UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-QSB**





(Mark
      One) ****




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




for
      the quarter ended June 30, 2007




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




for
      the transition period from ______________ to
      ____________




Commission
      file number 000-32231







**WINSONIC
      DIGITAL MEDIA GROUP, LTD.**


(Name
      of
      small business issuer in its charter)





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





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





Issuer’s
      telephone number (404) 230-5705





(not
      applicable)


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





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for past 90 days. Yes x No  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No x





The
      issuer had 55,497,397 shares of common stock outstanding as of August 1,
      2007.







**Quarterly
      Report on Form 10-QSB**


**Quarter
      Ended June 30, 2007**





**Table
      of Contents**




PagePART
                I  FINANCIAL
                INFORMATIONItem
                1. Consolidated Financial Statements:Consolidated
                balance sheets, June 30, 2007 (Unaudited) and December 31,
                2006
            
            
            F-1Consolidated
                statements of operations, for the three-months and six months ended
                June
                30, 2007 and 2006 and from inception (September 10, 2002) to June
                30, 2007
                (Unaudited)
            
            
            F-2Consolidated
                statements of cash flows, for the six months ended June 30, 2007
                and 2006
                and from inception (September 10, 2002) to June 30, 2007
                (Unaudited)
            
            
            F-3Statement
                of stockholders’
                deficit
                (Unaudited)
            
            
            F-4Notes
                to the Financial Statements (Unaudited)
            
            
            F-10Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            
            
            3Item
                3. Controls and Procedures
            
            
            9PART
                II  OTHER
                INFORMATIONItem
                1. Legal Proceedings
            
            
            10Item
                2. Unregistered Sales of Equity Securities and Use of Proceeds
            
            
            10Item
                3. Defaults Upon Senior Securities
            
            
            10Item
                4. Submission of Matters to a Vote of Security Holders
            
            
            11Item 5.
              Other
              Information
            
            
            11Item
                6. Exhibits
            
            
            11SIGNATURES
            
            
            12EXHIBIT
                INDEX


2


**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements.**





WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONSOLIDATED
      BALANCE SHEETS**


AS
      OF
      JUNE 30, 2007 (UNAUDITED) & DECEMBER 31, 2006 (AUDITED)


**Unaudited**
                **6/30/2007**
              
              **Audited**
                **12/31/2006****ASSETS**ASSETS:Cash
              
              $
              8,315
              
              $
              3,506Accounts
                  receivable
              
              
              422,105
              
              
              464,612Prepaid
                  expense
              
              
              64,584
              
              
              67,667Inventory
              
              
              6,119
              
              
              5,387Construction
                  in process
              
              
              267,562
              
              
              254,640**Total
                  current assets**
              
              
              **768,685**
              
              
              **795,812**Fixed
                  assets, net of accumulated depreciation of $855,570 and $784,318,
                  respectively
              
              
              745,110
              
              
              783,115Goodwill
              
              
              984,291
              
              
              984,291Other
                  assets
              
              
              68,104
              
              
              25,000**TOTAL
                  ASSETS**
              
              **$**
              **2,566,190**
              
              **$**
              **2,588,218****LIABILITIES
                  AND STOCKHOLDERS' DEFICIT**LIABILITIES:Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              3,615,434
              
              $
              2,859,371Bank
                  overdraft
              
              
              62,023
              
              
              -Billings
                  on construction in process
              
              
              370,491
              
              
              489,261Accrued
                  payroll and related taxes
              
              
              3,837,170
              
              
              2,138,152Legal
                  settlement liabilities
              
              
              777,000
              
              
              775,000Loans
                  payable
              
              
              392,146
              
              
              347,743Loans
                  payable -related party
              
              
              660,442
              
              
              414,555Derivative
                  liability related to convertible debentures
              
              
              241,789
              
              
              339,450Warrant
                  liability related to convertible debentures
              
              
              164,198
              
              
              300,420Convertible
                  debentures
              
              
              264,029
              
              
              257,469Share
                  notes, net of debt discount totaling $463,882 and $794,784,
                  respectively
              
              
              1,005,309
              
              
              507,524Current
                  portion of long term liabilities
              
              
              90,763
              
              
              90,197**Total
                  current liabilities**
              
              
              **11,480,794**
              
              
              **8,519,142****Long
                  term debt**
              
              
              **38,888**
              
              
              **44,822****TOTAL
                  LIABILITIES**
              
              
              **11,519,682**
              
              
              **8,563,964**Stockholders'
                  deficit:Preferred
                  stock, $0.001 par value, 20,000,000 shares authorized, zero shares
                  issued
                  and outstanding at June 30, 2007 and December 31, 2006.
              
              
              -
              
              
              -Common
                  stock, $0.001 par value, 200,000,000 shares authorized, 49,778,057
                  and
                  49,578,057 shares issued and outstanding at June 30, 2007 and December
                  31,
                  2006.
              
              
              49,778
              
              
              49,578Additional
                  paid-in capital
              
              
              15,145,929
              
              
              13,609,264Common
                  stock payable
              
              
              3,280,514
              
              
              1,107,426Common
                  stock advance for future services
              
              
              (6,125
              )
              
              (48,175
              )Accumulated
                  deficit during development stage
              
              
              (27,423,588
              )
              
              (20,693,839
              )**Total
                  stockholders' deficit**
              
              
              (8,953,492
              )
              
              (5,975,746
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              **$**
              **2,566,190**
              
              
              **2,588,218**





*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Balance Sheets.*


F-1


WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


FOR
      THE
      THREE & SIX MONTH PERIODS ENDED JUNE 30, 2007 & 2006


AND
      FROM
      INCEPTION (September 10, 2002) TO JUNE 30, 2007 (UNAUDITED)





**For
                the three-months ended**
              **June
                30,**
            
            **For
                the six months ended**
              **June,
                30**
            
            **Inception
                (September 10, 2002) to June 30, 2007****2007**
            
            **2006**
            
            **2007**
            
            **2006**REVENUE
            
            $
            481,177
            
            $
            236,776
            
            $
            1,135,684
            
            $
            236,776
            
            $
            1,952,990COST
                OF GOODS SOLD
            
            
            433,163
            
            
            155,949
            
            
            935,455
            
            
            155,949
            
            
            2,583,354GROSS
                PROFIT
            
            
            48,014
            
            
            80,827
            
            
            200,229
            
            
            80,827
            
            
            (630,364
            **)**EXPENSES:Selling,
                general and administrative
            
            
            610,233
            
            
            497,537
            
            
            1,106,798
            
            
            713,259
            
            
            7,016,950Payroll
                expense
            
            
            1,183,865
            
            
            1,098,131
            
            
            2,413,468
            
            
            1,389,700
            
            
            4,478,564Payroll
                expense - related party
            
            
            387,235
            
            
            268,275
            
            
            1,031,229
            
            
            480,192
            
            
            4,934,387Consulting
                services - related party
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,423,297Depreciation
                and amortization expense
            
            
            35,217
            
            
            35,176
            
            
            71,252
            
            
            71,994
            
            
            1,129,549Total
                expenses
            
            
            2,216,550
            
            
            1,899,119
            
            
            4,622,747
            
            
            2,655,145
            
            
            19,982,747OPERATING
                LOSS
            
            
            (2,168,536
            )
            
            (1,818,292
            )
            
            (4,422,518
            )
            
            (2,574,318
            )
            
            (20,613,111
            )OTHER
                INCOME/(EXPENSES):Interest
                expense
            
            
            (1,000,705
            )
            
            (406,592
            )
            
            (2,396,768
            )
            
            (426,368
            )
            
            (5,535,951
            )Interest
                expense - related party
            
            
            (38,991
            )
            
            (22,087
            )
            
            (84,346
            )
            
            (39,370
            )
            
            (378,511
            )Legal
                settlement costs
            
            
            (60,000
            )
            
            (6,500
            )
            
            (60,000
            )
            
            (11,500
            )
            
            (1,278,000
            )Unrealized
                (loss) gain on adjustments of derivative and warrant liability to
                fair value of underlying securities
            
            
            (147,213
            )
            
            301,122
            
            
            233,883
            
            
            (294,703
            )
            
            261,311Interest
                income
            
            
            -
            
            
            79
            
            
            -
            
            
            290
            
            
            730Other
                income
            
            
            -
            
            
            1,061
            
            
            -
            
            
            1,061
            
            
            119,944Total
                other income/(expenses)
            
            
            (1,246,909
            )
            
            (132,917
            )
            
            (2,307,231
            )
            
            (770,590
            )
            
            (6,810,477
            )NET
                LOSS BEFORE PROVISION FOR INCOME TAXES
            
            
            (3,415,445
            )
            
            (1,951,209
            )
            
            (6,729,749
            )
            
            (3,344,908
            )
            
            (27,423,588
            )PROVISION
                FOR INCOME TAXES
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -**NET
                LOSS**
            
            $
            **(3,415,445**
            **)**
            **$**
            **(1,951,209**
            **)**
            **$**
            **(6,729,749**
            **)**
            **$**
            **(3,344,908**
            **)**
            **$**
            **(27,423,588**
            **)**Basic
                weighted average number of common shares outstanding
            
            
            49,578,057
            
            
            42,841,045
            
            
            49,618,941
            
            
            41,530,083Net
                loss per basic and diluted common share
            
            $
            (0.07
            )
            $
            (0.05
            )
            $
            (0.14
            )
            $
            (0.08
            )




*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Statements of Operations.*


F-2


WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


FOR
      THE
      SIX MONTHS ENDED JUNE 30, 2007 & 2006


AND
      FROM
      INCEPTION (September 10, 2002) TO JUNE 30, 2007 (UNAUDITED)




**For
                the six months ended**
              **June
                30,**
            
            **September
                10, 2002**
              **(Inception)
                to****2007**
            
            **2006**
            
            **June
                30, 2007****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            **$**
            (6,729,749
            )
            $
            (3,344,908
            )
            $
            (27,423,588
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
            
            
            71,252
            
            
            71,994
            
            
            1,129,549Accretion
                of principal and interest related to convertible debentures
            
            
            724,377
            
            
            465,738
            
            
            2,642,312Unrealized
                gain on adjustment of derivative and warrant liability to fair value
                of
                underlying securities
            
            
            (233,883
            )
            
            294,703
            
            
            (261,311
            )Stock
                based compensation
            
            
            1,085,070
            
            
            773,667
            
            
            5,481,704Operating
                expenses paid with stock, options and warrants
            
            
            -
            
            
            -
            
            
            1,036,822Operating
                expenses paid by note payable
            
            
            -
            
            
            -
            
            
            60,000Interest
                expense paid with stock
            
            
            -
            
            
            -
            
            
            185,621Financing
                costs paid with stock payable
            
            
            1,673,104
            
            
            -
            
            
            1,673,104Amortization
                of common stock advances for future services
            
            
            42,050
            
            
            -
            
            
            42,050Interest
                accrued and added to notes
            
            
            60,948
            
            
            -
            
            
            240,509Forgiveness
                of accrued interest - Digital Services International, Inc.
            
            
            -
            
            
            -
            
            
            152,592Other
            
            
            22,736
            
            
            
            
            
            22,736Change
                in operating assets and liabilities:Decrease
                (increase) in accounts receivable
            
            
            42,507
            
            
            (102,710
            )
            
            (231,322
            )Decrease
                (increase) in prepaid expenses
            
            
            3,083
            
            
            18,796
            
            
            (62,264
            )Increase
                in inventory
            
            
            (732
            )
            
            -
            
            
            (732
            )Increase
                in construction in process
            
            
            (12,922
            )
            
            (124,883
            )
            
            (237,598
            )Increase
                in other assets
            
            
            (43,104
            )
            
            (27,843
            )
            
            (68,104
            )Increase
                in accounts payable and accrued expenses
            
            
            756,063
            
            
            390,838
            
            
            3,828,750(Decrease)
                increase in billings on construction in process
            
            
            (118,770
            )
            
            133,978
            
            
            228,170Increase
                in accrued payroll and related taxes
            
            
            1,699,018
            
            
            772,226
            
            
            4,889,526Increase
                in legal settlement liabilities
            
            
            60,000
            
            
            5,000
            
            
            1,285,000**Net
                cash used in operating activities**
            
            
            **(898,952**
            **)**
            ****
            **(673,404**
            **)**
            ****
            **(5,386,474**
            **)****CASH
                FLOWS FROM INVESTING ACTIVITIES:**Cash
                acquired through business acquisitions
            
            
            -
            
            
            20,511
            
            
            16,670Purchase
                of fixed assets
            
            
            (33,247
            )
            
            (180,693
            )
            
            (1,481,711
            )**Net
                cash used in investing activities**
            
            
            **(33,247**
            **)**
            ****
            **(160,182**
            **)**
            ****
            **(1,465,041**
            **)****CASH
                FLOWS FROM FINANCING ACTIVITIES:**Increase
                (decrease) in bank overdraft
            
            
            62,023
            
            
            14,511
            
            
            62,023Proceeds
                from loans payable
            
            
            40,000
            
            
            20,081
            
            
            475,251Payment
                on loans payable
            
            
            -
            
            
            -
            
            
            (23,335
            )Proceeds
                from loan payable - related party
            
            
            320,013
            
            
            27,794
            
            
            1,258,724Payment
                on note payable - related party
            
            
            (10,000
            )
            
            (43,000
            )
            
            (287,970
            )Payment
                on note payable
            
            
            (9,680
            )
            
            -
            
            
            (9,680
            )Proceeds
                from share notes
            
            
            553,000
            
            
            -
            
            
            2,199,815Payment
                on share notes
            
            
            (18,348
            )
            
            
            
            
            (18,348
            )Proceeds
                from convertible debentures
            
            
            -
            
            
            814,200
            
            
            1,203,250Proceeds
                from common stock issued
            
            
            -
            
            
            -
            
            
            2,000,100**Net
                cash provided by financing activities**
            
            
            **937,008**
            
            
            **833,586**
            
            
            **6,859,830****NET
                (DECREASE) INCREASE IN CASH**
            
            
            **4,809**
            
            
            **-**
            
            
            **8,315********CASH,
                BEGINNING OF PERIOD**
            
            
            **3,506**
            
            
            **-**
            
            
            **-********CASH,
                END OF PERIOD**
            
            **$**
            **8,315**
            
            **$**
            **-**
            
            **$**
            **8,315****SUPPLEMENTARY
                INFORMATION:**Interest
                paid
            
            $
            8,335
            
            $
            47,695
            
            $
            51,436Income
                taxes paid
            
            $
            -
            
            $
            -
            
            $
            -**NON-CASH
                ACTIVITIES:**Issuance
                of common stock for common stock payable
            
            $
            -
            
            $
            -
            
            $
            820,000Forgiveness
                of salary payable to officer
            
            $
            -
            
            $
            -
            
            $
            702,644Forgiveness
                of payroll tax for officer
            
            $
            -
            
            $
            -
            
            $
            20,655Issuance
                of common stock as deposit on lease obligation
            
            $
            -
            
            $
            -
            
            $
            250,000Issuance
                of common stock and stock payable as payment for subsidiaries acquired
            
            $
            -
            
            $
            168,902
            
            $
            939,528Issuance
                of common stock as payment on notes payable - related party
            
            $
            -
            
            $
            -
            
            $
            311,000Conversion
                of notes payable - related party to common stock payable
            
            $
            79,985
            
            $
            -
            
            $
            79,985Conversion
                of share notes to common stock payable
            
            $
            419,999
            
            $
            -
            
            $
            419,999Issuance
                of common stock and warrants for salary payable
            
            $
            -
            
            $
            -
            
            $
            515,679Issuance
                of common stock upon conversion of debentures
            
            $
            -
            
            $
            105,287
            
            $
            1,641,184Adjustment
                to paid in capital for accumulated depreciation
            
            $
            -
            
            $
            -
            
            $
            281,481Issuance
                of common stock for legal settlement
            
            $
            58,000
            
            $
            450,000
            
            $
            508,000




*The
      accompanying notes to financial statements should be*


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


F-3


WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**STATEMENT
      OF STOCKHOLDERS' DEFICIT**


(UNAUDITED)




CommonStock
              
              
              AccumulatedAdvance
              
              
              DeficitAdditional
              
              
              Common
              
              
              for
              
              
              During
              
              
              TotalPreferred
                    Stock
              
              Common
                    Stock
              
              
              Paid-in
              
              
              Stock
              
              
              Future
              
              
              Development
              
              
              Stockholders'Shares
              
              Amount
              
              
              Shares
              
              Amount
              
              
              Capital
              
              
              Payable
              
              
              Services
              
              
              Stage
              
              
              Deficit**Balance,
                  September 10, 2002 (Inception) - No Par Stock**
              
              
              **10,000,000**
              
              **$**
              **-**
              
              
              **10,000,000**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**Reverse
                  Merger - Reacquisition of all outstanding shares of Winsonic Acquisition
                  Sub, Inc. - No Par Stock (Recasted to inception)
              
              
              (10,000,000
              )
              
              -
              
              
              (10,000,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of common stock to founder for services
              
              
              -
              
              
              -
              
              
              6,004,200
              
              
              6,004
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,004**Balance,
                  September 10, 2002 (Recasted)**
              
              
              **-**
              
              **$**
              **-**
              
              
              **6,004,200**
              
              **$**
              **6,004**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **6,004**Issuance
                  of stock warrants (December 26, 2002)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              990,600
              
              
              -
              
              
              -
              
              
              990,600Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (647,417
              )
              
              (647,417
              )**Balance,
                  December 31, 2002 (Restated)**
              
              
              **-**
              
              **$**
              **-**
              
              
              **6,004,200**
              
              **$**
              **6,004**
              
              **$**
              **-**
              
              **$**
              **990,600**
              
              **$**
              **-**
              
              **$**
              **(647,417**
              **)**
              **$**
              **349,187**Issuance
                  of stock warrants
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,009,500
              
              
              -
              
              
              -
              
              
              1,009,500Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,905,884
              )
              
              (1,905,884
              )**Balance,
                  December 31, 2003 (Restated)**
              
              
              **-**
              
              **$**
              **-**
              
              
              **6,004,200**
              
              **$**
              **6,004**
              
              **$**
              **-**
              
              **$**
              **2,000,100**
              
              **$**
              **-**
              
              **$**
              **(2,553,301**
              **)**
              **$**
              **(547,197**
              **)**Issuance
                  of common stock for services, $0.75 average price per
                  share
              
              
              -
              
              
              -
              
              
              1,980,946
              
              
              1,981
              
              
              1,488,328
              
              
              -
              
              
              -
              
              
              -
              
              
              1,490,309
  F-4
  Issuance
                  of common stock in satisfaction of debts of $331,000 and deemed
                  interest
                  of $242,500
              
              
              -
              
              
              -
              
              
              758,000
              
              
              758
              
              
              572,742
              
              
              -
              
              
              -
              
              
              -
              
              
              573,500Issuance
                  of common stock, $1.00 price per share
              
              
              -
              
              
              -
              
              
              921,600
              
              
              922
              
              
              920,678
              
              
              (921,600
              )
              
              **-**
              
              
              -
              
              
              -Conversion
                  of common stock payable to loan payable
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              60,000
              
              
              (258,500
              )
              
              **-**
              
              
              -
              
              
              (198,500
              )Issuance
                  of common stock related to reverse-merger
              
              
              -
              
              
              -
              
              
              23,956,138
              
              
              23,956
              
              
              (123,487
              )
              
              -
              
              
              -
              
              
              -
              
              
              (99,531
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,790,794
              )
              
              (5,790,794
              )**Balance,
                  December 31, 2004 (Restated)**
              
              
              **-**
              
              **$**
              **-**
              
              
              **33,620,884**
              
              **$**
              **33,621**
              
              **$**
              **2,918,261**
              
              **$**
              **820,000**
              
              **$**
              **-**
              
              **$**
              **(8,344,095**
              **)**
              **$**
              **(4,572,213**
              **)**Issuance
                  of common stock for services, $1.30 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              94,615
              
              
              95
              
              
              122,905
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              123,000Issuance
                  of common stock for services, $0.82 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              91,463
              
              
              91
              
              
              74,909
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              75,000Issuance
                  of common stock for services, $0.68 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              66,667
              
              
              67
              
              
              45,267
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              45,334Issuance
                  of common stock for equity investment in NATVN
              
              
              **-**
              
              
              **-**
              
              
              1,670,000
              
              
              1,670
              
              
              (1,670
              )
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              -Issuance
                  of common stock to founder to relieve related party note payable
                  due him,
                  at $0.33 average price per share
              
              
              **-**
              
              
              **-**
              
              
              700,000
              
              
              700
              
              
              230,300
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              231,000Issuance
                  of common stock to founder for services, $0.33 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              500,000
              
              
              500
              
              
              164,500
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              165,000Issuance
                  of common stock for services, $0.70 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              900,000
              
              
              900
              
              
              629,100
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              630,000
  F-5
  Issuance
                  of common stock for services, $0.48 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              225,000
              
              
              225
              
              
              107,775
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              108,000Issuance
                  of common stock in satisfaction of convertible debentures debts
                  of
                  $118,000, at $0.20 average price per share
              
              
              **-**
              
              
              -
              
              
              590,000
              
              
              590
              
              
              117,410
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              118,000Issuance
                  of common stock as lease deposit, $0.27 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              925,927
              
              
              926
              
              
              249,074
              
              
              (250,000
              )
              
              **-**
              
              
              **-**
              
              
              -Issuance
                  of common stock for common stock payable, $1.00 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              820,000
              
              
              820
              
              
              819,180
              
              
              (820,000
              )
              
              **-**
              
              
              **-**
              
              
              -Return
                  of pledged assets, reversal of accumulated depreciation, and forgiveness
                  of debt - related party
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              281,481
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              281,481Forgiveness
                  of interest expense - related party
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              152,592
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              152,592Vested
                  common stock award for officer
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              185,000
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              185,000Common
                  stock payable to officer for separation agreement, $0.33 average
                  price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              270,000
              
              
              **-**
              
              
              **-**
              
              
              270,000Record
                  forgiveness of accrued salary for officer per separation
                  agreement
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              270,000
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              270,000Record
                  adjustment for accrued payroll taxes for officer per separation
                  agreement
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              20,655
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              20,655Vested
                  stock options granted to officer for separation agreement
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              
              
              
              131,068
              
              
              -
              
              
              -
              
              
              -
              
              
              131,068
  F-6
  Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,105,613
              )
              
              (4,105,613
              )**Balance,
                  December 31, 2005**
              
              
              **-**
              
              **$**
              **-**
              
              
              **40,204,556**
              
              **$**
              **40,205**
              
              **$**
              **6,517,807**
              
              **$**
              **20,000**
              
              **$**
              **-**
              
              **$**
              **(12,449,708**
              **)**
              **$**
              **(5,871,696**
              **)**Issuance
                  of common stock in accordance with mutual general release and settlement
                  agreement at $0.50 average price per share
              
              
              **-**
              
              
              **-**
              
              
              900,000
              
              
              900
              
              
              449,100
              
              
              -
              
              
              -
              
              
              -
              
              
              450,000Issuance
                  of common stock in conversion of shareholder note payable, 0.20
                  per share
              
              
              **-**
              
              
              **-**
              
              
              3,184,899
              
              
              3,185
              
              
              633,795
              
              
              -
              
              
              -
              
              
              -
              
              
              636,980Shares
                  issued to employee upon exercise of warrant at $0.01 per share
              
              
              **-**
              
              
              **-**
              
              
              500,000
              
              
              500
              
              
              4,500
              
              
              -
              
              
              -
              
              
              -
              
              
              5,000Issuance
                  of stock in acquisition of subsidiary
              
              
              **-**
              
              
              **-**
              
              
              411,956
              
              
              412
              
              
              168,490
              
              
              -
              
              
              -
              
              
              -
              
              
              168,902Issuance
                  of stock for services to employees
              
              
              **-**
              
              
              **-**
              
              
              750,000
              
              
              750
              
              
              299,250
              
              
              -
              
              
              -
              
              
              -
              
              
              300,000Issuance
                  of common stock subject to conversion of option for services at
                  $0.39
                  average price per share
              
              
              **-**
              
              
              **-**
              
              
              82,051
              
              
              82
              
              
              31,918
              
              
              -
              
              
              -
              
              
              -
              
              
              32,000Incentive
                  stock options for employees
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              1,167,419
              
              
              -
              
              
              -
              
              
              -
              
              
              1,167,419Discount
                  allocated to warrant on convertible debt
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              1,248,688
              
              
              -
              
              
              -
              
              
              -
              
              
              1,248,688Initial
                  fair value of embedded derivative related to convertible
                  debt
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              605,479
              
              
              -
              
              
              -
              
              
              -
              
              
              605,479Fair
                  market value of options to purchase shares of common stock at $0.01
                  to
                  $0.53 per share, issued to consultants for financial consulting
                  services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              197,847
              
              
              -
              
              
              -
              
              
              -
              
              
              197,847
  F-7
  
 To
                  record forgiveness of accrued salary for officer
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              399,919
              
              
              -
              
              
              -
              
              
              -
              
              
              399,919Issuance
                  of stock to shareholder in repayment of funds loaned to Company
                  at $0.53
                  per share
              
              
              -
              
              
              -
              
              
              489,850
              
              
              490
              
              
              259,129
              
              
              -
              
              
              -
              
              
              -
              
              
              259,619To
                  record forgiveness of debt by related party
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              6,000
              
              
              -
              
              
              -
              
              
              -
              
              
              6,000Issuance
                  of shares upon exercise of convertible notes at $0.40 per
                  share
              
              
              **-**
              
              
              **-**
              
              
              2,153,010
              
              
              2,153
              
              
              859,051
              
              
              -
              
              
              -
              
              
              -
              
              
              861,204Issuance
                  of common stock subject to conversion of option for services at
                  $0.65 per
                  share
              
              
              **-**
              
              
              **-**
              
              
              89,231
              
              
              89
              
              
              57,911
              
              
              -
              
              
              -
              
              
              -
              
              
              58,000Fair
                  market value of shares issued to financial consultant for services
                  at fair
                  market value ranging from $0.01 to $0.53 per share
              
              
              **-**
              
              
              **-**
              
              
              410,000
              
              
              410
              
              
              160,940
              
              
              -
              
              
              (42,875
              )
              
              -
              
              
              118,475Shares
                  issued upon exercise of warrant by consultant at $0.01 per
                  share
              
              
              -
              
              
              -
              
              
              300,000
              
              
              300
              
              
              2,700
              
              
              -
              
              
              -
              
              
              -
              
              
              3,000Shares
                  issued as repayment of loans valued at $0.40 per share
              
              
              -
              
              
              -
              
              
              62,504
              
              
              62
              
              
              24,940
              
              
              -
              
              
              -
              
              
              -
              
              
              25,002Discount
                  of beneficial conversion feature on convertible notes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              97,475
              
              
              -
              
              
              -
              
              
              -
              
              
              97,475Forgiveness
                  of salary by related party
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              32,725
              
              
              -
              
              
              -
              
              
              -
              
              
              32,725Fair
                  market value of warrants issued to employees for services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              324,058
              
              
              -
              
              
              -
              
              
              -
              
              
              324,058Fair
                  market value of warrants issued as interest payment for cash
                  advance
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              44,163
              
              
              -
              
              
              -
              
              
              -
              
              
              44,163
  F-8
  Fair
                  market value of shares issued for consulting services at $0.40
                  per
                  share
              
              
              -
              
              
              -
              
              
              40,000
              
              
              40
              
              
              15,960
              
              
              -
              
              
              -
              
              
              -
              
              
              16,000Stock
                  to be issued in acquisition of subsidiary
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              630,626
              
              
              -
              
              
              -
              
              
              630,626Stock
                  to be issued for consulting services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              316,800
              
              
              (5,300
              )
              
              -
              
              
              311,500Stock
                  to be issued in acquisition of subsidiary
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              140,000
              
              
              -
              
              
              -
              
              
              140,000Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,244,131
              )
              
              (8,244,131
              )**Balance,
                  December 31, 2006**
              
              
              **-**
              
              **$**
              **-**
              
              
              **49,578,057**
              
              **$**
              **49,578**
              
              **$**
              **13,609,264**
              
              **$**
              **1,107,426**
              
              **$**
              **(48,175**
              **)**
              **$**
              **(20,693,839**
              **)**
              **$**
              **(5,975,746**
              **)**Incentive
                  stock options for employees
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,085,070
              
              
              -
              
              
              -
              
              
              -
              
              
              1,085,070Stock
                  payable for financing costs
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,673,104
              
              
              -
              
              
              -
              
              
              1,673,104Amortization
                  of common stock advance for future services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              42,050
              
              
              -
              
              
              42,050Issuance
                  of common stock payable in satisfaction of convertible debentures
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              -
              
              
              419,999
              
              
              -
              
              
              -
              
              
              419,999Issuance
                  of common stock payable in satisfaction of loan payable - related
                  party
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              79,985
              
              
              -
              
              
              -
              
              
              79,985Discount
                  allocated to warrant on convertible debt
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              294,814
              
              
              -
              
              
              -
              
              
              -
              
              
              294,814Initial
                  fair value of embedded derivative related to convertible
                  debt
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              80,655
              
              
              -
              
              
              -
              
              
              -
              
              
              80,655Issuance
                  of stock warrants
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              18,326
              
              
              -
              
              
              -
              
              
              -
              
              
              18,326
 Issuance
                  of common stock for legal settlement liability
              
              
              -
              
              
              -
              
              
              200,000
              
              
              200
              
              
              57,800
              
              
              -
              
              
              -
              
              
              -
              
              
              58,000Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (6,729,749
              )
              
              (6,729,749
              )**Balance,
                  June 30, 2007**
              
              
              **-**
              
              **$**
              **-**
              
              
              **49,778,057**
              
              **$**
              **49,778**
              
              **$**
              **15,145,929**
              
              **$**
              **3,280,514**
              
              **$**
              **(6,125**
              **)**
              **$**
              **(27,423,588**
              **)**
              **$**
              **(8,953,492**
              **)**


*The
      accompanying notes to the financial statements should be*


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


F-9


**WINSONIC
      DIGITAL MEDIA GROUP, LTD**




**NOTES
      TO THE UNAUDITED FINANCIAL STATEMENTS**




**NOTE
      1 - BASIS OF PRESENTATION**





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




During
        2006, the Company acquired a 49% equity interest in Winsonic Diversity, LLC
        and
        completed the acquisitions of Automated Interiors, LLC (“AI”), Tytess Design and
        Development, Inc. (“Tytess”) and DV Photo Shop, Ltd. (the “Store”). These
        actions represent a series of strategic investments in new markets and new
        services that expand the offering of the Company, while complimenting our
        existing business. Together with our existing digital distribution platform
        comprised of the Winsonic Digital Cable Systems Network, Ltd. nets, we are
        no
        able to deliver customized, bundled solutions to a wider range of customers
        that
        include custom wiring, centrally located utilities, project management,
        telephone, internet, audi/vido and digital TV.




The
      accompanying financial statements have been prepared in accordance with the
      Statement of Financial Accounting Standards (“SFAS”) No. 7 “Accounting and
      Reporting by Development Stage Enterprises.” A development stage enterprise is
      one in which planned principal operations have not commenced; or if its
      operations have commenced, there has been no significant revenues derived
      therefrom. As of June 30, 2007, the Company has not fully commenced nor has
      it
      received significant revenues from its planned principal
      operations.





The
      accompanying consolidated financial statements have been prepared by the Company
      without audit. In the opinion of management, all adjustments (which include
      normal recurring adjustments) necessary to present fairly the financial
      position, results of operations and cash flows at June 30, 2007 and for all
      periods presented have been made.





Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with generally accepted accounting principles in the
      United States of America have been condensed or omitted for purposes of filing
      interim financial statements with the Securities and Exchange Commission. It
      is
      suggested that these condensed financial statements be read in conjunction
      with
      the consolidated financial statements and notes thereto included in the
      Company’s audited financial statements for the year ended December 31, 2006 and
      the supplementary information filed in connection with the acquisition of AI,
      including audited December 31, 2005 financial statements of AI. The results
      of
      operations for the six month period ended June 30, 2007 are not necessarily
      indicative of the operating results for the full year.





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





**Principles
      of Consolidation**





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





**Cash
      and Cash Equivalents**





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





**Concentration
      of Credit Risk**





The
      Company maintains its cash and cash equivalents in bank accounts in three
      financial institutions. The Federal Deposit Insurance Corporation insures
      deposits up to $100,000 per account. As of June 30, 2007, the Company did not
      have any accounts with balances in excess of the insured balances. As of June
      30, 2007 and December 31, 2006, the Company had a balance of $8,315 and $3,506
      respectively, in its cash accounts. Currently, cash management is handled by
      Company management. Typically, the cash balances are less than $100,000 per
      account.





**Accounts
      Receivable**





Accounts
      receivable is uncollateralized customer obligations due under normal trade
      terms
      requiring payment within 30 days from the invoice date. The carrying amount
      of
      accounts receivable is reviewed for collectability. Should management determine
      that collection is unlikely, an allowance that reflects management’s best
      estimate of the amounts that will not be collected will be provided. Management
      reviews each accounts receivable balance that exceeds 30 days from the invoice
      date and, based on an assessment of creditworthiness, estimates the portion,
      if
      any, of the balance that will not be collected. At June 30, 2007 and December
      31, 2006 there was no reserve for doubtful accounts.




F-10




**Use
      of Estimates**





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





**Stock
      Based Compensation: Stock Options**





The
      Company has a stock incentive plan that provides for stock-based employee
      compensation, including the granting of stock options to certain key employees
      and other individuals. For stock options and warrants issued as compensation
      and
      reported in periods beginning after December 15, 2005, the Company applies
      SFAS
      No. 123(R), “Share-Based Payment,” which requires the recognition of
      compensation cost based upon the fair value of stock options at the grant date
      (using option pricing models), and recognizing the cost over the period during
      which the services are provided (vesting period).




During
      the six months ended June 30, 2007, the Company granted options for 3,325,000
      shares of common stock, respectively, to employees and
      recorded a related compensation expense of $552,000 for the vested portion. The
      compensation expense is based on the fair market value of the options utilizing
      the Black-Scholes option pricing model. The Company’s Employee Stock Option
      activity for the six months ended June 30, 2007 and June 30, 2006 is presented
      below:





**Six
                months ended**
              **June
                30, 2007**
            
            **Six
                months ended**
              **June
                30, 2006**Options
            
            Weighted
                Average
              Exercise
                Price
            
            Options
            
            Weighted
                Average
              Exercise
                PriceOutstanding
                - Beginning of Period
            
            
            9,309,304
            
            $
            0.78
            
            
            4,000,000
            
            $
            0.79Granted
                or committed
            
            
            3,325,000
            
            
            0.65
            
            
            1,850,000
            
            
            0.66Exercised
            
            
            -
            
            
            -
            
            
            (500,000
            )
            
            0.01Cancelled
            
            
            (587,708
            )
            
            0.61
            
            
            (1,000,000
            )
            
            1.00Outstanding
                - End of Period
            
            
            12,046,596
            
            
            0.68
            
            
            4,350,000
            
            
            0.79Exercisable
                - End of Period
            
            
            8,129,929
            
            
            0.80
            
            
            2,096,534
            
            
            0.91





**Option
      Pricing Model**





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




F-11





In
      accordance with SFAS No. 123(R) titled "Share-based Payment," which was
      revised in 2004, the Company recognized the fair value of the
      options in the statement of operations on the
      date of grant.   Fair value was determined using
      the Black-Scholes option pricing model
      based on the following assumptions: risk free interest rate of
      4.94% to 4.95%; no dividend yield; and volatility factors of the expected market
      price of the Company’s stock of 174% to 233%; and weighted average expected life
      of the options of three years (for options issued at $1.00 per share strike
      price) and one and one-half years (for options issued at $0.01 per share strike
      price).  The determined fair value recognized in the six months ended June
      30, 2007 was $1,085,070.





**Fixed
      Assets**





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





Telecommunication
                Equipment
            15
                YearsFurniture
                & Fixtures
            7 YearsComputer
                Equipment
            5 YearsTransportation
                Equipment
            5 YearsSoftware
            3 Years





**Impairment
      of Long-Lived Assets**





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





**Revenues
      and Expenses Recognition**





Revenues
      for the Company will be recognized upon rendering services to customers. Costs
      and expenses are recognized during the period in which they are
      incurred.





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





AI,
      another subsidiary of the Company, has elected to recognize revenue on a
      completed contract method, due to the short duration of its contracts. The
      completed contract **** method
      requires AI to defer revenue and expense recognition until the contract has
      been
      substantially completed.





Revenues
      for the Store are recognized upon rendering services to customers. Costs and
      expenses are recognized during the period in which they are
      incurred.





**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.




F-12





**Recently
      Issued Accounting Pronouncements**




In
      June
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement
      109* (“FIN
      48”), which prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. Under FIN 48, the benefit of a tax
      position may be recognized only if it is more likely than not that the tax
      position will be sustained, based on the technical merits of the position,
      by a
      taxing authority having full knowledge of all relevant information. FIN 48
      became effective for fiscal years after December 31, 2006. The Company has
      adopted FIN 48 beginning in 2007 and it had no material impact on the Company’s
      financial statements.




In
      February 2007, the FASB issued SFAS 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities, including
      an
      amendment of FASB Statement No. 115* (“SFAS
      159”) which permits entities to choose to measure eligible items at fair value
      at specified election dates. Unrealized gains and losses on items for which
      the
      fair value option has been elected will be reported in earnings at each
      subsequent reporting date. The following balance sheet items are within the
      scope of SFAS 159:




Recognized
      financial assets and financial liabilities unless a special exception applies




Firm
      commitments that would otherwise not be recognized at inception and that involve
      only financial instruments




Non-financial
      insurance contracts




Host
      financial instruments resulting from separation of an embedded non-financial
      derivative instrument from a non-financial hybrid instrument




SFAS
      159
      will be effective for fiscal years beginning after November 2007 with early
      adoption possible but subject to certain requirements. We do not plan early
      adoption and we do not expect a material impact on our financial statements
      from
      the eventual adoption of SFAS 159.




**Earnings
      (Loss) Per Share Calculations**





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





**NOTE
      3 - MERGERS AND ACQUISITIONS**





During
      the year ended December 31, 2006, the Company acquired three subsidiaries,
      which
      includes the purchase of Automated Interiors, LLC on April 18, 2006, Tyess
      Design and Development, Inc. on November 2, 2006 and DV Photo Shop on November
      20, 2006. The purchases were facilitated by the issuance or the promise to
      issue
      common stock of the Company, as follows:





Purchase
                Price
            
            Shares
              Issued
            
            Unissued
                Shares
            
            Other
              ConsiderationAutomated
                Interiors, LLC
            
            $
            168,902
            
            
            411,956
            
            
            -
            
            
            -Tytess
                Design and Development
            
            $
            630,626
            
            
            -
            
            
            1,146,593
            
            
            -DV
                Photo Shop
            
            $
            200,000
            
            
            -
            
            
            241,379
            
            $
            60,000
                (a
            )





(a)
            Convertible
                Note Payable issued, convertible at $0.58 per
                share.





F-13




**Automated
      Interiors:**





Effective
      as of April 18, 2006, the Company purchased the membership interests of AI
      for
      411,956 shares of restricted common stock, valued at $0.41 per share for a
      total
      price of $168,902.





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





The
      purchase price was allocated as follows:





Net
                tangible assets acquired
            
            $
            65,131Intangible
                assets acquired
            
            
            -Goodwill
            
            
            103,771Total
                purchase price
            
            $
            168,902





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




Cash
            
            $
            20,511Accounts
                receivable
            
            
            190,783Fixed
                assets
            
            
            66,532Other
                assets
            
            
            6,775Current
                liabilities
            
            
            (87,569
            )Long-term
                liabilities
            
            
            (131,901
            )Net
                tangible assets acquired
            
            $
            65,131





**Tytess
      Design and Development:**





Effective
      as of November 2, 2006, the Company purchased the ownership rights of the sole
      shareholder in Tytess for 1,146,593 shares of restricted common stock, valued
      at
      $0.55 per share, for a total purchase price of $630,626. Tytess thereby became
      a
      wholly owned subsidiary of the Company.





Tytess
      was incorporated on May 16, 2003 in the State of Georgia, and has offices and
      design facilities located in Atlanta, Georgia. The operations of Tytess,
      consisting of contracts for the building of two residential homes and one church
      facility, were transferred to the corporation from a partnership at the time
      of
      the acquisition. Tytess designs, engineers and provides project management
      services for construction projects, primarily buildings. In addition to the
      construction projects currently being designed and managed by Tytess, the
      combined operation of Tytess and Winsonic have successfully contracted with
      a
      major telephone network to design (architectural and engineering services)
      and
      manage the construction and installation of telephone infrastructure and the
      design and deployment of network services. Tytess will also provide engineering
      services to facilitate the deployment of telecommunication services being
      offered by the Company and the Company’s network. Tytess’s operations are
      centered primarily in the Southeast region of the United States. Tytess has,
      to
      date, utilized the services of independent subcontractors for staffing needs.





The
      purchase price was allocated as follows:





Net
                tangible assets (liabilities) acquired
            
            $
            (90,141
            )Intangible
                assets acquired
            
            
            -Goodwill
            
            
            720,767Total
                purchase price
            
            $
            630,626





F-14




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




Cash
            
            $
            (3,840
            )Accounts
                receivable
            
            
            -Fixed
                assets
            
            
            10,075Other
                assets
            
            
            25,510Current
                liabilities
            
            
            (121,886
            )Long-term
                liabilities
            
            
            -Net
                tangible assets (liabilities) acquired
            
            $
            (90,141
            )





**DV
      Photo Shop** **:**





On
      November 20, 2006 the Company purchased the net assets of DV Photo Shop. The
      net
      assets and operations acquired were transferred to a new Georgia corporation
      and
      the name was changed to Winsonic Digital Store, Ltd. The net assets were
      purchased for 241,379 shares of restricted common stock, valued at $0.58 per
      share and a convertible note payable of $60,000, for a total purchase price
      of
      $200,000. The note is convertible into shares of the Company’s restricted common
      stock at $0.58 per share.





The
      store
      has its only retail facilities located in Atlanta, Georgia. The operations
      of
      the store, included an urban retail store located in downtown Atlanta, which
      specialized in photography development, digital photography and the sale of
      mobile phones, accessories, and wireless communications services. The Store,
      of
      which the Company is now a one hundred percent (100%) equity owner, will offer
      the same products and services it offered before the acquisition; however,
      its
      future offerings will include music downloads, digital photo depot, on-line
      storage, video conferencing, content development, a music lab for mixing and
      mastering, and film, video and photo editing.





The
      purchase price was allocated as follows:





Net
                tangible assets acquired
            
            $
            40,247Intangible
                assets acquired
            
            
            -Goodwill
            
            
            159,753Total
                purchase price
            
            $
            200,000





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




Cash
            
            $
            5,387Accounts
                receivable
            
            
            -Fixed
                assets
            
            
            34,860Current
                liabilities
            
            
            -Long-term
                liabilities
            
            
            -Net
                tangible assets acquired
            
            $
            40,247





**Goodwill:**





Goodwill,
      which represents the excess of the purchase price over the fair value of
      tangible and identified intangible assets acquired, is not being amortized
      but
      will be reviewed annually for impairment, or more frequently if impairment
      indicators arise, in accordance with Statement of Financial Accounting Standards
      No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). In part, goodwill
      reflects the competitive advantages the Company expects to realize from the
      synergy of AI and Tytess services, the expanded product offerings through the
      Store facilities, and the Winsonic product line. As of June 30, 2007, there
      was
      no impairment cost recognized. Goodwill is not expected to be deducted for
      tax
      purposes.





The
      results of operations of AI, Tytess and the Store have been included in the
      Company’s consolidated financial statements subsequent to the date of each
      acquisition. The financial information in the table below summarizes the
      combined results of operations of the Company and AI. The operations of Tytess
      and the Store have not been included as they were immaterial to the operations
      of the Company, have an immaterial affect on the current operations of the
      consolidated group, and in the case of Tytess, was included in the operations
      of
      a private partnership. Further, the Company anticipates expanding the range
      of
      services and products to be offered by both Tytess and the Store to include
      those which are synergistic with the business plan of the Company and the value
      attributed to the acquisition price.




F-15





On
      an
      unaudited pro forma basis, the combined information for the three and six months
      ended June 30, 2007 and June 30, 2006 represents the combined operations of
      the
      Company and AI as though both of the companies had been combined as of the
      beginning of each of the periods presented:





For
                the three-months ended June 30,2007
              (unaudited)
            
            2006
              (unaudited)Total
                pro forma revenues
            
            $
            228,855
            
            $
            236,776Pro
                forma net loss
            
            
            (2,857,968
            )
            
            (1,951,209
            )Pro
                forma net loss per share - basic and diluted
            
            $
            0.05
            
            $
            0.04Reported
                net loss
            
            
            (3,415,455
            )
            $
            (1,951,209
            )




For
                the six months ended June 30,2007
              (unaudited)
            
            2006
              (unaudited)Total
                pro forma revenues
            
            $
            541,867
            
            $
            662,283Pro
                forma net loss
            
            
            (5,696,201
            )
            
            (3,268,913
            )Pro
                forma net loss per share - basic and diluted
            
            $
            0.11
            
            $
            0.07Reported
                net loss
            
            
            (6,729,749
            )
            
            (3,344,908
            )





**NOTE
      4 - STOCKHOLDERS’ EQUITY**




On
      May
      21, 2007, the Company submitted a consent solicitation statement to its
      stockholders seeking their approval of an amendment to the Company’s Articles of
      Incorporation to increase the number of shares of common stock the Company
      is
      authorized to issue from 50,000,000 to 200,000,000 and the number of shares
      of
      preferred stock the Company is authorized to issue from 5,000,000 to 20,000,000.
      The amendment to the Company’s Articles of Incorporation to increase its
      authorized share capital was unanimously approved by Board of Directors of
      the
      Company and by the holders of 56.24%, or 27,884,847 shares, of the Company’s
      common stock acting by written consent. On June 22, 2007, the Company filed
      a
      Certificate of Amendment to its Articles of Incorporation which increased the
      number of shares of common stock the Company is authorized to issue from
      50,000,000 to 200,000,000 and which increased the number of shares of preferred
      stock the Company is authorized to issue from 5,000,000 to 20,000,000. There
      was
      no change to the par value of the shares of the Company’s common or preferred
      stock, the par value of each remains $0.001 per share.




**Issuance
      of Common Stock**





During
      the six months ended June 30, 2007, the Company issued 200,000 shares of its
      Common Stock in partial settlement of a lawsuit (See “Note 6- Summary of Legal
      Procedings”). In addition, the Company has issued shares subsequent to June 30,
      2007 (See
      “Note 12 - Subsequent Events” for further details regarding this transaction).





**Convertible
      Notes and Warrants:**





Since
      inception the Company has issued convertible notes with detachable warrants
      to
      fund current operations and other transactions. The notes included interest
      of
      6% and were due on various dates or upon the occurrence of certain events
      relating to the capital structure of the Company. To date, no warrants have
      been
      exercised. During the first and second quarters of 2007, the Company raised
      an
      additional $179,500 and $373,500, respectively, of proceeds in connection with
      a
      convertible note offering. (For a more detailed discussion, see “Note 10 -
      Convertible Debentures” and “Note 12 - Subsequent Events.”)




F-16





The
      following table summarizes the Company’s detachable stock warrant activities for
      the period ending June 30, 2007:





Number
                of
              Warrants
            
            Weighted
                Average Exercise PriceBalance
                as of December 31, 2003
            
            
            -
            
            
            -Warrants
                issued
            
            
            1,164,286
            
            
            0.70Warrants
                cancelled/expired
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2004
            
            
            1,164,286
            
            
            0.70Warrants
                issued
            
            
            285,714
            
            
            0.70Warrants
                cancelled due to extension agreement
            
            
            (1,450,000
            )
            
            0.70Warrants
                replaced due to extension agreement
            
            
            2,537,500
            
            
            0.40Warrants
                issued
            
            
            941,250
            
            
            0.20Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2005
            
            
            3,478,750
            
            
            0.35Warrants
                issued
            
            
            8,603,510
            
            
            0.21Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2006
            
            
            12,082,260
            
            
            0.25Warrants
                issued
            
            
            2,052,500
            
            
            0.28Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of June 30, 2007
            
            
            14,134,760
            
            
            0.25





The
      Company has issued certain warrants related to consulting agreements. The
      following table summarizes the Company’s warrant activities related to
      consulting agreements for the period ending June 30, 2007:





Number
                of
              Warrants
            
            Weighted
                Average Exercise PriceBalance
                as of December 31, 2004
            
            
            -
            
            
            -Warrants
                issued
            
            
            600,000
            
            
            0.41Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2005
            
            
            600,000
            
            
            0.41Warrants
                issued
            
            
            702,354
            
            
            0.14Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2006
            
            
            1,302,354
            
            
            0.26Warrants
                issued
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of June 30, 2007
            
            
            1,302,354
            
            
            0.26





F-17





**NOTE
      5 - RELATED PARTY TRANSACTIONS**




**Officers’
      Compensation:**





Officers’
      compensation for services for the three month periods ended June 30, 2006 was
      $210,192. During the second quarter of 2007, the Company discontinued accrual
      of
      the agreed upon deferred compensation amounts for the officers of the Company
      and recorded a reduction of previously accrued compensation of $8,700 for
      amounts paid out in excess of compensation currently earned. For the six month
      periods ended June 30, 2007 and 2006, officers’ compensation
      was
      $183,300 and $480,192, respectively. During
      the six months ended June 30, 2007, the Company recorded the vesting of 468,667
      shares of a common stock award for officers, for the net vested value of
      $173,500. (For further information, see “Note 2 - Summary of Significant
      Accounting Policies”). The compensation expense including vesting of common
      stock was included in payroll expense - related party.





**Loans
      Payable - Related Party**





During
      2006, the Company received two non-interest bearing notes from an officer of
      the
      Company in the amounts of $78,192 and $1,793. Under the terms of the note,
      the
      officer had the right to demand repayment prior to September 29, 2007 and the
      Company had the right to repay the amounts by issuing shares of the Company’s
      restricted common stock at a per share price of $0.20. During the second quarter
      of 2007, the officer requested repayment and the Company issued 399,924 shares
      of restricted common stock in the third quarter of 2007. (See “Note 12 -
      Subsequent Events” of the Notes to the Financials for further details regarding
      this transaction.)




**Loans
      from Founder:**





**2007** :
      During
      the first quarter of 2007, the CEO of the company loaned $260,250 to the Company
      on an interest-free basis. During the second quarter of 2007, the CEO of
      the
      Company raised capital and has loaned an additional $92,263 to the Company.
      As a
      condition of the capital raised, the founder has assigned or committed to assign
      2,601,077 of his personal shares or Company shares. Any shares assigned by
      the
      founder are repayable by the Company to the founder.





**2006:** During
      2006, the CEO of the Company loaned $20,000 to the Company on an interest-free
      basis. During 2006, $15,000 was repaid leaving an unpaid obligation of $5,000
      as
      of June 30, 2007.





**2005** : On
      September 15, 2005, the Company received a loan of $80,000 from the CEO. Under
      the terms of the promissory note governing the loan, interest will be paid
      at
      the rate of 10% annually, with principal and interest payable on December 1,
      2005. Unpaid principal and interest after December 1, 2005 is subject to
      interest of five percent (5%) in excess of the rate otherwise applicable to
      the
      unpaid balance. During the fiscal year 2006, the Company issued 400,000 shares
      to repay the principal of the loan and the balance of the accrued interest
      does
      not accrue additional interest. The shares issued represented the security,
      which had been agreed to the Company at the time of the original loan. The
      balance of the accrued interest at June 30, 2007 totaled $13,074.




**2004:** As
      of
      June 30, 2007 and December 31, 2006, respectively, the Company had a loan
      payable totaling $299,386 and $316,496 to the CEO which included principal
      of
      $209,000. During the six months ended June 30 2007, the Company paid $32,500
      to
      the CEO against this loan. The Company is also obligated to issue to the CEO
      80,000 shares of common stock valued at $64,000. Under the terms of the Note,
      interest will be paid at the rate of 10% annually. Accrued interest included
      in
      the loan balances as of June 30, 2007 and December 31, 2006 was $26,386 and
      $43,496, respectively.




F-18




**Native
        American Television Network, Inc (“NATVN”)**


During
      the third quarter of 2005, the Company issued 1,670,000 shares of common stock
      to NATVN in exchange for 4,000,000 shares of NATVN common stock. The former
      president of the Company and a Company shareholder are shareholders in NATVN,
      owning 9% of the total outstanding equity in NATVN.





The
      investment in NATVN is accounted for under the “equity” method. The equity
      method of accounting is used if the investor has the ability to significantly
      influence the investee’s financial and operating policies, or if an investor is
      accounting for an investment in a corporate joint venture, but holds less than
      50% of the investee. Under the equity method, an investment is initially
      recorded at cost. Thereafter, the carrying amount of the investment is increased
      for the investor’s proportionate share of the investee’s gains, or is reduced
      for the proportionate share of the investee’s losses or for distributions
      received from the investee. As of June 30, 2007, there has been no significant
      operations commenced by NATVN.





**Winsonic
      Diversity, LLC**





On
      May
      22, 2006, Winsonic Diversity, LLC (“Winsonic Diversity”) was organized in the
      State of Georgia by Winston D. Johnson and the Company. Mr. Johnson holds a
      majority of the ownership interests and is responsible for the management of
      Winsonic Diversity, while the Company holds a minority interest. As
      of
      June 30, 2007, there has been no significant operations commenced by Winsonic
      Diversity.





**NOTE
      6 - SUMMARY OF LEGAL PROCEEDINGS**





An
      estimated liability of $777,000 and $775,000 for legal settlements was recorded
      as of June 30, 2007 and December 31, 2006, respectively. Other than as described
      below, and in Note 12 "Subsequent Events", the Company is not currently involved
      in any legal proceedings that may be deemed to be material to our financial
      condition.





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





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





On
      March
      16, 2006, the Company issued 900,000 restricted shares to Mr. Collazo in
      settlement of this matter; however, pursuant to a motion filed by Mr. Collazo,
      the Court
      ordered the Company to reissue the 900,000 shares to Mr. Collazo
      as of September 20, 2002 without the restrictions. As
      of the date of this report, the Company has not reissued the stock to Mr.
      Collazo due to the existence of an attorney’s lien on Mr. Collazo’s judgment in
      this matter.





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





This
      is a
      collection suit for $19,800. The disputed amount was expensed in general and
      administrative expense in 2004 and accrued within accounts payable of the
      Company at June
      30,
      2006 and 2007 .





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





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




F-19





On
      or
      about April 17, 2006, the Company was notified of a default judgment rendered
      against it in a collection suit in Travis County, Texas in the amount of
      $474,285 plus $90,000 in attorney fees. The entire amount of the judgment and
      attorney’s fees have been expensed as a general and administrative expense and
      accrued within accounts payable of the Company as of June 30, 2007.





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





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





The
      disputed amount of $75,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2004 and accrued within accounts payable as of
      June 30, 2007 and 2006. The parties reached a settlement in March of 2006,
      wherein, the Company agreed to pay the sum of $75,000 in three (3) installment
      payments of $25,000, commencing in June 2006, in exchange for the dismissal
      of
      the action. On August 15, 2006, Netscaler filed a declaration to set aside
      the
      dismissal and to enter judgment in the amount of $100,769 against the Company.
      As of the date of this report, no further action has been taken in this
      matter.





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





The
      disputed amount of $25,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2005 and accrued within accounts payable as of
      the
      six months ended June 30, 2007 and 2006. On
      September 15, 2006, this matter was dismissed by the court; however, Plaintiff
      has indicated that it will either file a Motion to Set Aside the Dismissal
      or
      bring a new action. As of the
      date
      of this report ,
      no
      further action has been taken in this matter.





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





This
      is
      an action for breach of a lease agreement against the Company. The disputed
      amount of $50,193 was expensed as a general and administrative expense in 2005
      and accrued within accounts payable of the Company as of June 30, 2007. The
      Company filed its Answer contesting service and a Motion to Open Default on
      April 18, 2006. As
      of the
      date
      of this report ,
      no
      other significant action has been taken in this matter.





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





This
      is
      an action for breach of contract brought by David Lefkowitz, Caesar Collazo’s
      attorney in Collazo vs. Media and Entertainment.com. Mr. Lefkowitz seeks payment
      of $125,000 in attorney fees, which he asserts he is entitled to pursuant to
      the
      Settlement Agreement of April 11, 2005 in the Collazo matter. The disputed
      amount was charged as expenses in 2004.




The
      parties entered into a settlement agreement on May 4, 2007, wherein the Company
      agreed to issue 200,000 unrestricted shares to Plaintiff and pay $160,000 in
      installments, which would be discounted upon the sale of the stock. The Company
      issued the 200,000 unrestricted shares on May 17, 2007, but did not make any
      cash payments to Mr. Lefkowitz. On June 15, 2007, Plaintiff filed a motion
      for
      leave to file an amended complaint, which was denied by the Court. Other
      than as provided herein, no other significant events have occurred in this
      matter a s
      of the
      date of this filing. (See “Note 12 - Subsequent Events” of the Notes to the
      Financials for the discussion of a related claim filed by Mr.
      Lefkowitz.)




F-20





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





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





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




In
      January of 2007, the restrictions
      were removed from Mr. Yalley’s shares. On March 19, 2007, the Court granted Mr.
      Yalley’s motion to amend his complaint to include allegations of breach of
      contract, and the amended complaint was filed on March 20, 2007.





On
      April
      6, 2007, the Company filed its response to the amended complaint, which included
      a counter-claim for fraud against Mr. Yalley. The Company’s position is that Mr.
      Yalley deliberately withheld critical information from the Company during the
      negotiations of the reverse merger with Media and Entertainment.com and
      participated in fraudulent acts immediately preceding and after the merger.
      Other than as provided herein, no other significant events have occurred in
      this
      matter a s
      of the
      date of this filing.





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





This
      is
      an action for breach of contract brought by Eric Young, a former Chief Financial
      Officer and Director of the Board of Directors of the Company. Mr. Young seeks
      damages totaling $354,784, which includes $103,934 in unpaid wages, $50,850
      in
      unpaid consulting fees and an additional $200,000 in severance payments. The
      Company filed its response to the complaint on February 12, 2007. As of the
      date
      of this filing no other significant action has been taken in this
      matter.





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





This
      is
      an action for breach of contract against the Company. The disputed amount of
      $56,527 was capitalized as computer equipment in 2006 and accrued within
      accounts payable of the Company as of June 30, 2007. The Company was served
      with
      the summons and complaint on April 4, 2007 and filed its answer and defenses
      on
      May 15, 2007. Plaintiff subsequently filed a motion to strike the Company’s
      answer and moved for summary judgment. (See “Note 12 - Subsequent Events” of the
      Notes to the Financials for further details regarding this
      lawsuit.)





**NOTE
      7 - GOING CONCERN**





These
      financial statements have been prepared in accordance with generally accepted
      accounting principles applicable to a going concern, which contemplates the
      realization of assets and the satisfaction of liabilities and commitments in
      the
      normal course of business. As of June 30, 2007, the Company has recognized
      approximately $1,953,000 of revenues, and has had accumulated losses of
      approximately $27,424,000 from operations since inception. The Company’s ability
      to continue as a going concern is contingent upon the successful completion
      of
      additional financing arrangements and its ability to achieve and maintain
      profitable operations. Management plans to raise equity capital to finance
      the
      operating and capital requirements of the Company. Amounts raised will be used
      for further development of the Company’s products, to provide financing for
      marketing and promotion, to secure additional property and equipment, and for
      other working capital purposes. While the Company is expending its best efforts
      to achieve the above plans, there is no assurance that any such activity will
      generate funds that will be available for operations. The Company’s financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.




F-21





**NOTE
      8 - PROPERTY AND EQUIPMENT.NET**





The
      major
      classifications of property and equipment consist of the following as of June
      30, 2007 and December 31, 2006:





**June
                30,**
              **2007**
            
            **December
                31,**
              **2006**Computer
                equipment
            
            
            1,119,286
            
            $
            1,114,994Infrastructure
            
            
            158,400
            
            
            158,400Software
            
            
            101,775
            
            
            89,970Furniture
                & fixtures
            
            
            87,478
            
            
            84,503Automobiles
            
            
            74,631
            
            
            74,631Equipment
                and tools
            
            
            59,110
            
            
            44,935Less:
                accumulated depreciation
            
            
            (855,570
            )
            
            (784,318
            )Net
                Fixed Assets
            
            $
            **745,110**
            
            $
            **783,115**





Depreciation
      expense for the three months and six months ended June 30, 2007 was $35,217
      and
      $71,252, respectively. For the three months and six months ended June 30, 2006,
      depreciation expense was $35,176 and $71,994, respectively. Depreciation expense
      from inception to June 30, 2007 was $1,129,549.




**NOTE
      9 - LOANS PAYABLE**




The
      Company had loans outstanding of $392,146 and $347,743 as of June 30, 2007
      and
      December 31, 2006, respectively, payable to certain individuals. Proceeds from
      these loans were used for working capital purposes. The following is a summary
      of the loans payable:





**Interest
                Rate**
            
            **Loans
                Payable**
            
            **June
                30,**
              **2007**
            
            **December
                31,**
              **2006**Unstated
            
            
            The
                Company issued eight convertible promissory notes, due October 2005,
                convertible into shares of common stock at any time prior to maturity.
                During 2006, the Company and the creditors agreed to convert three
                of the
                notes into 6% convertible debenture with an attached warrant. The
                exchanged debentures and the warrants are both exercisable at $0.40
                per
                share. ( See Note 10 - Convertible Debentures). Currently five of
                the
                original notes are still are delinquent. No interest has been accrued
                upon
                the remaining notes.
            
            $
            111,000
            
            $
            111,0006.00%
            
            
            A
                loan consisting of 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 as of
                June
                30, 2007 and December 31, 2006 is $22,936 and $19,723,
                respectively.
            
            
            130,936
            
            
            127,7236.00%
            
            
            A
                loan consisting of 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 as of
                June
                30, 2007 and December 31, 2006 is $10,210 and $9,611,
                respectively.
            
            
            50,210
            
            
            49,611Unstated
            
            
            The
                Company issued a promissory note to a financial consultant in connection
                with services rendered advising the Company on public market issues.
                The
                note is non-interest bearing, with no repayment terms or maturity
                date. No
                interest has been imputed.
            
            
            60,000
            
            
            60,0006.00%
            
            
            A
                loan consisting of principal of $40,000 with no stated interest rate
                and a
                maturity date of June 25, 2007. Interest of 6% begins accruing July
                1,
                2007.
            
            
            40,000
            
            
            -Total
                Loans Payable
            
            $
            392,146
            
            $
            347,743







F-22




Long
      Term
      Liabilities: Effective as of April 18, 2006, the Company acquired the net assets
      of AI, including long term liabilities of $131,901. The long term liabilities
      are due to an officer of AI representing cash he advanced to AI operations
      and
      the obligations for two vehicles purchased by AI. Following is a summary of
      AI’s
      long-term debt at June 30, 2007, with current maturities determined based upon
      the net reduction of debt arising from AI making the minimum agreed-to payments.





**June
                30,****2007**15.25%
                loan payable to an officer for the purchase of a vehicle; monthly
                payments
                of $575 through August 2011, secured by the vehicle
                purchased.
            
            $
            21,10119.50%
                loan payable to an officer for the purchase of a vehicle;
                monthly payments of $897 through January 3, 2011, secured by the
                vehicle purchased.
            
            
            27,600Unsecured,
                interest free loan payable to an officer for various cash advances,
                expenses paid and assets transferred to AI by the creditor; payoff
                due on
                December 4, 2007; 6% interest to be paid on any outstanding balance
                as of
                December 4, 2007.
            
            
            80,950Total
                long term debt
            
            
            129,651Less:
                Current portion of long-term debt
            
            
            (90,763
            )Net
                Long Term Debt
            
            $
            38,888




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





**Year**
            
            **Amount**2007
            
            $
            85,6402008
            
            
            10,7192009
            
            
            12,7962010
            
            
            15,2822011
            
            
            5,214Total
            
            $
            129,651





**NOTE
      10 - CONVERTIBLE DEBENTURES**





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




F-23





On
      December 15, 2005, the maturity dates of the 2004/2005 Agreements were extended
      to June 30, 2006. The conversion feature portion of the amended 2004/2005
      Agreements included the right of the note holders to convert the face value
      of
      the notes into common stock of the Company at the lower of $0.40 per share
      or
      85% of the market value of the common stock at the time of conversion.
      Additionally, the amended 2004/2005 Agreements reduced the purchase price of
      the
      warrants to $0.40 per share.





During
      the third quarter of 2006, following the expiration of the extension of the
      maturity dates of the 2004/2005 Agreements (i.e., June 30, 2006), all but three
      of the note holders agreed to convert their notes, plus accrued interest, into
      common stock of the Company at the rate of $0.40 per share. One note holder
      has
      requested that he be repaid in cash. The Company has continued to accrue
      interest on the notes through June 30, 2007 and subsequently, up to the date
      of
      conversion (or in one case, repayment), which was determined to be the date
      that
      the note holders signed their conversion agreements. The Company has, based
      upon
      the notes and the accrued interest, issued a total of approximately 2,153,011
      shares of its restricted common stock.





The
      transactions, to the extent that they are to be satisfied with common stock
      of
      the Company, would normally be included as equity obligations. However, as
      of
      June 30, 2007, due to the indeterminate number of shares which might be issued
      under the embedded host debt conversion feature of the note, the Company is
      required to record a liability relating to both the detachable warrant and
      the
      embedded convertible feature of the note (included in the current liabilities
      as
“derivative liability”). As of June 30, 2007, the contingency in share pricing
      which caused the determinate share calculation was resolved with the final
      conversion agreements for all but two of the note holders. During 2006, the
      Company transferred the derivative and warrant liabilities to paid-in capital.
      The following table summarizes the remaining embedded derivatives at June 30,
      2007 and December 31, 2006:





**June
                30,**
              **2007**
            
            **December
                31,**
              **2006**Derivative
                liability
            
            $
            241,789
            
            $
            339,450Warrant
                liability
            
            
            164,198
            
            
            300,420Convertible
                debentures
            
            
            264,029
            
            
            257,469Subtotal
            
            
            670,016
            
            
            897,339Adjustment
                of derivative and warrant liability to fair value
            
            
            261,311
            
            
            27,428Accretion
                of principal and interest related to convertible
                debentures
            
            
            83,673
            
            
            90,233Total
                Proceeds from convertible debentures
            
            
            1,015,000
            
            
            1,015,000Plus:
                Accrued interest
            
            
            110,233
            
            
            103,673Less:
                Notes and interest converted
            
            
            (861,204
            )
            
            (861,204
            )Total
                Convertible debentures
            
            
            264,029
            
            
            257,469Less:
                Current portion of convertible debentures
            
            
            (264,029
            )
            
            (257,469
            )Total
                Non-current Convertible Debentures
            
            $
            -
            
            $
            -





**2005/2006/2007
      Debentures:** During
      the third quarter of 2005 and during 2006, the Company entered into a series
      of
      agreements with accredited investors, wherein the Company borrowed $1,835,064
      and issued convertible debentures with detachable warrants to the creditors.
      The
      debentures, which include interest of 6.0%, are due in 12 months, and are
      convertible into Company stock at $0.20 per share for notes issued for cash
      and
      $0.40 per share for notes issued to the five creditors converting the
      outstanding notes. Additionally, the creditors also received a warrant, which
      is
      exercisable for a period of three years and can be exercised at $0.20 (and
      $0.40
      per share for the converted notes). During the third quarter of 2005, the
      Company issued six convertible debentures ranging in value from $15,000 to
      $53,000, individually, and with a total principal amount of $188,250. During
      the
      fourth quarter of 2005, the debentures were converted into 590,000 restricted
      shares of common stock, and $118,000 in debentures was retired.




F-24





During
      2006, the Company continued to raise funds via issuance of convertible
      debentures under the same terms as the debentures issued during 2005. During
      2006, the Company raised $1,646,815 through the issuance of 123 debentures
      ranging in value from $1,000 to $100,000. During 2006, 40 of the investors
      elected to exercise the conversion feature of the notes and converted $632,477
      in principal plus accrued interest into 3,162,385 shares of restricted common
      stock.





In
      the
      first quarter of 2007, the Company raised $179,500 through the issuance of
      14
      debentures ranging in value from $1,000 to $25,000 via issuance of convertible
      debentures under the same terms as the previous debentures issued.





During
      the second quarter of 2007, the Company continued to raise funds via issuance
      of
      convertible debentures under the same terms as the debentures issued during
      2005
      and 2006. Through June 30, 2007, the Company raised $373,500 through the
      issuance of 10 convertible debentures ranging in value from $5,000 to $250,000.
      The debentures have various due dates and provide for warrants exercisable
      into 1,117,500 shares of the Company's common stock. In addition, the
      Company and/or founder have committed to issue 900,000 shares of the Company’s
      common stock as a condition of the funds raised.





Also,
      during the second quarter of 2007, the Company converted 31 convertible
      debentures into 2,099,992 shares payable based on notices of conversion from
      their investors. The Company reclassified $419,999 in debentures and accrued
      interest to common stock payable. The Company issued the shares in the third
      quarter. (See “Note 12 - Subsequent Events” of the Notes to the Financials for
      further details regarding this transaction.) The Company also paid one
      convertible debenture, including accrued interest, in the amount of $11,348
      and
      made partial payment of another convertible debenture, including accrued
      interest, in the amount of $7,000. The Company increased its convertible
      debentures balance to $10,000 with one investor in exchange for the investor
      agreeing to extend the payment terms of their $5,000 convertible debenture
      plus
      interest of $590. The increase of $4,410 has been recorded as financing costs
      in
      the accompanying income statement. In addition, the Company issued 62,500
      warrants to one investor to extend the payment terms of their convertible
      debenture. The fair value of the warrants issued totaled $18,326 and the amount
      has been recorded as financing costs in the accompanying income
      statement.





At
      June
      30, 2007, the Company has outstanding 71 convertible debentures. The total
      includes 66 convertible debentures exchanged for cash, three convertible
      debentures exchanged for short-term loans, one convertible debenture exchanged
      for an account payable and one note issued as part of the acquisition of DV
      Photo. The combined convertible debentures represented a principal balance
      of
      $1,469,191 and a potential obligation for the Company to issue 6,134,850 shares
      of common stock.





In
      addition to the potential shares issuable under the convertible debentures,
      the
      Company has issued detachable warrants which are attached to the convertible
      debentures and provide the debenture holders with the right to subscribe to
      shares of restricted common stock at an exercise price of $0.20 (and $0.40
      for the warrants attached to the convertible debentures issued to four creditors
      and $0.50 for one creditor). The total shares available for issue under the
      terms of the warrants as of June 30, 2007 is 11,597,260 shares in exchange
      for
      investments of $2,570,702. The Warrants will expire during the period of July
      5,
      2008 through May 18, 2010.





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





**Summary
                of 2005/2006/2007 Debentures & Warrants**
            
            **Convertible
                Notes**
            
            **Warrants****Proceeds**
            
            **Shares**
            
            **Proceeds**
            
            **Shares**Proceeds
                received during third quarter of 2005
            
            $
            188,250
            
            
            941,250
            
            $
            -
            
            
            941,250Conversions
                during fourth quarter of 2005
            
            
            (118,000
            )
            
            (590,000
            )
            
            -
            
            
            -Total
                outstanding at December 31, 2005
            
            
            70,250
            
            
            351,250
            
            
            -
            
            
            941,250Proceeds
                received during 2006
            
            
            1,647,875
            
            
            8,239,374
            
            
            -
            
            
            8,239,374Accounts
                payable and loans converted to convertible notes
            
            
            176,577
            
            
            467,584
            
            
            -
            
            
            364,136Conversions
                during 2006
            
            
            (632,477
            )
            
            (3,162,385
            )
            
            -
            
            
            -Accrued
                Interest
            
            
            41,143
            
            
            212,110
            
            
            -
            
            
            -Total
                outstanding at December 31, 2006
            
            
            1,303,368
            
            
            6,107,933
            
            
            -
            
            
            9,544,760Proceeds
                received during 2007
            
            
            553,000
            
            
            1,990,000
            
            
            -
            
            
            1,990,000Increase
                for payment term extension during 2007
            
            
            4,410
            
            
            22,045
            
            
            -
            
            
            62,500Accrued
                Interest
            
            
            46,760
            
            
            206,604
            
            
            -
            
            
            -Conversions
                during second quarter 2007
            
            
            (419,999
            )
            
            (2,099,992
            )
            
            -
            
            
            -Payments
                during second quarter 2007
            
            
            (18,348
            )
            
            (91,740
            )
            
            -
            
            
            -Total
                outstanding at June 30, 2007
            
            $
            1,469,191
            
            
            6,134,850
            
            $
            -
            
            
            11,597,260





F-25




The
      Company has determined that the convertible debentures contain a beneficial
      conversion feature and qualify for treatment under Emerging Issue Task Force
      No.
      00-27. The estimated fair value of the detachable warrants of $4,702,936 has
      been determined using Black-Scholes option pricing model under the following
      assumptions: stock price volatility ranging from 131% to 211%; risk free
      interest rate of 4.5%; dividend yield of 0%; and a three year term. The face
      amount of the convertible debentures (i.e., $2,510,702) was proportionately
      allocated to the convertible debentures and the warrants in the amount of
      $968,653 and $1,542,049, respectively. The convertible debentures proportionate
      allocation factor was then further allocated between the Notes and the
      beneficial conversion feature and $781,123 was allocated to the beneficial
      conversion feature and the balance of $187,530 was allocated to notes. The
      combined total value of the warrants and the beneficial conversion feature
      amounting to $2,323,172 has been accounted for as a debt discount which is
      being
      amortized and treated as interest expense over the term of the convertible
      debentures. For the six months ended June 30, 2007, the Company amortized a
      total of $724,377. The discounts and amortization are summarized in the
      following table:





**June
                30,**
              **2007**
            
            **December
                31,**
              **2006**BCF
                discount to Paid in capital
            
            $
            (781,123
            )
            $
            (702,953
            )Warrant
                Discount to Paid in capital
            
            
            (1,542,049
            )
            
            (1,248,688
            )Proceeds
                from convertible debentures
            
            
            2,570,702
            
            
            2,011,641Subtotal
            
            
            247,530
            
            
            60,000Deduct
                value converted to common stock and common stock payable
            
            
            (1,135,950
            )
            
            (734,250
            )Deduct
                convertible debt not subject to accretion
            
            
            (247,530
            )
            
            (60,000
            )Total
                discount to accrete
            
            
            1,187,222
            
            
            1,217,391Interest
                expense on convertible debentures - Amortized
            
            
            (709,012
            )
            
            (405,660
            )Interest
                expense on convertible debentures - Accrued
            
            
            (48,767
            )
            
            (41,864
            )Convertible
                debt not subject to accretion
            
            
            (247,530
            )
            
            (60,000
            )Total
                Current Liability
            
            $
            (1,005,309
            )
            $
            (507,524
            )





F-26




**Defaults
      on Convertible Debentures**





Several
      of the Company’s convertible debentures have matured without conversion or
      repayment. As of June 30, 2007, ten convertible debenture holders agreed to
      extend the terms of their convertible debentures and three convertible
      debentures totaling $230,000 currently remain in default.





**NOTE
      11 - COMMITMENTS AND CONTINGENCIES**





**Network
      Operations and Office Lease Agreement**





***Centennial
      Tower Office Lease Agreement***





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





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





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





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





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





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





The
      term
      of the lease commenced on May 1, 2007 and expires on April 30, 2017. However,
      the landlord has agreed to provide the Company with access to the premises
      for
      the limited purpose of making improvements. An improvement allowance of $123,000
      has been provided to the Company, of which the unused portion after May 1,
      2008
      may be applied to base monthly rental at the Company’s sole option.





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





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





Additionally,
      on June 22, 2006, the Company entered into a two-year lease agreement with
      JT
      Communications, LLC for the exclusive right to use a cabinet and the
      non-exclusive right to use the office space located on JT Communications’
premises on the 5 th floor of
      55 Marietta Street in Atlanta, Georgia. The term of the lease commenced on
      July
      1, 2006 and expires on June 30, 2008; however, it is subject to automatic
      renewals for a one-year periods on the same terms and conditions, unless the
      Company notifies JT Communications that it does not want to renew. This lease
      was canceled in May of 2007.




F-27




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





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




As
      of
      June 30, 2007, approximate future commitments under the above office leases
      are
      as follows:





2007
            
            $
            285,2212008
            
            $
            658,5502009
            
            $
            688,0102010
            
            $
            700,2142011
            
            $
            712,7882012
                through 2017
            
            $
            3,453,041




**Employment
      Agreements/Employee Matters**





On
      October 8, 2004, the Company entered into a binding offer letter with Winston
      Johnson, as Chairman and CEO. Under the terms of employment, Mr. Johnson was
      to
      receive a base salary of $290,000 per annum with $7,000 per month deferred
      until
      the next funding occurs or January 1, 2005, whichever occurred first. Mr.
      Johnson is eligible for annual incentive bonuses based on performance. The
      agreement is terminable at will with or without cause (as defined
      therein).




Mr.
      Johnson’s employment agreement also provided for the grant of incentive or
      non-statutory stock options to purchase 1,000,000 shares each of common stock
      for $1.00 per share. These options primarily vest equally over a twelve-month
      period effective with date of the employment agreement.





On
      November 5, 2005, the Company entered into a binding offer letter with Eric
      Young, as Chief Operating Officer and Chief Financial Officer. Under the terms
      of his employment, Mr. Young was to receive a base salary of $200,000 per annum,
      with $5,000 per month deferred until the next funding occurs or January 1,
      2006,
      whichever occurred first. The agreement was terminable at will with or without
      cause (as defined therein). Mr. Young received non-qualified incentive stock
      options to purchase 500,000 shares of common stock at an exercise price of
      $1.00
      per share in accordance with the Company's Employee Stock Option Plan. 10%
      of
      the options vested immediately upon the signing of the employment agreement
      and
      the remaining options were to vest at the rate of 1/12th per month for 12
      months. In addition, upon his execution of the employment agreement, Mr. Young
      received additional options to purchase 750,000 shares of common stock of the
      Company at a purchase price of $0.01 per share, in which 1/3 vested upon the
      signing of the employment agreement, 1/3 vested at the closing of the next
      round
      of financing or January 1, 2006, whichever occurred earlier, and the remaining
      1/3 would vest when the Company’s Common Stock resumed trading on the OTCBB. The
      fair value of the options granted totaled $438,883. As was disclosed on the
      Company’s Form 8-K filed on August 24, 2006, Mr. Young resigned on August 1,
      2006 to pursue other opportunities. The Company is currently in litigation
      with
      Mr. Young concerning the number of options that vested upon his resignation
      and
      the expiration of the exercise period of said options.





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




F-28





Effective
      August 8, 2006, Jeffrey L. Burke succeeded Mr. Yalley as Executive Vice
      President of the Company. Mr. Burke's base salary is $270,000 per annum. As
      an
      employment incentive, Mr. Burke was granted stock options to purchase 750,000
      shares of the Company’s Common Stock at an
      exercise price of $0.01, of which 1/3 vested immediately upon the signing of
      the
      Employment Agreements, 1/3 at the closing of the next round of funding, and
      the
      remaining 1/3 when the Company’s Common Stock resumes trading on the OTCBB.
      Additionally, Mr.
      Burke
      was granted options to purchase 500,000 of the Company's Common Stock at an
      average price of $1.00 per share, of which 10% vested immediately upon signing
      the employment agreement and the remaining 90% will vest at the rate of
      1/12 th per
      month for twelve months. The fair value of the options granted totaled $481,492.





Options
      granted to officers of the Company beginning September 10, 2002 were treated
      in
      accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees
      (“APB 25”)”. Under APB 25, if the exercise price of the Company’s employee stock
      options is equal to or greater than the market price of the underlying stock
      on
      the date of the grant, no compensation expense is recognized. For stock options
      and warrants issued as compensation and reported in periods beginning after
      December 15, 2005, the Company applies SFAS No. 123(R), “Share-Based Payment,”
which requires the recognition of compensation cost based upon the fair value
      of
      stock options at the grant date (using option pricing models), and recognizing
      the cost over the period during which the services are provided (vesting
      period). (See “Note 2 - Summary of Significant Accounting Policies,” for further
      details regarding stock options issued to employees of the
      Company.)





In
      addition to the employment agreements with the officers and directors, the
      Company also signed employment agreements with 41 employees. Under the terms
      of
      the officers, director and employee agreements, the Company has committed to
      compensation expenses of approximately $4,286,585, of which $1,240,011 will
      be
      deferred until the Company has completed its next round of financing and its
      common stock is traded on the OTCBB.





On
      March
      30, 2007, the Company gave notice to its employees that the terms of their
      employment agreements would change effective immediately. The change consisted
      of ceasing all salary deferrals until such time as the Company’s common stock
      resumes trading on the OTCBB. In addition, all vacation grants for employees
      were reduced from four weeks to two weeks. Deferred salary amounts not accrued
      by March 30, 2007 were considered to be forfeited. This action taken by the
      Company is expected to result in an annualized savings of approximately
      $1,235,000. Also, on June 29, 2007, the Company terminated five employees and
      cancelled the contract of a consultant. This action taken by the Company is
      expected to result in additional savings of approximately $1,000,000 per
      year.




**NOTE
      12 - SUBSEQUENT EVENTS**





**Stock
      Issuances**





As
      of
      July 20, 2007, 33 of the 93 convertible debenture holders agreed in writing
      to
      exercise their conversion options at $0.20 per share. The total includes 2
      convertible debenture holders that had agreed to convert subsequent to June
      30,
      2007 and the 31 convertible debenture holders that agreed prior to June 30,
      2007 .
      (See
“Note 10 - Convertible Debentures” of the Notes to the Financials for further
      details regarding this transaction.) Based
      on
      these agreements, the Company converted $405,760 of principal and $18,582 of
      accrued interest in exchange for 2,121,444 shares of common stock.




F-29





During
      the second quarter of 2007, an
      officer of the Company requested repayment of two non-interest bearing notes
      in
      the amounts of $78,192 and $1,793. The notes were repaid with 399,924 restricted
      shares of the Company’s common stock at the agreed-upon rate of $0.20 per share
      in July 2007.




In
      July 2007, the Company issued 1,100,000 and
      210,000 shares of common stock previously recorded as common stock payable
      for
      shares assigned by the founder for capital raised and for consulting services,
      respectively.




In
      addition, in July 2007 the Company issued 241,379, 1,146,593 and 500,000 shares
      of common stock previously recorded as common stock payable for the acquisition
      of DV Photo Shop, Tytess and technology from James E. Thomas,
      respectively.





**Convertible
      Debentures and Financing Arrangements**





Subsequent
      to the end of the second quarter of 2007, the Company continued to raise
      funds through the issuance of convertible debentures under the same terms
      as the debentures issued during 2005 and 2006. Through August 3, 2007, the
      Company raised $100,000 through the issuance of 3 convertible debentures ranging
      in value from $25,000 to $50,000. The debentures have various due dates and
      provide for warrants exercisable into 285,713 shares of the company's
      common stock.





In
      addition, the founder of the Company has raised capital and has loaned an
      additional $76,000 to the Company. As a condition of the capital raised, the
      founder has assigned or committed to assign 487,795 of his personal shares
      or
      Company shares. Any shares assigned by the founder are repayable by the Company
      to the founder.





**Legal
      Proceedings**





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





The
      Company, subsequent to the end of the second quarter of 2007, has responded
      to the motions to strike the company's answer and for summary judgement and
      has requested oral arguments on the summary judgment motion. As of the date
      of
      this filing no other significant action has been taken in this
      matter.





**Lefkowitz
      vs. Winsonic Digital Media Group, Ltd.** (United
      States District Court of the Central District of CA - complaint filed July
      2,
      2007)





On
      July
      2, 2007, Attorney David Lefkowitz filed a complaint for fraudulent inducement
      and breach of the settlement agreement executed between the parties in the
      Lefkowitz v. Winsonic matter pending in the Superior Court of California. (See
      “Note 6 - Summary of Legal Proceedings” of the Notes to the Financials for a
      discussion of the related claim.) Mr. Lefkowitz seeks $100,000 in damages under
      the fraudulent inducement claim and $100,000 under the breach of contract claim.
      As of the date of this filing no other significant action has been taken in
      this
      matter.


F-30
 
 **Item
        2. Management’s Discussion and Analysis or Plan of
        Operation.**





**Forward-Looking
      Statements**





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




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





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




**General**





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




As
      described in more detail below, during fiscal year 2006, the Company acquired
      a
      49% equity interest in Winsonic Diversity, LLC and completed the acquisitions
      of
      Automated Interiors, LLC (“AI”), Tytess Design and Development, Inc. (“Tytess”),
      and DV Photo Shop. These actions represent a series of strategic investments
      in
      new markets and new services that expand the offerings of the Company while
      complimenting our existing business. Together with our existing digital
      distribution platform, comprised of the Winsonic Digital Cable Systems Network,
      Ltd’s network, we are now able to deliver customized, bundled solutions to a
      wider range of customers that include custom wiring, centrally-located
      utilities, facility construction, project management, telephone, internet,
      audio/video and digital TV distribution.




The
      Company was incorporated on April 27, 2000 in the state of Nevada as Media
      and
      Entertainment, Inc. On September 14, 2000, Media and Entertainment, Inc. changed
      its name to Media and Entertainment.com, Inc. On November 24, 2004, Media and
      Entertainment.com, Inc. changed its name to Winsonic Digital Media Group,
      Ltd.





The
      Company maintains a website at: ***www.winsonic******.net*** .
      The information contained on our website is not incorporated by reference in
      this interim report and should not be considered a part of this interim
      report.





**Winsonic
      Digital Cable Systems Network, Ltd.**




Winsonic
      Digital Cable Systems Network, Ltd., a wholly owned subsidiary of the Company,
      (“WDCSN”), maintains and runs the Company’s facilities-based network (the
“Network”) which has been the historic focus of the Company. The Network
      concentrates on carrier-class, high-speed, digital connectivity solutions. While
      the
      Network is a state-of-the-art digital distribution platform, it has been in
      development for many years and has been involved in projects that date back
      over
      twenty-five years. With a shift to more market-based policies, due in part
      to
      the implementation of the Telecommunications Act of 1996, a new competitive
      and
      robust marketplace with diverse participants has developed and the Company,
      through WDCSN and the Network is capable of providing access to advanced
      communications services at affordable prices to a wide customer
      base.




**Automated
      Interiors, LLC**




The
      Company acquired Automated Interiors, LLC (“AI”), a Georgia limited liability
      company effective April 18, 2006. AI is a
      systems integration company, which plans
      and
      engineers the installation of electronic components to facilitate “smart”
buildings. As a result of the acquisition, AI has the capability to help
      developers of all sizes manage the transformation in technology and migrate
      from
      their traditional voice and data services to feature-rich digital services
      and
      solutions.




**Tytess
      Design & Development, LLC**





The
      Company acquired Tytess Design and Development, Inc. (“Tytess”), a Georgia
      corporation, on November 2, 2006. Tytess provides architectural, engineering,
      construction and construction management services to residential and commercial
      customers. Specifically, this includes site analysis, pre-design, schematic
      design, bidding and negotiation services. Tytess has developed a consortium
      of
      architects, engineers, realtors, mortgage brokers and other contractors who
      provide solutions for the design and construction of commercial buildings,
      institutional facilities and residential communities. The acquisition of Tytess
      further complements the capabilities of AI and we believe additional expansion
      opportunities may be available as we continue to adapt these services to meet
      the requirements of supporting traditional telecommunications companies in
      the
      design and construction of their facilities.




3





**Winsonic
      Digital Store, Ltd.**





The
      Company acquired DV
      Photo
      Shop on November 20, 2006. Following the acquisition, the Company changed the
      name of DV Photo Shop to Winsonic Digital Store, Ltd. (the “Store”), and
      incorporated it in the State of Georgia on December 8, 2006. The Store is an
      urban retail store located at Centennial Tower, 101 Marietta Street, Atlanta,
      Georgia, and specializes in photography development, digital photography and
      the
      sale of mobile phones, accessories, and wireless communications services. The
      acquisition of the Store provides an opportunity to create new and expanded
      consumer services in areas such as wireless communications, digital downloads,
      digital content development, mobility services and Voice over internet protocol
      (VOIP).





**Winsonic
      Diversity, LLC**




Winsonic
      Diversity, LLC (“Winsonic Diversity”) was formed on May 22, 2006 in the State of
      Georgia by the Company and Mr. Winston Johnson, the Chairman and CEO of the
      Company. The Company owns 49% of the equity interests of Winsonic Diversity
      and
      Mr. Johnson owns the remaining 51% of the equity interests. Winsonic
      Diversity is focused on developing urban and rural communities by providing
      resources and services that improve quality of life. Winsonic Diversity offers
      thorough information technology analysis, creative architectural and software
      designs, and a full range of technical and professional expertise .
      As a
      certified Minority Business Enterprise, Winsonic Diversity has access to major
      enterprises that have diversity initiatives. This has resulted in several new
      opportunities with companies such as Verizon Wireless, Verizon Communications,
      Verizon Business, AT&T, and Bank of America.




**Discussion
      of Material Transactions and Developments**





**Sassy
      Development Corporation, Inc.**





On
      May
      23, 2007, the Company entered into an agreement with Sassy Development
      Corporation, Inc. (“SDC”) to provide consulting services to the Company for a
      period of ninety days, including assistance in formulating strategic and
      financial planning objectives, assistance in the development of capitalization
      plans, and financial advisement to the Company. SDC will provide the services
      in
      exchange for 100,000 shares of Winsonic’s common stock (valued at $0.50 per
      share) to be issued upon completion of the services.





**Material
      Changes in Results of Operations**





As
      a
“development stage company” the Company has not commenced material commercial
      operations. As of June 30, 2007, the Company has recorded $1,953,000 of revenue
      since inception. During the six months ended June 30, 2007, the consolidated
      operations of the Company, combined with WDCSN, AI, Tytess and Winsonic Digital
      Store (“WDS”) yielded revenue of $1,136,000.




**Three
      Months Ended June 30, 2007 Compared to the Three Months Ended June 30,
      2006**




The
      following schedules include the separate and consolidated information for the
      operations of the Company for the three months ended June 30, 2007 and 2006:




For
                the three months ended June 30, 2007WDMG
            
            
            WDCSN
            
            
            AI
            
            
            Tytess
            
            
            WDS
            
            
            CombinedRevenue
            
            $
            -
            
            $
            4,000
            
            $
            228,855
            
            $
            243,919
            
            $
            4,403
            
            $
            481,177Gross
                Profit
            
            
            -
            
            
            4,000
            
            
            20,018
            
            
            22,472
            
            
            1,524
            
            
            48,014SG
                & A expenses
            
            
            1,167,938
            
            
            491,789
            
            
            463,139
            
            
            65,968
            
            
            27,716
            
            
            2,216,550Loss
                from operations
            
            
            (1,167,938
            )
            
            (487,789
            )
            
            (443,121
            )
            
            (43,496
            )
            
            (26,192
            )
            
            (2,168,536
            )Net
                Loss
            
            $
            (2,412,639
            )
            $
            (487,789
            )
            $
            (445,329
            )
            $
            (43,496
            )
            $
            (26,192
            )
            $
            (3,415,445
            )Loss
                per share - basic and diluted
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (0.07
            )




4




For
                the three months ended June 30, 2006WDMG
            
            WDCSN
            
            AI
            
            Tytess
            
            WDS
            
            CombinedRevenue
            
            $
            -
            
            $
            -
            
            $
            236,776
            
            $
            -
            
            $
            -
            
            $
            236,776Gross
                Profit
            
            
            -
            
            
            -
            
            
            80,827
            
            
            -
            
            
            -
            
            
            80,827SG
                & A expenses
            
            
            1,504,028
            
            
            -
            
            
            395,091
            
            
            -
            
            
            -
            
            
            1,899,119Loss
                from operations
            
            
            (1,504,028
            )
            
            -
            
            
            (314,264
            )
            
            -
            
            
            -
            
            
            (1,818,292
            )Net
                Loss
            
            $
            (1,640,913
            )
            $
            -
            
            $
            (310,296
            )
            $
            -
            
            $
            -
            
            $
            (1,951,209
            )Loss
                per share - basic and diluted
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (0.05
            )







For
      the
      three months ended June 30, 2007, the Company incurred an operating loss of
      $2,169,000 compared to an operating loss of $1,818,000 in the comparable period
      of 2006. Total operating expenses for the three month period ended June 30,
      2007
      primarily consisted of selling, general and administrative expenses of $610,000,
      payroll expense of $1,184,000, payroll expense - related party of $387,000
      and
      depreciation expense of $35,000, compared to selling, general and administrative
      expenses of $498,000, payroll expense of $1,098,000, payroll expense - related
      party of $268,000 and depreciation expense of $35,000, in the comparable period
      last year. The increases in the expenses are related to the acquisitions made
      in
      2006 of Tytess and the Store and the addition of personnel and occupancy costs
      related to the planned expansion of the Company’s business operations for WDCSN
      which is expected to be fully operational in the third quarter of
      2007.





During
      the year ended 2006, the Company applied SFAS No. 123(R), which requires the
      Company to recognize the expense of employee incentive options that vest during
      the reported period.  The combined payroll expense and payroll expense -
      related party for the three months ended June 30, 2007 and 2006 include
      compensation expenses of $474,000 and $105,000, respectively, arising from
      vested employee stock options committed to employees during each quarter. 
For additional information, see “Note 2 - Summary of Significant Accounting
      Policies, Stock Based Compensation” of the financial statements.





For
      the
      three months ended June 30, 2007, the Company incurred interest expense of
      $1,001,000 compared to an interest expense of $407,000 in the comparable period
      of 2006. The increase in interest expense during the three months ended June
      30,
      2007 is $594,000. The increase is primarily due to financing costs of $586,000.
      Interest expense - related party increased to $39,000 for the six months ended
      June 30, 2007 compared to $22,000 for the same period in 2006. The increase
      is
      related to the increase in the balance of related party notes payable.





During
      December of 2004 and January of 2005 the Company issued a total of approximately
      $1,015,000 in convertible debentures. Please reference “Note 10 - Convertible
      Debentures” of the financial statements for a more detailed explanation. Under
      Generally Accepted Accounting Principles (“GAAP”), the Company is required to
      record the warrants and the convertible debentures as a liability. Changes
      in
      the value of the derivative liability and the warrant liability are reflected
      on
      our income statement as “ *Unrealized
      gain (loss) on adjustment of derivative and warrant liability to fair value
      of
      underlying securities.* ”
During
      the three months ended June 30, 2007 the Company recorded an unrealized loss
      of
      approximately $147,000 compared to an unrealized gain of approximately $301,000
      during the same period ended June 30, 2006 from the adjustment of the same
      liabilities.




5





For
      the
      three month period ending June 30, 2007, the Company recorded legal settlement
      costs of $60,000 compared to $6,500 during the same period ended June 30, 2006.
      The increase is related to the issuance of 200,000 shares in partial settlement
      of a lawsuit.





For
      the
      three-months ended June 30, 2007, the Company recorded a net loss of $3,415,000,
      compared to the same period in 2006 when the Company recorded a net loss of
      approximately $1,951,000.





The
      components of change in loss recognized during the three months ended June
      30,
      2007 compared to the same period in 2006 are an increase in operating expenses
      in the amount of $317,000, an increase in other income (expense) of $1,114,000
      and a decrease in gross profit of $33,000. The gross profit relates to a
      decrease in AI gross profit in the amount of $61,000 offset by gross profit
      in
      the amount of $24,000 for the business operations Tytess and the Store which
      were acquired in 2006 and gross profit in the amount of $4,000 for WDCSN whose
      operations are new and not expected to be fully operational until the third
      quarter of 2007. The increase in operating expenses is comprised of $586,000
      related to expenses of WDCSN, Tytess and the Store which were acquired in 2006,
      $68,000 in increased payroll expenses for AI offset by a reduction in stock
      compensation expense of $184,000 and a $89,000 reduction of payroll expenses
      for
      WDMG related to the elimination of the accrual of all salary deferrals until such time as the
      Company’s common stock resumes trading on the OTCBB .
      The
      increase in other income (expense) relates to the charge to financing costs
      in
      the amount of $586,000 for stock to be issued in certain financing transactions
      and an increase in the “unrealized gain/loss on adjustment of derivative and
      warrant liability to fair value of underlying securities” in the amount of
      $448,000.




**Six
      Months Ended June 30, 2007 Compared to the Six Months Ended June 30,
      2006.**




The
      following schedules include the separate and consolidated information for the
      operations of the Company for the six months ended June 30, 2007 and 2006:





For
                the six months ended June 30, 2007WDMG
            
            WDCSN
            
            AI
            
            Tytess
            
            WDS
            
            CombinedRevenue
            
            $
            -
            
            $
            4,000
            
            $
            541,867
            
            $
            582,314
            
            $
            7,503
            
            $
            1,135,684Gross
                Profit
            
            
            -
            
            
            4,000
            
            
            129,198
            
            
            63,960
            
            
            3,071
            
            
            200,229SG
                & A expenses
            
            
            2,787,765
            
            
            886,336
            
            
            730,403
            
            
            154,485
            
            
            63,758
            
            
            4,622,747Loss
                from operations
            
            
            (2,787,765
            )
            
            (882,336
            )
            
            (601,205
            )
            
            (90,525
            )
            
            (60,687
            )
            
            (4,422,518
            )Net
                Loss
            
            $
            (5,090,737
            )
            $
            (882,336
            )
            $
            (605,464
            )
            $
            (90,525
            )
            $
            (60,687
            )
            $
            (6,729,749
            )Loss
                per share - basic and diluted
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (0.14
            )




For
                the six months ended June 30, 2006WDMG
            
            WDCSN
            
            AI
            
            Tytess
            
            WDS
            
            CombinedRevenue
            
            $
            -
            
            $
            -
            
            $
            236,776
            
            $
            -
            
            $
            -
            
            $
            1,135,684Gross
                Profit
            
            
            -
            
            
            -
            
            
            80,827
            
            
            -
            
            
            -
            
            
            200,229SG
                & A expenses
            
            
            2,260,054
            
            
            -
            
            
            395,091
            
            
            -
            
            
            -
            
            
            2,655,145Loss
                from operations
            
            
            (2,260,054
            )
            
            -
            
            
            (314,264
            )
            
            -
            
            
            -
            
            
            (2,574,318
            )Net
                Loss
            
            $
            (3,034,612
            )
            $
            -
            
            $
            (310,296
            )
            $
            -
            
            $
            -
            
            $
            (3,344,908
            )Loss
                per share - basic and diluted
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (0.08
            )




6




For
      the
      six months ended June 30, 2007, the Company incurred an operating loss of
      $4,423,000 compared to an operating loss of $2,574,000 in the comparable period
      of 2006. Total operating expenses for the six month period ended June 30, 2007
      primarily consisted of selling, general and administrative expenses of
      $1,107,000, payroll expense of $2,413,000, payroll expense - related party
      of
      $1,031,000 and depreciation expense of $71,000, compared to selling, general
      and
      administrative expenses of $713,000, payroll expense of $1,390,000, payroll
      expense - related party of $480,000, and depreciation expense of $72,000, in
      the
      comparable period last year. The increases in the expenses are related to the
      acquisitions made in 2006 of AI, Tytess, and the Store and the addition of
      personnel and occupancy costs related to the planned expansion of the Company’s
      business operations for WDCSN which is expected to be fully operational in
      the
      third quarter of 2007.





During
      the year ended 2006, the Company applied SFAS No. 123(R), which requires the
      Company to recognize the expense of employee incentive options that vest during
      the reported period.  The combined payroll expense and payroll expense -
      related party for the six months ended June 30, 2007 and 2006 include
      compensation expenses of $1,085,000 and $774,000, respectively, arising from
      vested employee stock options committed to employees during each quarter. 
For additional information, see “Note 2 - Summary of Significant Accounting
      Policies, Stock Based Compensation” of the financial statements.





For
      the
      six months ended June 30, 2007, the Company incurred interest expense of
      $2,397,000 compared to an interest expense of $426,000 in the comparable period
      of 2006. The increase in interest expense during the six months ended June
      30,
      2007 is $1,971,000. The increase is primarily due to financing costs of
      $1,696,000 and the accretion of interest related to share notes in the amount
      of
      $724,000 during the six months ended June 30, 2007 compared to accretion of
      interest related to share notes of $466,000 during the comparable period in
      2006. Interest expense - related party increased to $84,000 for the six months
      ended June 30, 2007 compared to $39,000 for the same period in 2006. The
      increase is related to the increase in the balance of related party notes
      payable.





During
      December of 2004 and January of 2005 the Company issued a total of approximately
      $1,015,000 in convertible debentures. Please reference “Note 10 - Convertible
      Debentures” of the financial statements for a more detailed explanation. Under
      Generally Accepted Accounting Principles (“GAAP”), the Company is required to
      record the warrants and the convertible debentures as a liability. Changes
      in
      the value of the derivative liability and the warrant liability are reflected
      on
      our income statement as “ *Unrealized
      gain (loss) on adjustment of derivative and warrant liability to fair value
      of
      underlying securities.* ”
During
      the six months ended June 30, 2007 the Company recorded an unrealized gain
      of
      approximately $234,000 compared to an unrealized loss of approximately $295,000
      during the same period ended June 30, 2006 from the adjustment of the same
      liabilities.





For
      the
      six months ended June 30, 2007, the Company recorded a net loss of $6,730,000,
      compared to the same period in 2006 when the Company recorded a net loss of
      approximately $3,345,000.





The
      components of change in loss recognized during the six months ended June 30,
      2007 compared to the same period in 2006 are an increase in operating expenses
      in the amount of $1,968,000 and an increase in other income (expense) of
      $1,537,000 offset by gross profit of $119,000. The gross profit relates to
      an
      increase in AI gross profit in the amount of $48,000 and $67,000 for the
      business operations Tytess and the Store which were acquired in 2006 and gross
      profit in the amount of $4,000 for WDCSN whose operations are new and not
      expected to be fully operational until the third quarter of 2007. The increase
      in operating expenses is comprised of $1,105,000 related to expenses of WDCSN,
      Tytess and the Store, an increase in stock compensation expense of $311,000,
      an
      increase in AI expenses of $287,000 related to a full year of expenses in 2007
      compared to approximately two and one-half months in 2006, an increase in
      occupancy costs of $100,000 and increased professional fees and consulting
      of
      $200,000. The increase in other income (expense) relates to the charge to
      financing costs in the amount of $1,696,000 for stock to be issued in certain
      financing transactions and an increase in the accretion of interest related
      to
      share notes in the amount of $258,000 offset by a decrease in the “unrealized
      change in gain/loss on adjustment of derivative and warrant liability to fair
      value of underlying securities” in the amount of $529,000.




7





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 (loss) of the Company to fluctuate in such
      a
      manner as to make direct comparisons, between reporting periods, difficult.
      The
      management of the Company feels that as long as the derivative and warrant
      liabilities exist, the reported operating income (loss) will be a more accurate
      reference for the true performance of the Company.





**Material
      Changes in Financial Condition**





As
      of
      June 30, 2007, we had a working capital deficit of $10,712,000, compared to
      a
      deficit of $7,723,000 as of December 31, 2006.





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





For
      the
      six month period ending June 30, 2007 we used $899,000 in our operating
      activities, compared with $673,000 in the comparable period of 2006.





For
      the
      six month period ending June 30, 2007 our investing activities used $33,000
      for
      the purchase of fixed assets, compared to $160,000 in the comparable period
      of
      2006.





For
      the
      six month period ending June 30, 2007 our financing activities generated
      $937,000 compared to $834,000 being generated in the comparable period last
      year. The funds generated from our financing activities during the six months
      ended June 30, 2007 consists primarily of proceeds from loans payable, loans
      payable - related party and share loans of $913,000 and an increase in the
      bank
      overdraft in the amount of $62,000 which was partially offset by repayments
      of
      $38,000 on loan obligations. For the comparable period ended June 30, 2006,
      the
      Company raised $862,000 from loans payable, loans payable - related party and
      convertible notes and an increase in the bank overdraft in the amount of $15,000
      which was partially offset by the payment of a related party loan payable of
      $43,000.





From
      inception, the Company has raised $6,860,000 to fund operations.  Of the
      total funds raised, $5,386,000 was used to provide the necessary resources
      for
      the development stage operations of the Company and $1,482,000 was used to
      purchase fixed assets. The funds include cash of $3,385,000 which was raised
      through convertible debentures and warrants for common stock (net of
      repayments); and cash of $1,475,000 which was raised through loans (net of
      repayments).  The Company also raised $2,000,000 from the issuance of
      common stock.





For
      the
      six month period ending June 30, 2007 the Company’s net cash position increased
      by $4,800 compared to zero in the comparable period of 2006.





**Continuing
      Operations**




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




8





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





The
      Company has, to date, focused almost exclusively upon the startup phase of
      its
      operations. To that end, management has focused on identifying and retaining
      key
      employees to provide the support necessary as operations move to revenue
      generation and expansion. The Company’s priorities for the next twelve months of
      operations are to expand our human resources to adequately service our existing
      contracts and to reach a sustainable profitability level. As we expand our
      operations with the expectation of growing revenue from our activities, we
      may
      elect to hire additional salaried or hourly employees to operate certain aspects
      of our business. While we will attempt to attract and retain qualified employees
      under similar terms to those terms currently in place, we may not be able to
      obtain agreements allowing for deferral of payroll or payment of portions of
      compensation in the form of equity.





While
      management expects revenue generation to increase, the Company expects to
      operate with a deficit in cash flows for the next few months. The deficit,
      which
      arises primarily from payroll obligations, may be satisfied through a
      combination of employee salary deferrals and through cash raised primarily
      from
      the placement of the Company’s securities (either directly or through
      convertible debt offerings). On March 30, 2007, the Company gave notice to
      its
      employees that the terms of their employment agreements would change effective
      immediately. The change consisted of ceasing all salary deferrals until such
      time as the Company’s common stock resumes trading on the OTCBB. In addition,
      all vacation grants for employees were reduced from four weeks to two weeks.
      Deferred salary amounts not accrued by March 30, 2007 were considered to be
      forfeited. This action taken by the Company is expected to result in an
      annualized savings of approximately $1,235,000. Also, on June 29, 2007, the
      Company terminated five employees and cancelled the contract of a consultant.
      This action taken by the Company is expected to result in additional savings
      of
      approximately $1,000,000 per year. Management intends to focus substantial
      efforts on the funding of the current projects and operational deficit during
      the next few months. The funding effort will proceed at the same time as
      commercial operations continue. The Company believes that the current management
      team has the applicable skills to handle the challenge of covering the cash
      deficit and developing profitable operations. There is no guarantee that any
      such financings can be obtained or, if obtained, that such financings will
      be on
      adequate or reasonable terms.





**Off-Balance
      Sheet Arrangements**





As
      of
      June 30, 2007, the Company has not engaged in any off-balance sheet
      arrangements. Currently, management does not anticipate that the Company will
      be
      engaging in off-balance sheet arrangements in the foreseeable future.





**Item
      3. Controls and Procedures.**





Our
      management team, under the leadership and with the participation of our Chief
      Executive Officer, evaluated the effectiveness of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934), as of June 30, 2007. Based on this evaluation, our
      management concluded that our disclosure controls and procedures were not
      effective as of June 30, 2007 to ensure that information required to be
      disclosed by us in the reports that we file or submit to the SEC is recorded,
      processed, summarized and reported within the time periods specified in the
      SEC’s rules and forms.





Our
      management team is diligently developing & implementing disclosure controls
      and procedures to ensure that such information required for disclosure is
      recorded, processed, summarized and reported timely and accurately. To date,
      our
      efforts have focused upon replacing our Chief Financial Officer, who resigned
      on
      August 1, 2006. The resignation of our CFO has exacerbated an existing problem
      of sufficiency of accounting personnel. To date, we have hired a Chief Operating
      Officer and a Controller. We are interviewing candidates to fill the CFO
      position and certain other accounting positions.




9





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




There
      was
      no change in the Company’s internal control over financial reporting during the
      period ended June 30, 2007, that has materially affected, or was reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.





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




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




**Part
      II - Other Information**




**Item
      1. Legal Proceeding.**





See
“Note
      6 - Summary of Legal Proceedings” and “Note 12 - Subsequent Events” for a
      description of the Company’s legal proceedings. Other than as described in such
      notes, the Company is not currently involved in any legal proceedings that
      may
      be deemed to be material to our financial condition.





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





During
      the quarter ended June 30, 2007, the Company received proceeds of $373,500
      from
      the issuance of convertible debentures and warrant purchase agreements to 10
      accredited investors. The Agreements also included detachable warrants, which
      allowed the warrant holders to purchase 1,117,500 shares of common stock of
      the
      Company. We neither received nor paid any commissions in connection with these
      issuances. We believe that the issuance of such securities was exempt from
      the
      registration requirements of the Securities Act of 1933, as amended, pursuant
      to
      the provisions of Section 4(2) of the Securities Act.





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





As
      of
      June 30, 2007, the Company has several convertible notes which matured without
      conversion or repayment. The balance of the notes currently in default is
      $230,000. The Company is seeking approval to extend or convert the notes into
      restricted shares of the Company’s common stock.




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





On
      May
      21, 2007 the Company submitted a consent solicitation statement to its
      stockholders seeking their approval of an amendment to the Company’s Articles of
      Incorporation to increase the number of shares of common stock the Company
      is
      authorized to issue from 50,000,000 to 200,000,000 and the number of shares
      of
      preferred stock the Company is authorized to issue from 5,000,000 to 20,000,000.
      The amendment to the Company’s Articles of Incorporation to increase its
      authorized share capital was unanimously approved by Board of Directors of
      the
      Company and by the holders of 56.24%, or 27,884,847 shares, of the Company’s
      common stock acting by written consent. On June 22, 2007, the Company filed
      a
      Certificate of Amendment to its Articles of Incorporation which increased the
      number of shares of common stock the Company is authorized to issue from
      50,000,000 to 200,000,000 and which increased the number of shares of preferred
      stock the Company is authorized to issue from 5,000,000 to 20,000,000. There
      was
      no change to the par value of the shares of the Company’s common or preferred
      stock, the par value of each of which remains $0.001 per share.




**Item
        5. Other Information.**
 
 In
        May
        2007, the lease agreement with JT Communications, LLC dated June 22, 2006
        for
        the right to use a cabinet and certain office space on the 5th floor of 55
        Marietta Street in Atlanta, Georgia was cancelled.
 
 On
        May
        23, 2007, AI entered into a Lease Agreement with ProLogis-Macquarie U.S.
        LLC for
        approximately 11,006 square feet of rentable space located at 5290 Westgate
        Drive, Suite B, Atlanta, Georgia 30036. The lease commenced on June 1, 2007
        and
        continues through May 31, 2012. AI will use the space to house its Logistics
        Management Center and for training purposes. Under the lease, AI is obligated
        to
        pay base monthly rents of $2,430 per month in the first year, $2,503 per
        month
        in the second year, $2,579 per month in the third year, $2,656 per month
        in the
        fourth year and $2,736 per month in the fifth year.




**Item
      6. Exhibits.**




*10.1
            
            Office
                Lease Agreement for Westgate Industrial Center #3, 5290 Westgate
                Drive,
                Suite B, Atlanta, Georgia, by and between ProLogis-Macquarie U.S.
                LLC and
                Automated Interiors, LLC., dated May 23, 2007.*31.1
            
            Certification
                pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the
                Sarbanes-Oxley Act of 2002.*32.1
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.







*
      Filed
      herewith


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**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)August
                14, 2007
            By:
            /s/
                Winston JohnsonWinston
                Johnson
              Chairman
                & CEO
              (Principal
                Executive Officer and Principal Financial
                Officer)




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