
                
                —**TOTAL
                    LIABILITIES**
                
                
                **7,317,841**
                
                
                **6,610,806**Stockholders'
                    deficit:Common
                    stock, $0.001 par value, 50,000,000 sharesauthorized,
                    35,543,629 and 33,620,884 shares issued andoutstanding
                    at September 30, 2005 and December 31, 2004, respectively
                
                
                35,544
                
                
                33,621Additional
                    paid-in capital
                
                
                5,159,672
                
                
                2,918,261Common
                    stock payable, $1.00 per share
                
                
                820,000
                
                
                820,000Accumulated
                    deficit during development stage
                
                
                (9,978,187
                )
                
                (8,344,095
                )**Total
                    stockholders' deficit**
                
                
                (3,962,971
                )
                
                (4,572,213
                )**TOTAL
                    LIABILITIES AND STOCKHOLDERS' DEFICIT**
                
                **$**
                **3,354,870**
                
                **$**
                **2,038,593**
  The
        accompanying notes to the financial statements should be
 read
        in
        conjunction with these Balance Sheets.


-2-





WINSONIC
        DIGITAL MEDIA GROUP, LTD.
 (A
        DEVELOPMENT STAGE COMPANY)
 **STATEMENT
        OF OPERATIONS**
 FOR
        THE
        NINE MONTHS ENDED SEPTEMBER 30, 2005 & 2004
 AND
        FROM
        INCEPTION TO
 SEPTEMBER
        30, 2005
 (UNAUDITED)




**For
                    the quarter ended September 30,**
                
                **For
                    the nine months ended September 30,**
                
                **Inception
                    to****2005**
                
                **2004**
                
                **2005**
                
                **2004**
                
                **September
                    30, 2005**REVENUE
                
                $
                —
                
                **$**
                **—**
                
                $
                —
                
                $
                25,000
                
                $
                57,811COST
                    OF GOODS SOLD
                
                
                **40,232**
                
                
                **11,933**
                
                
                273,946
                
                
                256,119
                
                
                981,902GROSS
                    PROFIT
                
                
                (40,232
                )
                
                (11,933
                )
                
                (273,946
                )
                
                (231,119
                )
                
                (924,091
                )EXPENSES:Selling,
                    general and administrative
                
                
                224,604
                
                
                452,139
                
                
                776,904
                
                
                589,047
                
                
                3,797,546Selling,
                    general and administrative, related party
                
                
                207,500
                
                
                49,800
                
                
                622,500
                
                
                149,400
                
                
                1,174,442Consulting
                    Services - related party
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,125,934Depreciation
                    and amortization expense
                
                
                85,600
                
                
                85,589
                
                
                256,800
                
                
                256,767
                
                
                807,755Total
                    expenses
                
                
                517,704
                
                
                587,528
                
                
                1,656,204
                
                
                995,214
                
                
                6,905,677OPERATING
                    INCOME (LOSS)
                
                
                (557,936
                )
                
                (599,461
                )
                
                (1,930,150
                )
                
                (1,226,333
                )
                
                (7,829,768
                )OTHER
                    INCOME/(EXPENSES):Interest
                    expense
                
                
                (323,208
                )
                
                (15,457
                )
                
                (916,505
                )
                
                (46,371
                )
                
                (1,974,827
                )Legal
                    Settlement Costs
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (1,020,000
                )Unrealized
                    gain on adjustment of derivative and warrantliability
                    to fair value of underlying securities
                
                
                157,210
                
                
                
                
                
                1,212,102
                
                
                
                
                
                760,239Interest
                    income
                
                
                28
                
                
                —
                
                
                461
                
                
                —
                
                
                718Other
                    income(expenses)
                
                
                —
                
                
                **—**
                
                
                —
                
                
                43,095
                
                
                85,451Total
                    other income/(expenses)
                
                
                (165,970
                )
                
                (15,457
                )
                
                296,058
                
                
                (3,276
                )
                
                (2,148,419
                )NET
                    LOSS BEFORE PROVISION FOR INCOME TAXES
                
                
                (723,906
                )
                
                (614,918
                )
                
                (1,634,092
                )
                
                (1,229,609
                )
                
                (9,978,187
                )PROVISION
                    FOR INCOME TAXES
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —NET
                    LOSS
                
                **$**
                **(723,906**
                **)**
                **$**
                **(614,918**
                **)**
                **$**
                **(1,634,092**
                **)**
                **$**
                **(1,229,609**
                **)**
                **$**
                **(9,978,187**
                **)**Basic
                    weighted average number ofcommon
                    shares outstanding
                
                
                14,906,150
                
                
                6,004,200
                
                
                14,906,150
                
                
                6,004,200Net
                    loss per basic and diluted common share
                
                $
                (0.05
                )
                $
                (0.10
                )
                $
                (0.11
                )
                $
                (0.20
                )


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)
 **STATEMENTS
        OF CASH FLOWS**
 FOR
        THE
        NINE MONTHS
 ENDED
        SEPTEMBER 30, 2005 & 2004 AND FROM INCEPTION TO
 SEPTEMBER
        30,2005
 (UNAUDITED)
  **For
                    the nine months ended September 30,**
                
                **Inception
                    to****2005**
                
                **2004**
                
                **September
                    30, 2005****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    (loss)
                
                **$**
                **(1,634,092**
                **)**
                $
                (1,229,610
                )
                $
                (9,978,187
                )Adjustments
                    to reconcile net lossto
                    net cash used by operations:Depreciation
                
                
                256,800
                
                
                256,767
                
                
                807,755Accretion
                    of principal and interest relatedto
                    convertible debentures
                
                
                826,801
                
                
                —
                
                
                864,672Unrealized
                    gain (loss) on adjustment of derivative and warrantliability
                    to fair value of underlying securities
                
                
                (1,212,102
                )
                
                —
                
                
                (760,240
                )Stock
                    based compensation
                
                
                243,334
                
                
                —
                
                
                1,739,647Change
                    in operating assets and liabilities:(Increase)
                    decrease in deposit
                
                
                4,490
                
                
                —
                
                
                (78,000
                )Increase
                    (decrease) in bank overdraft
                
                
                —
                
                
                (4,205
                )
                
                —Increase
                    in accounts payable and accrued expenses
                
                
                310,769
                
                
                436,705
                
                
                2,069,364Increase
                    (decrease) in accrued payroll and related taxes
                
                
                451,349
                
                
                287,342
                
                
                1,232,924Increase
                    in legal settlement liabilities
                
                
                —
                
                
                —
                
                
                1,020,000Increase
                    in interest payable
                
                
                38,184
                
                
                12,705
                
                
                139,824**Net
                    cash provided by (used in) operating activities**
                
                
                **(714,467**
                **)**
                
                **(240,296**
                **)**
                
                **(2,942,241**
                **)****CASH
                    FLOWS FROM INVESTING ACTIVITIES:**Purchase
                    of fixed assets
                
                
                (11,720
                )
                
                —
                
                
                (2,082,029
                )**Net
                    cash used in investing activities**
                
                
                **(11,720**
                **)**
                
                **—**
                
                
                **(2,082,029**
                **)****CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                    from loans payable
                
                
                18,907
                
                
                240,789
                
                
                407,913Proceeds
                    from loan payable - related party
                
                
                44,877
                
                
                —
                
                
                728,603Payment
                    on note payable - related party
                
                
                (160,000
                )
                
                —
                
                
                (160,000
                )Proceeds
                    from note payable - Digital ServicesInternational,
                    Inc.
                
                
                —
                
                
                —
                
                
                847,000Proceeds
                    from convertible debentures
                
                
                388,250
                
                
                —
                
                
                1,203,250Proceeds
                    from warrants for common stock
                
                
                —
                
                
                —
                
                
                2,000,100**Net
                    cash provided by financing activities**
                
                
                **292,034**
                
                
                **240,789**
                
                
                **5,026,866****NET
                    INCREASE (DECREASE) IN CASH**
                
                
                **(434,153**
                **)**
                
                **493**
                
                
                **2,596****CASH,
                    BEGINNING OF PERIOD**
                
                
                **436,749**
                
                
                **—**
                
                
                **—****CASH,
                    END OF PERIOD**
                
                **$**
                **2,596**
                
                **$**
                **493**
                
                **$**
                **2,596****SUPPLEMENTARY
                    INFORMATION:**Interest
                    paid
                
                $
                —
                
                $
                —
                
                $
                —Income
                    taxes paid
                
                $
                —
                
                $
                —
                
                $
                —**NON-CASH
                  INVESTING ACTIVITIES:**Stock
                    based acquisition of equity investment
                
                $
                2,000,000
                
                $
                —
                
                $
                2,000,000


The
        accompanying notes to the financial statements should be
 read
        in
        conjunction with these Balance Sheets.





-4-
 
 WINSONIC
          DIGITAL MEDIA GROUP, LTD.
 (A
          DEVELOPMENT STAGE COMPANY)
 **STATEMENTS
          OF STOCKHOLDERS’
          DEFICIT**


AccumulatedDeficitAdditional
              
              Common
              
              During
              
              TotalPreferred
                  Stock
              
              Common
                  Stock
              
              Paid-in
              
              Stock
              
              Development
              
              Stockholders'Shares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Payable
              
              Stage
              
              Deficit**Balance,
                  September 10, 2002 (Inception) - No Par Stock**
              
              
              **10,000,000**
              
              **$**
              **—**
              
              
              **10,000,000**
              
              **$**
              **—**
              
              **$**
              **—**
              
              
              
              
              **$**
              **—**
              
              **$**
              **—**Reverse
                  Merger - ReAcquisition of all outstanding sharesof
                  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, $1.00 average price per
                  share
              
              
              
              
              
              
              
              
              94,615
              
              
              95
              
              
              122,905
              
              
              
              
              
              
              
              
              123,000Issuance
                  of common stock for services, $0.59 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, $0.47 average price
                  per
                  share
              
              
              
              
              
              
              
              
              1,670,000
              
              
              1,670
              
              
              1,998,330
              
              
              
              
              
              
              
              
              2,000,000Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,634,092
              )
              
              (1,634,092
              )**Balance,
                  September 30, 2005**
              
              
              **—**
              
              **$**
              **—**
              
              
              **35,543,629**
              
              **$**
              **35,544**
              
              **$**
              **5,159,672**
              
              **$**
              **820,000**
              
              **$**
              **(9,978,187**
              **)**
              **$**
              **(3,962,971**
              **)**






-5-




WINSONIC
      DIGITAL MEDIA GROUP, LTD




**NOTES
      TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS**




**NOTE
      1 - BASIS OF PRESENTATION**




The
      accompanying financial statements have been prepared by the Company without
      audit. In the opinion of management, all adjustments (which include normal
      recurring adjustments) necessary to present fairly the financial position,
      results of operations and cash flows at September 30, 2005 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 principals 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, 2004. The
      results of operations for the three-month and nine-month periods ended September
      30, 2005 and 2004 are not necessarily indicative of the operating results for
      the full year.




**Accounting
      Estimates:** The
      preparation of financial statements in conformity with accounting principals
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, the disclosures of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenues and expenses
      during the reporting period. Actual operating results could differ from those
      estimated by management.




**Cash
      and Cash Equivalents:** For
      purposes of the statement of cash flows, the Company considers all highly liquid
      debt instruments with maturity of three months or less to be cash equivalents.
      The Company had cash on hand as of September 30, 2005 and December 31, 2004,
      of
      $2,596 and $436,749, respectively, with the cash balance $327,135 in excess
      of
      federally insured limit on December 31, 2004.




**Derivative
      Financial Instruments:** The
      Company has issued convertible notes payable, which include embedded derivatives
      as defined by SFAS 133, EITF 98-5 and 00-27 and APB 14. These instruments are
      subject to fluctuations in value, arising from fluctuations in the price of
      the
      underlying stock and the number of shares of stock to be issued upon conversion
      or redemption”. The fluctuation in value is recorded as “Unrealized Gains and
      (Losses) on Embedded Derivatives and Attached Warrants consistent with the
      Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for
      Derivative Instruments and Hedging Activities” and it has the effect of
      adjusting the financing costs of the Convertible Note to reflect the value
      of
      the underlying stock to be issued.




**Stock
      Options:** The
      Company has stock incentive plans that provide for stock-based employee
      compensation, including the granting of stock options, to certain key employees
      and other individuals. The plans are more fully described in Note 2. The Company
      accounts for stock options issued to employee, officers and directors under
      the
      stock incentive plan in accordance with the recognition and measurement
      principals of APB Opinion No. 25, “Accounting for Stock Issued to Employees”,
      and related Interpretations. Under this method, compensation expense is recorded
      on the date of grant only if the current market price of the underlying stock
      exceeded the exercise price. Under the Company’s stock incentive plan, stock
      options are granted at exercise prices that equal or exceed the market value
      of
      the underlying common stock on the date of grant. Therefore, no compensation
      expense related to stock options is recorded in the Consolidated Statements
      of
      Operations.




-6-


During
      the periods presented in the accompanying financial statements the Company
      has
      granted options under the October 2004 Stock Options Plans and executive and
      other employment agreements. The Corporation has adopted the disclosure-only
      provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.”
Accordingly, compensation cost under SFAS No. 123 has been recognized for
      certain stock options issued under other agreements to non-employee and recorded
      in the accompanying statement of operations, but no compensation cost under
      SFAS
      No. 123 has been recognized for stock options issued under the plans and other
      agreements with employees.




Had
      compensation cost for stock options issued to employees under the Company’s
      stock option plans and agreements been determined based on the fair value at
      the
      grant date for awards in the three-months ended September 30, 2005 and 2004
      consistent with the provisions of SFAS No. 123, the Company’s net income and
      earnings per share would have been reduced to the pro forma amounts indicated
      below:




**For
                the Three-months Ended**
            
            **For
                the Nine-months Ended****September
                30,**
              **2005**
            
            **September
                30,**
              **2004**
            
            **September
                30,**
              **2005**
            
            **September
                30,**
              **2004**Net
                Income (Loss) as Reported
            
            $
            (723,906
            )
            $
            (614,918
            )
            $
            (1,634,092
            )
            $
            (1,229,609
            )Add:
                Stock-based non-employee compensation expense included in reported
                net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method
            
            
            (202,248
            )
            
            -0-
            
            
            (615,913
            )
            
            -0-Net
                Income (loss) Pro forma
            
            $
            (926,154
            )
            $
            (614,918
            )
            $
            (2,250,005
            )
            $
            (1,229,609
            )Pro
                forma earnings (loss) per share
            
            $
            (0.06
            )
            $
            (0.10
            )
            $
            (0.15
            )
            $
            (0.20
            )




**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 on the declining balance method for financial statement purposes
      over the following estimated useful lives:




**Telecommunications
                Equipment**
            **15
                years****Furniture
                and Fixtures**
            **7
                years****Computer
                Equipment**
            **5
                years****Software**
            **3
                years**






-7-


Depreciation
      expense for the three-month periods ended September 30, 2005 and 2004 was
      $85,600 and $85,589; for the nine-month periods ended September 30, 2005 and
      2004 were $256,800 and $256,767 respectively.




**Impairment
      of Long-lived Assets**




In
      accordance with Statement of Financial Accounting Standards 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 in 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 originating with their
      software and network media distribution. Revenues will be recognized upon
      services rendered to customers. Costs and expenses are recognized during the
      period in which they are incurred.




**Advertising
      Costs**




The
      Company expenses all costs of advertising as incurred. There were no advertising
      costs incurred for the periods ended September 30, 2005 and 2004.




**Research
      and Development Costs**




The
      Company expenses all research and development costs as they are incurred. There
      were no research and development costs during the periods ended September 30,
      2005 and 2004.




**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.




**Recently
      Issued Accounting Pronouncements**




In
      September 2004, the Emerging Issues Task Force ("EITF") reached a consensus
      on
      EITF Issue 04-08 The Effect of Contingently Convertible Instruments on Diluted
      Earnings per Share, which requires the inclusion of shares related to
      contingently convertible debt instruments for computing diluted earnings per
      share using the if- converted method, regardless of whether the market price
      contingency has been met. EITF 04-08 will be effective for all periods ending
      after December 15, 2004 and includes retroactive adjustment to historically
      reported diluted earnings per share. The adoption of EITF Issue No. 04-08 does
      not currently have an impact on the Company's operating results or financial
      position.




In
      November 2004, the FASB issued Financial Accounting Standards Statement No.
      151
“Inventory Costs-an amendment of ARB No. 43, Chapter 4.” This Statement
      clarifies the accounting for abnormal amounts of idle facility expense, freight,
      handling costs, and wasted material (spoilage). This Statement requires that
      those items be recognized as current-period charges regardless of whether they
      meet the criterion of "so abnormal." In addition, this Statement requires that
      allocation of fixed production overheads to the costs of conversion be based
      on
      the normal capacity of the production facilities. The Company does not expect
      SFAS 151 to have a material impact on its financial statements.




-8-


In
      December 2004, the FASB issued Financial Accounting Standards Statement No.
      152
“Accounting for Real Estate Time-Sharing Transactions-an amendment of FASB
      Statements No. 66 and 67.” This Statement references the financial accounting
      and reporting guidance for real estate time-sharing transactions that is
      provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate
      Time-Sharing Transactions. This Statement also states that the guidance for
      (a)
      incidental operations and (b) costs incurred to sell real estate projects does
      not apply to real estate time-sharing transactions. This Statement is effective
      for financial statements for fiscal years beginning after September 15, 2005.
      The Company does not expect SFAS 152 to have a material impact on its financial
      statements.




In
      December 2004, the FASB issued Financial Accounting Standards Statement No.
      153
“Exchanges of Nonmonetary Assets-an amendment of APB Opinion No. 29.” The
      guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is
      based on the principal that exchanges of nonmonetary assets should be measured
      based on the fair value of the assets exchanged. This Statement amends Opinion
      29 to eliminate the exception for nonmonetary exchanges of similar productive
      assets and replaces it with a general exception for exchanges of nonmonetary
      assets that do not have commercial substance. The Company does not expect SFAS
      153 to have a material impact on its financial statements.




In
      May
      2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections -
      a
      Replacement of APB Opinion No. 20 and FASB Statement No. 3". SFAS 154 requires
      retrospective application to prior period financial statements of changes in
      accounting principal, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. SFAS 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
      154 will have a significant impact on the consolidated financial
      statements.




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




**NOTE
      2 - COMMON STOCK**




**Issuance
      of Common Stock**




**First
      Quarter:** During
      January and March 2005 the Company issued 94,615 and 91,463 shares respectively
      to a private investment partnership. The stock was issued at $1.30 per share
      in
      January and $0.82 per share in March. The stock was part of a warrant,
      exercisable at $0.07 per share, which was issued to compensate certain
      professional advisors for services rendered during 2004. The stock was issued
      pursuant to a “cashless exercise” wherein 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.
      For
      January 2005, the warrant holders received 94,615 shares of stock and
      contributed 5,385 shares valued at $1.30 per share worth $7,000 (the cost of
      their warrants). For September, the warrant holders received 91,463 shares
      and
      contributed 8,537 shares valued at $0.82 per share, worth $7,000 (the cost
      of
      their warrants).




**Second
      Quarter:** During
      June 2005 the Company issued 66,667 shares to a private investment partnership.
      The stock was issued at $0.68 per share. The stock, similar to that issued
      in
      January and March was paid to compensate professional advisors for services
      rendered during 2004 and was issued pursuant to a “cashless exercise” wherein
      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. For June, the warrant holders received
      66,667 shares of common stock and contributed 33,333 shares valued at $0.21
      per
      share, worth $7,000 (the cost of their warrants).




-9-


**Third
      Quarter:** During
      September 2005 the Company issued 1,670,000 shares to Native American Television
      Network, Inc. (“NATVN”) in exchange for common stock, in accordance with a stock
      exchange agreement entered into by both parties. The 1,670,000 shares issued
      by
      the Company, was valued at $1.20 per share, or $2,000,000. The 4,000,000 common
      stock shares received from NATVN, Inc. was valued at $0.50 per share or
      $2,000,000 and was recorded by the Company as an Equity Investment. (See Note
      6
      - Equity Investment for further details regarding this
      transaction.)




**NOTE
      3 - RELATED PARTY TRANSACTIONS**




Officer’s
      compensation for services for the three-month period ended September 30, 2005
      and 2004 was $207,500 and $49,800; for the nine-month period ended September
      30,
      2005 and 2004 was $622,500 and 149,400 and was included in general and
      administrative expenses, related party. The compensation for services from
      inception was as follows:




Compensation
            2003
            2004
                - Q1
            2004
                - Q2
            2004
                - Q3
            2004
                - Q4
            2005
                - Q1
            2005
                - Q2
            2005
                - Q3CEO
            199,200
            49,800
            49,800
            49,800
            72,500
            72,500
            72,500
            72,500President
            0
            0
            0
            0
            62,419
            67,500
            67,500
            67,500Exec
                Vice Pres
            0
            0
            0
            0
            62,419
            67,500
            67,500
            67,500Total
            199,200
            49,800
            49,800
            49,800
            197,338
            207,500
            207,500
            207,500




**Loan
      Payable - Related Party**




As
      of
      December 31, 2004 the Company has a loan payable totaling $683,726 to the,
      C.E.O., consisting of principal of $600,000, which was due September 3, 2004
      ,
      plus 80,000 shares of common stock valued at $64,000, both payable to maker
      of
      the note. Under the terms of the Note, interest will be paid at the rate of
      10%
      annually. Accrued interest included in the loan balance of $683,726 is $19,726
      as of December 31, 2004. Quarterly interest in the amount of $15,000 per quarter
      was accrued during the three-month periods and $44,877 for the nine-month
      periods ended September 30, 2005 and 2004.




During
      the 1 st Quarter
      of 2005, the Company paid $160,000 to the CEO against this loan. At September
      30, 2005 and December 31, 2004 the balance of the loan was $568,603 and $683,726
      respectively.




(See
      Note
      14 - Subsequent Events relating to a 4 th Quarter
      payment against this loan from the Company in the form of common stock issuance
      to the CEO, valued at $231,000).




**NOTE
      4 - SUMMARY OF LEGAL PROCEEDINGS**




Other
      than as described below, the Company is not currently involved in any legal
      proceedings that may be deemed to be material to our financial condition.




Callozo
      vs. Media and Entertainment.com




On
      March
      22, 2004, the Company (in all cases cited herein 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, punitive and exemplary damages. The
      Company had purchased the assets of Nexcode of which Collazo was a founder,
      and
      Collazo received  400,000
      shares of the Company’s Common Stock (the “Shares”) in consideration of the
      sale. While still employed by the Company, Collazo allegedly formed a competing
      company, stole proprietary property of the Company and solicited Company clients
      on behalf of the competitor. The Company seeks a constructive trust, injunctive
      relief and the return of the Shares.




-10-


Prior
      thereto, 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
      Collazo to sell 30,000 shares of Common Stock and issuing a temporary
      restraining order with regard to the remaining 370,000 Shares provided the
      Company posted a bond for the entire amount of $424,000. The Company’s
      principals chose not to pledge personal assets as collateral for the bond and
      the Nevada action was dismissed.




In
      the
      above-described pending litigation brought by the Company against Collazo,
      in
      July 2004, the defendant denied the allegations, asserted 21 affirmative
      defenses and brought a cross-complaint against the Company. Mr. Collazo alleges
      that the Company breached the agreement with Collazo because he had not been
      paid compensation due him, he had not received a percentage of gross profit
      earnings, and that the Company had not exercised a good faith effort to raise
      an
      additional $250,000 in capital, and that Collazo 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 well as attorney fees of $120,000. The Company also agreed to issue 900,000
      shares of common stock to Mr. Nana Yalley, 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 the value of
      900,000 shares of common stock as well as $120,000 of attorney fees was charged
      as current year expenses as of December 31, 2004. The settlement was not
      accomplished by June 10, 2005, whereby Mr. Collazo may exercise at his option
      the right to enforce the settlement agreement for payment of attorney fees
      or
      convert the obligation of payment for attorney fees to a demand for issuance
      of
      200,000 shares of stock in the Company.




On
      March
      16, 2006, the 900,000 shares due to Mr. Collazo have been issued by the Company
      to Mr. Collazo in settlement. As of March 23, 2006, neither the 900,000 shares
      of common stock for Yalley, nor the $120,000 or 200,000 shares for attorney’s
      fees have been issued and paid, respectively. The agreement had no effect on
      the
      operating results for the 1 st, 2 nd or
      3 rd Quarters
      of 2005 or 2004; and an estimated liability of $1,020,000 for legal settlements
      was recorded as of September 30, 2005 and December 31, 2004.




Yellowbrix,
      Inc. vs. Media and Entertainment.com:




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 is expensed in general
      and administrative expense in the 4 th Quarter
      of 2004 and accrued within accounts payable of the Company as of December 31,
      2004. The amount is included in Accounts Payable as of September 30, 2005 and
      December 31, 2004.




Berman,
      Romeri and Associates, LLP vs. Media and Entertainment.com:




This
      pending collection lawsuit arises from alleged contract and services obligating
      the Company, which was allegedly authorized by the former CEO of Media and
      Entertainment.com. The disputed amount of $8,733 is expensed in general and
      administrative expense in December of 2004 and included in the 4 th Quarter
      operations. The liability included in accounts payable of the Company as of
      September 30, 2005 and December 31, 2004.




On
      March
      9, 2006, Berman, Romeri and Associates, LLP and the Company entered into a
      written stipulation for Judgement, whereby the Company shall pay a settlement
      amount of $6,500 to Berman, Romeri and Associates, LLP by April 10,
      2006.




-11-





**NOTE
      5 - GOING CONCERN**




These
      financial statements have been prepared in accordance with generally accepted
      accounting principals applicable to a going concern, which contemplates the
      realization of assets and the satisfaction of liabilities and commitments in
      the
      normal course of business. As of September 30, 2005, the Company has recognized
      $57,811 of revenues to date and had accumulated losses of approximately
      $9,978,000 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.




**NOTE
      6 - EQUITY INVESTMENT**




**Native
      American Television Network, Inc.**




On
      September 29, 2005, in accordance with a stock exchange agreement between the
      two parties, the Company issued 1,670,000 shares of common stock to Native
      American TV Network [“NATVN”] , wherein the Company acquired 4,000,000 shares of
      stock in NATVN, representing 27% of the NATVN equity. The Company’s common stock
      of 1,670,000 shares was valued at $1.20 per share, or $2 million. NATVN’s common
      stock issuance to the Company of 4 million shares was valued at $0.50 per share,
      or $2 million. As of September 30, 2005, the Company has recorded a $2 million
      Equity Investment as a long-term asset, and zero as of December 31,
      2004.




NATVN,
      based in Albuquerque, New Mexico is a recently formed company that 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 a regularly scheduled programming that offers air space to
      advertisers with the exception of paid programming or long form advertisements.
      There was no prior material relationship between the two companies or their
      affiliates other than in respect of the agreement.




The
      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.







-12-




**NOTE
      7 - FIXED ASSETS**




The
      major
      classifications of property and equipment consist of the following as of
      September 30, 2005 and December 31, 2004:




**September
                30,****2005**
            
            **December
                31, 2004**Computer
                Equipment
            
            $
            1,583,474
            
            $
            1,577,269Infrastructure
            
            
            320,000
            
            
            320,000Software
            
            
            165,515
            
            
            160,000Furniture
                & fixtures
            
            
            13,040
            
            
            13,040Total
                Fixed Assets
            
            
            2,082,029
            
            
            2,070,309Less:
                accumulated depreciation
            
            
            (807,755
            )
            
            (550,955
            )Net
                Fixed Assets
            
            $
            1,274,274
            
            $
            1,519,354




Depreciation
      expense for the three-month periods ended September 30, 2005 and 2004 was
      $85,600 and $85,589; for the nine-month periods ended September 30, 2005 and
      2004 were $256,800 and $256,767 respectively.




In
      December 2005, the Company reduced computer equipment, infrastructure, and
      software included in the above Fixed Assets by $842,000 by renegotiating it’s
      equipment purchase agreement and related Note payable with Digital Service
      International (“DSI”). (See Note 14 - Subsequent Events for further detail
      regarding the subsequent transaction).




**NOTE
      8 - LOANS PAYABLE**




The
      Company has loans outstanding of $376,413 and $357,506 as of September 30,
      2005
      and December 31, 2004, respectively, payable to certain individuals. Proceeds
      from these loans were used for working capital purposes. The following is a
      summary of the loans payable:






-13-




**Interest
                Rate**
            
            LOANS
                PAYABLE
            
            **September
                30,**
              **2005**
            
            **December
                31, 2004**Unstated
            
            
            Eight
                convertible promissory notes, due October 2004, convertible into
                shares of
                common stock at any time prior to maturity. No conversions were
                exercised.
            
            $
            198,500
            
            $
            198,5006.00%
            
            
            A
                loan containing principal 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 $11,627 at September 30, 2005 and $6,780 at December
                31,
                2004.
            
            
            119,627
            
            
            114,7806.00%
            
            
            A
                loan containing principal 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 $6,021 at September 30, 2005 and $4,226 at December
                31,
                2004.
            
            
            46,021
            
            
            44,226Unstated
            
            
            A
                loan, initiated during the second quarter, containing principal of
                $2,000
                with no stated interest rate, repayment terms, or maturity date.
                No
                interest was imputed during thequarter.
            
            
            2,000
            
            
            -0-Unstated
            
            
            A
                loan, initiated during the second quarter, containing principal of
                $10,265, with no stated interest rate, repayment terms or maturity
                date.
                No interest was imputed during the quarter.
            
            
            10,265
            
            
            -0-Total
                Loans Payable
            
            $
            376,413
            
            $
            357,506




**NOTE
      9 - NOTE PAYABLE AND PLEDGED ASSETS**




**Interest
                Rate**
            
            NOTES
                PAYABLE
            
            **September
                30,**
              **2005**
            
            **December
                31, 2004**Unstated
            
            
            A
                loan due April 13, 2003, containing principal of $847,000 with no
                stated
                interest rate. The loan was secured with fixed assets (computer equipment,
                infrastructure and software). On December 16, 2005 the Company paid
                $5,000
                and returned certain pledged equipment thus satisfying the note holder.
                Consistent with the final resolution of the agreement, no interest
                or
                finance charges have been accrued.
            
            $
            847,000
            
            $
            847,000Total
                Note Payable
            
            $
            847,000
            
            $
            847,000




(See
      Note
      14 - Subsequent Events for further detail regarding the December 16, 2005
      transaction).




-14-




**NOTE
      10 - CONVERTIBLE DEBENTURES**




During
      December 2004 and January 2005, the Company received proceeds of $815,000 and
      $200,000 respectively from a Convertible Note and Warrant Purchase Agreement
      [“the Agreement”]. The offering was made to accredited investors. The
      Convertible Notes including interest of 6% were due in December of 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 Agreement
      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 $.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 $.70 per share (285,714 shares of
      common stock), through December 2007. On December 15, 2005, the Convertible
      Notes of $1,015,000 were extended to June 30, 2006. (See Note 14 - Subsequent
      events for further detail regarding the extension of the
      agreements).




During
      the 2 nd and
      3 rd quarters
      of 2005, the Company received proceeds of 188,250, consisting of 6 offerings,
      evidenced by Convertible Note and Warrant Purchase Agreements [“the Agreement”].
      The offering was made to accredited investors. Total proceeds received from
      the
      Agreements as of September 30, 2005 are $1,203,250.




The
      transactions, to the extent that it is to be satisfied with common stock of
      the
      Company would normally be included as equity obligations. However, in the
      instant case, due to the indeterminate number of shares which might be issued
      under the embedded host debt conversion feature, the Company is required to
      record a liability relating to both the detachable warrant and the embedded
      convertible feature of the note payable (included in the current liabilities
      as
      a “derivative liability”).




The
      accompanying financial statements comply with current requirements relating
      to
      warrants and embedded derivatives as described in FAS 133, EITF 98-5 and 00-27,
      and APB 14 as follows:




The
      Company allocated the proceeds received between the convertible debt and the
      detachable warrant based upon the relative fair market values on the date
      proceeds were received.




Subsequent
      to the initial recording, the change in the fair value of the detachable
      warrant, determined under the Black-Scholes option pricing formula and the
      change in the intrinsic value of the embedded derivative in the conversion
      feature of the convertible debenture, is accrued as adjustments to the
      liabilities at September 30, 2005 and December 31, 2004.




The
      expense relating to the change in the fair value of the Company’s stock
      reflected in the change in fair value of the warrants and derivatives (noted
      above) is included as an item of other income and expense in the form of an
      unrealized interest income or expense arising from convertible financing on
      the
      Company’s balance sheet.




Accreted
      interest and principal is $991,849 as of September 30, 2005 and $37,871 as
      of
      December 31, 2004.







-15-




The
      following table summarized the various components of the convertible debentures
      as of September 30, 2005 and December 31, 2004:




September
                30, 2005
            
            December
                31, 2004Derivative
                liability
            
            $
            116,163
            
            $
            652,254Warrant
                liability
            
            
            199,670
            
            
            614,609Convertible
                debentures
            
            
            991,849
            
            
            37,871Subtotal
            
            
            1,307,682
            
            
            1,304,734Adjustment
                of derivative and
              Warrant
                liability to fair value
            
            
            760,240
            
            
            (451,863
            )Less:
                Accretion of principal and
              interest
                related to convertible debenture
            
            
            (864,672
            )
            
            (37,871
            )Total
                Proceeds from Convertible Debentures
            
            
            1,203,250
            
            
            815,000Plus:
                Accrued interest
            
            $
            58,267
            
            $
            2,144Total
                Convertible Debentures
            
            
            1,261,517
            
            
            817,144Less:
                Current portion of Convertible Debentures
            
            $
            (1,261,517
            )
            $
            (817,144
            )Total
                Non-current Convertible Debentures
            
            $
            -0-
            
            $
            -0-





Included
      in the above values is accrued interest of $58,267 at September 30, 2005 and
      $2,144 at December 31, 2004. The interest expense for the three-month and
      nine-month periods ended September 30, 2005 is $25,911 and $56,153.




**NOTE
      11 - COMMITMENTS AND CONTINGENCIES**




Employment
      Agreements: On October 8, 2004, the Company entered into binding offering
      letters with the Chairman and CEO, the President and the Executive Vice
      President; as well as one former executive officer and two non-executive
      officers. Under the terms of the employment agreements, the Executive Officers
      are to receive base salaries of $290,000, for the President and $270,000 for
      each of the President and the Executive Vice President, with $7,000 per month
      deferred until the next funding occurs or January 1, 2005, whichever occurs
      first. Each officer is eligible for annual incentive bonuses based on
      performance. The CEO received 1,000,000 stock options and the remaining two
      officers received 500,000 stock options each to purchase common stock at $1.00
      per share that vest equally over a twelve month period effective with the date
      of the employment agreement. The agreements are terminable at will with or
      without cause (as defined).




**NOTE
      12 - EARNINGS PER SHARE**




The
      computations of earnings per share are based upon the weighted average number
      of
      outstanding common shares during the periods. For the periods presented the
      Company has incurred losses, which would make any calculation of earnings per
      share based on the number of shares calculated under the diluted earnings per
      share anti-dilutive and therefore the amount is not presented. When their effect
      is dilutive, additional shares assuming the exercise of certain vested stock
      options, reduced by the number of shares, which could be purchased from the
      proceeds from the exercise of the stock options assuming they were exercised,
      are calculated to disclose fully-diluted earnings per share.




-16-


**NOTE
      13 - FINANCIAL STATEMENT RESTATEMENTS**




The
      management of the Company, have concluded that the Company should restate its
      consolidated financial statements for the year ended December 31, 2004. As
      disclosed in Note 12 to the Company’s restated consolidated financial statements
      for the years ended December 31, 2004 and 2003 included in the Company’s amended
      Annual Report on Form 10-KSB/A for the fiscal year ended December 31, 2004,
      filed with the SEC on March 8, 2006, the Company has restated its consolidated
      financial statements as of and for the years ended December 31, 2004 and 2003
      to
      correct certain financial statement errors reported in the Form 10-K for such
      fiscal year as originally filed. The corrections in this restatement (i.e.,
      fiscal year ended December 31, 2004) have a carry forward impact on the
      Company’s consolidated financial statements as of and for the three and nine
      months ended September 30, 2005.




•
            
            The
                corrected financial statements will account for the convertible notes
                embedded derivatives as well as the detachable warrants as current
                liabilities, allocated between the derivative and warrant liabilities
                as
                determined by the price of the underlying common stock.•
            
            The
                classification of costs and benefits arising from the changes in
                the price
                of the underlying common stock has been changed from “other comprehensive
                income” (an Equity caption) to “unrealized gains and losses from
                derivatives” (an element of Other Income and
                Expense).





**NOTE
      14 - SUBSEQUENT EVENTS**




**Equipment
      paid via issuance of stock, cash payment and satisfaction of Note
      Payable**




On
      December 16, 2005, the Company renegotiated its equipment purchase agreement
      and
      related note payable for computer equipment, software and infrastructure with
      Digital Service International (“DSI”). The equipment, valued at $1,667,000, was
      paid in this amendment by the conversion of a common stock payable to DSI for
      820,000 common stock shares valued at $1.00 each, a $5,000 payment from the
      Company against the $847,000 DSI note payable, and the satisfaction of the
      remaining $842,000 note obligation by the return of $842,000 underlying pledged
      equipment. The effect in the fourth quarter of 2005 will be to reduce the
      liabilities of the Company by $847,000, reduce the value of the fixed assets
      of
      the Company by $847,000 and increase shares outstanding by 820,000 with a
      related credit to Par Value of $820 and Paid in Capital of
      $819,180.




The
      accrued finance charges of $139,825 as of September 30, 2005 relating to the
      note were recaptured. The credit to interest expense is included in the other
      income for the fourth quarter of 2005.




**Loan
      Payable - Related Party**




During
      the 4th Quarter of 2005, 700,000 shares of the Company’s common stock were
      issued to the CEO as payment to be applied against the balance of a loan (See
      Footnote 3 - Related Party Transactions). The agreed-to price per share of
      the
      issued common stock was $0.33 per share or $231,000, based on the market price
      of the stock on December 5, 2005. The balance of the related party loan was
      reduced by this $231,000 during the 4th Quarter.




**Extension
      and Amendment of Convertible Note Agreements**




On
      December 15, 2005, the Company entered into agreements with the convertible
      note
      holders to extend the maturity date and amend the conversion and repayment
      provisions. The maturity date of the notes were originally December 15, 2005,
      and were extended to June 30, 2006.




Additionally,
      the terms of conversion were amended to provide that the principal and interest
      will be converted at the rate of $0.40 per share or 15% below the average
      closing price of the Company’s common stock for the previous 20 trading days.
      Previously the conversion was to take place at the lower of $0.70 per share
      or
      15% below the average closing price of the Company’s common stock for the
      previous 20 trading days. (See Note 10 - Convertible Debentures).




-17-


**Automated
      Interiors Acquisition**




On
      January 11, 2006, the Company acquired all of the outstanding shares of
      Automated Interiors, (a private Georgia corporation) [“Interiors”] in exchange
      for 411,955 shares of the Company’s common stock. The transaction will be
      accounted for as a purchase of the net assets of Interiors, creating a
      wholly-owned subsidiary, the operations of which will be included in
      consolidated financial statements of the Company commencing in the 1 st Quarter
      of 2006. Non-qualifying stock options were offered to five executives of
      Interiors to purchase 1,200,000 shares of common stock o the Company. The value
      of the transaction, based on an agreed value of $0.25 for each common share
      of
      the Company in exchange for the net assets of Interiors as of the date of the
      transaction and cash flows, is $102,989.







-18-


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





**Forward-Looking
      Statements**





Statements
      in this Quarterly Report are certain statements which are not historical or
      current fact and constitute "forward-looking statements" within the meaning
      of
      such term in Section 27A of the Securities Act of 1933 and Section 21E of the
      Securities Exchange Act of 1934. Such forward-looking statements may involve
      known and unknown risks, uncertainties and other factors that could cause the
      actual financial or operating results of the Company to be materially different
      from the historical results or from any future results expressed or implied
      by
      such forward-looking statement. Such forward-looking statements are based on
      our
      best estimates of future results, performance or achievements, based on current
      conditions and the most recent results of the Company. In addition to statements
      which explicitly describe such risks and uncertainties, readers are urged to
      consider statements labeled with the terms "may," "will," "potential,"
      "opportunity," "believes," "belief," "expects," "intends," "estimates,"
      "anticipates" or "plans" to be uncertain and forward-looking. The
      forward-looking statements contained herein are also subject generally to other
      risks and uncertainties that are described from time to time in the Company's
      reports and registration statements filed with the Securities and Exchange
      Commission. Consequently, all of the forward-looking statements made in this
      Quarterly Report are qualified by these cautionary statements and there can
      be
      no assurance that the actual results anticipated by the Company will be realized
      or, even if substantially realized, that they will have the expected
      consequences to or effects on the Company or its business or
      operations.





**General**





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





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





-19-


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 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.





To
      better
      understand the effects of this digital landscape, evidenced by cable industry
      consolidation, cross industry completion and technical standards, we have
      examined the underlying drivers, both from a market and technology viewpoint.
      Changes in government regulation and the consumer demand for choice are driving
      the new environment.





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 an established and respected facilities-based media
      and entertainment distribution service and network provider.





The
      network provides WinSonic Digital Cable's customers 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 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 exspertise for building out digital
      television networks that accommodate, high definition television, streaming
      video and real time interactive networks.





WinSonic
      Digital's objective is to maximize product performance while reducing cost
      through technology innovation. For a more detailed explanation of Winsonic
      Digital's capabilities we invite you to visit the WinSonic website at:
      www.winsonic.net.





In
      late
      September of 2005 the Company entered into an agreement with the Native American
      Television Network (“NATVN”), based in Albuquerque, New Mexico. NTAVN 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 a regularly scheduled programming that offers air space to
      advertisers with the exception of paid programming or long form advertisements.
      A more detailed description of the agreement with NATVN can be found in Note
      6
      of the financial statements.





-20-


In
      January of 2006 we acquired Automated Interiors, LLC, (“AI”), AI is an
      integrated, converged solutions provider for cities, communities and facilities.
      AI designs and/or installs electronic systems, home theaters, closed circuit
      television, structured wiring, lighting controls, music and video distribution,
      phone systems, and security automation systems. For a more detailed description
      of the acquisition of Automated Interiors please see Note 14 of the financial
      statements.





**Material
      Changes in Results of Operations**




As
      a
“development stage company” we have not commenced commercial operations and have
      had no revenue during the quarters ended September 30, 2005 and 2004, and only
      $25,000 during the nine month period ende September 30, 2004. Prior to 2004,
      the
      Company has recorded $32,811 of revenue.





For
      the
      three months ended September 30, 2005, we incurred an operating loss of
      approximately $558,000 compared to an operating loss of approximately $599,000
      in the comparable period of 2004. Total operating expenses were approximately
      $518,000 for the three-month period, primarily representing selling, general
      and
      administrative expenses of approximately $432,000 and depreciation expense
      of
      approximately of approximately $86,000, compared to total operating expenses
      of
      in the comparable period last year of approximately $588,000 consisting
      primarily of selling, general, and administrative expenses of approximately
      $502,000 and depreciation expense of approximately $86,000. For the nine month
      period, year to date, the company incurred a loss from operations of
      approximately $1,930,000 compared to a loss of approximately $1,226,000 in
      the
      comparable period of 2004. Total operating expenses for the nine month period
      ending September 30, 2005 were approximately $1,656,000 consisting primarily
      of
      selling, general, and administrative of approximately $1,399,000 and
      depreciation of approximately $257,000 compared to total operating expenses
      of
      approximately $995,000 consisting primarily of selling, general, and
      administrative of approximately $738,000 and depreciation of approximately
      $257,000 in the comparable period of 2004.





For
      the
      three months ended September 30, 2005, the company incurred interest expense
      of
      approximately $323,000 compared to an interest expense of approximately $15,000
      in the comparable period of 2004. For the nine month period ending September
      30,
      2005 the company incurred an interest expense of approximately $917,000 compared
      to an interest expense of approximately $46,000 in the comparable period of
      2004. The increase in interest expense during the three months ended September
      30, 2005 is $308,000. The increase is primarily due to the accretion of $292,000
      for principal and interest related to convertible promissory notes, and $15,000
      increase in interest related to notes payable for operating equipment. For
      the
      nine months ended September 30, 2005, the increase in interest expense is
      $870,000, consisting primarily of $826,000 due to the accretion of principle
      and
      interest related to convertible promissory notes, and $30,000 due to interest
      on
      notes payable for operating equipment.





-21-


During
      December of 2004 and January of 2005 the company issued a total of approximately
      $1,015,000 in convertible debentures. The conversion feature portion of the
      Agreement included the right of the Note Holder to convert the face value of
      the
      note into the 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 2007. Please reference Note 10 of the financial
      statements titled “ *Convertible
      Debentures* ”
for
      a
      more detailed explanation. The transaction, to the extent that it is to be
      satisfied with common stock of the Company would normally be classified as
      an
      equity obligation(s). However, theoretically the company could be required
      to
      issue an indeterminate number of shares of its common stock to satisfy the
      conversion feature of the debenture. This could theoretically 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 as well. Under Generally Accepted Accounting
      Principles (“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.* ”
Due
      to
      the fact that the underlying convertible debenture and associated warrants
      were
      not present in the three month period ended September, 2004 a direct comparison
      of the present quarter with the prior year’s quarter is not possible. During the
      three month period ended December 31, 2004 the Company recorded in interest
      expense an *Unrealized
      loss on adjustment of derivative and warrant liability to fair value of
      underlying securities* of
      approximately $452,000 relating to the adjustment of these liabilities. During
      the three month period ended March 31, 2005 the Company recorded a gain of
      approximately $1,134,000 from the adjustment of the same liabilities, during
      the
      three month period ending June 30, 2005 the Company recorded an *Unrealized
      loss on adjustment of derivative and warrant liability to fair value of
      underlying securities* of
      approximately $79,000, and for the three month period ending September 30,
      2005
      the company recorded an *Unrealized
      gain on adjustment of derivative and warrant liability to fair value of
      underlying securities* of
      approximately $157,000. For the nine month period ending September 30, 2005
      the
      company recorded an *Unrealized
      gain on adjustment of derivative and warrant liability to fair value of
      underlying securities* of
      approximately $1,212,000.





For
      the
      three month period ending September 30, 2005 the Company recorded a net loss
      of
      approximately $724,000, compared to the three month period ended September
      30,
      2004 when the company recorded a net loss of approximately $615,000. For the
      nine month period ending September 30, 2005 the company recorded a net loss
      of
      approximately $1,634,000 compared to a net loss of approximately $1,230,000
      in
      the comparable period of 2004.





-22-


The
      management of the company expects that due to the volatile nature of the
      Company’s common stock price, these liabilities will be correspondingly volatile
      and as a result will cause the reported net income of the Company to fluctuate
      in such a manner as to make direct comparisons difficult. The management of
      the
      company feels that as long as the derivative and warrant liabilities exist
      the
      reported Operating Income will be a more accurate reference for the true
      performance of the company.





**Material
      Changes in Financial Condition**





As
      of
      September 30, 2005, we had a working capital deficit of approximately
      $7,237,000, compared to a deficit of approximately $6,092,000 as of December
      31,
      2004.





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 in their review report that there is
      substantial doubt about our ability to continue as a going concern without
      increased revenues and additional financing.





For
      the
      nine month period ending September 30, 2005 we used approximately $714,000
      in
      our operating activities, compared with approximately $240,000 being used in
      the
      comparable period of 2004.





For
      the
      nine month periods ending September 30, 2005 our investing activities used
      approximately $12,000 for the purchase of fixed assets, compared to $0 in the
      comparable period of 2004.





For
      the
      nine month period ending September 30, 2005 our financing activities generated
      approximately $292,000 compared to approximately $241,000 being generated in
      the
      comparable period last year. The $292,000 financing activity in 2005 consists
      primarily of proceeds from convertible debentures of $388,000, partially offset
      by a payment of related party loan payable of $160,000.





For
      the
      nine month period ending September 30, 2005 the company’s net cash position
      decreased by approximately $434,000 compared to no net change in the comparable
      period of 2004.





**Continuing
      Operations**




Our
      priorities for the next twelve months of operations are to continue to develop
      and subsequently market our products and services to establish our business
      in
      the compression technology software industry. We are focused on our
      organizational activities, raising capital and establishing a business presence
      with vendors, business owners and referral sources. As we generate revenue
      from
      our activities, we may elect to hire salaried or hourly employees to operate
      certain aspects of our business.





-23-


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. Additionally, intensified competition could force us out of business.
      We require additional capital, which we intend to raise through one or more
      public or private offerings of equity and/or debt. There are no preliminary
      loan
      agreements or understandings between us, our officers, director affiliates
      or
      lending institutions. We have no arrangements or commitments for accounts and
      accounts receivable financing. We cannot guarantee any such financing can be
      obtained or, if obtained, that it will be on adequate or reasonable
      terms.





**Item
      3. Controls and Procedures.**





Our
      management, with the participation of our Chief Executive Officer (our principal
      executive and financial officer), evaluated the effectiveness of our disclosure
      controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
      the
      Securities Exchange Act of 1934), as of December 31, 2004. Rule 13a-15 (e)
      under
      the Securities Exchange Act of 1934, requires that disclosure controls and
      procedures are disclosed by an issuer in the reports that it files or submits.
      The Act requires information to be accumulated and communicated to the issuer’s
      management as appropriate to allow timely decisions regarding required
      disclosure.





The
      following are the results of the procedures adhered to regarding Winsonic
      Digital Media Group, Ltd. (a development stage company), yielding the following
      adjustments and disclosures made to the prior year ended December 31,
      2003.




A.
            The
                Company undertook an organizational restructure with the merger of
                Winsonic Holdings, Ltd. and Winsonic Digital Cable Systems Network
                with
                Media and Entertainiment.com, Inc., thus creating Winsonic Digital
                Media
                Group, Ltd. The circumstances and transactions of the merger on October
                7,
                2004 were thoroughly reviewed. The merger was considered a capital
                transaction in substance, rather than a business combination, resulting
                in
                a reverse acquisition for accounting purposes, thereby yielding no
                recording of goodwill, and called for the proper recording of issuance
                of
                6,004,200 common stock shares to the founder and CEO. Also, as mentioned
                in Note 1 - Organization and Purpose (on page F-7), the Company considered
                SAB Topic 4C in disclosing that stockholders deficit and loss per
                share
                were retroactively recast using historical data from Winsonic. The
                entry
                to record par value of $6,004 was a credit to common stock and debit
                to
                related party-selling, general and administrative expenses as of
                September
                10, 2002 (inception).


B.
            Equity
                transactions, including warrants, paid-in capital, and common stock
                transactions of the Company were reviewed in detail to ensure proper
                recording of stockholders deficit. During our review of warrants,
                paid-in
                capital, and common stock transactions, it was noted that the Company
                in
                2003 year had incorrectly capitalized stock issued for services,
                rather
                than expensing the cost of the services. The Company has now recorded
                and
                disclosed $275,000 as consulting expense in 2003, and reduced the
                asset by
                the same amount.





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Management,
      in agreement with the Company’s new independent public accounting firm, De Joya
& Company decided that given the complexity of the organization’s
      restructure, and the fact that the Company is a development stage company,
      it
      was appropriate due diligence to review all balance sheet accounts in detail.
      Management’s due diligence in it’s review procedures and disclosure practices
      contributed to the detection of one prior year adjustment, and one entry for
      recastment of shares and restatement of the financial statements for and as
      of
      the year ended December 31, 2003 and December 31, 2004.





Each
      prior period adjustment and related disclosure was appropriately confirmed
      as
      correct via a review with the previous auditors, Chavez and Koch, as evidenced
      in their opinion in the Report of Independent Public Registered Accounting
      Firm,
      dated August 16, 2005, filed with the Company’s Form 10KSB/A.








**Part
      II - Other Information**





**Item
      1. Legal Proceedings.**





Other
      than as described below, the Company is not currently involved in any legal
      proceedings that may be deemed to be material to our financial condition.





Callozo
      vs. Media and Entertainment.com





On
      March
      22, 2004, the Company (in all cases cited herein 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, punitive and exemplary damages. The
      Company had purchased the assets of Nexcode of which Collazo was a founder,
      and
      Collazo received 400,000 shares of the Company’s Common Stock (the “Shares”) in
      consideration of the sale. While still employed by the Company, Collazo
      allegedly formed a competing company, stole proprietary property of the Company
      and solicited Company clients on behalf of the competitor. The Company seeks
      a
      constructive trust, injunctive relief and the return of the Shares.





Prior
      thereto, 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
      Collazo to sell 30,000 shares of Common Stock and issuing 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.





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In
      the
      above-described pending litigation brought by the Company against Collazo,
      in
      July 2004, the defendant denied the allegations, asserted 21 affirmative
      defenses and brought a cross-complaint against the Company. Mr. Collazo alleges
      that the Company breached the agreement with Collazo because he had not been
      paid compensation due him, he had not received a percentage of gross profit
      earnings, and that the Company had not exercised a good faith effort to raise
      an
      additional $250,000 in capital, and that Collazo 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
      well as attorney fees of $120,000. The Company also agreed to issue 900,000
      shares of common stock to Mr. Nana Yalley, 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 the value of
      900,000 shares of common stock as well as $120,000 of attorney fees was charged
      as current year expenses as of December 31, 2004. The settlement was not
      accomplished by June 10, 2005, whereby Mr. Collazo may exercise at his option
      the right to enforce the settlement agreement for payment of attorney fees
      or
      convert the obligation of payment for attorney fees to a demand for issuance
      of
      200,000 shares of stock in the Company.





On
      March
      16, 2006, the 900,000 shares due to Mr. Collazo have been issued by the Company
      to Mr. Collazo in settlement. As of March 23, 2006, neither the 900,000 shares
      of common stock for Yalley, nor the $120,000 or 200,000 shares for attorney’s
      fees have been issued and paid, respectively. The agreement had no effect on
      the
      operating results for the 1 st, 2 nd or
      3 rd Quarters
      of 2005 or 2004; and an estimated liability of $1,020,000 for legal settlements
      was recorded as of September 30, 2005 and December 31, 2004.





Yellowbrix,
      Inc. vs. Media and Entertainment.com:





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 is expensed in general
      and administrative expense in the 4 th Quarter
      of 2004 and accrued within accounts payable of the Company as of December 31,
      2004. The amount is included in Accounts Payable as of September 30, 2005 and
      December 31, 2004.




Berman,
      Romeri and Associates, LLP vs. Media and Entertainment.com:





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This
      pending collection lawsuit arises from alleged contract and services obligating
      the Company, which was allegedly authorized by the former CEO of Media and
      Entertainment.com. The disputed amount of $8,733 is expensed in general and
      administrative expense in December of 2004 and included in the 4 th Quarter
      operations. The liability included in accounts payable of the Company as of
      September 30, 2005 and December 31, 2004.





On
      March
      9, 2006, Berman, Romeri and Associates, LLP and the Company entered into a
      written stipulation for Judgement, whereby the Company shall pay a settlement
      amount of $6,500 to Berman, Romeri and Associates, LLP by April 10,
      2006.





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





On
      June
      22, 2005 we issued 66,667 shares of our common stock valued at $0.68 per share
      in exchange for services provided to the company.





On
      September 29, 2005 the Company issued 1,670,000 shares of common stock valued
      at
      approximately $1.20 per share, or $2 million. In return, Native American
      Television Network (NATVN) issued to the Company 4 million shares of its common
      stock valued at $.50 per share, or $2 million.







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





The
      company is not currently in default on any of its Senior Debt
      Agreements.




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


-27-





There
      were not any matters submitted to a vote of the shareholders.





**Item
      5. Other Information.**





**Subsequent
      Events:**





On
      January 11, 2006, the Company acquired all of the
      outstanding shares of Automated Interiors, (a private Georgia corporation)
      [“Interiors”] in exchange for 411,955 shares of the Company’s common stock. The
      transaction will be accounted for as a purchase of the net assets of Interiors,
      creating a wholly-owned subsidiary, the operations of which will be included
      in
      consolidated financial statements of the Company commencing in the 1 st Quarter
      of 2006. Non-qualifying stock options were offered to five executives of
      Interiors to purchase 1,200,000 shares of common stock o the Company. The value
      of the transaction, based on an agreed value of $0.25 for each common share
      of
      the Company in exchange for the net assets of Interiors as of the date of the
      transaction and cash flows, is $102,989.




**Item
      6. Exhibits and Reports on Form 8-K.**





None





**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)March
              28, 2006
            By:
            /s/ Winston
              JohnsonWinston
                Johnson
              CEO
                ChairmanMarch 28, 2006
            By:
            /s/ Eric YoungEric
              Young, CFO







-28-


**WINSONIC
      DIGITAL MEDIA GROUP,
      LTD**


**Quarterly
      Report on Form 10-QSB**


**Quarter
      Ended September 30, 2005**





**EXHIBIT
      INDEX**





Exhibit


Number Description





31.1 Certification
      pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section
      302
      of the Sarbanes-Oxley Act of 2002.





31.2 Certification
      pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section
      302
      of the Sarbanes-Oxley Act of 2002.




32.1 Certification
      pursuant to 18 U.S.C.  1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.





32.2 Certification
      pursuant to 18 U.S.C.  1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.








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