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 March 31, 2006




 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934 for the transition period from _______ to _______




Commission
      file number 000-32231





**WINSONIC
      DIGITAL MEDIA GROUP, LTD.**


(Name
      of
      small business issuer in its charter)





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





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




Issuer’s
      telephone number (404) 230-5705





(not
      applicable)


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





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





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





The
      issuer had 46,036,731 shares of common stock outstanding as of September 18,
      2006.















**Quarterly
      Report on Form 10-QSB**


**Quarter
      Ended March 31, 2005**





**Table
      of Contents**


PagePART
                I - FINANCIAL INFORMATIONItem
                1. Financial Statements:Balance
                Sheets as of March 31, 2006 (Unaudited) and December 31, 2005
                (Audited)
            3Statements
                of Operations for Three Months Ended March 31, 2006 and 2005 and
                from
                inception to March 31, 2006 (Unaudited)
            4Statements
                of Cash Flows (Unaudited) for the Three Months Ended March 31, 2006
                and
                2005 and from inception to March 31, 2006 (Unaudited)
            5Statement
                of Stockholder's Deficit (Unaudited)
            6Notes
                to the Unaudited Condensed Financial Statements
            7Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            22Item
                3. Controls and Procedures
            27PART
                II - OTHER INFORMATIONItem
                1. Legal Proceedings
            28Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            28Item
                3. Defaults Upon Senior Securities
            28Item
                4. Submission of Matters to a Vote of Security Holders
            28Item
                5. Other Information
            28Item
                6. Exhibits
            29SIGNATURES
            30EXHIBIT
                INDEX




2




**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements.**





WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**BALANCE
      SHEETS**


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








**Unaudited**
              **3/31/2006**
            
            **Audited**
              **12/31/2005****ASSETS**ASSETS:Current
                assets:Cash
            
            $
            59,849
            
            $
            -Prepaid
                expenses
            
            
            33,723
            
            
            16,746Loans
                receivable
            
            
            39,350
            
            
            -**Total
                current assets**
            
            
            **132,922**
            
            
            **16,476**Fixed
                assets:Computer
                equipment
            
            
            1,066,682
            
            
            977,669Infrastructure
            
            
            158,400
            
            
            158,400Software
            
            
            82,899
            
            
            82,899Furniture
                & fixtures
            
            
            79,616
            
            
            36,682Less:
                accumulated depreciation
            
            
            (651,012
            )
            
            (614,194
            )Total
                fixed assets
            
            
            736,585
            
            
            641,456**TOTAL
                ASSETS**
            
            **$**
            **869,507**
            
            **$**
            **657,932****LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**LIABILITIES:Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            2,242,134
            
            $
            2,094,824Bank
                overdraft
            
            
            -
            
            
            14,468Accrued
                payroll and related taxes
            
            
            1,579,740
            
            
            1,353,053Legal
                settlement liabilities
            
            
            575,000
            
            
            1,020,000Loans
                payable
            
            
            401,224
            
            
            383,357Loan
                payable -related party
            
            
            423,876
            
            
            435,398Derivative
                liability related to convertible debentures
            
            
            611,954
            
            
            82,483Warrant
                liability related to convertible debentures
            
            
            701,615
            
            
            23,406Convertible
                debentures, net of unamortized discounts
            
            
            1,033,375
            
            
            1,122,639**Total
                current liabilities**
            
            
            **7,568,918**
            
            
            **6,529,628**Long-Term
                liabilities:
            
            
            -
            
            
            -Total
                long-term liabilities
            
            
            -
            
            
            -**TOTAL
                LIABILITIES**
            
            
            **7,568,918**
            
            
            **6,529,628**Stockholders’
                deficit:Common
                stock, $0.001 par value, 50,000,000 shares authorized, 41,104,556
                and
                40,204,556 shares issued and outstanding at March 31, 2006 and December
                31, 2005, respectively
            
            
            41,105
            
            
            40,205Additional
                paid-in capital
            
            
            7,082,891
            
            
            6,517,807Common
                stock payable, $0.33 per share at March 31, 2006
            
            
            20,000
            
            
            20,000Accumulated
                deficit during development stage
            
            
            (13,843,407
            )
            
            (12,449,708
            )**Total
                stockholders’ deficit**
            
            
            (6,699,411
            )
            
            (5,871,696
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS’ DEFICIT**
            
            **$**
            **869,507**
            
            **$**
            **657,932**





*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Balance Sheets.*




3








WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**STATEMENTS
      OF OPERATIONS**


FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2006 & 2005


AND
      FROM
      INCEPTION TO


MARCH
      31,
      2006


(UNAUDITED)


**For
                  the quarter ended**
                **March
                  31,****2006**
              
              **2005**
              
              **Inception
                  to**
                **March
                  31, 2006**REVENUE
              
              $
              -
              
              $
              -
              
              $
              57,811COST
                  OF GOODS SOLD
              
              
              -
              
              
              123,107
              
              
              1,149,160GROSS
                  PROFIT
              
              
              -
              
              
              (123,107
              )
              
              (1,091,349
              )EXPENSES:Selling,
                  general and administrative
              
              
              507,291
              
              
              237,910
              
              
              4,790,211Selling,
                  general and administrative, related party
              
              
              211,917
              
              
              207,500
              
              
              2,100,361Consulting
                  Services - related party
              
              
              -
              
              
              -
              
              
              2,071,268Depreciation
                  and amortization expense
              
              
              36,818
              
              
              85,600
              
              
              932,493Total
                  expenses
              
              
              756,026
              
              
              531,010
              
              
              9,894,333OPERATING
                  INCOME (LOSS)
              
              
              (756,026
              )
              
              (654,117
              )
              
              (10,985,682
              )OTHER
                  INCOME/ (EXPENSES):Interest
                  expense
              
              
              (37,059
              )
              
              (290,310
              )
              
              (2,293,477
              )Legal
                  Settlement Costs
              
              
              (5,000
              )
              
              -
              
              
              (1,025,000
              )Unrealized
                  gain on adjustment of derivative and warrant liability to fair
                  value of
                  underlying securities
              
              
              (595,825
              )
              
              1,133,836
              
              
              374,360Interest
                  income
              
              
              211
              
              
              420
              
              
              941Other
                  income(expenses)
              
              
              -
              
              
              -
              
              
              85,451Total
                  other income/ (expenses)
              
              
              (637,673
              )
              
              843,946
              
              
              (2,857,725
              )NET
                  INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
              
              
              (1,393,699
              )
              
              189,829
              
              
              (13,843,407
              )PROVISION
                  FOR INCOME TAXES
              
              
              -
              
              
              -
              
              
              -NET
                  INCOME (LOSS)
              
              $
              (1,393,699
              )
              $
              189,829
              
              $
              (13,843,407
              )Basic
                  weighted average number of common shares outstanding
              
              
              40,654,556
              
              
              11,189,982
              
              
              -Net
                  income (loss) per basic and diluted common share
              
              $
              (0.03
              )
              $
              0.02
              
              
              -








*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Statements of Operations.*




4








WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**STATEMENTS
      OF CASH FLOWS**


FOR
      THE
      THREE MONTHS


ENDED
      MARCH 31, 2006 & 2005


AND
      FROM
      INCEPTION TO


MARCH
      31,
      2006


(UNAUDITED)





**For
                  the three months ended**
                **March
                  31,****2006**
              
              **2005**
              
              **Inception
                  to**
                **March
                  31, 2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  Income (loss)
              
              **$**
              (1,393,699
              )
              **$**
              189,829
              
              **$**
              (13,843,407
              )Adjustments
                  to reconcile net income (loss) to net cash used in
                  operations:
              
              
              -
              
              
              -
              
              
              -Depreciation
              
              
              36,818
              
              
              85,600
              
              
              932,492Accretion
                  of principal and interest related to convertible
                  debentures
              
              
              18,391
              
              
              260,621
              
              
              1,129,809Unrealized
                  gain on adjustment of derivative and warrantliability
                  to fair value of underlying securities
              
              
              595,825
              
              
              (1,133,836
              )
              
              (374,360
              )Forgiveness
                  of accrued interest - DSI
              
              
              -
              
              
              -
              
              
              152,592Stock
                  based compensation
              
              
              115,984
              
              
              198,000
              
              
              3,345,199Change
                  in operating assets and liabilities:(Increase)
                  decrease in deposit
              
              
              -
              
              
              4,490
              
              
              -Increase
                  (decrease) in prepaid expenses
              
              
              (17,247
              )
              
              -
              
              
              (33,723
              )(Increase)
                  decrease in advances to related company
              
              
              (39,350
              )
              
              -
              
              
              (39,350
              )Increase
                  (decrease) in bank overdraft
              
              
              (14,468
              )
              
              -
              
              
              -Increase
                  in accounts payable and accrued expenses
              
              
              147,310
              
              
              1,382
              
              
              2,485,606Increase
                  (decrease) in accrued payroll and related taxes
              
              
              226,687
              
              
              (96,758
              )
              
              1,870,394Increase
                  (decrease) in legal settlement liabilities
              
              
              5,000
              
              
              -
              
              
              1,025,000Increase
                  in interest payable
              
              
              -
              
              
              12,705
              
              
              -**Net
                  cash provided by (used in) operating activities**
              
              
              (318,749
              )
              
              (477,967
              )
              
              (3,349,748
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchase
                  of fixed assets
              
              
              (131,947
              )
              
              (10,646
              )
              
              (1,387,597
              )**Net
                  cash (used in) investing activities**
              
              
              (131,947
              )
              
              (10,646
              )
              
              (1,387,597
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from loans payable
              
              
              17,867
              
              
              2,190
              
              
              437,440Proceeds
                  from loan payable - related party
              
              
              16,478
              
              
              14,795
              
              
              840,204Payment
                  on note payable - related party
              
              
              (28,000
              )
              
              (160,000
              )
              
              (188,000
              )Proceeds
                  from convertible debentures
              
              
              504,200
              
              
              200,000
              
              
              1,707,450Proceeds
                  from warrants for common stock
              
              
              -
              
              
              -
              
              
              2,000,100**Net
                  cash provided by financing activities**
              
              
              **510,545**
              
              
              **56,985**
              
              
              **4,797,194****NET
                  INCREASE (DECREASE) IN CASH**
              
              
              **59,849**
              
              
              **(431,628**
              **)**
              
              **59,849****CASH,
                  BEGINNING OF PERIOD**
              
              
              -
              
              
              **436,749**
              
              
              -**CASH,
                  END OF PERIOD**
              
              **$**
              **59,849**
              
              **$**
              **5,121**
              
              **$**
              **59,849****SUPPLEMENTARY
                  INFORMATION:**Interest
                  paid
              
              $
              24,354
              
              $
              -
              
              $
              24,354Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -Forgiveness
                  of salary payable to officer
              
              $
              -
              
              $
              -
              
              $
              270,000Forgiveness
                  of payroll tax for officer
              
              $
              -
              
              $
              -
              
              $
              20,655Issuance
                  of common stock as deposit on lease obligation
              
              $
              -
              
              $
              -
              
              $
              250,000Issuance
                  of common stock for common stock payable
              
              $
              -
              
              $
              -
              
              $
              820,000Issuance
                  of common stock as payment on notes payable - related
                  party
              
              $
              -
              
              $
              -
              
              $
              231,000Issuance
                  of common stock upon conversion of debentures
              
              $
              -
              
              $
              -
              
              $
              118,000Adjustment
                  to paid in capital for Accumulated Depreciation
              
              $
              -
              
              $
              -
              
              $
              281,481Issuance
                  of common stock for legal settlement
              
              $
              450,000
              
              $
              -
              
              $
              450,000





*The
      accompanying notes to financial statements should be*


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




5








WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**STATEMENT
      OF STOCKHOLDERS' DEFICIT**


(UNAUDITED)




AccumulatedDeposit
            
            DeficitAdditional
            
            Common
            
            Paid
                By
            
            During
            
            TotalPreferred
                Stock
            
            Common
                Stock
            
            Paid-in
            
            Stock
            
            Common
            
            Development
            
            Stockholders'Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Payable
            
            Stock
            
            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
            
            
            -
            
            
            -
            
            
            -
            
            
            1,490,309Issuance
                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
            
            
            -
            
            
            -
            
            
            -
            
            
            630,000Issuance
                of common stock for services, $0.48 average price per
                share
            
            
            -
            
            
            -
            
            
            225,000
            
            
            225
            
            
            107,775
            
            
            -
            
            
            -
            
            
            -
            
            
            108,000Issuance
                of common stock in satisfaction of convertible debentures debts of
                $118,000, at $0.20 average price per share
            
            
            -
            
            
            -
            
            
            590,000
            
            
            590
            
            
            117,410
            
            
            -
            
            
            -
            
            
            -
            
            
            118,000Issuance
                of common stock as lease deposit, $0.27 average price per
                share
            
            
            -
            
            
            -
            
            
            925,927
            
            
            926
            
            
            249,074
            
            
            -
            
            
            (250,000
            )
            
            -
            
            
            -Issuance
                of common stock for common stock payable, $1.00 average price per
                share
            
            
            -
            
            
            -
            
            
            820,000
            
            
            820
            
            
            819,180
            
            
            (820,000
            )
            
            -
            
            
            -
            
            
            -Return
                of pledged assets, reversal of accumulated depreciation, and forgiveness
                of debt - related party
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            281,481
            
            
            -
            
            
            -
            
            
            -
            
            
            281,481Forgiveness
                of interest expense - related party
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            152,592
            
            
            -
            
            
            -
            
            
            -
            
            
            152,592Vested
                common stock award for officer
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            185,000
            
            
            -
            
            
            -
            
            
            -
            
            
            185,000Common
                stock payable to officer for separation agreement, $0.33 average
                price per
                share
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            270,000
            
            
            -
            
            
            -
            
            
            270,000Record
                forgiveness of accrued salary for officer per separation
                agreement
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            270,000
            
            
            -
            
            
            -
            
            
            -
            
            
            270,000Record
                adjustment for accrued payroll taxes for officer per separation
                agreement
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            20,655
            
            
            -
            
            
            -
            
            
            -
            
            
            20,655Vested
                stock options granted to officer for separation agreement
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            131,068
            
            
            -
            
            
            -
            
            
            -
            
            
            131,068Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,105,613
            )
            
            (4,105,613
            )**Balance,
                December 31, 2005**
            
            
            **-**
            
            
            **-**
            
            
            **40,204,556**
            
            
            **40,205**
            
            **$**
            **6,517,807**
            
            
            **270,000**
            
            
            **(250,000**
            **)**
            
            **(12,449,708**
            **)**
            
            **(5,871,696**
            **)**Issuance
                of common stock in accordance with mutual release, $414,000 at $0.46
                average price per share
            
            
            -
            
            
            -
            
            
            900,000
            
            
            900
            
            
            449,100
            
            
            -
            
            
            -
            
            
            -
            
            
            450,000Expense
                related to employee stock options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            115,984
            
            
            -
            
            
            
            
            
            -
            
            
            115,984Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,393,699
            )
            
            (1,393,699
            )**Balance,
                March 31, 2006**
            
            
            **-**
            
            
            **-**
            
            
            **41,104,556**
            
            **$**
            **41,105**
            
            **$**
            **7,082,891**
            
            **$**
            **270,000**
            
            **$**
            **(250,000**
            **)**
            **$**
            **(13,843,407**
            **)**
            **$**
            **(6,699,411**
            **)**








*The
      accompanying notes to the financial statements should be*


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




6




**WINSONIC
      DIGITAL MEDIA GROUP, LTD**




**NOTES
      TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS**




**NOTE
      1 - DEVELOPMENT STAGE COMPANY**





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





The
      accompanying financial statements have been prepared in accordance with the
      Statement of Financial Accounting Standards (“SFAS”) No. 7 “Accounting and
      Reporting by Development Stage Enterprises.” A development stage enterprise is
      one in which planned principal operations have not commenced; or if its
      operations have commenced, there has been no significant revenues derived
      therefrom. As of March 31, 2006, the Company has not commenced its planned
      principal operations and has no significant revenues.




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





The
      accompanying financial statements have been prepared by the Company without
      audit. In the opinion of management, all adjustments (which include normal
      recurring adjustments) necessary to present fairly the financial position,
      results of operations and cash flows at March 31, 2006 and for all periods
      presented have been made.




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





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





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





**Concentration
      of Credit Risk:** The
      Company maintains its cash and cash equivalents in bank accounts in two
      financial institutions. The Federal Deposit Insurance Corporation insures
      deposits up to $100,000 per account. As of March 31, 2006, the Company had
      a
      cash balance of $59,849. As of December 31, 2005, the Company had a deficit
      in
      its cash accounts of $14,468. Currently cash management is handled by Company
      management. Typically, the cash balances are less than $100,000 per
      account.





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





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




7





During
      the three months ended March 31, 2006, the Company granted options for 1,500,000
      shares of common stock to employees, and accrued a related compensation expense
      of $115,984 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 three months ended
      March 31, 2006 and the year ended December 31 2005 is presented
      below:





March
                31, 2006
            
            December
                31, 2005Options
            
            Weighted
                Average
              Exercise
                Price
            
            Options
            
            Weighted
                Average
              Exercise
                PriceOutstanding
                - Beginning of Period
            
            
            4,000,000
            
            $
            1.00
            
            
            3,250,000
            
            $
            1.00Granted
                or committed
            
            
            1,500,000
            
            
            1.00
            
            
            1,250,000
            
            
            1.00Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Cancelled
            
            
            -
            
            
            -
            
            
            500,000
            
            
            -Outstanding
                - End of Period
            
            
            5,500,000
            
            $
            1.00
            
            
            4,000,000
            
            $
            1.00Exercisable
                - End of Period
            
            
            3,883,271
            
            $
            1.00
            
            
            3,275,796
            
            $
            1.00





In
      prior
      years, the Company followed APB Opinion No. 25, “Accounting for Stock Issued to
      Employees,” and the related interpretations in accounting for its employee stock
      options, because the alternative fair value accounting provided for under SFAS
      No. 123, “Accounting for Stock-Based Compensation,” required the use of option
      valuation models that were not developed for use in valuing employee stock
      options. Under APB Opinion No. 25, if the exercise price of the Company’s
      employee stock options were equal to or greater than the market price of the
      underlying stock on the date of the grant, no compensation expense was
      recognized. The following proforma information summarizes the effect on earnings
      for the three month period ended March 31, 2005 had the Company followed SFAS
      No. 123(R) for the earlier period:




**March
                31,2005**Net
                Income (Loss) as Reported
            
            $
            189,829Adjust:
                Stock-based non-employee compensation expense included in reported
                net
                income
            
            
            -Adjust:
                Total stock-based employee compensation expense determined under
                fair
                value method
            
            $
            (221,934
            )Net
                Income (loss) Pro forma
            
            $
            (32,105
            )Pro
                forma earnings (loss) per share
            
            $
            (0.00
            )




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




8






In
      accordance with SFAS No. 123(R) titled "Share-based Payment," which was
      revised in 2004, the Company recognized the fair value of the
      options in the statement of operations on the
      date of grant.   Fair value was determined using
      the Black Scholes option pricing model
      based on the following assumptions: expected dividends: $-0-;
      volatility: 187%; and risk free interest rate:  4.5%.  The determined
      fair value recognized in the current period was $115,984.




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





**Telecommunication
                Equipment**
            **15
                Years****Furniture
                & Fixtures**
            **7 Years****Computer
                Equipment**
            **5 Years****Software**
            **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:** The
      Company is a “development stage” company and has not had significant sales or
      revenue to date. The Company plans to sell services together with the software
      and to provide network media distribution. Revenues will be recognized upon
      rendering services to customers. Costs and expenses are recognized during the
      period in which they are incurred.





**Advertising
      Costs:** The
      Company expenses all costs of advertising as incurred. There were no advertising
      costs incurred for the three months ended March 31, 2006 and 2005.





**Research
      and Development Costs:** Research
      and development costs are charged to expenses as incurred. There were no
      research and development costs incurred for the three months ended March 31,
      2006 and 2005.




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





**Recently
      Issued Accounting Pronouncements** : In
      December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which
      establishes standards for transactions in which an entity exchanges its equity
      instruments for goods or services. This standard replaces SFAS No. 123 and
      supersedes APB Opinion No. 25, “Accounting for Stock-based compensation.” This
      Standard requires a public entity to measure the cost of employee services
      received in exchange for an award of equity instruments based on the grant-date
      fair value of the award. This eliminates the exception to account for such
      awards using the intrinsic method previously allowable under APB Opinion No.
      25.
      The Company will apply SFAS No. 123(R) for all periods ending after December
      31,
      2005. For further details, see “Note 2 - Summary of Significant Accounting
      Policies, Stock Based Compensation; Stock Options.”




9





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




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





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




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





**NOTE
      3 - STOCKHOLDERS’ EQUITY**




**Issuance
      of Common Stock** : **** During
      the quarters ending March 31, 2006 and 2005, the Company issued 900,000 and
      186,078 shares of its Common Stock, respectively. The 900,000 shares issued
      in
      the first quarter of 2006, were issued at $0.50 per share in settlement of
      a
      legal action. The settlement and the credit to Stockholders’ Equity was valued
      at $450,000. See “Note 5 - Summary of Significant Legal Proceedings” for further
      details. During the first quarter of 2005, the Company issued 94,615 shares
      at
      $1.30 per share during January and 91,463 shares at $0.86 per share in March
      pursuant to a warrant exercisable at $0.07 per share. The warrant had been
      issued as compensation to certain professional advisors for services rendered
      during 2004.




10





The
      stock
      issued in 2005 was issued pursuant to a “cashless exercise” of a warrant where
      the warrant holder received a reduced number of shares of Common Stock upon
      conversion and contributed the balance to the treasury of the Company based
      on
      the current market value of the stock. The warrant holders received 94,615
      and
      91,463 shares of stock during 2005 and contributed 5,385 shares and 8,537 shares
      worth $7,000 each (the cost of their warrants).





**Convertible
      Notes and Warrants:** During
      January of 2005, the Company issued convertible notes with detachable warrants
      in connection with a loan for $200,000. The notes included interest of 6% and
      were due on December 15, 2005 or upon the occurrence of certain events relating
      to the capital structure of the Company. To date, neither these warrants nor
      the
      conversion rights have been exercised. During the first quarter of 2006, the
      Company raised an additional $504,200 of proceeds in connection with a
      convertible note offering. (For a more detailed discussion, see “Note 9 -
      Convertible Debentures” and “Note 11 - Subsequent Events.”)





**Stock
      Warrants/Common Stock Payables (accrued as payment for fixed assets acquired
      during 2005)**





Certain
      stock warrants and common stock payables have been issued for cash proceeds,
      services and fixed assets at a conversion price of $1.00 per common share.
      The
      stock warrants have a life of three years.





The
      following table summarizes the Company’s stock warrants and common stock payable
      activity with a conversion price of $1.00 for the period from inception through
      March 31, 2006:





Number
                of
              Warrants/Common
              stock
                payable
            
            Exercise
                PriceBalance
                as of September 10, 2002 (Inception)
            
            
            -
            
            $
            -Warrants
                issued
            
            
            990,600
            
            
            1.00Warrants
                canceled/expired
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2002
            
            
            990,600
            
            
            1.00Warrants/stock
                payable issued
            
            
            1,009,500
            
            
            1.00Warrants
                canceled/expired
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2003
            
            
            2,000,100
            
            
            1.00Warrants
                issued
            
            
            -
            
            
            -Warrants
                canceled/expired
            
            
            -
            
            
            -Warrants
                exercised
            
            
            (1,180,100
            )
            
            1.00Balance
                as of December 31, 2004
            
            
            820,000
            
            
            1.00Warrants
                issued
            
            
            -
            
            
            -Warrants
                canceled/expired
            
            
            -
            
            
            -Common
                stock payable exercised
            
            
            (820,000
            )
            
            1.00Balance
                as of December 31, 2005
            
            
            -
            
            
            -Warrants
                issued
            
            
            -
            
            
            -Balance
                as of March 31, 2006
            
            
            -
            
            
            -




Certain
      detachable stock warrants have been granted in connection with the issuance
      of
      certain convertible debentures which are discussed in “Note 9 - Convertible
      Debentures.”




11





The
      following table summarizes the Company’s detachable stock warrant activities for
      the period ending March 31, 2006:




Number
                of
              Warrants
            
            Exercise
                PriceBalance
                as of September 10, 2002
            
            
            -
            
            $
            -Warrants
                issued
            
            
            -
            
            
            -Warrants
                cancelled/expired
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2002
            
            
            -
            
            
            -Warrants
                issued
            
            
            -
            
            
            -Warrants
                cancelled/expired
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2003
            
            
            -
            
            
            -Warrants
                issued
            
            
            1,164,286
            
            
            0.70Warrants
                cancelled/expired
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2004
            
            
            1,164,286
            
            
            0.70Warrants
                issued
            
            
            285,714
            
            
            0.70Warrants
                cancelled due to extension agreement
            
            
            (1,450,000
            )
            
            0.70Warrants
                replaced due to extension agreement
            
            
            2,537,500
            
            
            0.40Warrants
                issued
            
            
            570,833
            
            
            0.33Warrants
                exercised
            
            
            (357,500
            )
            
            0.33Balance
                as of December 31, 2005
            
            
            2,750,833
            
            
            0.39Warrants
                issued
            
            
            1,260,500
            
            
            0.40Warrants
                exercised
            
            
            (382,500
            )
            
            0.40Balance
                as of March 31, 2006
            
            
            3,628,833
            
            $
            0.39





**NOTE
      4 - RELATED PARTY TRANSACTIONS**




**Officers’
      Compensation:** Officers’ compensation for services for the three-month periods ended March 31,
      2006 and 2005 was $190,000 and $207,500; (additionally, compensation of $21,917
      relating to incentive stock warrants issued to officers was recognized during
      the first quarter by the Company). (For further information, see “Note 2 -
      Summary of Significant Accounting Policies”). The compensation expense was
      included in general and administrative expenses- related party. The compensation
      for services from inception to March 31, 2006 is $2,100,361. During fiscal
      year
      2005, the Company issued 500,000 shares of common stock to its founder for
      services valued at $165,000 or $0.33 average price per share.





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





**Loans
      From Founder:**





**2005:**  On
      September 15, 2005, the Company received a loan of $80,000 from the CEO and
      founder. As of March 31, 2006 and December 31, 2005, the loan balance totaled
      $84,356 and $82,672, respectively, consisting of principal of $80,000 and
      accrued interest of $1,684 for the first quarter ended March 31, 2006 and $2,672
      for the year ended December 31, 2005. Under the terms of the Note, interest
      will
      be paid at the rate of 10% annually, with principal and interest payable on
      December 1, 2005. Unpaid principal and interest after December 1, 2005 is
      subject to interest of five percent (5%) in excess of the rate otherwise
      applicable to the unpaid balance. As of the date of this report, the loan
      remains unpaid.




12





**2004:** As
      of
      March 31, 2006 and December 31, 2005, respectively, the Company had a loan
      payable totaling $339,521 and $352,726 to the CEO and founder, consisting of
      principal of $275,520 and $288,726. The Company is also obligated to issue
      to
      the CEO and founder 80,000 shares of common stock valued at $64,000. Under
      the
      terms of the Note, interest will be paid at the rate of 10% annually. Accrued
      interest included in the loan balances as of March 31, 2006 and December 31,
      2005 were $74,794 and $60,000, respectively.




During
      the first quarter of 2005, the Company paid $160,000 to the CEO against this
      loan. Additionally, on December 5, 2005, 700,000 shares of the Company’s Common
      Stock were issued to the CEO as payment to be applied against the balance of
      the
      loan. The price per share of the common stock was $0.33 per share or $231,000.




During
      the first quarter of 2006, the Company paid $28,000 to the CEO against this
      loan; the Company also accrued $14,795 in interest leaving a balance of $339,521
      as of March 31, 2006. On December 31, 2005, the balance of the loan was
      $352,726, consisting of principal of $209,000, 80,000 shares of common stock
      valued at $64,000, and accrued interest of $79,726.





**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 was 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 March 31, 2006, there has been no significant
      operations commenced by NATVN.





See
      The
      Company’s Form 10KSB for the year ended December 31, 2005 for additional details
      of the NATVN transaction.




**NOTE
      5 - SUMMARY OF LEGAL PROCEEDINGS**




An
      estimated liability of $575,000 and $1,020,000 for legal settlements was
      recorded as of March 31, 2006 and 2005, respectively. Other than as described
      below, the Company is not currently involved in any legal proceedings that
      may
      be deemed to be material to our financial condition.




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





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




13




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





In
      the
      above-described litigation brought by the Company against Mr. Collazo, the
      defendant denied the allegations, asserted 21 affirmative defenses and bought
      a
      cross-complaint against the Company. Mr. Collazo alleged that the Company
      breached the employment agreement with him because he had not been paid
      compensation due him, he had not received a percentage of gross profit earnings,
      the Company had not exercised a good faith effort to raise an additional
      $250,000 in capital, and he did not receive the equity promised him. The Company
      denied the allegations of the cross complaint and asserted 13 affirmative
      defenses. At a settlement conference on April 11, 2005, the Company agreed
      to
      issue 900,000 shares of common stock to Mr. Collazo as of September 20, 2002
      and
      to pay attorney fees of $120,000. The Company also agreed to issue 900,000
      shares of common stock to Mr. Nana Yalley, who was then an officer and current
      shareholder, as well as an equal partner of Mr. Collazo in Nexcode. The shares
      of common stock were valued as of the settlement date, and accordingly, 900,000
      shares of common stock, as well as, $120,000 of attorney fees, were charged
      as
      expenses in 2004. The settlement was not finalized by June 10, 2005; therefore,
      Mr. Collazo could have exercised, at his option, the right to enforce the
      settlement agreement for the issuance of the 900,000 shares of the Company’s
      stock to him and the payment of his attorneys’ fees or the issuance of 200,000
      shares of stock to his attorney in lieu of payment.





On
      March
      16, 2006, the Company issued 900,000 restricted shares to Mr. Collazo in
      settlement of this matter. However, this matter remains unresolved, as Mr.
      Collazo is seeking to have the Company reissue the 900,000 shares without
      restrictions. As of May 11, 2006, neither the 900,000 shares of common stock
      to
      Mr. Yalley, nor the 200,000 shares or $120,000 for Mr. Collazo’s attorneys’ fees
      have been issued or paid. (See “Note 14 - Subsequent Events” for further details
      regarding this lawsuit.)





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





Yellowbrix,
      Inc. filed a collection suit against Media and Entertainment.com regarding
      an
      alleged contract authorized by the former CEO of Media and Entertainment.com.
      The pending lawsuit amount in dispute is $19,800, which was expensed in general
      and administrative expense in 2004 and accrued within accounts payable of the
      Company as of March
      31,
      2006 and 2005 . (See
      “Note 14 - Subsequent Events” for further details regarding this
      lawsuit.)





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





This
      collection lawsuit arises from an alleged contract and services obligating
      the
      Company, which was allegedly authorized by the former CEO of Media and
      Entertainment.com, Inc. The disputed amount of $8,733 was expensed as a general
      and administrative expense in 2005 and accrued within accounts payable of the
      Company as of March 31, 2006 .





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




14





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





On
      or
      about April 17, 2006, the Company was notified of a default judgment rendered
      against it in a collection suit in Travis County, Texas in the amount of
      $474,285.30 .
      An
      additional charge of $90,000 in attorney fees was entered in the judgment;
      however, the Company is negotiating a forgiveness of the attorney fees based
      on
      timely payment of the judgment. The $474,285.30 in dispute was expensed as
      a
      general and administrative expense in 2005 and accrued within accounts payable
      of the Company as of March 31, 2006. The $90,000 in attorney fees has not been
      expensed or accrued pending resolution of the negotiations. (See “Note 14 -
      Subsequent Events” for further details regarding this lawsuit.)





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





The
      disputed amount of $75,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2004 and accrued within accounts payable as of
      March 31, 2006 and 2005. Pursuant to a Stipulation for Entry of Judgment, the
      Company agreed to pay the sum of $75,000 in three (3) installment payments
      of
      $25,000, commencing in June 2006, in exchange for the dismissal of the action.
      The stipulation also provided that, in the event of a breach by the Company,
      Plaintiff could enforce the entire amount sought in the complaint -i.e.,
      $100,769.56. The Company has accrued an additional $25,000 account payable
      to
      reflect the breach. (See “Note 14 - Subsequent Events” for further details
      regarding this lawsuit.)





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





The
      disputed amount of $25,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2005 and accrued within accounts payable as of
      March 31, 2006 and 2005. As of August 20, 2006, there have been no new
      developments 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 $50,193.69 was expensed as a general and administrative expense in
      2005 and accrued within accounts payable of the Company as of March 31, 2006.
      (See “Note 14 - Subsequent Events” for further details regarding this lawsuit.)





**NOTE
      6 - GOING CONCERN**




These
      financial statements have been prepared in accordance with generally accepted
      accounting principles applicable to a going concern, which contemplates the
      realization of assets and the satisfaction of liabilities and commitments in
      the
      normal course of business. As of March 31, 2006, the Company has accumulated
      losses of approximately $13,850,000 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.




15




**NOTE
      7 - FIXED ASSETS**




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




**March
                31,**
              **2006**
            
            **December
                31,**
              **2005**Computer
                Equipment
            
            $
            1,066,682
            
            $
            977,669Infrastructure
            
            
            158,400
            
            
            158,400Software
            
            
            82,899
            
            
            82,899Furniture
                & fixtures
            
            
            79,616
            
            
            36,682Total
                Fixed Assets
            
            
            1,387,597
            
            
            1,255,650Less:
                accumulated depreciation
            
            
            (651,012
            )
            
            (614,194
            )Net
                Fixed Assets
            
            $
            736,585
            
            $
            641,456




Depreciation
      expense for the three-month periods ended March 31, 2006 and 2005 was $36,818
      and $85,600 respectively. Depreciation expense from inception to March 31,
      2006
      was $932,493.




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




**NOTE
      8 - LOANS PAYABLE**




The
      Company had loans outstanding of $401,224 and $383,357 as of March 31, 2006
      and
      December 31, 2005, respectively, payable to certain individuals. Proceeds from
      these loans were used for working capital purposes. The following is a summary
      of the loans payable:




**Interest
                Rate**
            
            **Loans
                Payable**
            
            **March
                31,**
              **2006**
            
            **December
                31,**
              **2005**Unstated
            
            
            The
                Company issued eight convertible promissory notes, due October 2005,
                convertible into shares of common stock at any time prior to maturity.
                No
                conversions were exercised.
            
            $
            198,500
            
            $
            198,5006.00%
            
            
            This
                loan was for a principal amount of $108,000, with no stated interest
                rate,
                repayment terms or maturity date. Interest is imputed at 6% annually,
                based upon a 365-day calendar year. Accrued interest payable included
                in
                the balance is $14,858 at March 31, 2006 and $13,260 at December
                31,
                2005.
            
            
            122,858
            
            
            121,2616.00%
            
            
            This
                loan was for a principal amount of $40,000, with no stated interest
                rate,
                repayment terms or maturity date. Interest is imputed at 6% annually,
                based upon a 365-day calendar year. Accrued interest payable included
                in
                the balance is $7,218 at March 31, 2006 and $6,626 at December 31,
                2005.
            
            
            47,218
            
            
            46,626Unstated
            
            
            This
                loan was for a principal amount of $16,970 with no stated interest
                rate,
                repayment terms or maturity date. No interest was imputed.
            
            
            16,970
            
            
            16,970Unstated
            
            
            This
                loan, arising from costs advanced on behalf of the Company, was for
                a
                principal amount of $15,678 with no stated interest rate, repayment
                terms
                or maturity date. No interest was imputed.
            
            
            15,678
            
            
            -Total
                Loans Payable
            
            $
            401,224
            
            $
            383,357




16




**NOTE
      9 - CONVERTIBLE DEBENTURES**




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 (1,450,000 shares of common stock), through December 2007.





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





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




During
      the third quarter of 2005, the Company received proceeds of $188,250, consisting
      of six offerings, evidenced by Convertible Note and Warrant Purchase Agreements
      (“the 2005/2006 Agreement”). Additionally, during the first quarter of 2006, the
      Company received an additional $504,200 from 43 accredited investors. Additional
      details regarding the total proceeds received from the 2005/2006 Agreements
      as
      of March 31, 2006 and December 31, 2005 are set forth below:






**March
                31,**
              **2006**
            
            **December
                31,**
              **2005**Derivative
                liability
            
            **$**
            611,954
            
            $
            82,483Warrant
                liability
            
            
            701,615
            
            
            23,406Convertible
                debentures
            
            
            1,033,375
            
            
            1,121,360Subtotal
            
            
            2,346,944
            
            
            1,227,249Adjustment
                of derivative and warrant liability to fair value
            
            
            (1,313,569
            )
            
            970,185Less:
                Accretion of principal and interest related to convertible
                debentures
            
            
            556,075
            
            
            (1,112,184
            )Total
                Proceeds from convertible debentures
            
            
            1,589,450
            
            
            1,085,250Plus:
                Accrued interest
            
            
            84,428
            
            
            68,181Total
                Convertible debentures
            
            $
            1,673,878
            
            $
            1,153,431Less:
                Current portion of convertible debentures
            
            
            (1,673,878
            )
            
            (1,153,431
            )


Total
                Non-current Convertible Debentures
            
            $
            -0-
            
            $
            -0-





Summary
      of Convertible Notes:





**Year**
            **Proceeds**
            
            **Conversion/Payment**
            
            **Balance**2004
            815,000
            
            **-**
            
            815,0002005
            388,250
            
            (118,000)
            
            1,085,2502006
            504,200
            
            -
            
            1,589,450




17


The
      accompanying financial statements comply with current requirements relating
      to
      warrants and embedded derivatives as described in SFAS No. 133, EITF 98-5 and
      00-27, and APB 14 as follows:




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




Subsequent
      to the initial recording, the change in the fair value of the detachable
      warrant, determined under the Black-Scholes option pricing formula and the
      change in the intrinsic value of the embedded derivative in the conversion
      feature of the convertible debenture, is accrued as adjustments to the
      liabilities at March 31, 2006 and December 31, 2005.




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





Included
      in the above values is accrued interest of $84,428 at March 31, 2006 and $68,181
      at December 31, 2005. The interest expense for the three-month periods ended
      March 31, 2006 and 2005 is $18,391 and $12,389.





Accreted
      interest and principal was $1,033,375 as of March 31, 2006 and $930,441 as
      of
      December 31, 2005.




**Defaults
      on Convertible Debentures**





As
      of
      June 30, 2006, and subsequently, the Company had several convertible notes
      mature without conversion or repayment. As of September 18, 2006, the balance
      of
      the notes in default is $125,000; the remaining balance of the notes maturing
      during 2006 have either been converted, extended, or the Company has received
      written or verbal approval to extend or convert the notes.





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





**NOTE
      10 - COMMITMENTS AND CONTINGENCIES**





**Network
      Operations and Office Lease Agreement**





On
      October 12, 2005, the Company entered into a 132 month commercial lease
      agreement effective as of November 1, 2005 with Atlanta Centennial, LLC for
      approximately 9,415 square feet of office space located on the 26 th floor of
      the Centennial Tower at 101 Marietta Street in Atlanta, Georgia (the “Lease”).
      For further details concerning this Lease, see the Company’s Form 8K filed on
      October 18, 2005  and
      its
      Form 10-KSB for the 2005 fiscal year.





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





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




18





Years
      ending December 31





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




**Employment
      Agreements**





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




Subsequently,
      on December 9, 2005, Mr. Yalley entered into a separation agreement with the
      Company, which
      nullified and voided his employment agreement of October 8, 2004 with
      the Company .
      Accordingly, the Company has recorded no accrued salary as of March 31, 2006
      for
      Mr. Yalley.





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





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





During
      the three months ended March 31, 2006, the Company entered into at-will
      employment agreements with eleven key employees. The agreements, in the
      aggregate, will provide annual compensation of approximately $1,020,000 and
      provide for the issuance of options to the employees to acquire an aggregate
      of
      1,000,000 shares of the Company’s common stock at $1.00 per share. Ten percent
      of the options vested immediately upon the signing of the Employment Agreement
      and the remaining options will vest at the rate of 1/12th per month for 12
      months. In addition to the stock options exercisable at $1.00 per share, an
      aggregate of 500,000 additional options will be issued to certain of these
      employees. The general terms of the additional stock options included a purchase
      price of $0.01 per share and will vest upon the Company achieving certain
      milestones.




19





The
      terms
      of the agreements include a deferral of a substantial portion (approximately
      40%) of the individual employee’s salary pending the Company’s receipt of a
      substantial financing. The Company will issue the options as soon as a
      satisfactory employee stock option plan has been approved. Consistent with
      the
      written obligation to issue the options, the Company has elected to accrue
      the
      fair market value of the options as if they had been issued under the
      requirements of SFAS No. 123(R).





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




**NOTE
      11 - SUBSEQUENT EVENTS**





**Automated
      Interiors Acquisition**




Effective
      as of April 18, 2006, the Company acquired Automated Interiors, (a private
      Georgia Limited Liability Corporation) (“AI”) in exchange for 411,956 shares of
      the Company’s Common Stock. The transaction will be accounted for as a purchase
      of the net assets of AI, thereby creating a wholly-owned subsidiary -- the
      operations of which will be included in the consolidated financial statements
      of
      the Company commencing in the second quarter of 2006. The value of the
      transaction, based on an agreed value of $0.25 for each common share of the
      Company in exchange for the net assets of AI as of the date of the transaction
      and cash flows, is $102,989. The transaction value will be adjusted for
      significant changes, if any, resulting from the December 31, 2005 audit of
      AI,
      which is currently being conducted.





**Employee
      Matters**




Effective
      June 6, 2006, Joseph Morris succeeded Eric Young as Chief Operating Officer
      of Winsonic Digital Media Group, Ltd. Previously, Mr. Morris served
      as Chief Operating Officer of Automated Interiors, LLC, a wholly owned
      subsidiary of the Company, which was acquired on April 18, 2006.  Mr.
      Morris' base salary is $150,000 per annum. Additionally, Mr. Morris was granted
      stock options to purchase 100,000 of the Company's Common Stock at an average
      price of $1.00 per share, of which 10% vested immediately upon signing the
      employment agreement and the remaining 90% to vest at the rate of 1/12th per
      month for twelve months.





Subsequent
      to March 31, 2006, the Company entered into at-will employment agreements with
      four executives. Under the terms of employment, the executives will receive
      a
      base salary, with a portion deferred on a monthly basis until the next funding
      occurs. The executives are also eligible for an annual incentive bonus based
      on
      performance. The employment agreements are terminable at will with or without
      cause (as defined therein). The employees will receive non-qualified incentive
      stock options to purchase a cumulative 300,000 shares of common stock at an
      exercise price of $1.00 per share in accordance with the Company's Employee
      Stock Option Plan. Ten percent of the options vested immediately upon the
      signing of the employment agreement and the remaining options shall vest at
      the
      rate of 1/12th per month for 12 months. In addition, they will receive an
      additional restricted 75,000 shares of stock at a purchase price of $.01 per
      share, in which 1/3 vested upon the signing of the employment agreement, 1/3
      will vest at the closing of the next round of financing, and the remaining
      1/3
      when the Company’s Common Stock resumes trading on the OTCBB.





On
      August
      1, 2006, Eric Young resigned as the Company’s Chief Financial Officer to pursue
      other opportunities. Additionally, on June 13, 2006, Jon Jannotta resigned
      from
      his position as President of the Company; however, Mr. Jannotta continues to
      serve as a member of the Board of Directors of the Company.




20





**Legal
      Proceedings**





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




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





On
      July 7, 2006, Mr. Collazo’s former attorneys, Wilshire Palisades Law Group, P.C.
      filed an attorney lien on any and all judgments rendered in favor of Mr.
      Collazo.  Under advisement of counsel, as of August 20, 2006, the Company
      has not reissued the 900,000 shares, nor has it made any additional payments
      to
      Mr. Collazo.





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





On
      July 25, 2006, the Company learned that a judgment had been entered against
      it
      in this matter on February 15, 2006. The judgment amount included the $19,800
      in
      controversy, plus $3,000 in attorney fees. As of August 20, 2006, Yellowbrix
      has
      not sought to enforce the judgment.





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





On
      July
      27, 2006, the Company received notice that the judgment had been domesticated
      in
      the state of Georgia as of July 21, 2006. As of August 20, 2006, no further
      action has been taken in this matter.





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





On
      August
      15, 2006, Netscaler filed a declaration to set aside the dismissal and to enter
      judgment in the amount of $100,769.56 against the Company pursuant to the
      Stipulation for Entry of Judgment. The Company has accrued the additional
      obligation of approximately $25,000 as of March 31, 2006.





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





On
      April
      5, 2006, Crown filed a motion to change venue from Cobb County to Fulton County.
      On April 18, 2006, the Company, through its attorneys, filed an Answer
      contesting service, a Motion to Open Default and a Brief in Support of the
      Motion to Open Default. As of August 20, 2006, no other events have occurred
      in
      this matter.





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





This
      is
      an action for breach of contract brought by David Lefkowitz, Caesar Collazo’s
      attorney in Collazo vs. Media and Entertainment.com. Mr. Lefkowitz seeks payment
      of $125,000 in attorney fees, which the Company was obligated to pay pursuant
      to
      the Settlement Agreement of April 11, 2005 in the Collazo matter. The disputed
      amount was charged as expenses in 2004. (For further background information
      on
      this matter, see “Note 5 - Summary of Legal Proceedings, Collazo vs. Media and
      Entertainment.com.”)




21





On
      June
      22, 2006, the Company filed its answer to the unverified complaint denying
      each
      allegation and asserting various affirmative defenses, including, failure to
      state a claim, waiver, ratification, etc. On July 17, 2006, Mr. Lefkowitz filed
      an offer to compromise requesting that the Company agree to a judgment in his
      favor in the amount of $120,000. As of August 20, 2006, no significant action
      has been taken in this matter.





**Consulting
      Contracts**





Subsequent
      to March 31, 2006, the Company entered into four consulting agreements. Three
      of
      the agreements provide for compensation by issuance of the Company’s restricted
      common stock. In connection with the agreements, the Company will issue a total
      of 395,000 shares.




Contractor
            Date
            Shares
                to be issued
            Services
            Period
                of AgreementIqraa-1
                Commodity, Inc.
            May
                26, 2006
            185,000
            Strategic
                and Long-term Financial Advisor
            3
                MonthsDennis
                James
            June
                12, 2006
            None
            Management
                of Telecom Switch
            Continues
                until 30 days notice by either partyFraserNet
            July
                28, 2006
            150,000
            Business
                Development and Financial Advisor
            1
                YearMelvin
                Cooper
            August
                1, 2006
            60,000
            Strategic
                and Long-term Financial Advisor
            6
                Months





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





**Forward-Looking
      Statements**





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




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




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




22





**General**





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





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





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





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





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





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





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





Winsonic’s
      objective is to maximize product performance while reducing cost through
      technology innovation. For a more detailed explanation of Winsonic’s
      capabilities we invite you to visit the Winsonic website at: www.winsonic.net.
      The information contained on our website is not incorporated by reference in
      this report and should not be considered a part of this report.




23





**Discussion
      of Material Transactions**





*Native
      American Television Network*





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





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





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





This
      transaction was recorded in accordance with Staff Accounting Bulletin (SAB)
      Topic 5(g), which states that the transfer of non-monetary assets by
      shareholders should be recorded at the transferor’s historical cost basis as
      determined under Generally Accepted Accounting Principles (GAAP). The President
      of the Company and a Company shareholder are also shareholders and co-founders
      in NATVN, owning approximately 9% of the total outstanding equity in NATVN.
      Since NATVN is an early development stage company, the historical cost and
      therefore initial value of the non-monetary asset received is valued at zero
      as
      of March 31, 2006 since there are no tangible or intangible assets and signed
      agreements in place. While management believes that the relationship will serve
      to provide a much needed service to customers, as well as, prove to be
      financially rewarding, management shall adhere to valuation of the investment
      in
      NATVN at the historical based cost.





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





*Automated
      Interiors, LLC*





Effective
      as of April 18, 2006 the Company acquired Automated Interiors, LLC, (“AI”).
 AI is an integrated, converged solutions provider for cities, communities
      and facilities. AI designs and/or installs electronic systems, home theaters,
      closed circuit television, structured wiring, lighting controls, music and
      video
      distribution, phone systems, and security automation systems. For a more
      detailed description of the acquisition of AI, see “Note 11 - Subsequent
      Events.”




24





**Material
      Changes in Results of Operations**




As
      a
“development stage company” we have not commenced commercial operations and have
      had no revenue during the quarters ended March 31, 2006 and 2005. Prior to
      2005,
      the Company recorded $57,811 of revenue since inception.





For
      the
      three months ended March 31, 2006, we incurred an operating loss of
      approximately $756,000 compared to an operating loss of approximately $654,000
      in the comparable period of 2005. Total operating expenses were approximately
      $756,000 for the three-month period of 2006, primarily representing selling,
      general and administrative expenses of approximately $719,000 and depreciation
      expense of approximately of approximately $37,000, compared to total operating
      expenses of in the comparable period last year of approximately $531,000
      consisting primarily of selling, general, and administrative expenses of
      approximately $445,000 and depreciation expense of approximately
      $86,000.





During
      the current period ended March 31, 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 selling, general and
      administrative expenses for the three months ended March 31, 2006 include
      compensation expenses of $115,984 arising from vested employee stock options
      committed to employees during the quarter.  The related period ended March
      31, 2005 has no comparable charge.  Had the Company applied SFAS No. 123(R)
      during the quarter ended March 31, 2005, the Company would have recognized
      additional compensation expense of $222,000 during that quarter.  For
      additional information, see “Note 2 - Summary of Significant Accounting
      Policies, Stock Based Compensation” of the financial statements.





For
      the
      three months ended March 31, 2006, the Company incurred interest expense of
      approximately $37,000 compared to an interest expense of approximately $290,000
      in the comparable period of 2005. The decrease in interest expense during the
      three months ended March 31, 2006 is $253,000. The decrease is primarily due
      to
      the accretion of interest of $16,000 during the first quarter of 2006 compared
      to $262,000 for principal and interest related to convertible promissory notes,
      which was accreted during the quarter, ended March 31, 2005. Other interest
      expense related to notes also decreased during the period ended March 31, 2006
      to $21,000 from $30,000 for the comparable period ended March 31, 2005.





During
      December of 2004 and January of 2005 the Company issued a total of approximately
      $1,015,000 in convertible debentures. The conversion feature of the debentures
      included the right of the Note Holder to convert the face value of the note
      into
      common stock of the Company at the lower of $0.70 per share or 85% of the market
      value of the common stock (at the time of conversion). The agreement also
      included a detachable warrant, which allowed the Warrant Holders to purchase
      shares of common stock of the Company at $0.70 per share (1,450,000 shares
      of
      common stock), through December 2006. During the period ended December 31,
      2005,
      the debentures were renegotiated and extended to June of 2006, and the
      conversion price was decreased from $0.70 to $0.40 or 85% of the market price
      of
      the stock at the time of conversion. Please reference “Note 8 - Convertible
      Debentures” of the
      financial statements for a more detailed explanation. The transaction, to the
      extent that it is to be satisfied with common stock of the Company, would
      normally be classified as an equity obligation. However, the Company could
      be
      required to issue an indeterminate number of shares of its common stock to
      satisfy the optional (85% of market value) conversion feature of the debentures.
      This could cause the Company to exceed the number of shares of common stock
      it
      is authorized to issue, which would also prevent the delivery of common shares
      if the warrants were exercised during that period of time as well. Under
      Generally Accepted Accounting Principles (“GAAP”), the Company is required to
      record the warrants and the convertible notes as a liability. Changes in the
      value of the derivative liability and the warrant liability are reflected on
      our
      income statement as “ *Unrealized
      gain (loss) on adjustment of derivative and warrant liability to fair value
      of
      underlying securities.* ”
During
      the three month period ended March 31, 2006 the Company recorded a loss of
      approximately $596,000 compared to a gain of approximately $1,134,000 during
      the
      period ended March 31, 2005 from the adjustment of the same liabilities.





For
      the
      three month period ending March 31, 2006 the Company recorded a net loss of
      approximately $1,394,000, compared to the three month period ended March 31,
      2005 when the Company recorded net income of approximately $190,000.




25





The
      largest component of change in loss recognized during the three month period
      ended March 31, 2006 compared to March 31, 2005 is the charge to the “unrealized
      change in gain/loss on adjustment of derivative and warrant liability to fair
      value of underlying securities”.





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
      March 31, 2006, we had a working capital deficit of approximately $7,436,000,
      compared to a deficit of approximately $6,513,000 as of December 31,
      2005.





If
      we are
      unable to generate sufficient sustainable revenues or obtain additional
      financing to meet our financial obligations, we will have to further reduce
      our
      operations, and we will not be able to continue as a going concern. Our
      independent accountants have indicated 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
      three-month period ending March 31, 2006 we used approximately $769,000 in
      our
      operating activities, compared with approximately $478,000 in the comparable
      period of 2005.





For
      the
      three-month period ending March 31, 2006 our investing activities used
      approximately $132,000 for the purchase of fixed assets, compared to $11,000
      in
      the comparable period of 2005.





For
      the
      three-month period ending March 31, 2006 our financing activities generated
      approximately $510,000 compared to approximately $57,000 being generated in
      the
      comparable period last year. The $510,000 generated from our financing
      activities in the first quarter of 2006 consists primarily of proceeds from
      loans payable and convertible loans of $538,000, which was partially offset
      by a
      payment of related party loan payable of $28,000 and the payment of legal fees
      through the issuance of restricted common stock valued at $450,000. For the
      comparable period ended March 31, 2005, the Company raised $216,000 from loans
      and convertible notes, which was offset by repayments of $160,000 on loan
      obligations.





From
      inception, the Company has raised $4,797,000 to fund operations.  Of the
      total funds raised, $3,350,000 have been used to provide the necessary resources
      for the development stage operations of the Company and $1,388,000 was used
      to
      purchase fixed assets. The funds include cash of $3,707,000 which was raised
      through convertible debentures and warrants for common stock; and cash of
      $1,090,000 which was raised through loans (net of repayments).  The balance
      of the funds raised to date include an issuance of stock used as payment of
      a
      legal settlement in the amount of $450,000 and a concession from  a vendor
      who provided $153,000 by way of reducing interest charged to the Company for
      fixed assets.





For
      the
      three-month period ending March 31, 2006 the Company’s net cash position
      increased by approximately $60,000 compared to a net decrease of $430,000 in
      the
      comparable period of 2005.




**Continuing
      Operations**




The
      Company has, to date, focused almost exclusively upon the startup phase of
      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 of the business model. The planned expansion includes,
      among other things, commercial operations where the Company will be delivering
      broadband services across several platforms; the integration of Automated
      Interiors; and potential joint ventures (such as NATVN). While management
      expects the revenue portion of operations to increase rapidly once they can
      focus attention on the business plan, the Company expects to operate with a
      deficit in cash flows for the next few months. Management’s current projections
      of operations for the balance of the 2006 fiscal year indicate that for the
      balance of the current year, operations are expected to generate a net deficit
      of approximately $300,000 per month until operations commence. The deficit,
      which arises primarily from payroll obligations, is expected to be satisfied,
      prior to commencement of operations, through a combination of employee salary
      deferrals of approximately $90,000 per month and through cash raised primarily
      from the placement of the Company’s securities (either directly or through
      convertible debt offerings). Management intends to focus substantial efforts
      on
      the funding of the operational deficit during the next few months. The funding
      effort will proceed at the same time as commercial operations are commenced.
      The
      Company believes that the current management team has the necessary time and
      skills to handle the challenge of covering the cash deficit and developing
      profitable operations. There is no guarantee that any such financings can be
      obtained or, if obtained, that such financings will be on adequate or reasonable
      terms.




26





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





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





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





**Off-Balance
      Sheet Arrangements**





As
      of
      March 31, 2006, 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, 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 March
      31, 2006. Based on this evaluation, our management concluded that our disclosure
      controls and procedures were not effective as of March 31, 2006 to ensure that
      information required to be disclosed by us in the reports that we file or submit
      to the SEC is recorded, processed, summarized and reported within the time
      periods specified in the SEC’s rules and forms. Our management team is
      diligently developing & implementing disclosure controls and procedures to
      ensure that such information required for disclosure is recorded, processed,
      summarized and reported timely and accurately.





There
      was
      no change in the Company’s internal control over financial reporting during the
      three months ended March 31, 2006 that has materially affected or was reasonably
      likely to materially affect the Company’s internal control over financial
      reporting.




27





**Part
      II - Other Information**





**Item
      1. Legal Proceeding.**





See
“Note
      5 - Summary of Leal Proceedings” and “Note 11 - 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
      February and March 2006, the Company received proceeds of $504,200 from
      Convertible Note and Warrant Purchase Agreements to 43 accredited investors.
      The
      Agreements also included detachable warrants, which allowed the Warrant Holders
      to purchase 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, 2006, and subsequently, the Company had several convertible notes
      mature without conversion or repayment. The balance of the notes currently
      in
      default is $125,000; the remaining balance of the notes maturing during 2006
      have either been converted, extended, or the Company has received a verbal
      approval to extend or convert the notes.





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




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





There
      were no matters submitted to a vote of the shareholders.





**Item
      5. Other Information.**





On
      February 23, 2006, the commercial lease agreement executed between the Company
      and Atlanta Centennial, LLC was amended, thereby expanding the rental space
      from
      9,415 to 18,830 square feet. (For further details concerning this Lease, see
      the
      Company’s Form 8K filed on October 18, 2005  and
      its
      Form 10-KSB for the 2005 year period.) The term of the original lease remained
      the same; however, the annual rental payment schedule was amended as follows:





Years
      ending December 31





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




Pursuant
      to the amended lease agreement, a payment of $17,246 was paid on March 10,
      2006
      and was applied to the June 2006 rent.




28





**Item
      6. Exhibits.**


*10.1
            
            Amendment
                to Office Lease Agreement for Centennial Tower, 101 Marietta Street,
                Atlanta, Georgia, by and between Atlanta Centennial, LLC and Winsonic
                Digital Media Group, Ltd., dated February 23, 2006.*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




29




**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)September
                25, 2006
            By:
            /s/
                Winston JohnsonWinston
                Johnson
              Chairman
                & CEO
              (Principal
                Executive Officer and Principal Financial
                Officer)








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