**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-KSB**




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




For
      the
      fiscal year ended December 31, 2007




o  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




**WINSONIC
      DIGITAL MEDIA GROUP, LTD.**


(Name
      of
      small business issuer in its charter)





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




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




Issuer's
      telephone number (404) 230-5705





Securities
      registered under Section 12(b) of the Exchange Act:




NONE




Securities
      registered under Section 12(g) of the Exchange Act:




Common
      stock, $0.001 par value




(Title
      of
      class)


Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





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 þ  No o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. þ





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





The
      issuer's consolidated revenues for the fiscal year ended December 31, 2007
      were
      $1,524,995.




The
      aggregate market value of the issuer's voting and non-voting common equity
      held
      by non-affiliates as of March 31 2008, was $15,106,695. On such date, the
      closing price for the issuer's common stock, as quoted on the OTCBB was
      $0.25.




The
      issuer had 77,678,981 shares of common stock outstanding as of March 31,
      2008.







TABLE
      OF
      CONTENTS





PART
                I**Item
                1.**
            
            Description
                of Business
            
            3**Item
                2.**
            
            Description
                of Property
            
            17**Item
                3.**
            
            Legal
                Proceedings
            
            18**Item
                4.**
            
            Submission
                of Matters To a Vote of Security Holders
            
            18PART
                II**Item
                5.**
            
            Market
                for Common Equity and Related Stockholder Matters
            
            19**Item
                6.**
            
            Management’s
                Discussion and Analysis or Plan of Operation
            
            25**Item
                7.**
            
            Financial
                Statements
            
            42**Item
                8.**
            
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure
            
            42**Item
                8A.**
            
            Controls
                and Procedures
            
            43**Item
                8B.**
            
            Other
                Information
            
            44PART
                III**Item
                9.**
            
            Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) of the Exchange Act
            
            45**Item
                10.**
            
            Executive
                Compensation
            
            47**Item
                11.**
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            49**Item
                12.**
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            50**Item
                13.**
            
            Exhibits
            
            52**Item
                14.**
            
            Principal
                Accountant Fees and Services
            
            56


SIGNATURES
            
            57REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            
            F-1BALANCE
                SHEETS
            
            F-2STATEMENTS
                OF OPERATIONS
            
            F-3STATEMENTS
                OF CASH FLOWS
            
            F-4STATEMENTS
                OF STOCKHOLDERS’ DEFICIT
            
            F-5NOTES
                TO FINANCIALS
            
            F-10




2




**PART
      I**





Throughout
      this Annual Report on Form 10-KSB, the terms “the Company,” “we,” “us,” “our,”
“our company,” and “WinSonic ***”*** refer
      to
      WinSonic Digital Media Group, Ltd., and includes our subsidiaries, WinSonic
      Digital Cable Systems Network, Ltd., Automated Interiors, LLC, Tytess Design
      & Development, LLC, WinSonic Digital Store, Ltd., and WinSonic Diversity,
      LLC, unless the context indicates otherwise.




**Forward-Looking
      Statements**




This
      annual report contains forward-looking statements within the meaning of the
      Private Securities Litigation Reform Act of 1995. When used in this annual
      report, words such as, “believe,” “expect,” “intend,” “plan,” “anticipate,”
“foresee,” “likely,” “will,” “goal,” “target,” “project,” “estimate” and similar
      expressions are intended to identify forward-looking statements, although there
      may be certain forward-looking statements not accompanied by such expressions.





Forward-looking
      statements about our business, financial condition and prospects reflect
      management's assumptions and beliefs based on information currently available
      to
      it. We can give no assurance that the expectations indicated by such
      forward-looking statements will be realized. If any of these 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.




Additional
      information about factors that could lead to material changes in performance
      is
      contained in Item 6 Management’s Discussion and Analysis or Plan of
      Operation—Risk Factors. Such factors may include:





§
            our
                ability to raise capital and the relative illiquidity of shares of
                our
                common stock;


§
            our
                ability to achieve and sustain profitable
                operations;


§
            the
                existence of unknown liabilities stemming from our
                acquisitions;


§
            our
                ability to successfully integrate the operations of companies we
                have
                acquired into our existing
                operations;


§
            the
                loss of existing customers;


§
            our
                ability to attract and retain key employees;
                ;


§
            our
                ability to develop products and technologies that attract customers,
                and
                customers’ long-term acceptance of our products and
                technologies;


§
            intense
                competition in our industry;


§
            our
                reliance on networks operated by others and which we cannot control;
                and


§
            our
                ability to protect our intellectual
                property.




Any
      forward-looking statement speaks only as of the date on which such statement
      is
      made, and, except as required by law, we undertake no obligation to update
      any
      forward-looking statement to reflect events or circumstances after the date
      on
      which such statement is made or to reflect the occurrence of unanticipated
      events. New factors emerge from time to time and it is not possible for
      management to predict all such factors.




**Item
                1.**
            **Description
                of Business.**




**(a)
      General Business Development and History**





Media
      and
      Entertainment.com, Inc., (the “Public Company”) was incorporated on April 27,
      2000. On October 7, 2004, the Public Company consummated an Agreement and Plan
      of Reorganization to acquire all of the outstanding capital stock of WinSonic
      Holdings, Ltd., a closely held private company (the “WinSonic Transaction”).
      Prior to the WinSonic Transaction, the Public Company had no operations or
      assets and 23,956,138 shares of common stock issued and outstanding. On
      September 14, 2000, Media and Entertainment, Inc. changed its name to Media
      and
      Entertainment.com, Inc., and on November 24, 2004, Media and Entertainment.com,
      Inc. changed its name to WinSonic Digital Media Group, Ltd.




3




As
      described in more detail below, the Company holds a 49% equity interest in
      WinSonic Diversity, LLC and 27 % of the Native American Television Network;
      and
      through acquisitions owns 100% of its three subsidiaries Automated Interiors,
      LLC, Tytess Design and Development, Inc., and WinSonic Digital Store, Ltd.





On
      September 29, 2005, the Company consummated a stock exchange agreement with
      the
      Native American Television Network (“NATVN”), based in Albuquerque, New Mexico.
      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
      Company acquired Automated Interiors, LLC (“Automated Interiors”), a Georgia
      limited liability company effective April 18, 2006. Automated
      Interiors is a
      systems integration company, which plans
      and
      engineers the installation of electronic components to facilitate “smart”
buildings.





WinSonic
      Diversity, LLC (“WinSonic Diversity”) was formed on May 22, 2006 in the State of
      Georgia by the Company and Mr. Winston Johnson, the Chairman and CEO of the
      Company. The Company owns 49% of the equity interests of WinSonic Diversity
      and
      Mr. Johnson owns the remaining 51% of the equity interests. WinSonic
      Diversity is focused on developing urban and rural communities by providing
      resources and services that improve quality of life.





The
      Company acquired Tytess Design and Development, Inc. (“Tytess”), a Georgia
      corporation, on November 2, 2006. Tytess provides architectural, engineering,
      construction and construction management services to residential and commercial
      customers.





The
      Company acquired DV
      Photo
      Shop on November 20, 2006. Following the acquisition, the Company changed the
      name of DV Photo Shop to WinSonic Digital Store, Ltd. (the “Digital Store”), and
      incorporated it in the State of Georgia on December 8, 2006. The Digital Store
      is an urban retail store located at Centennial Tower, 101 Marietta Street,
      Atlanta, Georgia, and specializes in photography development, digital
      photography and the sale of mobile phones, accessories, and wireless
      communications services.





On
      November 20, 2007, WinSonic McCrary, LLC (“WinSonic McCrary”), a newly-created
      Georgia limited liability company and wholly owned subsidiary of WinSonic
      Diversity, entered into an Asset Purchase Agreement with Colonel McCrary
      Trucking, LLC (“Colonel McCrary”), a Georgia limited liability company, and all
      of the members of Colonel McCrary. Pursuant to the Asset Purchase Agreement,
      Colonel McCrary was to sell substantially all of its assets to WinSonic McCrary
      and WinSonic McCrary was to assume and discharge certain liabilities and
      indebtedness of Colonel McCrary. The closing of the transaction did not take
      place in accordance with the Asset Purchase Agreement. As a result, following
      discussions among the parties, the Asset Purchase Agreement expired in
      accordance with its terms.





On
      January 22, 2008, WinSonic Digital Media Group, Ltd. (the “Company”) entered
      into a Stock Purchase Agreement (the “SPA”) with Tap It, Inc., a Delaware
      Corporation (“Tap It”) pursuant to which the Company agreed to purchase
      2,291,667 shares of Tap It’s common stock (the “Initial Shares”) for $550,000
      (the “Purchase Price”). The Company intended to purchase the Initial Shares on
      January 31, 2008. In addition to the Initial Shares, the SPA also gave the
      Company the option to purchase an additional 6,041,667 shares of Tap It’s common
      stock at various times until August 1, 2008. The initial closing of the SPA
      did
      not occur as scheduled. As a result, following discussions among the parties,
      the SPA was terminated.





On
      March
      20, 2008, the Company entered into a rights agreement with Blue Pie Productions
      Pty Ltd (“BPP”) pursuant to which BPP granted the Company an exclusive license
      to reproduce, commercialize, maintain and market select BPP products, goods
      and
      services within the United States and Canada.  In consideration for
      the license, the Company agreed to pay a total of $200,000, due and payable
      forty-five days after the Company files its Annual Report on Form 10-K for
      the
      year ended December 31, 2007.  The license is granted for a period of
      36 months and can be extended at any time.  BPP may terminate the
      Agreement upon the occurrence of certain events, including the Company’s failure
      to meet specified sales targets.




4




**(b)
      Business of the Company**





***Overview***





WinSonic
      is a digital media distribution solutions company. We believe that our software
      and network establishes a new standard for media distribution of digital
      information via the Internet, Asynchronous
      Transfer Mode (“ ATM”),
      Serial Digital Interface (“SDI”), HDTV, digital cable, cable TV and satellite.
      Our network, the WinSonic Digital Cable Systems Network (the “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 reduced
      cost, reducing the need for expensive high-speed connections.





We
      are
      pursuing the commercialization of our products, which we believe establishes
      a
      new standard for media distribution of digital content and information, seamless
      compatibility with all major networks, copyright enforcement, multi-tier
      encryption (move files in a secure environment), wireless viewing capabilities
      for laptops and hand held products, such as cellular telephones and PDA devices.





Furthermore,
      the Company has intellectual property and Internet–based browser applications
      that it owns and is developing, which will capitalize on the rapidly expanding
      social networking, virtual reality and ecommerce markets. The Company will
      utilize its relationships in the entertainment and communication industries
      to
      own and control the digital rights and distribution of as much music and video
      content as possible. In addition, WinSonic will leverage its preferential
      communication licenses, interconnection, co-location, and wholesale pricing
      agreements with global service providers to reliably and cost effectively
      distribute its digitally formatted voice, video and data products and services.





WinSonic
      facilities-based products and services in out of franchise markets enable
      communications companies, such as Verizon Communication, Inc., to partner with
      WinSonic 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 worldwide telecommunications services for film
      and
      television. Our Network 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
      Communication, Inc., Sun MicroSystems, Inc., and Level 3 Communications, Inc.
      have teamed 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 ***.***





In
      addition to being a certified CLEC in the state of Georgia, an IXC nationwide
      and having the ability to deliver video programming and related services to
      the
      home or business as an authorized Open Video System operator, the Company is
      also a 49% shareholder in WinSonic Diversity, a privately held company and
      certified Minority Business Enterprise (“MBE”). This affiliation positions the
      Company to qualify for and secure additional business with major U.S.
      corporations that strive to meet mandated diversity goals and
      objectives.





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





***Reporting
      Segments***





In
      accordance with the provisions of SFAS No. 131, “Disclosures about Segments of
      an Enterprise and Related Information”, the Company has begun to report in five
      reportable operating segments, including: (i) the Digital Media Group, (ii)
      the
      Integrated Services Group, (iii) the Digital Distribution Group, (iv) the
      WinSonic Diversity Group, and (v) the Corporate Group.





As
      further described herein, we now consolidate business and financial activity
      of
      our various subsidiary companies and operating divisions within the respective
      business segment. The business activities associated with the development,
      marketing and sale of digital media & entertainment products and services of
      WinSonic Digital Media Group, Ltd., and the Digital Store **** comprises
      the Digital Media Group business segment. The business activities of WinSonic
      Digital Cable Systems Network, Ltd. (“WDCSN”) comprise the Digital Distribution
      Group business segment. The business activities of Tytess
      Design & Development, LLC and **** Automated
      Interiors, LLC comprise the Integrated Services Group business segment. The
      business activities of WinSonic Diversity, LLC shall comprise the WinSonic
      Diversity Group business segment. The business activities associated with
      corporate management, administration and finance of WinSonic Digital Media
      Group, Ltd comprise the Corporate Group business segment.




5




While
      the
      Company now has five identified business segments, all such segments are focused
      on digital media solutions and distributing digital content to the public and
      providing high-speed, high-quality, low-cost solutions that enable users to
      view, interact, and listen to all types of audio, online video and digital
      TV in
      full screen format.





The
      pictorial below portrays the interaction of our planned introduction of our
      Digital Media Group, Digital Distribution Group and Integrated Services Group
      business activities and shows how they will all interface with our existing
      supply side affiliations to provide solutions and managed services to our target
      customer base.









***Digital
      Media Group***





Our
      Digital Media Group business segment creates and licenses digital content from
      artists and media companies to cost efficiently and reliably deliver voice,
      video, and data products and services to its customers on a global basis. The
      Digital Media Group will be responsible for identifying product, service and
      web
      based applications, defining the solution, product development and management,
      sales, marketing, channel management, network security, database management,
      hosting, and other integration and customer support operations.





Our
      intellectual property includes, but is not limited to, three dimensional web
      browser applications and interactive media distribution platforms that leverage
      the viral growth characteristics of social networking and virtual reality.
      WinSonic intends to commercially launch a 3D virtual city (the “WinSonic City”),
      which includes retail, commercial and residential buildings, roads, airports,
      sports arenas, and other environmental and geographic elements in 2008. Our
      current plan is to commence with the beta launch of the WinSonic City during
      the
      third quarter of 2008 and follow with the commercial launch later in the year.
      The Company will couple this unique and compelling user environment with on-line
      shopping for consumer goods and services, digital downloading of music and
      video, plus other IP-based communications services and office productivity
      tools. The WinSonic metaverse and on-line shopping application utilizes simple
      user interfaces and point and click controls.




6




WinSonic
      will derive its revenue from advertising, e-commerce, subscription services
      and
      content distribution partnerships. The Company will focus initial business
      development efforts on securing affiliation agreements with national retail
      businesses, media companies, sports associations, alumni organizations, existing
      social networks, plus music artists, film and sports celebrities. The objective
      is to fill the WinSonic City buildings with tenants, who execute agreements
      for
      advertising, revenue-sharing, and possibly, subscription fees. The revenue
      model
      will be similar to existing web browser sites like Google, Yahoo and others,
      whereby retail businesses offer WinSonic revenue-sharing for on-line purchases,
      plus commercial and retail tenants purchase banner ads, which in the WinSonic
      virtual world equate to corporate logos and/or billboards on buildings.
      Celebrity anchor tenants, initially from urban entertainment and sports
      industries, will be contracted to become residents of the WinSonic City to
      stimulate awareness, promote the social networking aspects of the website,
      and
      generate subscription revenue from their members.





The
      Company believes the social networking aspects coupled with easy-to-use, three
      dimensional web browser experiences that appear like a virtual city will be
      very
      popular across all market and demographic segments. Customers will “go to the
      city” to socialize with their friends, shop, listen to music and watch videos.





From
      a
      channel marketing standpoint, the Digital Store is an urban retail store located
      at Centennial Tower, 101 Marietta Street, Atlanta, Georgia, and specializes
      in
      photography development, digital photography and the sale of mobile phones,
      accessories, and wireless communications services. The Digital Store provides
      service to downtown Atlanta, specifically those in need of convenience for
      uploading, developing and printing digital photographs and activating mobile
      phone services. The acquisition of the Digital Store provided an opportunity
      to
      create new and expanded consumer services in areas such as wireless
      communications, digital downloads, digital content development, mobility
      services and Voice over internet protocol (VoIP). The Digital Store continues
      to
      offer the same products and services it offered before the acquisition by the
      Company; however, its future offerings will be expanded to include music
      downloads, digital photo depot, on-line storage, video conferencing, content
      development, a music lab for mixing and mastering, and film, video and photo
      editing.




In
      addition, the Digital Store will provide consumers with access to a broad
      selection of digital products and services including:





·
            digital
                photography;


·
            digital
                printing;


·
            mobile
                phone services;


·
            music
                downloads;


·
            on-line
                storage;


·
            video
                conferencing;


·
            digital
                content development;


·
            music
                lab for mixing and mastering; and


·
            film,
                video and photo editing.





***Digital
      Distribution Group***





Our
      Digital Distribution Group business segment maintains and runs the Company’s
      facilities-based network (the “Network”) which has been the historic focus of
      the Company. The Network concentrates on carrier-class, high-speed, digital
      connectivity solutions.





*The
      Network*





In
      1994
      and 1995, WinSonic Holdings, Ltd., the Company’s predecessor, and WDCSN
      coordinated and integrated the first video telephone and video e−mail “store and
      forward” application. This application was based on a Pacific Bell (SBC)
      Asynchronous Transfer Mode (ATM) Network, and was implemented in partnership
      with Pacific Telesis Inc., in cooperation with the Whittaker Corporation. As
      a
      carriers' communications solutions provider, we can offer facilities−based
      products and services to communications companies such as Verizon, SBC, Time
      Warner, MCI, Level 3, AOL, MSN and Sony. We also provide other services
      including high−end consulting services in the areas of programming, software
      development, communications research and engineering, as well as, digital
      transport worldwide and digital distribution services for film and
      television.




7




Today,
      the Network remains WinSonic’s key strategic advantage. We concentrate on
      carrier−class high−speed connectivity solutions that bring together a
      first−class facility, along with network and multimedia communication services
      to its customers, without requiring substantial capital investments. The Company
      has implemented a high−end, facilities−based infrastructure to facilitate voice
      transport, audio, video, data, media and broadcast content over
      protocol−independent multi−layered communication systems.





The
      Network is a new global infrastructure for the delivery of converged
      entertainment, media and distribution services that facilitates the
      distribution, digitization, and transport of content, and enhances the
      performance of systems and software in the media, technology and
      telecommunications sectors. When creating variations in the core network, we
      are
      in effect broadening the number of product applications, as well as, expanding
      markets for our products. These applications include java soft phones, sun
      rays,
      digital distribution, professional engineering services, media and entertainment
      services, and education media services.





In
      addition to the services and products described below, we also have capabilities
      of providing new applications that open market opportunities to companies
      looking to expand revenues and broaden sales and look forward to creating
      revenue sharing partnerships with companies that would benefit from WDCSN
      solutions.





Our
      Digital Media Group business segment also plans to utilize WinSonic StreamStar
      Services, WinSonic Process Digital, WinSonic Cinema and Cyberhollywood.net
      as
      technology enhancements to further broaden customer demand through our channels
      to the market. WinSonic StreamStar solution has scalable on-demand video
      streaming 100K hours of MPEG2 content, 10K to over 100K MPEG2 streams, up to
      80,000 MPEG2 streams from desk top or set top. WinSonic Process Digital (“WPD”)
      applications are related to communications and digital distribution. WPD’s trade
      secrets include, but are not limited to, a digital process which emulates
      surround sound, proprietary compression techniques and a library of master
      recordings of major recording artists, sound effects, and other content.
      WinSonic Cinema services are integrated into wireless networks allowing end
      users to use their PDA’s, cell phones, game boys, computers, and TV’s in order
      to watch digital video, TV, and interactive multimedia files. The
      Cyberhollywood.net System **** allows
      television and radio broadcast programming to your desktop or laptop computer.





We
      strive
      to seek corporate relationships with companies or organization through which
      we
      can establish a defined market customer base through which to market our
      products and services.





*Telecommunications
      Certifications*





Our
      telecommunications certifications include the following:





1.
      The
      Company obtained an FRN (FCC Registration Number) from the Federal
      Communications Commission (“FCC”) that identifies it as a provider of interstate
      services.





2.
      The
      Company’s request for Section 214 authorization under 47 U.S.C. § 214 was
      granted by the FCC allowing the Company to provide telecommunication services
      between the United States and foreign points (U.S.-international
      services).





3.
      The
      Company is certified as a Competitive Local Exchange Carrier (CLEC) by the
      Public Service Commission (“PSC”) of the State of Georgia. This certification
      validates the Company as a provider of local exchange service (IntraLATAs)
      and
      enables the Company to compete with Incumbent Local Exchange Carriers (ILECs)
      through use of ILEC infrastructure and to collocate with various ILEC (i.e.,
      connect its switches with the ILECs’ switches) to gain access to their unbundled
      network elements (UNE).




4.
      The
      PSC approved WinSonic as an OCC (Other Common Carrier not part of the original
      AT&T system) and an IXC (IntereXchange Carrier).




8




5.
      WinSonic obtained a Service Provider Identification Number (SPIN) from the
      Universal Service Administrative Company (USAC), which will allow it to
      participate in the Federal Universal Service Fund programs – High Cost, Low
      Income, Rural Health Care, and Schools and Libraries Programs administered
      by
      USAC





6.
      WinSonic was certified to operate an Open Video System (OVS) pursuant
      to 47 C.F.R. §76.1502 authorizing the Company to
      offer
      video services either by distributing programming as a cable television provider
      or by establishing an open video system (OVS) to deliver video programming
      to
      the home or business.





7.
      An
      Interconnection Agreement between WinSonic and Bellsouth Telecommunications,
      Inc. was executed, thereby allowing the Company to offer BellSouth services
      in
      BellSouth’s service area.





See
      “Government Approvals and Licenses”, and “Effect of Government Regulations”
below.





*Services
      Offered by the Digital Distribution Group*





The
      Telecommunications Industry We
      offer an enhanced gateway to national and international communication lines.
      With the Network as a foundation, WinSonic provides sophisticated, state of
      the
      art application software and hardware solutions tailored to meet the specific
      needs of participants in the telecommunications industry. These applications
      include carrier solutions for regional phone companies, such as special software
      that provides networks the capability of accommodating all
      platforms.




As
      telecommunication companies increasingly outsource portions of their network
      responsibilities, we are able to respond with solutions that bring together
      proven experience, a first-class facility and network, multimedia and content
      distribution communication services that do not require substantial capital
      investments to implement. Verizon, Nortel, 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.




As
      traditional telecommunication companies seek to expand their product portfolio
      by bundling internet services and video distribution services, WinSonic is
      capable of assisting in the design and construction of the new facilities
      required to provide these services.




The
      Construction Industry Our
      objective is to provide services to participants in the construction industry
      that will allow maximization of profits through our vision, technological
      innovations and experience. WinSonic has built upon its long-term business
      model
      that incorporates the use of our Network to create a technologically superior
      home by converging audio, video, security and internet services.





The
      Media and Entertainment Industry WinSonic’s
      StreamStar solution provides scalable on-demand video streaming with 100,000
      hours of MPEG2 content, 10K to 100K+ MPEG2 streams, and up to 80,000 MPEG2
      streams from the desktop or set-top. OurCyberhollywood.net
      solutionallows
      both radio broadcast programming and television broadcast programming to be
      sent
      to your desktop or set-top. Other services include high-end consulting in the
      areas of programming, audio research and engineering, as well as digital
      transport services for film and television.





The
      Business Services Industry We
      provide participants in the business services industry with specific market
      applications and/or integrated solutions, and offer hardware/software
      combinations over our Network. As a Certified Sun Partner and reseller, we
      plan
      to generate contractually repeating revenues for services delivered to customers
      over our Network, including accommodations for the cost of the infrastructure
      to
      deliver the service (e.g., hardware, software, datacenter, labor, and
      intellectual property).





Our
      information technology skills allow us
      to provide complete end-to-end custom integrated solutions, consulting services,
      resale to end-users systems, platform-based solutions, supply implementation,
      deployment, post-sales support for third party hardware and software,
      e-business, database, data warehousing, web applications, network design,
      security, back-up/recovery, performance tuning, systems management, asset
      tracking, procurement, inventory and configuration management
      services.




9




Consumer
      Products and Services In
      the
      consumer market, our Network provides a strategic advantage for WinSonic. The
      Network enables us to expand our digital media products and services to
      accommodate a broad and diversified customer base, which should enhance our
      ability to increase sales in a highly competitive market. We are pursuing the
      commercialization of many products, which will provide media distribution of
      digital content and information, seamless compatibility with all major networks,
      copyright enforcement, multi-tier encryption (moving files in a secure
      environment) and wireless viewing capabilities for laptops and hand held
      products, such as cellular telephones and PDA devices.





This
      network build up also should benefit our position in the online gaming
      networking, video and audio streaming, packet- over-optical services, online
      encryption solutions and VoIP markets.





*Third
      Party Relationships*





NATVN *.* ****** The
      Native American Television Network (“NATVN”), based in Albuquerque, New Mexico,
      intends to launch the first Western Hemisphere, pan-tribal digital cable channel
      through which we plan to market our products and services. NATVN plans to
      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. The Company will provide to NATVN its nationwide
      distribution platform and technical support, expertise and personnel.
      Our ****** Network
      services will enable NATVN to reach its targeted Native American audience in
      both urban and rural tribal communities via digital cable, satellite, broadband,
      wireless, copper plants and fiber option delivery platforms. NATVN will use
      its
      resources and expertise to develop, produce, package, license and acquire
      programming for the operation of a 24/7, 365 day per year digital cable channel.
      Some, but not all of the, basis of interest by NATVN, and potentially other
      similar organizations are:





·
            The
                need for building a local education and training program that can
                provide
                Navajo Nation residents interested in entering the film and/or television
                industry with up-to-date digital media
                training.


·
            How
                to best utilize local workforce training and other resources so as
                to
                build and retain within the Navajo Nation an up-to-date well-trained
                media
                workforce.


·
            The
                need to assess the current state of the Navajo Nation’s communications
                infrastructure, as well as how to improve upon
                it.


·
            The
                establishment of a state-of –the-art digital news bureau/content
                production facility.





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.





NATVN
      has
      introduced us to other marketing channel parties, one of which is the Navajo
      Nation Office of Broadcast Services, and Diné College. We intend to collaborate
      and explore with the Navajo Nation Office of Broadcast Services and Diné
College, among others, the following marketing concepts:





BellSouth
      Telecommunications, Inc. On
      September 27, 2006, the Company executed an Interconnection Agreement with
      BellSouth Telecommunications, Inc. (“BellSouth”), now owned by AT&T, Inc.
      The agreement is effective for a period of five years, and applies to the
      BellSouth territory in the State of Georgia. The execution of this agreement
      allows the Company to (1) interconnect with BellSouth at the WinSonic
      network located at 55 Marietta Street in Atlanta, Georgia to provide local,
      long
      distance or other network services to its customers; (2) collocate with
      BellSouth in its central offices to access unbundled services at discounted
      rates and provide them to the Company’s customers at its rates; (3) gain
      nondiscriminatory access to any pole, duct, conduit, or right-of-way owned
      or
      controlled by BellSouth; and (4) resell services from the BellSouth Resale
      Tariff, which includes most local services, private line services and connection
      charges. Additionally, the Company’s customers can be listed in the BellSouth
      telephone directory and have access to BellSouth’s operator services (0),
      directory assistance (411) and emergency services (911).





On
      December 21, 2006, the Company and BellSouth entered into an MBR Marketing
      Agreement, which applies to the BellSouth territories in the State of Georgia.
      The agreement had an initial one year term; but is subject to automatic renewals
      for consecutive six month periods, unless either party provides the requisite
      notice indicating otherwise. This agreement is no longer in effect. This
      agreement allowed the Company to purchase certain services not covered under
      section 251 of the Telecommunications Act of 1996.




10




On
      March
      13, 2007, BellSouth established on the Company’s behalf a Master Account (“Q”
Account) for BellSouth billing purposes, a CLEC Care Team to support the Company
      with its simple resale and UNE product orders and an Account Team for support
      of
      the Company’s premium and complex resale product orders.





Sun
      iForce Partner On
      May
      27, 2005, the Company signed a Contract with Sun Microsystems, Inc. (“Sun”) as a
      Sun iForce Partner. Sun's partner model will help the Company build on a sales
      strategy and to deliver innovative solutions. Sun's partner model provides
      partners with a clear role definition and supports them with unparalleled
      partner development support, stronger go−to−market partnering, and more
      opportunities to transact business/orders via streamlined and web−enabled
      interfaces. The iForce Partner programs will incorporate a portfolio of products
      and services offered by Sun Enterprise Services around the globe, including
      Sun
      Professional Services, Sun Educational Services and Sun Support
      Services.





On
      September 25, 2006, WinSonic received its Letter of Authorization from Sun
      Microsystems, Inc., appointing WinSonic as a Sun Partner Advantage Business
      Partner and Technology Integrator. This authorization permits WinSonic to
      distribute Sun products including hardware, software, support services and
      client services by contracting directly with Sun or through a Channel
      Development Provider (CDP). The primary business model is to sell and supply
      value added services such as architecture planning, technical design, deployment
      and/or post sales support services for Sun and third party hardware and software
      solutions.





CI2,
      Inc. On
      December 10, 2004, the Company and CI2, Inc. (“CI2”) entered into a
      Subcontractor Master Consulting Agreement (the “SMCA”). The Master Purchase and
      Services Agreement (the “MPSA”) provided CI2 the ability to purchase and/or
      license various products and services for delivery and installation from the
      Company, to be used for CI2's own internal use and for resale.




Pursuant
      to the SMCA, CI2 will subcontract services to the Company through individual
      agreements. CI2 will compensate the Company in a manner consistent with the
      terms of the applicable agreements.





On
      December 10, 2004, the Company and CI2 also entered into a Joint Marketing and
      Development Agreement (the “JMDA”). Pursuant to the JMDA, the Company and CI2
will cooperate in the development and testing of certain Company products set
      forth in the JMDA (the “Company Products”), which run on a combination of
      certain listed CI2 hardware and software (the “CI2 Products”) creating a
      modified product (the “Modified Product”). Each party will bear all costs and
      expenses associated with its activities under the JMDA.





The
      term
      of the JMDA commenced on December 10, 2004 and continues to remain in effect,
      until terminated by either part ***y.***





In
      addition, on December 10, 2004, the Company agreed to take over the obligations
      of the Company under the MPSA. Therefore, the MPSA was modified to replace
      the
      name of the contracting party, WinSonic Holdings, Ltd., to that of the Company.
      In addition, the MPSA was modified to extend the period in which CI2 may
      exercise its right of first refusal to purchase the networks for $9.7 million
      dollars as described in the MPSA for an additional ninety (90) days until
      February 1, 2005. While the option to purchase was not exercised by CI2, the
      MPSA and JMDA remain in effect.





***Integrated
      Services Group***





Our
      Integrated Services Group business segment principally supports our Digital
      Distribution Group through working with the end user customer to design and
      install the fiber and other state-of-the-art systems infrastructure thereby
      creating a pull through marketing effort to enhance our overall planned increase
      in future revenues.





Through
      Automated Interiors, as a systems integrator, the Integrated Services Group plans
      and
      engineers the installation of electronic components to facilitate “smart”
buildings. Through our Integrated Services Group activities, we have the
      capability to help developers of all sizes manage the transformation in
      technology and migrate from their traditional voice and data services to
      feature-rich digital services and solutions. In combination with our Network,
      the Integrated Services Group plans to migrate from serving single homeowners
      to
      partnering with developers and builders in offering the latest technological
      innovations in home and security automation.




11




Through
      Tytess, our Integrated Services Group additionally provides architectural,
      engineering, construction and construction management services to residential
      and commercial customers. Specifically, this includes site analysis, pre-design,
      schematic design, bidding and negotiation services. Our Integrated Services
      Group uses a consortium of architects, engineers, realtors, mortgage brokers
      and
      other contractors who provide solutions for the design and construction of
      commercial buildings, institutional facilities and residential communities.





From
      a
      sales and marketing perspective, by incorporating fiber optics inside the home,
      multiple dwelling establishment, or enterprise environment, our Integrated
      Services Group activities will allow the homeowner to be able to take advantage
      of the digital revolution thereby further penetrating the residential and
      commercial market for our Digital & Entertainment Media products and
      services. By way of example, WinSonic Cinema services can be integrated into
      wireless networks allowing end-users to use their PDA's, cell phones, game
      boys,
      computers, and TV's to watch digital video, TV, and interactive multi-media
      files.





Services
      we provide include the following:





·
            Coordination
                with a design team to identify main points of entry and common areas
                for
                various utility companies that provide the greatest benefits and
                options
                available for a project.


·
            Investigating
                the ability for the project to have redundancy capability and Synchronous
                Optical Networks (SONET), a standard for connecting fiber-optic
                transmission
                systems***.***


·
            Coordination
                with utility companies to provide non-exclusive services to a project
                including gas and power.


·
            Program
                management services.


·
            Solution
                integration services.


·
            Implementation
                services.


·
            Network
                integration & testing services.


·
            Business
                management services.


·
            Operations
                planning support.


·
            BISCI,
                RCDD Certified telecommunications engineering
                support.


·
            Construction
                management support.





***WinSonic
      Diversity Group***





The
      Company owns 49% of the equity interests of WinSonic Diversity with the
      remaining 51% of the equity interests owned by the Company’s Chairman and Chief
      Executive Officer. As a certified Minority Business Enterprise ***(*** renewed
      through December 31, 2008), WinSonic Diversity enables the Company to qualify
      for and pursue opportunities with various entities including the Federal
      Communications Commission, Public Utilities Commission, Universal Service,
      National Telecommunications and Information Administration, National Information
      Infrastructure and the Department of Commerce that focus on providing services
      to people from all economic backgrounds. WinSonic
      Diversity is focused on developing urban and rural communities by providing
      resources and services that improve quality of life.





Since
      its
      inception, WinSonic Diversity has identified, and is currently working on,
      several urban community initiatives that include the introduction to the Company
      of the Native American Television Network, Morris Brown College in Atlanta,
      Georgia, West Angeles Community Development Corporation in Los Angeles,
      California, and Sweet Auburn at Renaissance Walk, in Atlanta, Georgia. As
      a
      certified Minority Business Enterprise, WinSonic Diversity has access to major
      enterprises that have diversity initiatives. This has resulted in continuing
      opportunities with companies such as Verizon Wireless, Verizon Communications,
      Verizon Business, AT&T, and Bank of America ***.***





As
      WinSonic Diversity begins to realize service and revenue opportunities, it
      will
      market the services and products through its service agreement with the Company
      which will be fulfilled in part by the Company’s Digital Media, Digital
      Distribution and Integrated Services operations.




12




*Third
      Party Relationships*





Verizon
      Services Corporation .
      On
      February 15, 2007, WinSonic Diversity and Verizon Services Corporation
      (“Verizon”) executed a 2-year Construction Services Agreement, wherein WinSonic
      Diversity has agreed to serve as a general contractor for Verizon in the
      construction of facilities at various sites. This agreement will permit Verizon
      to employ the services of WinSonic Diversity on a nonexclusive basis for
      services identified in the agreement; however, Verizon may, by Authorization
      Letter, order additional services not listed in the agreement, at prices quoted
      to Verizon in writing.  Under
      the
      agreement, Verizon shall compensate WinSonic Diversity at the rates quoted
      by
      WinSonic Diversity for each specific service and/or skill set.





Additionally,
      on February 28, 2007, WinSonic Diversity executed a General Architectural and
      Engineering Services Agreement with Verizon to provide architectural &
engineering and site analysis services to Verizon for a period of one (1) year;
      however, said agreement is automatically renewable for subsequent one year
      periods at each annual anniversary. ****** Under
      this agreement, WinSonic Diversity will design, engineer and construct cell
      sites on raw land, existing cell cite structures and roof top
      additions.





Point
      Source, LLC .
      On
      February 6, 2007, the Company, WinSonic Diversity, and Point Source, LLC, a
      construction and engineering firm specializing in residential developments
      in
      the southeast region (“Point Source”), entered into a Marketing Agreement,
      wherein, Point Source was appointed by the Company as its non-exclusive
      marketing agent for a period of twenty (20) years.





Under
      the
      Agreement, Point Source will market the Company’s products and services to
      corporations and businesses using its network of affiliations with builders,
      developers, contractors, banks, accountants, lawyers, politicians and senior
      executives of corporations; and will reasonably ensure that, for all projects
      owned and managed by it for which the Company is selected and agrees to provide
      a particular product and/or service, the Company will be the exclusive provider
      of said product/service for that particular project. As consideration for its
      services, the Company agreed to pay to Point Source a twenty percent (20%)
      commission of the net profits from all sales referred by Point Source for the
      life of the service agreement between the Company and the referred customer.





***Corporate
      Group***





The
      Corporate Group business segment contains all non-direct costs of our
      operations, including costs associated with executive management,
      administration, finance, insurance, office facilities and human
      resources.





**Competitive
      Environment**





Historically,
      media and entertainment companies have controlled the entertainment market.
      Content creators have relied on these companies for marketing and distribution
      as media companies controlled the marketing mix elements and as a result
      dominated the media and entertainment value chain. Internet technology is now
      impacting that control. Based on inherent “distribution” capabilities built into
      social networking sites, for example, content creators are increasingly
      bypassing traditional channels of media and entertainment distribution.





We
      will
      operate in a market that is characterized by rapid change, as well as new
      technologies and we face formidable competition in every aspect of our business,
      particularly from companies that seek to connect people with information on
      the
      web and provide them with relevant advertising and other services. Many of
      the
      companies we will compete against have a much stronger financial position than
      we do.





We
      will
      also face competition from other digital content and distribution providers,
      including start-ups as well as developed companies that are enhancing or
      developing competing technologies. We may compete with companies that sell
      products and services online because these companies, like us, are trying to
      attract users to their web sites for competing products and services to those
      we
      offer. In addition to internet companies, we face competition from companies
      that offer traditional media advertising opportunities, abilities to download
      content, whether music, video or other.





To
      the
      extent that we license digital rights or resale to our customers, the licensing
      of digital rights to television and film video content is a relatively new
      business. We are not presently aware of any major competitors for the long-term
      licensing of digital distribution rights in independently owned television
      and
      film properties, but we expect that significant competitors will emerge as
      the
      industry evolves and that there may be competitors at the present time of which
      we are unaware. Many large television and film companies have begun digitally
      encoding and digitally distributing their own content and we expect this trend
      to continue.





13




**Intellectual
      Property**





As
      we
      continue to develop our technology and product offerings, will rely on a
      combination of patent, trademark, copyright and trade secret laws in the U.S.
      and other jurisdictions as well as confidentiality procedures and contractual
      provisions to protect our proprietary technology and our brand. We also enter
      into confidentiality and invention assignment agreements with our employees
      and
      consultants and confidentiality agreements with other third parties, and we
      rigorously control access to proprietary technology.





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





As
      we
      bring new product and services offerings to the market, we plan to continue
      to
      pursue an active patent, where applicable, trademark, copyright and trade secret
      program to protect our assets in the future.





Circumstances
      outside our control could pose a threat to our intellectual property rights.
      Effective intellectual property protection may not be available in every country
      in which our products and services are distributed. Also, the efforts we have
      taken to protect our proprietary rights may not be sufficient or effective.
      Any
      significant impairment of our intellectual property rights could harm our
      business or our ability to compete. In addition, protecting our intellectual
      property rights is costly and time consuming. Any increase in the unauthorized
      use of our intellectual property could make it more expensive to do business
      and
      harm our operating results.





Companies
      in the internet, technology and media industries own large numbers of patents,
      copyrights and trademarks and frequently enter into litigation based on
      allegations of infringement or other violations of intellectual property rights.
      As we face increasing competition, the possibility of intellectual property
      claims against us grows. Our technologies may not be able to withstand any
      third-party claims or rights against their use.





**Government
      Approvals & Licenses**





During
      2006, the Company obtained a number of certifications from various local, state
      and federal regulatory bodies that will enable us to provide products and
      services in the covered areas.





On
      May
      30, 2006 and August 15, 2006, the Company obtained an FCC Registration Number
      (FRN) and registered as an IXC with the Federal Communications Commission (FCC),
      respectively. Registration with the FCC allows the Company to conduct business
      with the FCC, and the FRN enables us to offer interstate long distance services
      throughout the United States.





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





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




14




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





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





On
      December 22, 2006, WinSonic Diversity received its Minority Business Enterprise
      (MBE) certification from the Georgia Minority Supplier Development Council,
      Inc
      (“GMSDC”) which qualifies it as a minority-owned, managed, and controlled
      company meeting the certification criteria established by the GMSDC and adopted
      by its Board of Directors. The annual certification was renewed on December
      22,
      2007.





During
      the first quarter of 2007, the Company obtained additional CLEC and
      Inter-Exchange Carrier (“IXC”) certifications in the states of Alabama and North
      Carolina. The Company is able to offer local exchange services within the local
      calling areas (IntraLATA) throughout the States of Alabama and North Carolina,
      to offer long distance services, and is in a position to compete with Local
      Exchange Carriers (LECs) through use of LEC infrastructure. This certification
      allows the Company access to LEC customers, and enables us to provide voice,
      data and video services in each of these calling areas.





**Effect
      of Government Regulations**





We
      are
      subject to a number of foreign and domestic laws and regulations that affect
      companies conducting business on the internet. In addition, laws and regulations
      relating to user privacy, freedom of expression, content, advertising,
      information security and intellectual property rights are being debated and
      considered for adoption by many countries throughout the world. We face risks
      from some of the proposed legislation that could be passed in the future.





In
      the
      U.S., laws relating to the liability of providers of online services for
      activities of their users and other third parties are currently being tested
      by
      a number of claims, which include actions for defamation, libel, invasion of
      privacy and other data protection claims, tort, unlawful activity, copyright
      or
      trademark infringement and other theories based on the nature and content of
      the
      materials searched, the ads posted or the content generated by users. Certain
      foreign jurisdictions are also testing the liability of providers of online
      services for activities of their users and other third parties. Any court ruling
      that imposes liability on providers of online services for activities of their
      users and other third parties could harm our business.





Likewise,
      a range of other laws and new interpretations of existing laws could have an
      impact on our business. For example, in the U.S. the Digital Millennium
      Copyright Act has provisions that limit, but do not necessarily eliminate,
      our
      liability for listing, linking or hosting third-party content that includes
      materials that infringe copyrights or other rights. The Child Online Protection
      Act and the Children's Online Privacy Protection Act restrict the distribution
      of materials considered harmful to children and impose additional restrictions
      on the ability of online services to collect information from children under
      13.
      In addition, the Protection of Children from Sexual Predators Act of 1998
      requires online service providers to report evidence of violations of federal
      child pornography laws under certain circumstances. The costs of compliance
      with
      these laws may increase in the future as a result of changes in interpretation.
      Furthermore, any failure on our part to comply with these laws may subject
      us to
      significant liabilities.




15




Similarly,
      the application of existing laws prohibiting, regulating or requiring licenses
      for certain businesses of our advertisers, including, for example, online
      gambling, distribution of pharmaceuticals, adult content, financial services,
      alcohol or firearms, can be unclear. Application of these laws in an
      unanticipated manner could expose us to substantial liability and restrict
      our
      ability to deliver services to our users. For example, some French courts have
      interpreted French trademark laws in ways that would, if upheld, limit the
      ability of competitors to advertise in connection with generic keywords.





We
      also
      face risks due to government failure to preserve the internet's basic neutrality
      as to the services and sites that users can access through their broadband
      service providers. Such a failure to enforce network neutrality could limit
      the
      internet's pace of innovation and the ability of large competitors, small
      businesses and entrepreneurs to develop and deliver new products, features
      and
      services, which could harm our business.





We
      are
      also subject to federal, state and foreign laws regarding privacy and protection
      of user data. We post on our website our privacy policies and practices
      concerning the use and disclosure of user data. Any failure by us to comply
      with
      our posted privacy policies or privacy-related laws and regulations could result
      in proceedings against us by governmental authorities or others, which could
      potentially harm our business. In addition, the interpretation of data
      protection laws, and their application to the internet, in Europe and other
      foreign jurisdictions is unclear and in a state of flux. There is a risk that
      these laws may be interpreted and applied in conflicting ways from country
      to
      country and in a manner that is not consistent with our current data protection
      practices. Complying with these varying international requirements could cause
      us to incur additional costs and to have to change our business practices.
      Further, any failure by us to protect our users' privacy and data could result
      in a loss of user confidence in our services and ultimately in a loss of users,
      which could adversely affect our business.





In
      addition, because our services are accessible worldwide, certain foreign
      jurisdictions have claimed and others may claim that we are required to comply
      with their laws, even where we have no local entity, employees or
      infrastructure.




**Research
      and Development**




The
      Company continues research and development of next-generation products and
      services to create a solid platform to grow our business in the future. In
      2008,
      through our Digital Media Group activities we expect to introduce new digital
      offerings for consumers, including a hosted VoIP platform and integrated digital
      data solutions that work on a single network. One offering we expect to
      introduce is a fee-based, online social environment which will
      include:




·
            A
                private site where subscribers can interact with other
                members;


·
            Office
                tools such as word processing, spreadsheet, database and
                presentation;


·
            Media
                (Audio and Video) downloads;


·
            Online
                storage for media;


·
            Online
                broadcast quality TV that features original shows, live events, music
                videos, movies and talk shows;


·
            Long
                distance****telephone service with
                voicemail;


·
            Exclusive
                pay-per-view live events ;


·
            Mobile
                media downloads (audio ringtones, ringbacks, video, video ringtones,
                voice
                tones, and mobile broadcasts); and


·
            Movies,
                shows and events on demand.





We
      are
      also focusing on the next generation of digital and analog set−top terminal
      interfaces and have developed plans to be a part of the new improved consumer
      features in the digital TV domain. In addition, for our Digital Distribution
      Group activities we are working with Level 3 Communications, Inc. to test
      digital cable transport over Multi Protocol Label Switching (MPLS), which plays
      an important role in the growth of international markets utilizing both analog
      and digital applications and technologies to deliver video, audio, voice and
      data.




16




Research
      and development costs are charged to expenses as incurred. For the year ended
      December 31, 2007, we began reporting research and development cost in our
      financial statements and footnotes thereto. The research and development costs
      incurred for the year ended December 31, 2007 was approximately
      $485,000.





**Number
      of Employees**





As
      of
      December 31, 2007, the Company and its operating companies had approximately
      21
      full-time employees, consisting of two in research and development, three in
      sales and marketing, 13 in general and administrative and three in operations,
      none of whom was represented by labor unions. The Company considers its labor
      relations to be satisfactory.




**Item
                2.**
            **Description
                of Property.**





**Network
      Operations and Office Lease Agreements**





***Centennial
      Tower Office Lease Agreement***





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





On
      October 12, 2005, the Company paid $16,476 as deposit on the office space and
      issued a fixed price secured convertible note in the principal sum of $250,000
      representing an increased security deposit requirement. On December 14, 2005,
      the note was converted into 925,927 shares of the Company’s common stock valued
      at $250,000 or $0.27 per share.





The
      lease
      agreement was amended on February 23, 2006, to include expanded rental space
      of
      9,415 square feet, bringing the total rental square feet to 18,800. The current
      monthly payment under this lease is $34,566.





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





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





The
      term
      of the lease commenced on May 1, 2007 and expires on April 30, 2017. An
      improvement allowance of $123,000 has been provided to the Company, of which
      the
      unused portion after May 1, 2008 may be applied to base monthly rental at the
      Company’s sole option.





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





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





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




17





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





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




***Landquest
      IV, LLC Office Lease Agreement***





In
      June
      2007, the Company entered into a Lease Agreement with Landquest IV, LLC for
      approximately 2,490 square feet of rentable space located at 3560 Camp Creek
      Parkway, Suite 130, East Point, Georgia 30344. The lease commenced in October
      2007 and continues through September of 2012. The Company will use the space
      for
      retail sale of electronic equipment. Under the lease, the Company is obligated
      to pay base monthly rents of $5,810 per month.




As
      of
      December 31, 2007, approximate future commitments under the Company’s leases are
      as follows:


**Year**
              
              **Amount**2008
              
              $
              778,3762009
              
              
              778,5492010
              
              
              791,3772011
              
              
              804,5952012
              
              
              794,8602013
                  through 2017
              
              
              2,789,053Total
              
              $
              6,736,810





We
      believe that we have adequate facilities to conduct our current operations.
      We
      have no current proposed programs for the renovation, improvement or development
      of our current facilities.




**Item
                3.**
            **Legal
                Proceedings.**





See
“Note
      9–Summary of Legal Proceedings” and “Note 15—Subsequent Events” of the Notes to
      the Financial Statements for information about legal proceedings in which we
      are
      involved. An estimated liability of
      $1,213,000 and
      $775,000 for legal settlements was recorded as of December 31, 2007 and December
      31, 2006, respectively. Included in the estimated liability for legal
      settlements as of December 31, 2007 is a general accrual of $159,000 for claims
      threatened and not yet filed.




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





Not
      applicable.





18




**PART
      II**




**Item
                5.**
            **Market
                for Common Equity and Related Stockholder
                Matters.**





Effective
      August 27, 2007, the Company’s common stock commenced trading on the Over the
      Counter Bulletin Board under the symbol “WDMG.” The following table sets forth
      the high and low closing bid quotations for our common stock for each quarter
      during the last two years, as reported on the Over the Counter Bulletin
      Board:


**2007**
              
              **High Bid**
              
              **Low Bid**Jan.
                  1 through Mar. 31
              
              $
              0.77
              
              $
              0.31Apr.
                  1 through June 30
              
              
              0.70
              
              
              0.27July
                  1 through Sept. 30
              
              
              0.71
              
              
              0.44Oct.
                  1 through Dec. 31
              
              
              0.71
              
              
              0.40
 
 **2006**
              
              **High Bid**
              
              **Low Bid**Jan.
                  1 through Mar. 31
              
              $
              0.45
              
              $
              0.20Apr.
                  1 through June 30
              
              
              0.44
              
              
              0.25July
                  1 through Sept. 30
              
              
              0.70
              
              
              0.33Oct.
                  1 through Dec. 31
              
              
              0.75
              
              
              0.32




The
      above
      quotations represent prices between dealers and do not include retail markups,
      markdowns or commissions, nor do they represent actual
      transactions.





The
      Company has 200,000,000 shares of common stock authorized with a par value
      of
      $0.001 per share. As of December 31, 2007, there were 202 record holders of
      our
      common stock.





We
      have
      not declared any cash dividends on our common stock since our inception and
      do
      not anticipate paying such dividends in the foreseeable future. We plan to
      retain earnings, if any, to support the development of our business. Payment
      of
      future dividends, if any, will be at the discretion of our Board of Directors
      after taking into account various factors, including our financial condition,
      operating results, current and anticipated cash needs and plans for
      expansion.




See
      Part
      III, Item 11 for certain information regarding securities authorized for
      issuance under equity compensation plans.





**Recent
      Sales of Unregistered Securities**





**2007**





**Issuances
      of Shares, Convertible notes and Warrants in 2007**





During
      the year ended December 31, 2007, the Company issued 6,990,197 restricted shares
      of the Company’s common stock in connection with certain financing transactions.
      In addition, 57 holders of the Company’s convertible debentures agreed in
      writing to convert their debentures into restricted shares of the Company’s
      common stock at prices ranging from $0.20 to $0.50 per share. (See “Note
      6 – Convertible Debentures” for further details regarding these
      conversions.) Based on these agreements, the Company converted $1,860,760 of
      principal and $67,274 of accrued interest on these debentures in exchange for
      the issuance of 6,549,069 restricted shares of the Company’s common stock.





During
      the year ended December 31, 2007, the Company repaid loans payable and loans
      payable – related party amounts of $40,605 and $259,955, respectively.
      Specifically, the Company repaid these loans payable by issuing 1,133,257
      restricted shares of the Company’s common stock at prices ranging from $0.20 to
      $0.69 and, in connection therewith, incurred financing costs of $285,424.





During
      the year ended December 31, 2007, the Company issued an aggregate of 543,000
      restricted shares of its common stock as payment for consulting services,
      210,000 of such restricted shares were previously recorded as common stock
      payable. In addition, the Company issued 241,379, 1,146,593 and 500,000
      restricted shares of common stock, in each case, which were previously recorded
      as a common stock payable, for the acquisition of DV Photo Shop, Tytess and
      technology from James E. Thomas, respectively.




19




During
      the year ended December 31, 2007, the Company issued 650,000 restricted shares
      of the Company’s common stock in connection with the exercise of
      warrants.





During
      the year ended December 31, 2007, the Company issued 500,000 shares of the
      Company’s restricted common shares in anticipation of closing a financing
      transaction which did not materialize. The shares were subsequently canceled
      in
      January 2008. The Company also issued 700,000 shares of the Company’s restricted
      common shares to reimburse the CEO for certain financing transactions in excess
      of the correct amount of shares. The shares were subsequently canceled in March
      2008.





During
      the year ended December 31, 2007, the Company issued 800,000, 1,964,286 and
      23,810 restricted shares of its common stock to David Lefkowitz, Nana Yalley
      and
      Crowne Office Suites, Inc., respectively, pursuant to their settlement
      agreements. (See “Note 9- Summary of Legal Proceedings”)





The
      following table summarizes by date the stock transactions for the year ended
      December 31, 2007, by date of the transaction:





**Price per**
            
            **Cost of****Date
                of Share Issuance**
            
            **Shares**
            
            **Share**
            
            **Shares****Shares
                issued in connection with certain financing
                transactions:**7/20/2007
            
            
            200,000
            
            
            0.42
            
            $
            84,0007/20/2007
            
            
            100,000
            
            
            0.36
            
            
            36,0007/20/2007
            
            
            300,000
            
            
            0.30
            
            
            90,0007/20/2007
            
            
            500,000
            
            
            0.35
            
            
            175,0009/10/2007
            
            
            333,334
            
            
            0.42
            
            
            140,0009/10/2007
            
            
            1,200,000
            
            
            0.45
            
            
            540,0009/10/2007
            
            
            3,216,500
            
            
            0.50
            
            
            1,608,25012/31/2007
            
            
            (700,000
            )
            
            0.50
            
            
            (349,300
            )9/10/2007
            
            
            400,000
            
            
            0.72
            
            
            288,0009/30/2007
            
            
            260,000
            
            
            0.49
            
            
            127,4009/30/2007
            
            
            126,007
            
            
            0.66
            
            
            83,1659/30/2007
            
            
            294,397
            
            
            0.69
            
            
            203,13410/18/2007
            
            
            50,000
            
            
            0.60
            
            
            30,00010/19/2007
            
            
            14,016
            
            
            0.63
            
            
            8,83010/19/2007
            
            
            224,629
            
            
            0.49
            
            
            109,97010/19/2007
            
            
            125,000
            
            
            0.63
            
            
            78,75011/19/2007
            
            
            73,160
            
            
            0.38
            
            
            27,80111/19/2007
            
            
            66,666
            
            
            0.42
            
            
            28,00011/19/2007
            
            
            68,333
            
            
            0.43
            
            
            29,38211/19/2007
            
            
            138,155
            
            
            0.45
            
            
            62,170Total
            
            
            6,990,197
            
            
            
            
            $
            3,400,552**Shares
                issued for convertible debentures:**7/20/2007
            
            
            2,121,444
            
            
            0.20
            
            $
            424,2888/10/2007
            
            
            920,023
            
            
            0.20
            
            
            184,0049/18/2007
            
            
            79,340
            
            
            0.20
            
            
            15,8689/19/2007
            
            
            52,918
            
            
            0.20
            
            
            10,5849/30/2007
            
            
            800,511
            
            
            0.20
            
            
            160,1029/30/2007
            
            
            288,673
            
            
            0.35
            
            
            101,0369/30/2007
            
            
            1,400,000
            
            
            0.50
            
            
            700,000




20




9/30/2007
            
            
            500,000
            
            
            0.46
            
            
            231,23310/19/2007
            
            
            77,170
            
            
            0.20
            
            
            15,43411/19/2007
            
            
            118,436
            
            
            0.40
            
            
            47,37512/17/2007
            
            
            190,554
            
            
            0.20
            
            
            38,111Total
            
            
            6,549,069
            
            
            
            
            $
            1,928,034**Shares
                issued as repayment of loans payable and loans payable - related
                party:**7/20/2007
            
            
            399,924
            
            
            0.20
            
            $
            79,9849/30/2007
            
            
            733,333
            
            
            0.69
            
            
            506,000Total
            
            
            1,133,257
            
            
            
            
            $
            585,984**Shares
                issued for consulting services:**7/20/2007,
                previously recorded as common stock payable
            
            
            150,000
            
            
            0.40
            
            $
            60,0007/20/2007,
                previously recorded as common stock payable
            
            
            60,000
            
            
            0.53
            
            
            31,8009/30/2007
            
            
            100,000
            
            
            0.35
            
            
            35,0009/30/2007
            
            
            50,000
            
            
            0.55
            
            
            27,5009/30/2007
            
            
            150,000
            
            
            0.62
            
            
            93,00010/19/2007
            
            
            15,000
            
            
            0.69
            
            
            10,35012/5/2007
            
            
            18,000
            
            
            0.60
            
            
            10,800Total
            
            
            543,000
            
            
            
            
            $
            268,450**Shares
                issued for 2006 acquisitions previously recorded as common stock
                payable:**7/20/2007
            
            
            1,146,593
            
            
            0.55
            
            $
            630,6267/20/2007
            
            
            241,379
            
            
            0.58
            
            
            140,0007/20/2007
            
            
            500,000
            
            
            0.45
            
            
            225,0001,887,972
            
            
            
            
            $
            995,626**Shares
                issued in connection with exercise of warrants:**11/19/2007
            
            
            250,000
            
            
            0.01
            
            $
            2,50011/19/2007
            
            
            400,000
            
            
            0.40
            
            
            160,000Total
            
            
            650,000
            
            
            
            
            $
            162,500**Shares
                issued in error (subsequently cancelled):**500,000
            
            
            0.001
            
            $
            500700,000
            
            
            0.001
            
            
            700Total
            
            
            1,200,000
            
            
            
            
            $
            1,200**Shares
                issued for legal settlements:**5/25/2007
            
            
            200,000
            
            
            0.29
            
            $
            58,00010/5/2007
            
            
            1,964,286
            
            
            0.44
            
            
            871,88610/15/2007
            
            
            23,810
            
            
            0.63
            
            
            15,00012/17/2007
            
            
            600,000
            
            
            0.49
            
            
            294,000Total
            
            
            2,788,096
            
            
            
            
            $
            1,238,886





We
      neither received nor paid any commissions in connection with the issuances
      of
      securities described above. 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,
      as
      applicable.





**2006**





The
      Company issued 900,000 shares of its common stock during the quarter ending
      March 31, 2006. These 900,000 shares were issued at $0.50 per share in
      settlement of a legal action. The settlement and the credit to stockholders’
equity were valued at $450,000. (See “Note 9 - Summary of Significant Legal
      Proceedings”.)




21




During
      2006, the Company issued 3,184,899 shares of its common stock at $0.20 per
      share
      in connection with conversions of various convertible notes payable that had
      been issued during the year.





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





In
      April
      2006, the Company issued 411,956 shares of its common stock for the acquisition
      of Automated Interiors at $0.41 per share.





During
      the quarter ended June 30, 2006, the Company issued 411,956 shares of common
      stock at $0.41 per share as consideration for the acquisition of all of the
      outstanding equity of Automated Interiors. Also, in connection with the
      acquisition of Automated Interiors and as an employment incentive, the Company
      issued 750,000 shares of common stock, valued at $0.40, to five key employees
      of
      Automated Interiors during April 2006.





In
      May
      2006, 82,051 shares of restricted common stock were issued at $0.39 per share
      pursuant to a “cashless exercise” of options held by an advisor. The advisor had
      received options for services rendered during 2004. Based on the current market
      value of the stock, the option holder received a reduced number of shares of
      common stock upon exercise.





During
      the third quarter of 2006, the Company issued 489,850 shares of its common
      stock
      in repayment of funds loaned to the Company at $0.53 per share.





During
      the second, third and fourth quarters of 2006, the Company issued 2,153,010
      shares of its common stock upon exercise of convertible notes at $0.40 per
      share.





During
      the third quarter of 2006, the Company issued 89,231 shares of its common stock
      upon the exercise of options issued for services at $0.65 per
      share.





During
      2006, the Company issued 410,000 shares of its common stock to various financial
      consultants for services at fair market values ranging from $0.01 to $0.53
      per
      share.





During
      2006, the Company issued 300,000 shares of its common stock upon the exercise
      of
      a warrant issued to a consultant at $0.01 per share.





During
      2006, the Company issued 62,504 shares of its common stock as repayment of
      various loans valued at $0.40 per share.





During
      December of 2006, the Company issued 40,000 shares of its common stock to a
      financial consultant, valued at $0.40 per share, whose services were employed
      to
      assist the Company in its financial reporting and disclosures.





During
      the first and second quarter of 2006, the Company raised additional proceeds
      of
      $504,200 and $310,000, respectively, through the issuance of 59 convertible
      notes with attached warrants to accredited investors in denominations of $1,000
      to $100,000. (For a more detailed discussion, see “Note 6 - Convertible
      Debentures” in the Notes to the Financial Statements.)





During
      the third and fourth quarter of 2006, the Company raised proceeds of $250,000
      and $759,192, respectively, through the issuance of 58 notes with attached
      warrants to accredited investors in denominations of $3,000 to $75,000. (For
      a
      more detailed discussion, see “Note 6 - Convertible Debentures” in the Notes to
      the Financial Statements.)





In
      November 2006, the Company committed to issue 1,146,593 shares of common stock
      in connection with the acquisition of Tytess.




22




In
      December 2006, the Company issued a $60,000 principal amount convertible
      promissory note which is convertible into the Company’s common stock convertible
      at a rate of $0.58 per share and an aggregate of 241,379 shares of the Company’s
      common stock in connection with the acquisition of the Digital Store
      .





We
      neither received nor paid any commissions in connection with the issuances
      of
      securities described above. 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,
      as
      applicable.





**2005**





During
      fiscal year 2005, the Company issued 252,745 shares of common stock to a private
      limited partnership. The Company issued 94,615 of these shares at $1.30 per
      share during January, 91,463 of these shares at $0.82 per share in March, and
      66,667 of these shares at $0.68 per share in June, all 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. These 2005
      issuances were made pursuant to a “cashless exercise” of a warrant where the
      warrant holder received a reduced number of shares of common stock upon
      conversion based on the current market value of the stock. For January 2005,
      the
      warrant holders received 94,615 shares of stock and contributed 5,385 shares
      valued at $1.30 per share worth $7,000 (the cost of their warrants). For
      September, the warrant holders received 91,463 shares and contributed 8,537
      shares valued at $0.82 per share, worth $7,000 (the cost of their warrants).
      For
      June, the warrant holders received 66,667 shares of common stock and contributed
      8,333 shares valued at $0.68 per share, worth $5,666 (the cost of their
      warrants).





During
      fiscal year 2005, the Company issued 1,670,000 shares to Native American
      Television Network, Inc. (“NATVN”) in exchange for 4,000,000 shares of common
      stock, in accordance with a stock exchange agreement entered into by both
      parties. 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 were also shareholders and co-founders
      in NATVN, owning approximately 9% of the total outstanding equity in NATVN.
      Because 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 December 31, 2005, since there were no tangible or intangible assets and
      signed agreements in place. (See “Note 13 - Equity Investment” for further
      details regarding this transaction.)





During
      fiscal year 2005, the Company issued 700,000 shares of common stock to its
      founder to relieve related party loan payable due him valued at $231,000 or
      $0.33 average price per share.





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 issued 900,000 shares of common stock to two
      consultants for services valued at $630,000 or $0.70 average price per share.





During
      fiscal year 2005, the Company issued 225,000 shares of common stock to two
      consultants for services valued at $108,000 or $0.48 average price per share.





During
      fiscal year 2005, the Company issued 590,000 shares of common stock to four
      investors in satisfaction of convertible debenture obligations of $118,000
      at
      $0.20 average price per share. (See “Note 6 - Convertible Debentures” for
      further details regarding this transaction.)





During
      fiscal year 2005, the Company issued 925,927 shares of common stock to its
      landlord for lease deposits valued at $250,000 or $0.27 average price per share.





During
      fiscal year 2005, the Company issued 820,000 shares of common stock to one
      company as a result of conversion of common stock payable valued at $820,000
      or
      $1.00 per share.




23




During
      fiscal year 2005, the Company credited additional paid-in capital for a $281,481
      adjustment to accumulated depreciation for the return of computer equipment,
      infrastructure and software.





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





During
      fiscal year 2005, the Company recorded common stock payable for 818,182 common
      shares valued at $270,000 or $0.33 average price per share to an officer per
      a
      separation agreement.





During
      fiscal year 2005, the Company recorded forgiveness of accrued salary to an
      officer per a separation agreement by crediting additional paid in capital
      for
      $270,000.





During
      fiscal year 2005, the Company recorded forgiveness of accrued payroll taxes
      for
      an officer per a separation agreement by crediting additional paid in capital
      for $59,982.





During
      fiscal year 2005, the Company recorded the vesting of stock options to purchase
      500,000 shares of the Company’s common stock per a separation agreement valued
      at $131,068 at December 31, 2005, using the Black Scholes valuation method.





During
      fiscal year 2005, the Company recorded the forgiveness of interest expense
      of a
      related party by crediting additional paid in capital for $152,592.





We
      neither received nor paid any commissions in connection with the issuances
      of
      securities described above. 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,
      as
      applicable.





**Warrant
      Activities**





The
      following table summarizes the Company’s financing-related warrant activities
      for the period from inception to December 31, 2007:


**Number of**
                **Warrants**
              
              **Weighted Average
                  Exercise Price**Balance
                  as of December 31, 2003
              
              
              -
              
              $
              -Warrants
                  issued
              
              
              1,164,286
              
              
              0.70Warrants
                  cancelled/expired
              
              
              -
              
              
              -Warrants
                  exercised
              
              
              -
              
              
              -Balance
                  as of December 31, 2004
              
              
              1,164,286
              
              
              0.70Warrants
                  issued
              
              
              285,714
              
              
              0.70Warrants
                  cancelled due to extension agreement
              
              
              (1,450,000
              )
              
              (0.70
              )Warrants
                  replaced due to extension agreement
              
              
              2,537,500
              
              
              0.40Warrants
                  issued
              
              
              941,250
              
              
              0.20Warrants
                  exercised
              
              
              -
              
              
              -Balance
                  as of December 31, 2005
              
              
              3,478,750
              
              
              0.35Warrants
                  issued
              
              
              8,603,510
              
              
              0.21Warrants
                  exercised
              
              
              -
              
              
              -Balance
                  as of December 31, 2006
              
              
              12,082,260
              
              
              0.25Warrants
                  issued
              
              
              7,121,448
              
              
              0.34Warrants
                  exercised
              
              
              (400,000
              )
              
              (0.40
              )Balance
                  as of December 31, 2007
              
              
              18,803,708
              
              $
              0.28




These
      warrants have expiration dates between July 5, 2008 and July 26,
      2010.




24




In
      addition, the Company has issued warrants in connection with certain consulting
      agreements. The following table summarizes the Company’s warrant activities
      related to consulting agreements from inception to December 31,
      2007:


**Number of**
                **Warrants**
              
              **Weighted Average
                  Exercise Price**Balance
                  as of December 31, 2004
              
              
              -
              
              $
              -Warrants
                  issued
              
              
              600,000
              
              
              0.41Warrants
                  exercised
              
              
              -
              
              
              -Balance
                  as of December 31, 2005
              
              
              600,000
              
              
              0.41Warrants
                  issued
              
              
              702,354
              
              
              0.14Warrants
                  exercised
              
              
              -
              
              
              -Balance
                  as of December 31, 2006
              
              
              1,302,354
              
              
              0.26Warrants
                  issued
              
              
              -
              
              
              -Warrants
                  exercised
              
              
              (250,000
              )
              
              0.01Balance
                  as of December 31, 2007
              
              
              1,052,354
              
              $
              0.32


These
      warrants have expiration dates between June 3, 2008 and September 10,
      2009.




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





The
      following discussion of our financial condition, changes in financial condition
      and results of operations for the years ended December 31, 2007 and 2006 should
      be read in conjunction with the audited annual financial statements and the
      notes thereto.





**Segment
      Reporting Disclosures**





In
      accordance with the provisions of SFAS No. 131, “Disclosures about Segments of
      an Enterprise and Related Information”, the Company has elected to report in
      five reportable operating segments, including: (i) the Digital Media Group,
      (ii)
      the Integrated Services Group, (iii) the Digital Distribution Group, (iv) the
      WinSonic Diversity Group, and (v) the Corporate Group.





As
      further described herein, we now consolidate business and financial activity
      of
      our various subsidiary companies and operating divisions within the respective
      business segment. The business activities associated with the development,
      marketing and sale of digital media & entertainment products and services of
      WinSonic Digital Media Group, Ltd., and the Digital Store **** comprises
      the Digital Media Group business segment. The business activities of WinSonic
      Digital Cable Systems Network, Ltd. (“WDCSN”) comprise the Digital Distribution
      Group business segment. The business activities of Tytess
      Design & Development, LLC and **** Automated
      Interiors, LLC comprise the Integrated Services Group business segment. The
      business activities of WinSonic Diversity, LLC shall comprise the WinSonic
      Diversity Group business segment. The business activities associated with
      corporate management, administration and finance of WinSonic Digital Media
      Group, Ltd comprise the Corporate Group business segment. ******





The
      table
      below depicts the Company’s segment structure.





**Business
                Segment Group**
            
            **Business
                Unit**Digital
                Media Group
            
            ·WinSonic
                Digital Media Group, Ltd.
              ·WinSonic
                Digital Store, LLCDigital
                Distribution Group
            
            ·WinSonic
                Digital Cable Systems Network, Ltd.Integrated
                Services Group
            
            ·Tytess
                Design & Development, LLC
              ·Automated
                Interiors, LLCWinSonic
                Diversity Group
            
            ·WinSonic
                Diversity, LLCCorporate
                Group
            
            ·WinSonic
                Digital Media Group, Ltd.




25




As
      a
“development stage company” the Company has not commenced material commercial
      operations. As of December 31, 2007, the Company has recorded
      $2,342,301  of
      revenue since inception. During the year ended December 31, 2007, the
      consolidated operations of the Company combined with WDCSN, Automated Interiors,
      Tytess and the Digital Store yielded revenue of $1,524,995.





**General**





The
      2007
      fiscal year was a year of transition for us as we integrated the various
      companies we acquired and/or merged with during prior periods, continued the
      development of our Digital Media Group product offerings, restructured certain
      of our senior management team and raised additional working capital to continue
      to fund our operations for the period.





Based
      on
      the actions taken in 2007, we believe we are positioned to capitalize on our
      relationships in the entertainment and communication industries to own and
      control the digital rights and distribution of as much music and video content
      as possible. In addition, we plan to leverage our preferential communication
      licenses, interconnection, co-location, and wholesale pricing agreements with
      global service providers to reliably and cost effectively distribute its
      digitally formatted voice, video and data products and services. We also plan
      to
      fully protect our developing intellectual property and Internet–based browser
      applications and once ready for market, allow us to capitalize on the rapidly
      expanding social networking, virtual reality and e-commerce markets.





**Consolidated
      Results of Operations**





The
      following table includes the consolidated information for the operations of
      the
      Company for the years ended December 31, 2007 and 2006:




**12/31/07**
              
              **12/31/06****Audited**
              
              **Audited**Revenue
              
              $
              1,524,995
              
              $
              759,495Gross
                  profit
              
              
              (583,453
              )
              
              260,756Expenses
              
              
              10,978,507
              
              
              6,221,693Operating
                  loss
              
              
              (11,561,960
              )
              
              (5,960,937
              )Other
                  income/(expense), net
              
              
              (8,572,752
              )
              
              (2,283,131
              )Net
                  loss
              
              
              (20,134,712
              )
              
              (8,244,131
              )Loss
                  per basic and diluted common share
              
              $
              (0.36
              )
              $
              (0.19
              )





Consolidated
      results of operations in 2007 generated $1,525,000 in revenues, representing
      an
      approximate 100% growth over the reported $759,000 in revenues in 2006. Of
      the
      2007 amount, $1,469,000, or 96% of total revenues, was derived from our
      Integrated Services Group activities consisting of Tytess and Automated
      Interiors. The balance was generated through our (1) Digital Media Group,
      consisting of WinSonic Digital Media Group and the Digital Store, together
      representing revenues of $21,000, (2) our Digital Distribution Network Group,
      consisting of WDCSN, representing revenues of $4,000, (3) our WinSonic Diversity
      Group representing revenues of $25,000 and (4) WinSonic Corporate Group
      representing revenues of $6,500. The increase in revenues for the year ended
      December 31, 2007 compared to 2006 was primarily related to the inclusion of
      a
      full year of operations in 2007 for Automated Interiors, Tytess and the Digital
      Store. Automated Interiors was acquired in April 2006, Tytess was acquired
      in
      November 2006 and the Digital Store was acquired in November 2006. For further
      discussion of revenues at each of our business segments, see “Business Segment
      Results of Operations” below.




26




The
      aggregate net loss for 2007 was $20,135,000. Of this 2007 amount, $3,204,000,
      or
      16% of the total, was derived from our Integrated Services Group. The balance
      was generated through our (1) Digital Media Group which generated a loss of
      $616,000, or 3% of the total, of which $131,000 related to our Digital Store,
      (2) our Digital Distribution Network Group, which generated a loss of
      $1,994,000, or 9% of the total, (3) our WinSonic Diversity Group, which
      generated a loss of $72,000 and (4) our Corporate Group which generated a loss
      of $14,249,000.





***Operating
      Expenses***





As
      further detailed below, the $10,979,000 in annual operating expenses for the
      year ended December 31, 2007, includes $4,796,000 in non-cash accruals and
      one-time items (bad debt expense, payroll tax penalties, severance accrual,
      stock-based compensation, consulting and depreciation). With the termination
      of
      certain personnel during the fourth quarter of 2007 and first quarter of 2008,
      adjustment of salaries on a going-forward basis and the elimination of certain
      non-essential expenses, the current plan for monthly operating expense is
      estimated to be $362,000, prior to legal expenses and audit retainers, which
      would be a decrease from the 2007 monthly average of $915,000. Operating
      expenses increased by $4,757,000 to $10,979,000 for the year ended December
      31,
      2007 compared to $6,222,000 in the prior year, representing an increase of
      76%.
      Of this increase, $485,000, or 10%, was attributable to the increase in research
      and development expense over the prior year. Most of the research and
      development investment was directed to our Digital Media Group activities in
      preparation of the planned commercial launch of our social networking web
      environment. Of this increase, $3,595,000, or 76%, was attributable to payroll
      expenses and $592,000, or 12%, was attributable to general selling, general
      and
      administrative expense as further discussed below.





A
      breakdown of consolidated operating expenses for the years ended December 31,
      2007 and 2006 is set forth below.


**2007**
              
              **2006****Audited**
              
              **Audited**Operating
                  ExpensesSelling,
                  general and administrative
              
              $
              2,392,146
              
              $
              1,800,055Research
                  and development
              
              
              89,329
              
              
              -Payroll
                  expense - SG&A
              
              
              7,502,052
              
              
              3,906,987Payroll
                  expense - R&D
              
              
              396,054
              
              
              -Consulting
                  services, related party
              
              
              474,705
              
              
              352,029Depreciation
                  and amortization expense
              
              
              124,221
              
              
              162,622Total
                  Operating Expenses
              
              $
              10,978,507
              
              $
              6,221,693





*Selling,
      general and administrative expense*





SG&A
      expense increased by $592,000 in 2007 compared to the prior year, primarily
      related to an increase in bad debt expense and the inclusion of a full year
      of
      expenses for Automated Interiors, Tytess, the Digital Store and WinSonic
      Diversity, offset by a small decrease in corporate expenses. SG&A expense
      for 2006 only includes the expenses from the date of each of the acquisitions
      through December 31, 2006.





Included
      in SG&A expense in 2007 is bad debt expense of $155,000. This is a non-cash
      expense item, related to the recognition of uncollectible accounts receivable
      for Automated Interiors.





From
      a
      trend perspective, monthly SG&A expenditures averaged $186,000 during the
      year ended December 31, 2007 and were comprised of the following:




·
            average
                monthly legal expense of approximately $32,000,


·
            average
                monthly auditing and other public reporting expenses (filing costs/
                auditors and D&O insurance) of approximately
                $19,500;






27




·
            average
                monthly rent and utilities expenses of approximately $73,000.


·
            average
                monthly expenses relating to temporary accounting assistance and
                recruiting fees of approximately $10,500,


·
            average
                monthly WDCSN consulting expenses for network and programming costs
                of
                approximately $10,000 and


·
            the
                balance of approximately $41,000 per month was for other office and
                miscellaneous expense amounts.





By
      the
      fourth quarter of 2007, average monthly SG&A expenses were reduced by
      approximately $24,000, to the monthly average of approximately $162,000, which
      included an increase in legal fees related to acquisition and private placement
      work following the departure of our internal legal and business affairs
      personnel.





*Research
      and development expense*





R&D
      expenses in 2007 were related to the Digital Media Group activities, including
      consulting costs, in preparation of the planned commercial launch of our social
      networking web environment.





*Payroll
      expense – SG&A and R&D*





Payroll
      expense increased $3,991,000 in 2007 compared to the prior year. The increase
      is
      related to increases in stock based compensation of $865,000, severance
      obligations of $1,800,000, payroll tax penalties of $236,000 and the inclusion
      of a full year of payroll expenses for Automated Interiors, Tytess and the
      Digital Store.





Monthly
      payroll expense averaged $328,000 for the year-ended December 31, 2007 and
      for
      the last two quarters of 2007 the average was approximately $264,000 per month.
      The average was lower towards the end of the year due to the elimination of
      certain personnel and the elimination of the deferred payroll accrual. Payroll
      and payroll related expenses will remain at the $260,000 level in the first
      quarter of 2008, due to the personnel changes and then the adjustment of
      salaries that was implemented on January 4, 2008.





Payroll
      tax penalties accrued in 2007 were approximately $236,000 and related to payroll
      taxes that are due. The Company has currently accrued $1,500,000 related to
      payroll taxes and penalties that are currently payable. The Company is currently
      in the process of negotiating a payment plan with the taxing authorities.





Severance
      totaling $1,800,000 was accrued during 2007 related to terminated employees
      that
      had a severance provision in their original offer letter. This severance
      provision related to all employees hired prior to the first quarter of 2007.
      While the Company believes the ultimate settlement with each employee may not
      require a total payment of these severances provided for in the original offer
      letters, the Company has accrued an amount equal to these severance amounts
      and
      included this amount in the payroll accrual. No current employees have this
      severance provision in their offer letters which were reissued in January 2008.





SFAS
      123(R) requires the Company to recognize expense for the fair value of the
      options granted over the vesting period as additional payroll expense. Pursuant
      to SFAS 123(R), the Company recognizes the expense of employee incentive options
      that vest during the reporting period.  Stock based compensation, a
      non-cash expense, incurred during 2007 was approximately $2,033,000. When the
      Company became listed on the OTCBB certain options became vested in 2007. On
      January 4, 2008, the Company issued new offer letters to all current employees.
      Pursuant to the offer letters, the Company accelerated the vesting on all
      remaining stock options with an exercise price of $1.00 for these employees.
      The
      Company also canceled stock options exercisable into up to 400,000 shares of
      common stock with an exercise price of $0.01 because the Company had not
      obtained the senior funding necessary for such stock options to become
      exercisable. In exchange for the canceled stock options, the Company committed
      to issue 400,000 shares of fully vested stock options pursuant to the Company’s
      2008 option plan when the plan is established and approved.





*Consulting
      Services*





Consulting
      services, related party is a non-cash expense which relates to the fair value
      of
      shares of common stock issued to stockholders for consulting services and
      depicted the increased activity services for monies raised during the year.




28




*Depreciation
      and Amortization*





Depreciation
      and amortization expense for 2007 was approximately $124,000 and is also a
      non-cash expense related to historical capital asset purchases and ****** resulted
      in a decrease to prior year due to fully depreciated items ***.***





***Other
      Income/(Expense)***





Other
      income/(expense) totaled $8,600,000 for the year ended December 31, 2007 and
      was
      comprised of primarily non-cash items. The consolidated breakdown of other
      income/(expense) for the year ended December 31, 2007 is provided for below.


**2007**
              
              **2006****Audited**
              
              **Audited**Other
                  income/(expense):Interest
                  expense
              
              $
              (7,217,519
              )
              $
              (882,765
              )Interest
                  expense - related party
              
              
              (45,384
              )
              
              (294,165
              )Impairment
                  of goodwill
              
              
              (720,767
              )
              
              -Unrealized
                  gain (loss) on adjustment of derivative and warrant liability to
                  fair
                  value of underlying securities
              
              
              575,495
              
              
              (942,757
              )Legal
                  settlement costs, net
              
              
              (1,164,577
              )
              
              (198,000
              )Interest
                  income
              
              
              -
              
              
              -Other
                  income/(loss)
              
              
              -
              
              
              34,493Total
                  other income/(expense)
              
              $
              (8,572,752
              )
              $
              (2,283,194
              )





Interest
      expense, including the related-party interest, totaling $7,263,000 is primarily
      a non-cash item. The interest expense relates to the required accounting
      treatment for discounted convertible debt with detachable warrants and shares
      or
      additional warrants issued in connection with financing transactions.





Impairment
      of goodwill for the year ended December 31, 2007 was $721,000 and is a non-cash
      expense item related to the impairment of the goodwill associated with the
      acquisition of Tytess. Goodwill, which represents the excess of the purchase
      price over the fair value of tangible and identified intangible assets acquired,
      is not being amortized but will be reviewed annually for impairment, or more
      frequently if impairment indicators arise, in accordance with SFAS No. 142,
      “Goodwill and Other Intangible Assets” (“SFAS 142”). The Company analyzed
      goodwill as of December 31, 2007 and determined that impairment had occurred
      and
      the Company recorded an impairment of the goodwill associated with the Tytess
      acquisition.





Under
      GAAP, the Company is required to record the warrants and the embedded derivative
      of the related convertible debentures as liabilities. Changes in the value
      of
      these liabilities are reflected on the Company’s income statement as
“ *Unrealized
      gain (loss) on adjustment of derivative and warrant liability to fair value
      of
      underlying securities.* ”
For
      the
      year ended December 31, 2007 the Company recorded an unrealized gain of
      approximately $ 575,000 compared
      to an unrealized loss of approximately $943,000 for the same period in 2006
      from
      the adjustment of the same liabilities.





Management
      of the Company expects that, due to the volatile nature of the price of the
      Company’s common stock price, the Company’s derivative and warrant 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. Therefore as long as the
      derivative and warrant liabilities exist, the reported operating income (loss)
      should be a more accurate reference for the true performance of the Company.





For
      the
      year ended December 31, 2007, the Company recorded legal settlement costs of
      $1,165,000 compared to $198,000 for 2006. The increase was primarily related
      to
      the costs of the January 2008 Rosemary Nguyen settlement and the November 2007
      Nana Yalley settlement. The Company agreed to issue shares of the Company’s
      common stock in connection with these settlements. See Note 9, Summary of Legal
      Proceedings in the Notes to the Financial Statements.




29




The
      table
      below identifies the consolidated total expenses and total other
      income/(expense) by cash and non-cash expenses.


**2007****Audited**
              
              **Cash**
              
              **Non-Cash**
              
              **Total**Total
                  Expenses
              
              $
              6,182,507
              
              $
              4,796,000
              
              $
              10,978,507Total
                  other income/(expense)
              
              
              7,668
              
              
              8,565,084
              
              
              8,572,752Total
              
              $
              6,190,175
              
              $
              13,361,084
              
              $
              19,551,259





**Business
      Segment Results of Operations**





The
      following tables include the separate and consolidated business segment
      information for the operations of the Company for the years ended December
      31,
      2007 and 2006:





**December
                31, 2007****Digital**
            
            **Digital**
            
            **Integrated**
            
            **Winsonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate**
            
            **Total**Revenue
            
            $
            20,632
            
            $
            4,000
            
            $
            1,468,796
            
            $
            25,066
            
            $
            6,500
            
            $
            1,524,994Gross
                profit
            
            
            10,709
            
            
            4,000
            
            
            (603,821
            )
            
            (841
            )
            
            6,500
            
            
            (583,453
            )Operating
                expenses
            
            
            626,944
            
            
            1,998,253
            
            
            1,846,867
            
            
            70,835
            
            
            6,435,608
            
            
            10,978,507Loss
                from operations
            
            
            (616,235
            )
            
            (1,994,253
            )
            
            (2,450,688
            )
            
            (71,676
            )
            
            (6,429,108
            )
            
            (11,561,960
            )Net
                loss
            
            
            (616,235
            )
            
            (1,994,253
            )
            
            (3,203,985
            )
            
            (71,676
            )
            
            (14,248,563
            )
            
            (20,134,712
            )Total
                assets
            
            
            262,000
            
            
            570,128
            
            
            569,963
            
            
            1,793
            
            
            665,725
            
            
            2,069,609




**December
                  31, 2006****Digital**
              
              **Digital**
              
              **Integrated**
              
              **Winsonic****Media**
              
              **Distribution**
              
              **Services**
              
              **Diversity**
              
              **Corporate**
              
              **Total**Revenue
              
              $
              1,363
              
              $
              -
              
              $
              738,372
              
              $
              -
              
              $
              19,760
              
              $
              759,495Gross
                  profit
              
              
              1,363
              
              
              -
              
              
              265,301
              
              
              -
              
              
              (5,908
              )
              
              260,756Operating
                  expenses
              
              
              263,361
              
              
              912,637
              
              
              550,542
              
              
              -
              
              
              4,495,153
              
              
              6,221,693Income
                  (loss) from operations
              
              
              (261,998
              )
              
              (912,637
              )
              
              (285,241
              )
              
              -
              
              
              (4,501,061
              )
              
              (5,960,937
              )Net
                  income (loss)
              
              
              (261,998
              )
              
              (912,637
              )
              
              (290,643
              )
              
              -
              
              
              (6,778,853
              )
              
              (8,244,131
              )Total
                  assets
              
              
              200,262
              
              
              579,630
              
              
              1,430,620
              
              
              -
              
              
              411,527
              
              
              2,622,039




**Digital
      Media Group**





For
      the
      year ended December 31, 2007, Digital Media Group included a full year of the
      operations of the Digital Store and the R&D
      activities related to the Digital Media Group’s preparation of the planned
      commercial launch of its social networking web environment. The Digital Store
      was acquired on November 20, 2006 and its revenue and expense were only included
      in the Company’s financial statements from that date.




30




**Digital
      Distribution Group**





During
      late 2006, the Company accelerated its preparation to begin full operation
      of
      its Network. The costs incurred in 2006 and 2007 represent the personnel and
      facilities costs associated with those efforts. Operating expenses for the
      Digital Distribution Group increased by $1,086,000 in 2007 compared to 2006.
      The
      increase is comprised of personnel costs related to the additional personnel
      needed for full operation and a severance accrual for terminated employees
      totaling $710,000. The Company’s Network is expected to be fully operational in
      the second quarter of 2008.





**Integrated
      Services Group**





The
      results for 2007 include a full year of operations for Automated Interiors
      and
      Tytess. Automated Interiors was acquired in April 2006 and Tytess was acquired
      in November 2006. While we increased revenues in 2007 due to the inclusion
      of
      Automated Interiors and Tytess for a full year, quarter over quarter results
      decreased throughout 2007 due to several factors. The primary factor was halting
      of construction on three projects by Tytess during the third quarter.
      Construction was halted due to projected cost over-runs and the expanded
      completion time frames estimated to perform the contracts. Since Tytess uses
      the
      percentage of completion method for revenue recognition, no further revenue
      could be recognized until construction resumed, which has not happened. In
      addition, Automated Interiors encountered a slow-down during the last half
      of
      2007 in its revenue due to cash flow and staffing challenges and has been unable
      to complete jobs to allow for revenue recognition. Since Automated Interiors
      recognizes revenue on the completed contract method, it is necessary to complete
      the project to recognize any revenue associated with the project, regardless
      of
      how close to completion the project actually is or how much cash has actually
      been received on the project. Automated Interiors had approximately $288,000
      in
      unfinished projects as of December 31, 2007.





The
      cost
      of goods sold was relatively constant each quarter of 2007 except for the
      increase in the third quarter related to the accrual for cost over-runs on
      Tytess construction projects. If the Company estimates that the costs of a
      project will exceed the contract value, then the Company must accrue the overage
      as additional cost of goods sold when that determination is made. In the third
      quarter of 2007, the overage was determined to be $363,000. The Company has
      an
      overall negative gross profit due to this adjustment, actual overages of an
      additional $100,000 for Tytess, and certain fixed salary costs and other costs
      associated with Automated Interiors which continue while Automated Interiors
      fulfills its construction contract obligations.





The
      Company analyzed goodwill as of December 31, 2007 and determined that impairment
      had occurred and recorded an impairment of the goodwill associated with the
      Tytess acquisition totaling $721,000.





**WinSonic
      Diversity Group**





WinSonic
      Diversity Group began operations in 2007. WinSonic Diversity Group’s revenue was
      comprised of a consulting contract which was performed by a third party. Its
      operating expenses consisted of occupancy costs under a sublease with the
      Corporate Group totaling $55,000 and certain charitable contribution
      commitments.





**Corporate
      Group**





The
      Corporate Group business segment includes all indirect costs of our operations,
      including costs associated with executive management, administration, finance,
      insurance, office facilities and human resources. ****





Operating
      expenses for the Corporate Group increased by $1,940,000 in 2007 compared to
      2006. The increase was comprised of severance accrual for terminated employees
      totaling $824,000, increases in stock based compensation of $866,000, occupancy
      costs of $174,000, accounting, auditing and legal expenses of $308,000 offset
      by
      a decrease in consulting costs of $175,000.





On
      January 4, 2008, the Company issued new offer letters to all current employees.
      Pursuant to the offer letters, the Company accelerated the vesting on all
      remaining stock options with an exercise price of $1.00 for these employees.
      The
      Company also canceled stock options exercisable into up to 400,000 shares of
      common stock with an exercise price of $0.01 because the Company had not
      obtained the senior funding necessary for such stock options to become
      exercisable. In exchange for the canceled stock options, the Company committed
      to issue 400,000 shares of fully vested stock options pursuant to the Company’s
      2008 option plan when the plan is established and approved. As a result of
      the
      acceleration of the stock options with an exercise price of $1.00 and the
      cancellation of certain unvested stock options with an exercise price of $0.01,
      and the commitment to issue an equal number of new stock options, the Company
      recorded additional stock based compensation totaling $193,000. In addition,
      during the year ended December 31, 2007 the Company achieved a milestone when
      its stock began trading on the OTCBB. This milestone triggered the vesting
      of an
      additional one third of all outstanding stock options with an exercise price
      of
      $0.01 and the Company recorded additional stock based compensation expense
      totaling $375,000.




31




During
      the year ended December 31, 2007 and as a result of the issuance of the new
      offer letters, the Company terminated 17 employees, adjusted the salaries of
      12
      employees, accepted the resignation of six employees whose positions were not
      replaced and cancelled the contract of a consultant. These actions are expected
      to result in additional savings of approximately $3,430,000 per year, $693,000
      for the Corporate Group. In connection with the above actions, the Company
      recorded severance costs of $824,000 for the Corporate Group during the year
      ended December 31, 2007.





**Liquidity
      and Capital Resources**





The
      Company had a working capital deficit of
      $15,763,000 as of December 31, 2007, compared
      to a deficit of $7,723,000 as of December 31, 2006.





If
      the
      Company is unable to generate sufficient sustainable revenues or obtain
      additional financing to meet its financial obligations, it will have to further
      reduce its operations, and the Company will not be able to continue as a going
      concern. The Company’s independent accountants have indicated in their report
      for the year ended December 31, 2007 that there is substantial doubt about
      the
      Company’s ability to continue as a going concern without increased revenues and
      additional financing.





During
      the year ended December 31, 2007 the Company used $2,788,000 in its operating
      activities, compared with $1,442,000 for the same period in 2006.





During
      the year ended December 31, 2007 the Company’s investing activities used
      $169,000 for the purchase of fixed assets, compared to $176,000 for the same
      period in 2006.





During
      the year ended December 31, 2007 the Company’s financing activities generated
      $3,045,000 compared to $1,622,000 for the same period in 2006. The funds
      generated from the Company’s financing activities during 2007 consists primarily
      of proceeds from loans payable of $190,000, loans payable – related party
      of $396,000, exercise of warrants to purchase shares of the Company’s common
      stock of $163,000, and the issuance of convertible debentures of $2,433,000
      which was partially offset by the payment of loans payable - related party
      of
      $72,000 and payment of convertible debentures of $65,000. For the same period
      in
      2006, the Company raised $16,000 from loans payable, $115,000 from loans
      payable – related party and $1,647,000 from the issuance of convertible
      notes which was partially offset by a decrease in the bank overdraft in the
      amount of $14,000 and by the payment of loans payable of $23,000 and related
      party loan payable of $121,000.





From
      inception, the Company has raised $8,967,000 to fund operations.  Of the
      total funds raised, $7,275,000 was used to provide the necessary resources
      for
      the development stage operations of the Company and $1,601,000 was used to
      purchase fixed assets. The funds include $5,381,000 which was raised through
      convertible debentures and warrants (net of repayments); and $1,587,000 which
      was raised through loans (net of repayments).  The Company also raised
      $2,000,000 from the issuance of common stock.





During
      the year ended December 31, 2007 the Company’s net cash position increased by
      $87,000 to $90,500 at December 31, 2007 compared to $3,500 at December 31,
      2006.





During
      2008, the Company’s monthly cash requirements will be approximately $360,000,
      excluding legal and auditing fees. The Company is in the process of negotiating
      funding to meet these requirements.




32




**Continuing
      Operations**




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





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





The
      Company has, to date, focused almost exclusively upon the startup phase of
      its
      operations. To that end, management has focused on identifying and retaining
      key
      employees to provide the support necessary as operations move to revenue
      generation and expansion. The Company’s priorities for the next year of
      operations are to expand our human resources to adequately service our existing
      contracts and to reach a sustainable profitability level. As we expand our
      operations with the expectation of growing revenue from our activities, we
      may
      elect to hire additional salaried or hourly employees to operate certain aspects
      of our business.





While
      management expects revenue generation to increase, the Company expects to
      operate with a deficit in cash flows for the next few months. The deficit,
      which
      arises primarily from payroll obligations, may be satisfied through a
      combination of employee salary deferrals and through cash raised primarily
      from
      the placement of the Company’s securities (either directly or through
      convertible debt offerings).





During
      the year ended December 31, 2007, the Company suspended the accrual of certain
      salary deferrals, which were provided for in employment agreements, from March
      30, 2007 until the Company began trading on the OTCBB. In addition, all employee
      vacation grants were reduced from four weeks to two weeks. In accordance with
      this policy, deferred salary amounts were not accrued from March 30, 2007 to
      September 1, 2007 and were considered to be forfeited. This action taken by
      the
      Company resulted in a savings of approximately $487,000 in 2007.





During
      the year ended December 31, 2007 and as a result of the issuance of the new
      offer letters to employees, the Company terminated 17 employees, adjusted the
      salaries of 12 employees, accepted the resignation of six employees whose
      positions were not replaced and cancelled the contract of a consultant. These
      actions are expected to result in additional savings of approximately $3,430,000
      per year. In connection with the above actions, the Company recorded severance
      costs of $1,714,000 during the year ended December 31, 2007.





Management
      intends to focus substantial efforts on the funding of the current projects
      and
      operational deficit during the next few months. The funding effort will proceed
      at the same time as commercial operations continue. The Company believes that
      the current management team has the applicable skills to handle the challenge
      of
      covering the cash deficit and developing profitable operations. There is no
      guarantee that any such financings can be obtained or, if obtained, that such
      financings will be on adequate or reasonable terms.




33




**Critical
      Accounting Policies**





Basis
      of Accounting





The
      Company's policy is to prepare its financial statements pursuant to the accrual
      basis of accounting. The Company’s year end is December 31.





Use
      of
      Estimates





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




Stock
      Based Compensation





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





For
      stock
      options and warrants issued as compensation and reported in periods beginning
      after December 15, 2005, the Company applies SFAS No. 123(R), “Share-Based
      Payment,” which requires the recognition of compensation cost based upon the
      fair value of stock options at the grant date (using option pricing models),
      and
      recognizing the cost over the period during which the services are provided
      (vesting period).





During
      the years ended December 31, 2007 and 2006, the Company granted stock options
      representing 3,625,000 and 7,159,304 shares of common stock, respectively,
      to
      its employees. Stock options vested during the years ended December 31, 2007
      and
      2006 totaled 3,731,757 and 4,058,506, respectively. For the vested portion
      of
      such stock options, the Company recorded stock based compensation expense of
      $2,032,818 and $1,167,419 for the years ended December 31, 2007 and 2006,
      respectively. The compensation expense is based on the fair market value of
      the
      stock options. Fair
      value was determined using the Black-Scholes option pricing model
      based on the following assumptions: risk free interest rate of 4.00%
      to
      4.95%; no dividend yield; volatility factors of the expected market price of
      the
      Company’s stock of 166% to 233%; and weighted average expected life of the
      options of three years (for options issued at $1.00 per share strike price)
      and
      one and one-half years (for options issued at $0.01 per share strike
      price).




On
      January 4, 2008, the Company issued new offer letters to all current employees.
      Pursuant to the offer letters, the Company accelerated the vesting on all
      remaining stock options with an exercise price of $1.00 for these employees.
      The
      Company also canceled stock options exercisable into up to 400,000 shares of
      common stock with an exercise price of $0.01 because the Company had not
      obtained the senior funding necessary for such stock options to become
      exercisable. In exchange for the canceled stock options, the Company committed
      to issue 400,000 shares of fully vested stock options pursuant to the Company’s
      2008 option plan when the plan is established and approved. As a result of
      the
      acceleration of the stock options with an exercise price of $1.00 and the
      cancellation of certain unvested stock options with an exercise price of $0.01,
      and commitment to re-issue an equal number of stock options upon implementation
      of a new stock option plan, the Company recorded additional stock based
      compensation totaling $193,000. In addition, during the year ended December
      31,
      2007 the Company achieved a milestone when its stock began trading on the OTCBB.
      This milestone triggered the vesting of an additional one third of all
      outstanding stock options with an exercise price of $0.01 and the Company
      recorded additional stock based compensation expense totaling
      $375,000.




34




Revenues
      and Expenses Recognition





The
      Company is a development stage company and has not had significant revenues
      to
      date. Revenues for the Company are recognized upon rendering services to
      customers. Costs and expenses are recognized during the period in which they
      are
      incurred





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





In
      addition, within the Company’s Integrated Services business segment, Automated
      Interiors has elected to recognize revenue on a completed contract method.
      The
      completed contract **** method
      requires Automated Interiors to defer revenue and expense recognition until
      the
      contract has been substantially completed. Management has determined that the
      completed contract method of accounting more accurately reflects the nature
      of
      Automated Interiors’ business. Due to the volatile nature of electronic
      components, significant uncertainty may exist with respect to the total cost
      of
      performing a contract and the ultimate amount of profit to be recognized
      thereon. Automated Interiors has developed criteria for determining whether
      a
      project should be recorded as a sale. The criteria for recording a sale are
      that
      the installation has been completed, all costs of design and installation have
      been accrued or paid and there are no material contingent obligations
      outstanding.





In
      connection with the utilization of the completed contract method of revenue
      recognition for the consolidated financial statements, Automated Interiors
      maintains a work in progress account for costs of jobs in progress. All costs
      directly associated with the completion of a contract are accumulated as charges
      to work in progress prior to completion of the jobs. Upon completion of a
      contract, all related costs charged to work in progress are transferred to
      cost
      of goods sold.





Within
      the Company’s Digital Media business segment, revenues for the Digital Store are
      recognized upon rendering services to customers. Costs and expenses are
      recognized during the period in which they are incurred.





Recently
      Issued Accounting Pronouncements




In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets” (“SFAS 156”), which amends SFAS No. 140. SFAS No. 156 may be adopted as
      early as January 1, 2006 by 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 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 does not service any financial assets or liabilities
      and the adoption of SFAS No. 156 had no impact on the Company’s consolidated
      financial position, results of operations or cash flows.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements"* ("SFAS
      157), which provides guidance on how to measure assets and liabilities that
      use
      fair value. SFAS 157 will apply whenever another US GAAP standard requires
      (or
      permits) assets or liabilities to be measured at fair value but does not expand
      the use of fair value to any new circumstances. This standard also will require
      additional disclosures in both annual and quarterly reports. SFAS 157 will
      be
      effective for years beginning after November 15, 2007 (January 1, 2008 for
      the
      Company). The Company is currently evaluating the impact, if any, the adoption
      of SFAS 157 will have on its financial statements. Based on the analysis done
      so
      far, the Company does not expect SFAS 157 to have a material impact on its
      financial statements.




In
      September 2006, the FASB issued SFAS 158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans – an
      amendment of FASB Statements No. 87, 88, 106, and 132(R)* (“SFAS
      158”) *and
      SFAS 87, Employers’ Accounting for Pensions* (“SFAS
      87”). SFAS 158 requires the recognition of an asset or liability for the
      overfunded or underfunded status of all defined benefit plans included in the
      Company’s financial statements. The Company does not have a defined benefit plan
      currently and does not expect SFAS 158 to have any impact on its financial
      statements.




35




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




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




·
            Recognized
                financial assets and financial liabilities unless a special exception
                applies;


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


·
            Non-financial
                insurance contracts, and


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




This
      statement also establishes presentation and disclosure requirements designed
      to
      facilitate comparisons between entities that choose different measurement
      attributes for similar types of assets and liabilities.  The statement is
      effective as of the beginning of an entity’s first year that begins after
      November 15, 2007.  The Company does not plan early adoption and does not
      expect a material impact on its financial statements from the eventual adoption
      of SFAS 159.




In
      December 2007, the FASB issued SFAS 160, *Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB 51* (“SFAS
      160”). SFAS 160 establishes new accounting and reporting standards for
      noncontrolling interests in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS 160 will require entities to classify noncontrolling
      interests as a component of stockholders’ equity and will require subsequent
      changes in ownership interests in a subsidiary to be accounted for as an equity
      transaction. Additionally, SFAS 160 will require entities to recognize a
      gain or loss upon the loss of control of a subsidiary and to remeasure any
      ownership interest retained at fair value on that date. This statement also
      requires expanded disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the noncontrolling owners.
      SFAS 160 is effective on a prospective basis for years, and interim periods
      within those years, beginning on or after December 15, 2008, except for the
      presentation and disclosure requirements, which are required to be applied
      retrospectively. Early adoption is not permitted.




At
      December 31, 2007, the Company did not have any noncontrolling interests in
      subsidiaries. Management is currently evaluating the effects, if any, that
      SFAS 160 will have upon the presentation and disclosure of noncontrolling
      interests in the consolidated financial statements.




In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities – an amendment of FASB Statement No.
      133,” (SFAS “161”) as amended and interpreted, which requires enhanced
      disclosures about an entity’s derivative and hedging activities and thereby
      improves the transparency of financial reporting. Disclosing the fair values
      of
      derivative instruments and their gains and losses in a tabular format provides
      a
      more complete picture of the location in an entity’s financial statements of
      both the derivative positions existing at period end and the effect of using
      derivatives during the reporting period. Entities are required to provide
      enhanced disclosures about (a) how and why an entity uses derivative
      instruments, (b) how derivative instruments and related hedged items are
      accounted for under Statement 133 and its related interpretations, and (c)
      how
      derivative instruments and related hedged items affect an entity’s financial
      position, financial performance, and cash flows. SFAS No. 161 is effective
      for
      financial statements issued for fiscal years and interim periods beginning
      after
      November 15, 2008. Early adoption is permitted.




36




At
      December 31, 2007, the Company did not have any derivative instruments or
      hedging activities. Management is aware of the requirements of SFAS 161 and
      will disclose when appropriate.




**Risks
      Relating to our Company**





We
      are
      subject to various risks that may materially harm our business, financial
      condition and results of operations. **** These
      are
      not the only risks and uncertainties that we face. If any of these risks or
      uncertainties actually occurs, our business, financial condition or operating
      results could be materially harmed.




***We
      have an immediate need for additional financing.***





The
      Company has limited operating funds and has nominal cash on hand. The Company
      has an immediate need for funds in order to finance its business operations.
      As
      of December 31, 2007, the Company had a working capital deficit of
      $15,763,000.





Our
      working capital requirements in the foreseeable future will depend on a variety
      of factors, including the Company's ability to implement its business plan.
      In
      the event that our plans change, our assumptions change or prove to be
      inaccurate, or our cash flow proves to be insufficient to fund our operations
      (due to unanticipated expenses, delays, problems, difficulties or otherwise),
      we
      will be required to seek additional financing sooner than anticipated or have
      to
      curtail our activities.





We
      have
      issued $2,819,000 of short-term indebtedness as of December 31, 2007. To the
      extent that we incur additional indebtedness or any other transaction, we will
      be subject to risks associated with incurring substantial indebtedness,
      including the risks that interest rates may fluctuate and cash flow may be
      insufficient to pay principal and interest on any such indebtedness. We
      currently have limited sources of revenue from which we can repay our
      indebtedness. We have no current arrangements with respect to, or sources of,
      additional financing, and there is no guaranty that any of our existing
      stockholders will provide any portion of our future financing requirements.
      There can be no assurance that additional financing will be available to us
      on
      commercially reasonable or acceptable terms, if at all. Our ability to obtain
      additional capital will be dependent in part on market conditions, the economy
      and other factors outside of our control. Our failure to secure necessary
      financing would have a material adverse effect on us and could require us to
      delay or modify our business plan.





***Our
      auditor’s report contains a “going concern” qualification.***





We
      have
      incurred operating losses and negative cash flow from operations since our
      inception. Our auditors issued an unqualified report on our Financial Statements
      as of and for the year ended December 31, 2007. However, the report states
      that
      our ability to continue as a going concern is contingent upon the successful
      completion of additional financing arrangements and our ability to achieve
      and
      maintain profitable operations. (See “Independent Auditors' Report” and “Note 10
      - Going Concern” in the Notes to the Financial Statements.) The Financial
      Statements which accompany this annual report do not include any adjustments
      that might result from this uncertainty.





***We
      have incurred significant and continuing losses and may not be able to generate
      revenues to sustain our operations.***





The
      Company incurred net losses of $20,135,000 and $8,244,000 for the years ended
      December 31, 2007 and 2006, respectively, and $40,829,000 for the period from
      inception through December 31, 2007. Through the year ended December 31, 2007,
      the Company has recorded total revenues of $2,342,000 since
      inception.





The
      Company will continue to have a high level of operating expenses and is required
      to make significant expenditures including, but not limited to, salaries of
      executives and marketing, engineering and other personnel. The Company expects
      to incur additional losses until such time as it is able to generate sufficient
      cash flow to finance its operations and the costs of expansion. There can be
      no
      assurance that the Company will be able to generate such revenues, operate
      profitably and cover its operating expense through cash flow from
      operations.




37




***Our
      limited operating history subjects us to the risks of a new
      business.***





There
      is
      only a limited operating history upon which to evaluate our performance and
      future opportunity to grow our revenue on a profitable basis. Our future
      prospects must be considered in light of the risks, expenses, delays, problems
      and difficulties frequently encountered in the establishment of a new business
      in the industries in which we operate.





***There
      may be potential liabilities associated with the Company that we were not aware
      of at the time of the merger with Media and Entertainment.com, Inc. or at the
      time of the consummation of other acquisitions.***




The
      Company may be responsible for certain liabilities related to our acquisitions
      of other entities. It is possible that we did not discover or may have been
      unable to discover certain liabilities of acquisition targets during our
      pre-acquisition investigation of these targets. A court could conclude that
      we
      assumed such liabilities either by contract or as a matter of law. While we
      have
      attempted to limit our liability through indemnification provisions and
      warranties contained in acquisition agreements, these provisions may not fully
      protect us due to their limited scope, amount, or duration, the financial
      limitations of the indemnitor or warrantor, or for other reasons. Therefore,
      in
      the event we are held responsible for such liabilities, the Company's operations
      may be materially and adversely affected.





***We
      may not be able to realize the benefits we expect from the acquisitions of
      Tytess, Automated Interiors and the WinSonic Digital Store and our equity
      investment in WinSonic Diversity.***





We
      have
      already expended, and expect to continue to expend, considerable resources
      and
      management time in connection with the acquisitions of Tytess, Automated
      Interiors and the WinSonic Digital Store and our investment in WinSonic
      Diversity. While we expect that these transactions will be beneficial to us,
      it
      is not certain whether we will realize any material benefits from these
      transactions. Furthermore, because these transactions involve businesses from
      various industries, it may be difficult for us to integrate such businesses
      and
      we may not see a positive return on management time and company resources
      invested in realizing these synergies. Our failure to successfully integrate
      such businesses into the operations of the Company could have a material and
      adverse affect on our financial condition and operations.





***We
      have a limited number of customers, and the loss of one or more of them could
      substantially harm our business.***




Our
      operations largely depend upon our relationship with a small number of
      customers. The termination of business by any of our initial customers will
      have
      a material adverse effect on our operations. There is no guaranty that we will
      be able to retain our existing customers or development relationships with
      new
      customers.





***We
      depend on Winston Johnson, our Chairman and CEO, as well as other executive
      officers and key employees, and may have difficulty attracting and retaining
      the
      additional skilled employees we need to execute our growth
      plans.***





Our
      future success depends on the continued services of Winston Johnson, our CEO,
      as
      well as our other executive officers and key employees. We do not carry key
      person life insurance on any of our personnel. Given our early stage of
      operations and plans for expansion, the loss of the services of any of our
      executive officers or other key employees could have a material adverse effect
      on our business and financial results. Our future success also depends on our
      ability to attract, retain and motivate highly skilled employees, particularly
      marketing, sales, engineering and technical personnel. Competition for employees
      in the industries in which we operate is intense. We may not be able to attract,
      assimilate or retain other highly qualified employees in the future. Failure
      to
      attract or retain such employees could have a material adverse affect on our
      business and financial results.




38




***Our
      internal controls over financial reporting may not be adequate and our
      independent auditors may not be able to certify as to their adequacy, which
      could have a significant and adverse effect on our business and
      reputation.***





We
      are in
      the process of documenting and evaluating our internal controls over financial
      reporting in connection with the requirement that report on such controls,
      as
      required by Section 404 of the Sarbanes-Oxley Act of 2002 for the year ending
      December 31, 2007. Section 404 requires a reporting company to, among other
      things, annually review and disclose its internal controls over financial
      reporting, and evaluate and disclose changes in its internal controls over
      financial reporting quarterly. We are currently performing the systems and
      process documentation, evaluation and testing required (and any necessary
      remediation) in an effort to comply with the management certification
      requirements of Section 404. In the course of our ongoing evaluation, we may
      identify areas of our internal controls requiring improvement, and plan to
      design enhanced processes and controls to address issues that might be
      identified through this review. As a result, we expect to incur additional
      expenses and diversion of management’s time. We cannot be certain as to the
      timing of completion of our documentation, evaluation, testing and remediation
      actions or the impact of the same on our operations and may not be able to
      ensure that the process is effective or that the internal controls are or will
      be effective in a timely manner. If we are not able to implement the
      requirements of Section 404 in a timely manner or with adequate compliance,
      we
      may not be able to certify as to the effectiveness of our internal control
      over
      financial reporting and we may be subject to sanctions or investigation by
      regulatory authorities, such as the Securities and Exchange Commission. As
      a
      result, there could be an adverse reaction in the financial markets due to
      a
      loss of confidence in the reliability of our financial statements. In addition,
      we may be required to incur costs in improving our internal control system
      and
      the hiring of additional personnel. Any such conditions could adversely affect
      our results.





**Risks
      Relating to our Business**





***The
      success of our business depends on new products and
      technologies.***





We
      operate in rapidly evolving industries and the market for our services is
      characterized by rapid technological advances, evolving industry standards,
      changes in customer requirements and frequent new product and service
      introductions and enhancements. Our industry is characterized by frequent
      introduction of new products and services. In order for us to achieve market
      acceptance for our products and services, we require substantial marketing
      efforts and the expenditure of significant funds to create both awareness and
      demand by marketing retailers and consumers. If technologies or standards
      applicable to our products or services become obsolete or fail to gain
      widespread consumer acceptance and we are unable to adapt to such changes,
      then
      our business and financial results will be materially and adversely
      affected.





Technological
      advances, the introduction of new products, and new design and construction
      techniques could adversely affect our business unless we are able to adapt
      to
      the changing conditions. As a result, we will be required to expend substantial
      funds for and commit significant resources to keep pace with such advancements,
      including in respect of the following:





·
            designing
                and developing new products and product enhancements that appeal
                to
                consumers;


·
            expanding
                our construction and installation
                capabilities;


·
            research
                and development activities on existing and potential products;


·
            engaging
                additional engineering and other technical
                personnel;


·
            purchasing
                advanced design, production, and test equipment;
                and


·
            maintaining
                and enhancing our technological capabilities.





We
      may be
      unable to recover any expenditures we make relating to one or more new products
      or technologies that ultimately prove to be unsuccessful for any reason. In
      addition, any investments or acquisitions made to enhance our products, sales
      channels, or technologies may prove to be unsuccessful.





Our
      future operating results also depend to a significant extent on our ability
      to
      provide new products that compare favorably on the basis of time to
      introduction, cost, and performance with the products of competitive suppliers
      and evolving technologies. Our success in attracting new customers and
      developing new business depends on a number of factors, including our ability
      to
      develop innovative new products, our ability to efficiently and timely
      manufacture our products in a cost effective manner, our ability to utilize
      advances in technology and the acceptance of our products in the markets in
      which we operate.




39




In
      addition, our future success depends on our ability to address the rapidly
      changing needs of our customers by developing, acquiring, and introducing new
      products and product updates on a timely basis. We must also extend the
      operation of our products to new formats and keep pace with technological
      developments and emerging industry standards. We intend to commit substantial
      resources to developing new products, product features, and technological
      advances in the markets in which we operate. These markets are relatively new,
      and industry standards for them are evolving and changing.





The
      failure to adapt to these evolving markets or the ability to address the needs
      of our customers will have a material adverse affect on our financial condition
      and our operations.





***We
      face intense competition in the industries in which we operate, and our
      competitors may be better positioned to capitalize on growing consumer demand
      for our products.***




The
      markets in which we operate are highly competitive and our current and
      prospective competitors are numerous. Our competitors may have substantially
      greater financial, technical, marketing, distribution, personnel and other
      resources, larger customer bases, longer operating histories, greater name
      recognition and more established relationships in the industry than we do.
      In
      addition, if the marketplace for streaming media over the internet or any of
      our
      other operations substantially expands and becomes more commercially viable,
      then any of these competitors may expand their services and seek to dominate
      the
      marketplace, thereby preventing us from obtaining any meaningful market share.
      We intend to compete on the terms of price, customer support, technical
      expertise, ease of use, variety of value added services and reliability, but
      the
      failure to do so will have a material adverse affect on our financial condition
      and our operations.





***Our
      ability to attract and retain customers depends on factors we cannot
      control.***





Our
      ability to increase the number of our customers, and our ability to retain
      customers, will depend on a number of factors, many of which are beyond our
      control. These factors include, our ability to obtain financing, the
      availability of a commercially viable market for our products and services,
      our
      ability to successfully market our products and services, our ability to provide
      reliable service to customers and our ability to develop a profitable business.





***We
      depend on carrier networks, such as Local Exchange Carriers (“LECs”), and Inter
      Exchange Carriers (“IXCs”), which is a developing
      market.***





Our
      ability to derive revenues by providing online commerce, ATM and SONET Internet
      services depends, in part, upon a developed and robust industry and the
      infrastructure for providing these services and carrying network traffic. There
      can be no assurance that the necessary infrastructure or complementary products
      will be developed or that the Internet will become a viable commercial
      marketplace in those segments that we target. Critical issues concerning the
      commercial use of carrier networks, including security, reliability, cost,
      ease
      of use and access, and quality of service remain unresolved, and may impact
      the
      growth of network use. In the event that the necessary infrastructure or
      complementary products are not developed or the Internet does not become a
      viable commercial marketplace for our services, our future business, operating
      results and financial condition could be adversely affected.





***We
      depend on a data transmission infrastructure largely maintained by third
      parties, which may be subject to disruption by events outside our
      control.***





Our
      success will depend upon the capacity, reliability and security of the
      infrastructure used to carry data between our customers and the internet. A
      significant portion of that infrastructure is owned by third parties including
      Level 3 Communications, Inc. Accordingly, we have limited control over its
      quality and maintenance. Our operations also depend on our ability to avoid
      damages from power losses, telecommunications failures, network software flaws,
      transmission cable cuts, fires, earthquakes, floods and similar events. The
      occurrence of any of these events could interrupt our services. The failure
      of
      the internet backbone, our servers, or any other link in the delivery chain,
      whether from operational disruption, natural disaster or otherwise, resulting
      in
      an interruption in our operations, could have a material adverse effect on
      our
      business and financial results.




40




***Unauthorized
      use of our intellectual property by third parties may adversely affect our
      business.***




We
      regard
      our intellectual property as critical to our success. Unauthorized use of our
      intellectual property by third parties may adversely affect our business and
      our
      reputation. We rely on trademark, patent and copyright law, trade secret
      protection and confidentiality and/or license agreements with our employees,
      customers, partners and others to protect our intellectual property rights.
      Despite our precautions, it may be possible for third parties to obtain and
      use
      our intellectual property without authorization. Furthermore, the validity,
      enforceability and scope of protection of intellectual property in
      internet-related industries are uncertain and still evolving. The laws of some
      foreign countries are uncertain or do not protect intellectual property rights
      to the same extent as do the laws of the United States.





***Defending
      against intellectual property infringement claims could be time consuming and
      expensive and, if we are not successful, could subject us to significant damages
      and disrupt our business.***




We
      cannot
      be certain that our products and services do not or will not infringe on valid
      patents, copyrights or other intellectual property rights held by third parties.
      We may be subject to legal proceedings and claims from time to time relating
      to
      the intellectual property of others in the ordinary course of business. We
      may
      incur substantial expenses in defending against these third-party infringement
      claims, regardless of their merit. Successful infringement claims against us
      may
      result in substantial monetary liability or may materially disrupt the conduct
      of our business.





**Risks
      Relating to an Investment in our Securities**




***To
      date, we have not paid any cash dividends and no cash dividends will be paid
      in
      the foreseeable future.***




We
      have
      never paid any dividends on shares of our common stock and do not anticipate
      that we will pay dividends in the foreseeable future. We intend to apply any
      earnings to fund the development of our business. Investment in our Company
      is
      inappropriate if you are seeking current or near term income.




***The
      application of the “Penny Stock” rules could adversely affect the market price
      of our common stock and increase one’s transaction costs to sell shares of our
      common stock.***




The
      trading of our common stock is currently subject to Rule 15g-9 promulgated
      under
      the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, for
      non-NASDAQ and non-exchange listed securities. Under such rule, brokers-dealers
      who recommend such securities to persons other than established customers and
      accredited investors must make a special written suitability determination
      for
      the purchaser and receive the purchaser's written agreement to a transaction
      prior to sale. Securities are exempt from this rule if the market price is
      at
      least $5.00 per share.





The
      SEC
      has adopted regulations that generally define a “penny stock” to be an equity
      security that has a market price of less than $5.00 per share or an exercise
      price of less than $5.00 per share subject to certain exceptions. Such
      exceptions include equity securities listed on NASDAQ and equity securities
      issued by an issuer that has (i) net tangible assets of at least $2,000,000,
      if
      such issuer has been in continuous operation for more than three years, or
      (ii)
      net tangible assets of at least $5,000,000, if such issuer has been in
      continuous operation for less than three years, or (iii) average revenue of
      at
      least $6,000,000 for the preceding three years. Unless an exception is
      available, the regulations require the delivery, prior to any transaction
      involving a penny stock, of a risk disclosure schedule explaining the penny
      stock market and the risks associated therewith.




Our
      common stock is currently a penny stock as defined in the Exchange Act and,
      as
      such, the market liquidity for the common stock is limited to the ability of
      broker-dealers to sell common stock in compliance with the above-mentioned
      disclosure requirements.




41




***Preferred
      stock may act as an anti-takeover device.***




We
      are
      authorized to issue 20,000,000 shares of preferred stock, $0.001 par value.
      The
      Company has no shares of preferred stock issued and outstanding. The preferred
      stock may be issued in series from time to time with such designations, rights,
      preferences and limitations as our Board of Directors may determine by
      resolution. Unless the nature of a particular transaction and applicable
      statutes require such approval, the Board of Directors has the authority to
      issue these shares without stockholder approval. The potential therefore exists
      that preferred stock might be issued which would grant dividend preferences,
      liquidation preferences, voting and other rights to preferred stockholders
      over
      common stockholders. The issuance of preferred stock may have the effect of
      delaying or preventing a change in control of the Company without any further
      action by stockholders.





***A
      majority of the outstanding shares of our common stock are restricted
      securities.***





Of
      the
      shares of the Company's common stock outstanding as of December 31, 2007
      approximately 47,111,984 are “restricted securities,” as that term is defined in
      the Securities Act, and may only be sold in compliance with the provisions
      of
      Rule 144 of the Securities Act.





**S** ***hares
      of our common stock are thinly traded and you may be unable to sell at or near
      ask prices or at all if you need to sell your shares to raise money or otherwise
      desire to liquidate your shares.***





The
      Company cannot predict the extent to which, if any, a more active public market
      for our common stock will develop or be sustained. Our common shares have
      historically been sporadically or “thinly-traded” on the pink sheets, meaning
      that the number of persons interested in purchasing our common shares at or
      near
      bid prices at any given time may be relatively small. This situation is
      attributable to a number of factors, including the fact that we are a small
      company which is relatively unknown to stock analysts, stock brokers,
      institutional investors and others in the investment community that generate
      or
      influence sales volume, and that even if we came to the attention of such
      persons, they tend to be risk-averse and would be reluctant to follow an
      unproven company such as ours or purchase or recommend the purchase of our
      shares until such time as we became more seasoned and viable. As a consequence,
      there may be periods of several days or more when trading activity in our shares
      is minimal, as compared to other issuers which have a large and steady volume
      of
      trading activity that will generally support continuous sales without an adverse
      effect on share price. We cannot give you any assurance that a broader or more
      active public trading market for our common stock will develop or be sustained,
      or that current trading levels will be sustained.





The
      market price for our common stock is particularly volatile given our status
      as a
      relatively small company with a small and thinly traded “float” and lack of
      current revenues that could lead to wide fluctuations in our share price. The
      price at which you purchase our common stock may not be indicative of the price
      that will prevail in the trading market. You may be unable to sell your common
      stock at or above your purchase price if at all, which may result in substantial
      losses to you.





**Off-Balance
      Sheet Arrangements**





As
      of
      December 31, 2007, the Company has not engaged in any off-balance sheet
      arrangements. Currently, management does not anticipate that the Company will
      be
      engaging in off-balance sheet arrangements in the foreseeable future.




**Item
                7.**
            **Financial
                Statements.**




Our
      audited financial statements and related notes required by this Item 7 begin
      on
      page F-1, following Part III of this report.




**Item
                8.**
            **Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure.**




None.




42




**Item
                8A(T).**
            **Controls
                and Procedures.**




Our
      management team is diligently developing and implementing additional controls
      and procedures to ensure that such information required for disclosure is
      recorded, processed, summarized and reported timely and accurately. To date,
      our
      efforts have focused upon replacing our Chief Financial Officer, who resigned
      in
      2006. The resignation of our CFO has exacerbated an existing problem of
      sufficiency of accounting personnel. During year 2007, we have hired a Chief
      Operating Officer, a Vice President of Finance and Accounting and a Controller.
      We are interviewing candidates to fill the CFO position and certain other
      accounting positions.





In
      connection with the growth of the Company, we have instituted a policy of early
      review of accounting systems and personnel of all potential acquisitions to
      discern their reporting systems and the effect such reporting will have on
      the
      consolidation of operations. The companies that we have considered for
      acquisitions have been private companies and have not typically maintained
      the
      types of control and reporting procedures that are required of public companies.
      As such, depending upon the materiality of the operations of the acquisition,
      compared to our total assets and revenues, it is possible that the acquisition
      of private subsidiaries may lead to errors in reporting.




With
      the
      addition of a Vice President of Finance, Controller and other permanent
      accounting staff in 2007, the Company has greatly improved its internal control
      over financial reporting during the year ended December 31, 2007.




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





**Management’s
      Report on Internal Control Over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting for the Company. Our internal control over
      financial reporting is a process designed under the supervision of our Chief
      Executive Officer (who is also acting as our principal financial officer) to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of the our financial statements for external purposes in
      accordance with U.S. generally accepted accounting principles.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





Our
      management has made a comprehensive review, evaluation, and assessment of our
      internal control over financial reporting as of December 31, 2007. In making
      its
      assessment of internal control over financial reporting, management used the
      criteria issued by the Committee of Sponsoring Organizations of the Treadway
      Commission in Internal Control-Integrated Framework. Based on that assessment,
      management concluded that, as of December 31, 2007, our internal control over
      financial reporting was not effective.





This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal controls over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to the temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this annual report.




43




**Evaluation
      of Disclosure Controls and Procedures**





Our
      management conducted an evaluation, with the participation of our Chief
      Executive Officer (who is also acting as our principal financial officer),
      of
      the effectiveness of our disclosure controls and procedures as of December
      31,
      2007. Our disclosure controls and procedures are designed to ensure that
      information required to be disclosed by us in the reports that we file or submit
      under the Securities Exchange Act of 1934 is recorded, processed, summarized,
      and reported on a timely basis.





Based
      upon that evaluation, our Chief Executive Officer concluded, as of December
      31,
      2007, that our disclosure control and procedures were not effective in
      recording, processing, summarizing, and reporting information required to be
      disclosed by the Company, within the time periods specified in the SEC’s rules
      and forms, and such information is accumulated and communicated to management
      to
      allow timely decisions regarding required disclosures.





**Details
      Regarding Material Weakness in Our Controls and Procedures, Remedial Actions
      and
      Changes in Internal Control Over Financial Reporting**





One
      material weakness was identified as a shortcoming in communication from the
      Chief Executive Officer regarding one employee stock option agreement from
      2005
      and a convertible note from 2004, both of which needed to be submitted to the
      accounting staff for recording of such transactions. These findings were
      considered to be immaterial in value, but the discovery of these items would
      indicate internal controls were not strong enough in those prior periods to
      prevent these errors from occurring. The two immaterial values consisted of
      one
      item which related to an employee option grant which would have fallen under
      APB
      25 that was not properly tracked in prior years and would have had no financial
      statement impact. The second item related to a convertible note of $7,000
      including interest that had not been recorded at the time of issuance; the
      shares issued upon conversion were recorded as financing cost in 2007. Since
      December 2007, numerous procedures and controls have been implemented by
      management including enhanced employee file management, formation of an audit
      committee, and improved communication between the CEO/CFO and the accounting
      staff on all financial and operational transactions.





Our
      management team is diligently developing and implementing additional controls
      and procedures to ensure that all information required for disclosure is
      recorded, processed, summarized and reported timely and accurately. To date,
      our
      efforts have focused upon finding a replacement chief financial officer. The
      resignation of our former chief financial officer has exacerbated an existing
      problem of sufficiency of accounting personnel. During year 2007, we hired
      a
      Vice President of Finance and Accounting and a Controller. We are interviewing
      candidates to fill the chief financial officer position and certain other
      accounting positions.





In
      connection with the growth of the Company, we have instituted a policy of early
      review of accounting systems and personnel of all potential acquisitions to
      discern their reporting systems and the effect such reporting will have on
      the
      consolidation of operations. The companies that we have considered for
      acquisitions have been private companies and have not typically maintained
      the
      types of control and reporting procedures that are required of public companies.
      As such, depending upon the materiality of the operations of the acquisition,
      compared to our total assets and revenues, it is possible that the acquisition
      of private subsidiaries may lead to errors in reporting.




With
      the
      addition of a Vice President of Finance, Controller and other permanent
      accounting staff in 2007, the Company has greatly improved its internal control
      over financial reporting during the year ended December 31, 2007.




**Item
                8B.**
            **Other
                Information.**




None.




44




**PART
      III**




**Item
                9.**
            **Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) of the Exchange
                Act.**




Our
      directors and executive officers are as follows:





**Name**
            
            **Age**
            
            **Principal
                Positions and Offices with our Company**Winston
                Johnson
            
            50
            
            Chairman
                of the Board, Chief Executive Officer and Acting Chief Financial
                OfficerEric
                Leufroy
            
            54
            
            DirectorDr.
                Thomas Mensah
            
            58
            
            Director




A
      majority vote of the directors who are in office is required to fill vacancies
      on the board of directors. Each director holds office for a term of one year,
      or
      until a successor has been duly elected and qualified, or until his earlier
      death, resignation or removal. Our executive officers are appointed annually
      by
      our Board of Directors and serve at the discretion of the Board of Directors.
      Set forth below is a brief description of the background of each of our
      executive officers and directors, based on information provided to us by
      them.





Effective
      December 7, 2007, Joseph Morris resigned from the Company as Chief Operating
      Officer. Effective December 13, 2007, Jeffrey Burke resigned from the Company
      as
      Executive Vice President. The Company has eliminated these positions and is
      in
      the process of negotiating separation agreements with Mr. Morris and Mr.
      Burke.




**Directors
      and Officers**





**Winston
      Johnson** has been
      the Chairman of the Board and Chief Executive Officer of the Company since
      December 2003. Mr. Johnson has also been the acting Chief Financial Officer
      of
      the Company since 2006. Mr. Johnson, who started in the music, computer science,
      and communications industries in the 1970s, pioneered technological innovations
      in music, computer and sound engineering, such as the WinSonic Process. The
      WinSonic Process, a digital compression technology that produces a superior
      sounding product, has been used to enable record and film companies to record
      and distribute high-end voice, data, text, audio and video files throughout
      the
      world. Mr. Johnson's education includes a B.S. from FAMU and additional labs
      and
      studies which include FSU, UCLA, Berkley, Stetson University, Dartmouth, NASA,
      USC ETC, Nortel Network, Cisco, Sonet, Stn, Atm, Star Hub, DMS 200/300, DMS
      500,
      DSL, PPOE, PPOA, MPLS, OSPF, BGP4, VoIP, HDTV transport, e911, video
      switching, ss7 signaling, cable plant, catv, emergency disaster planning,
      satellite, voice, data, video, fiber optics, micro wave, two-way radio,
      management systems, and billing systems.





**Dr.
      Thomas Mensah** was
      appointed to the Board of Directors of the Company on January 25, 2007. Dr.
      Mensah is a world renowned inventor whose contributions have had national and
      global impact in the development and distribution of new age media.
      Specifically, Dr. Mensah’s work contributed to the replacement of copper wire
      cables with optical fibers; thereby enabling the launching of various Internet
      platforms such as DSL. Dr. Mensah holds a PhD in Chemical Engineering from
      Montpelier University (1978) and a Certificate in Modeling of Chemical Processes
      from the Massachusetts Institute of Technology (1977). He has held high level
      engineering positions at various US companies, including, Air Products &
Chemicals (1980-1983) and Corning Glass Works (1983-1986). Additionally, Dr.
      Mensah joined AT&T Bell Laboratories in 1986 and led the program to develop
      the fiber optic reels used in the guided missile program until 1989. This effort
      led to the development of a system that was successfully deployed at missile
      speeds up to Mach 1 (the speed of sound). In 1992, Dr. Mensah founded and served
      as the chairman of Supercond Technology in Norcross, Georgia, which specializes
      in Aerospace and Communication products. Supercond Technology focuses on
      advanced structural materials development for supersonic US fighter aircraft
      such as the F-22. In 2004, Dr. Mensah became president of Georgia Aerospace
      Systems and continues to serve in this role today. Dr. Mensah is also a founding
      member of the Emerging Technologies section of the American Institute of
      Chemical Engineers (AIChE). He is the first and only black person to serve
      as
      the national chairman of the Materials and Engineering Sciences Division of
      the
      AIChE. He has edited two book volumes for the AIChE — Fiber Optics
      Engineering (1987) and Superconductor Engineering (1992).




45




**Mr.
      Eric Leufroy** was
      appointed to the Board of Directors of the Company on February 9, 2007. He
      is
      currently the Western Region Controller for United Parcel Service in Leawood,
      Kansas. In his position at United Parcel Service, his responsibilities include
      the management of all the finance and accounting activities for the western
      region of the United States, which consists of thirteen states and nine
      districts. Mr. Leufroy directs a team of over 220 district controllers, office
      managers, supervisors, and administrative employees; provides oversight of
      activities related to payroll, tax, account payables/receivables and customer
      billing; and monitors and maintains full adherence to UPS accounting/procurement
      procedures and Sarbanes-Oxley standards. Mr. Leufroy has been employed with
      United Parcel Service since 1986 and has held the following titles, Southwest
      Region Controller Coordinator (2003 - 2004), Post Profitability Controller
      (2001
      - 2002), District Controller, Secaucus, NJ (1994 - 1999), District Controller,
      Houston, TX (1991 - 1994) and Office Manager, Phoenix, AZ (1986 - 1991). The
      Company expects, subject to formal appointment by the Board, that Mr. Leufroy
      will serve on its Audit Committee.




**Board
      Committees**




As
      of
      December 31, 2007, we had no formal audit, compensation or nominating committee
      or other board committee performing equivalent functions. Currently, the entire
      board of directors participates in discussions concerning executive officer
      compensation and the consideration of director nominees. Once committees are
      established, the Company expects that Mr. Leufroy will serve on its audit
      committee as its qualified financial expert within the meaning of paragraph
      (c)
      (2) of Item 402 of Regulation S-B. There has been no material change to the
      procedures by which stockholders may recommend nominees to our board of
      directors. See Note 15, Subsequent Events, to the Notes in the Financial
      Statements for a discussion of actions taken with respect to committees of
      the
      board of directors following the end of fiscal 2007.





**Legal
      Proceedings**





No
      officer, director, or persons nominated for such positions, and no promoter
      or
      significant employee has been involved in legal proceedings that would be
      material to an evaluation of our management.




**Compliance
      with Section 16(a) of the Exchange Act**




Pursuant
      to Section 16 of the Securities Exchange Act of 1934, our directors and
      executive officers and beneficial owners of more than 10% of our common stock
      are required to file certain reports, within specified time periods, indicating
      their holdings of, and transactions in, the Company’s common stock and
      derivative securities. Based solely on a review of such reports provided to
      us
      and written representations from such persons regarding the necessity to file
      such reports, we are not aware of any failures to file reports or report
      transactions in a timely manner during the year ended December 31, 2007, except
      the following: Winston Johnson, Chairman and CEO, did not timely file Form
      4s to
      reflect changes in his beneficial ownership interests during 2006 and
      2007.





**Code
      of Ethics**





We
      have
      adopted a Code of Business Conduct and Ethics which is filed as an exhibit
      to
      this Annual Report on Form 10-KSB. We will provide a copy of the Code of Ethics,
      without charge, to any person who sends a written request addressed to the
      CEO,
      Winston Johnson, at 101 Marietta Street, NW, Centennial Tower, Suite 2600,
      Atlanta, GA 30303. See Note 15, Subsequent Events, in the Notes to the Financial
      Statements.




The
      Company intends to disclose any waivers or amendments to its Code of Ethics
      in a
      report on Form 8-K.




46




**Item
                10.**
            **Executive
                Compensation.**




Our
      overall compensation philosophy is to provide an executive compensation package
      that enables us to attract, retain and motivate executive officers to achieve
      our short-term and long-term business goals. We strive to apply a uniform
      philosophy regarding compensation of all employees, including members of
      executive management. This philosophy is based upon the premise that the
      achievements of the Company result from the combined and coordinated efforts
      of
      all employees working toward common goals and objectives in a competitive,
      evolving market place. The goals of our compensation program are to align
      remuneration with business objectives and performance and to enable us to retain
      and competitively reward executive officers and employees who contribute to
      our
      long-term success. We attempt to pay our executive officers and employees
      competitively in order to be able to retain the most capable people in the
      industry. In making executive compensation and other employment compensation
      decisions, we consider achievement of certain criteria, some of which relate
      to
      our performance and others of which relate to the performance of the individual
      employee. Awards to executive officers are based on achievement of company
      and
      individual performance criteria.





The
      following table sets forth all compensation awarded to, earned by, or paid
      for
      all services rendered to us during the years ended December 31, 2007 and
      December 31, 2006 by our named executive officers.




SUMMARY
      COMPENSATION TABLE





Name and
              Principal Position
              (a)
            
            Year
              (b)
            
            Salary
              ($)
              (c)
            
            Bonus($)
              (d)
            
            Stock Awards($)
              (e)
            
            Option
                Awards
              ($)
              (f)
            
            Non-Equity
                Incentive Plan Compensation ($)
              (g)
            
            Nonqualified
                Deferred Compensation
              ($)
              (h)
            
            All Other
                Compensation ($)
              (i)
            
            Total
              ($)
              (j)Winston
                Johnson
              CEO
                and Chairman (and acting chief financial officer)
            
            
            2007
              
              2006
            
            
            154,295
              
              290,000
            (1)
              
              (2)
            
            -
              
              -
            
            
            -
              
              -
            
            
            -
              
              -
            
            
            -
              
              -
            
            
            -
              
              -
            
            
            -
              
              -
            
            
            154,295
              
              290,000Jeffrey
                Burke
              Former
                Executive Vice President
            
            
            2007
              
              2006
            
            
            255,973
              
              175,935
            (3)
              
              (4)
            
            -
              
              -
            
            
            -
              
              -
            
            
            197,110
              
              183,660
            (5)
            
            -
              
              -
            
            
            -
              
              -
            
            
            -
              
              -
            
            
            453,083
              
              359,595





(1)  Salary
      consists of $295,447 paid in cash and a decrease of $141,152 accrued salary
      as
      of December 31, 2007.


(2)  Salary
      consists of $118,500 paid in cash and $171,500 accrued and unpaid as of December
      31, 2006.


(3)  Salary
      consists of $81,867 paid in cash and $174,106 accrued and unpaid as of December
      31, 2007. Mr. Burke resigned from the Company on December 13, 2007.


(4)  Reflects
      salary received since date of hire. Salary consists of $55,154 paid in cash
      and
      $120,781 accrued and unpaid as of December 31, 2006.


(5)  In
      August
      2006, Mr. Burke was granted stock options to purchase (a) 750,000 shares of
      common stock at $0.01 per share in which 1/3 vested upon the signing of his
      employment agreement, 1/3 vested when the Company’s common stock resumed trading
      on the OTCBB, and the remaining 1/3 will vest at the closing of the next round
      of financing and (b) 500,000 shares of common stock at $1.00 per share in which
      ten percent of the options vested immediately upon the signing of his employment
      agreement and the remaining options vest at the rate of 1/12th per month for
      12
      months. At the time of his resignation, Mr. Burke was vested in 500,000 shares
      of common stock at $0.01 and 500,000 shares of common stock at
      $1.00.




47




OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR END


Option
                  Awards
              
              Stock
                  AwardsName
                (a)
              
              Number of
                  Securities Underlying Unexercised Options
                (#)
                Exercisable
                (b)
              
              Number of
                  Securities Underlying Unexercised Options
                (#)
                Unexercisable
                (c)
              
              Equity
                  Incentive Plan Awards; Number of Securities Underlying Unexercised
                  Unearned Options
                (#)
                (d)
              
              Option
                  Exercise Price
                ($)
                (e)
              
              Option
                  Expiration
                Date
                (f)
              
              NumberofSharesor UnitsofStockThatHaveNotVested
                (#)
                (g)
              
              Market
                  ValueofSharesorUnitsofStockThatHaveNotVested($)
                (h)
              
              Equity
                  Incentive Plan Awards; NumberofUnearned Shares, Units or
                  OtherRightsThatHave Not Vested
                (#)
                (i)
              
              Equity
                  Incentive Plan Awards; Marketor Payout Value of Unearned
                  Shares, Units or OtherRightsThatHave Not
                  Vested
                ($)
                (j)Winston
                  Johnson
              
              
              1,000,000
              
              
              
              
              
              
              
              $
              1.00
              
              
              10-8-2014Jeffrey
                  Burke (1)
              
              
              500,000
              
              
              
              
              
              
              
              $
              1.00
              
              
              8-8-2016500,000
              
              
              
              
              
              
              
              $
              0.01
              
              
              5-8-2016


(1)  At
      the
      time of his resignation, Mr. Burke was vested in 500,000 shares of common stock
      at $0.01 and 500,000 shares of common stock at $1.00.





**Director
      Compensation**




We
      currently do not have a policy regarding compensation for serving on our board
      of directors. However, we do reimburse our directors for their reasonable
      expenses incurred in attending meetings of our board.





**Employment
      Agreements**




On
      October 8, 2004, the Company entered into a binding offer letter with Winston
      Johnson, as Chairman and CEO. Under the terms of employment, Mr. Johnson was
      to
      receive a base salary of $290,000 per annum, with $7,000 per month deferred
      until the next funding occurs or January 1, 2005, whichever occurred first.
      Mr.
      Johnson was eligible for an annual incentive bonus based on performance. The
      agreement was terminable at will with or without cause (as defined in the offer
      letter). As of March 30, 2007, Mr. Johnson’s salary was reduced to zero until
      the Company’s common stock began trading on the OTCBB. Mr. Johnson’s salary was
      restored as of October 1, 2007.  The employment agreement of October 8,
      2004 also provided for the grant of incentive or non-statutory stock options
      to
      purchase 1,000,000 shares of common stock for $1.00 per share. These options
      primarily vest equally over a twelve-month period effective with date of the
      employment agreement.




Effective
      June 6, 2006, Joseph Morris became the Chief Operating Officer of the Company.
      Previously, Mr. Morris served as Chief Operating Officer of AI, which
      was acquired on April 18, 2006.  Mr. Morris' initial base salary was
      $150,000 per annum. As an employment incentive, Mr. Morris was granted stock
      options to purchase 50,000 shares of the Company’s Common Stock at an exercise
      price of $0.01, of which 1/3 vested
      immediately, 1/3 at the closing of the next round of funding, and the remaining
      1/3 when the Company’s common stock resumed trading on the OTCBB. Additionally,
      Mr. Morris was granted stock options to purchase 100,000 of the Company's commonstock at an average price of $1.00 per share, of which 10% vested
      immediately and the remaining 90% vested at the rate of 1/12th per
      month for twelve months. The fair value of the options granted totaled $53,329.
      On March 12, 2007, Mr. Morris’ base salary was increased to $200,000 per annum
      and he was granted additional stock options to purchase 200,000 shares of the
      Company’s common stock at an exercise price of $0.01, of which 1/3 vested
      immediately, 1/3 at the closing of the next round of funding, and the remaining
      1/3 when the Company’s common stock resumed trading on the OTCBB. Additionally,
      on March 12, 2007, Mr. Morris was granted additional stock options to purchase
      400,000 of the Company's common stock at an average price of $1.00 per share,
      of
      which 10% vested immediately and the remaining 90% will vest at the rate of
      1/12th per month for twelve months. The fair value of the additional
      options granted totaled $232,441. Effective December 7, 2007, Joseph Morris
      resigned from the Company as Chief Operating Officer.




48




Effective
      August 8, 2006, Jeffrey L. Burke was hired as Executive Vice President of the
      Company. Mr. Burke's base salary was initially $270,000 per annum. As an
      employment incentive, Mr. Burke was granted stock options to purchase 750,000
      shares of the Company’s common stock at an
      exercise price of $0.01, of which 1/3 vested immediately, 1/3 at the closing
      of
      the next round of funding, and the remaining 1/3 when the Company’s common stock
      resumed trading on the OTCBB. Additionally, Mr.
      Burke
      was granted options to purchase 500,000 of the Company's Common Stock at an
      average price of $1.00 per share, of which 10% vested immediately and the
      remaining 90% vested at the rate of 1/12 th per
      month for twelve months. The fair value of the options granted totaled $481,492.
      Effective December 13, 2007, Jeffrey Burke resigned from the Company as
      Executive Vice President.





The
      Company is in the process of negotiating separation agreements with Mr. Morris
      and Mr. Burke.





Effective
      November 26, 2007, the Company appointed Katie Ashcraft to the position of
      Vice
      President of Finance for the Company. The Company is currently in the process
      of
      negotiating the terms of Ms. Ashcraft’s employment. Following Mr. Morris’
resignation, effective December 16, 2007, the Company appointed Bobby Reed
      to
      the position of Vice president of Operations of the Company. The Company is
      currently in the process of negotiating the terms of Mr. Reed’s
      employment.




**Item
                11.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.**




Our
      common stock is the only class of voting securities presently
      outstanding.





**Equity
      Compensation Plans**





The
      following table summarizes information with respect to options under our equity
      compensation plans as of December 31, 2007:





Number of securities to be
              issued upon exercise of
              outstanding options,
              warrants and rights
              (a)
            
            Weighted-average
              exercise price of
              outstanding options,
              warrants and rights
              (b)
            
            Number of securities
              remaining available for
              future issuance under
              equity compensation plans
              (excluding securities
              reflected in column (a))
              (c)Equity
                compensation plans approved by security holders
            
            
            4,234,301
            
            $
            0.36
            
            
            265,699Equity
                compensation plans not approved by security holders (1)
            
            
            5,402,187
            
            $
            1.00
            
            
            -Total
            
            
            9,636,488
            
            $
            0.72
            
            
            265,699


(1)  Reflects
      stock options the Company is obligated to issue to certain employees pursuant
      to
      the terms of their respective employment agreements. The Company has not yet
      issued such stock options.




49




The
      following table sets forth information with respect to the beneficial ownership
      of shares of our common stock as of December 31, 2007, on which date there
      were
      71,319,648 shares outstanding, by:




·
            each
                person known by us to beneficially own 5% or more of the outstanding
                shares of such class of stock, based on filings with the Securities
                and
                Exchange Commission and certain other
                information,




·
            each
                of our “named executive officers” and directors,
                and




·
            all
                of our executive officers and directors as a
                group.




Beneficial
      ownership is determined in accordance with the rules of the SEC and includes
      voting and investment power. In addition, under SEC rules, a person is deemed
      to
      be the beneficial owner of securities, which may be acquired by such person
      upon
      the exercise of options and warrants or the conversion of convertible securities
      within 60 days from the date on which beneficial ownership is to be
      determined.




Except
      as
      otherwise indicated in the notes to the following table, we believe that all
      shares are beneficially owned, and investment and voting power is held by the
      persons named as owners, and the address for each beneficial owner listed in
      the
      table, except where otherwise noted, is c/o WinSonic Digital Media Group, Ltd.
      101 Marietta Street, Suite 2600, Atlanta, GA 30303.





**Name
                and Address**
            
            **Amount and Nature**
              **Of Beneficial Ownership**
            
            **Percentage of**
              **Outstanding**
              **Shares Owned**Winston
                Johnson
            
            
            12,029,200
            (1)
            
            16
            %Jon
                J. Jannotta
            
            
            5,766,290
            
            
            8
            %Eric
                Leufroy
            
            
            421,830
            (2)
            
            *Thomas
                Mensah
            
            
            150,000
            
            
            *All
                current directors and executive officers as a group
            
            
            18,367,320
            
            
            25
            %


_____________


*
            Less
                than 1%.


(1)
            Includes
                11,029,200 shares of common stock and 1,000,000 stock options exercisable
                at $1.00.


(2)
            Includes
                200,000 warrants to purchase shares of common stock exercisable at
                $0.20,
                including 150,000 to Eric Leufroy, 25,000 to Ena Leufroy and 25,000
                to
                Erica Leufroy, and 221,830 shares of common stock, including 166,373
                to
                Eric Leufroy, 27,729 to Ena Leufroy, and 27,729 Erica Leufroy,
                respectively that certain convertible notes are convertible or exercisable
                into, as applicable.





**Item
      12.**  **Certain
      Relationships and Related Transactions, and Director
      Independence.**





**Loans
      Payable - Related Party**





During
      2006, the Company issued two non-interest bearing notes to an officer of the
      Company in the amounts of $78,192 and $1,793. Under the terms of the notes,
      the
      officer had the right to demand repayment prior to September 29, 2007 and the
      Company had the right to repay the amounts by issuing shares of the Company’s
      restricted common stock at a per share price of $0.20. During the second quarter
      of 2007, the officer requested repayment and the Company issued 399,924 shares
      of restricted common stock in the third quarter of 2007.




50




**Loans
      from Founder:**





**2007** :
      During
      year ended December 31, 2007, the CEO of the Company entered into certain loan
      transactions with certain third parties and in turn has loaned an aggregate
      of
      $428,393 to the Company. ****** During
      the year ended December 31, 2007, the Company accrued interest on the
      outstanding principal balance of these loans in the amount of $7,494. As a
      condition to the loan transactions with such third parties, the CEO has assigned
      or committed to assign to such third parties an aggregate of 2,948,474 of his
      personal shares of the Company’s common stock. During the year ended December 31
      2007, the Company repaid loan amounts of $72,086 including accrued interest,
      and
      issued 600,000 shares of the Company’s common stock to third parties on behalf
      of the CEO in exchange for debt forgiveness from the CEO in the amount of
      $179,971. As of December 31, 2007, the outstanding balance of these loans was
      $181,392 in principal and $2,437 in accrued interest.





During
      the fourth quarter of 2007, the Company issued to the CEO of the Company an
      aggregate of $45,917 in 6% Convertible Subordinated Promissory Notes and
      warrants to purchase up to 114,791 shares of the Company’s common stock. The two
      convertible notes with balances of $40,917 and $5,000, which accrue interest
      at
      6%, mature on October 30, 2009 and November 11, 2009, respectively. The CEO
      has
      the option, at any time prior to payment or conversion, to convert any unpaid
      principal and interest into shares of common stock at a price per share equal
      to
      $0.20. In addition, the notes are convertible if the Company completes an equity
      financing which raises proceeds of at least $3,000,000 or if the Company
      completes certain specified transactions. The notes include covenants and events
      of default which are customary for promissory notes of this nature. The notes
      also provide the CEO certain piggy-back registration rights with respect to
      the
      shares of common stock into which the notes are convertible. The warrants,
      which
      have an exercise price of $0.40 per share, expire on October 30, 2009 and
      November 11, 2009. The warrants may be exercised at any time prior to expiration
      and provide the CEO certain piggy-back registration rights with respect to
      the
      shares of common stock into which the warrants are exercisable.





**2006:** During
      2006, the CEO of the Company loaned $20,000 to the Company on an interest-free
      basis. During 2006, $15,000 was repaid leaving an unpaid obligation of $5,000
      as
      of December 31, 2007.





**2005** : On
      September 15, 2005, the Company received a loan of $80,000 from the CEO. Under
      the terms of the promissory note governing the loan, interest accrues at 10%
      per
      annum, with principal and interest payable on December 1, 2005. Unpaid principal
      and interest after December 1, 2005 is subject to additional interest of 5%
      in
      excess of the rate otherwise applicable to the unpaid balance. During 2006,
      the
      Company issued 400,000 shares of restricted common stock to repay the principal
      of the loan and the balance of the accrued interest does not accrue additional
      interest. The balance of the accrued interest payable at December 31, 2007
      was
      $13,074.




**2004:** As
      of
      December 31, 2006, the Company had a loan payable totaling $316,496 to the
      CEO
      which included principal of $209,000. Under the terms of the loan, interest
      accrued at the rate of 10% per annum. During the year ended December 31, 2007,
      the Company paid $32,500 to the CEO as partial repayment of this loan. On
      January 17, 2008, the Company entered into an agreement with the CEO, and
      Rosemary Nguyen related to a settlement in the Rosemary Nguyen v. WinSonic
      Digital Media Group, Ltd. and Winston Johnson matter. Pursuant to this
      agreement, the Company is required to issue 80,000 shares of its common stock
      to
      Ms. Nguyen, which shares shall be deemed to have been fully paid for on November
      20, 2004. In addition, the Company is required to issue 1,996,521 restricted
      shares of its common stock to Ms. Nguyen as full settlement of this matter.
      The
      balance of this loan from the CEO related top this matter was repaid at that
      time by issuance of the shares of the Company’s common stock to Ms. Nguyen.
      During the quarter ended December 31, 2007, in connection with this matter,
      the
      Company reclassified $314,584 from loans payable - related party to legal
      settlement liabilities. (See “Note 9 - Summary of Legal Proceedings” and “Note
      15 - Subsequent Events” for further details.)





**Consulting
      Agreements**





During
      the year ended December 31, 2007, the Company entered into nine consulting
      agreements with shareholders of the Company to assist the Company in the
      development of capitalization plans which will provide the capital resources
      necessary to accomplish the operating and strategic plans of the Company. As
      compensation for the services provided, the Company issued 333,000 restricted
      shares of the Company’s common stock which were valued at $176,650 in payment
      for five of the agreements. The remaining four agreements require the issuance
      of an additional 500,000 restricted shares of the Company’s common stock. These
      shares were valued at $261,000 and were issued during the first quarter of
      2008.
      In addition, the Company hired the wife of an executive of AI to perform design
      services totaling $35,055 and paid a Board member $2,000 as a consulting fee.
      The costs of these consulting agreements totaled $474,705 and are included
      in
      the accompanying statement of operations as consulting services – related
      party.





51




**Share
      issuances**





During
      the year ended December 31, 2007, the Company issued 500,000 restricted shares
      of the Company’s common stock in anticipation of closing a financing transaction
      with a related party which did not materialize. The shares were subsequently
      canceled in January 2008. The Company also issued 700,000 shares of the
      Company’s restricted common shares to reimburse the CEO for certain financing
      transactions in excess of the correct amount of shares. The shares were
      subsequently canceled in March 2008.





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





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





The
      investment in NATVN is accounted for under the “equity” method. The equity
      method of accounting is used if the investor has the ability to significantly
      influence the investee’s financial and operating policies, or if an investor is
      accounting for an investment in a corporate joint venture, but holds less than
      50% of the investee. Under the equity method, an investment is initially
      recorded at cost. Thereafter, the carrying amount of the investment is increased
      for the investor’s proportionate share of the investee’s gains, or is reduced
      for the proportionate share of the investee’s losses or for distributions
      received from the investee. As of December 31, 2007, there has been no
      significant operations commenced by NATVN.





**WinSonic
      Diversity, LLC**





On
      May
      22, 2006, WinSonic Diversity was organized in the State of Georgia by Winston
      D.
      Johnson and the Company. Mr. Johnson holds a majority of the ownership interests
      (51%) and is responsible for the management of WinSonic Diversity, while the
      Company holds a minority interest (49%). The assets and liabilities and
      operations of WinSonic Diversity are included in the accompanying financial
      statements. ****





**Item
      13.**  **Exhibits.**





**Exhibit
                No.**
            
            **Description**2.1
            
            Agreement
                and Plan of Reorganization by and among Media and Entertainment.com,
                Inc.,
                WinSonic Acquisition Sub, Inc., WinSonic Holdings, Ltd and Winston
                Johnson, dated July 16, 2004, as amended.(5)2.2
            
            Amended
                and Restated Acquisition and Share Exchange Agreement by and among
                WinSonic Digital Media Group, Ltd and Automated Interiors, LLC and
                William
                H. Mann and Jeffrey Fischer executed on May 15, 2006 and effective
                as of
                April 18, 2006.(9)2.3
            
            Acquisition
                and Share Exchange Agreement by and among WinSonic Digital Media
                Group,
                Ltd., Tytess Design and Development, Inc., and Cedric T. Drayton
                executed
                on November 2, 2006.(16)2.4
            
            Asset
                and Goodwill Purchase Agreement among WinSonic Digital Media Group,
                Ltd.,
                DV Photo Shop and Sung Yeol “Scott” Yoon, dated November 20, 2006.(17)3.1
            
            Articles
                of Incorporation of Media and Entertainment.com, Inc., dated April
                27,
                2000, as amended through October 17, 2002.(1)




52




3.2
            
            Certificate
                of Amendment to the Articles of Incorporation dated November 5, 2003.(3)3.3
            
            By-laws
                of Media and Entertainment.com, Inc.(2)3.4
            
            Certificate
                of Amendment to Articles of Incorporation of Winsonic Digital Media
                Group,
                Ltd., filed with the Nevada Secretary of State on June 22,
                2007(20)4.1
            
            WinSonic
                Digital Media Group, Ltd. 9% Convertible Subordinated Promissory
                Note with
                Atlanta Centennial, LLC dated October 12, 2005 in the amount of $250,000.(8)4.2
            
            WinSonic
                Digital Media Group, Ltd. Warrant Certificate with Atlanta Centennial,
                LLC
                dated October 12, 2005.(8)4.3
            
            WinSonic
                Digital Media Group, Ltd. 6% Convertible Subordinated Promissory
                Note with
                JungSook Yoon, HeungWoo Park, and SunWoo Park dated November 20,
                2006 in
                the amount of $60,000.(17)4.4
            
            Form
                of WinSonic Digital Media Group, Ltd. 6% Convertible Subordinated
                Promissory Note.(19)4.5
            
            Form
                of WinSonic Digital Media Group, Ltd. Warrant Certificate.(19)4.6
            
            Warrant
                to purchase 1,400,000 shares of the Company’s Common Stock dated August
                27, 2007 issued to Surry P. Roberts(21)******4.7
            
            $700,000
                6% Convertible Subordinated Promissory Note dated August 27, 2007
                issued
                to Surry P. Roberts(21)4.8
            
            6%
                Convertible Subordinated Promissory Note dated October 12,
                2007(22)4.9
            
            Warrant
                to purchase shares of the Company’s Common Stock dated October 12,
                2007(22)4.10
            
            $300,000
                6% Convertible Subordinated Promissory Note dated December 3, 2007
                issued
                to Surry P.Roberts(24)4.11
            
            Warrant
                to purchase 600,000 shares of the Company’s Common Stock dated December 3,
                2007 issued to Surry P. Roberts.(24)4.12*
            
            Form
                of 6% Convertible Subordinated Promissory Note dated February 9,
                2008.4.13*
            
            Form
                of Stock Purchase Warrant dated February 9, 2008.10.1
            
            Subcontractor
                Master Consulting Agreement with C12,
                Inc., dated December 10, 2004.(4)10.2
            
            Joint
                Marketing and Development Agreement with C12,
                Inc., dated December 10, 2004.(4)10.3
            
            Modification
                of the Master Purchase Agreement between C12and WinSonic Holdings, dated December 10, 2004.(4)10.4
            
            Memorandum
                of Understanding dated February 17, 2005, by and between WinSonic
                Digital
                Media Group, Ltd. and Native American Television Network, Inc.(6)




53




10.5
            
            Agreement
                dated March 17, 2005, by and between WinSonic Digital Media Group,
                Ltd.
                and Lantern Hill Capital.(6)10.6
            
            Exchange
                Agreement dated as of March 15, 2005, by and among WinSonic Digital
                Media
                Group, Ltd., WinSonic Digital Cable Systems Network, Ltd., Winston
                Johnson
                and A. Scott Roderick Investments, LLC.(6)******10.7
            
            Binding
                Employment Offering Letter dated October 8, 2004 by and between the
                Registrant and Winston Johnson.(7)10.8
            
            Addendum
                to the June 9, 2003 Master Service Agreement with Level 3 Communications
                keeping the agreement in full effect dated August 22, 2004.(7)10.9
            
            Service
                schedule for (3) LinkSMGlobal Wavelength Service - IRU dated August 17, 2004.(7)10.10
            
            Contract
                with Sun Micro Systems as a Sun iForce Partner dated May 24, 2005.(7)10.11
            
            Office
                Lease Agreement for Centennial Tower, 101 Marietta Street, Atlanta,
                Georgia, by and between Atlanta Centennial, LLC and WinSonic Digital
                Media
                Group, Ltd., dated October 12, 2005.(8)10.12
            
            Sublease
                Agreement between Rogers Telecom, Inc. and WinSonic Digital Media
                Group,
                Ltd., dated May 17, 2006.(10)10.13
            
            Lease
                Agreement between WinSonic Digital Media Group, Ltd. and JT
                Communications, LLC, dated June 22, 2006.(10)10.14
            
            Binding
                Employment Offer Letter dated June 7, 2006 by and between WinSonic
                Digital
                Media Group, Ltd. and Joseph Morris as COO.(11)10.15
            
            Separation
                Agreement and Release dated December 9, 2005 by and between WinSonic
                Digital Media Group, Ltd. and Nana Yalley.(12)10.16
            
            Consulting
                Agreement by and between FraserNet, Inc. and WinSonic Digital Media
                Group,
                Ltd., dated July 28, 2006.(13)10.17
            
            Employment
                Agreement by and between Jeffrey Burke and WinSonic Digital Media
                Group,
                Ltd., dated August 8, 2006.(13)10.18
            
            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.(14)10.19
            
            Interconnection
                Agreement between BellSouth Telecommunications, Inc. and WinSonic
                Digital
                Media Group, Ltd., dated September 27, 2006.(15)10.20
            
            Memorandum
                of Understanding between WinSonic Digital Media Group, Ltd., WinSonic
                Digital Cable Systems Network, Ltd. and James E. Thomas, dated October
                2,
                2006.(15)******10.21
            
            Telecom/Office
                Lease Agreement between Bank Building Limited Partnership, LLC and
                WinSonic Digital Media Group, Ltd., dated as of February 8,
                2007.(18)10.22
            
            First
                Amendment to Telecom/Office Lease Agreement between Bank Building
                Limited
                Partnership, LLC and WinSonic Digital Media Group, Ltd., dated as
                of
                February 8, 2007.(18)




54




10.23
            
            Office
                Lease Agreement for Westgate Industrial Center #3, 5290 Westgate
                Drive,
                Suite B, Atlanta, Georgia, by and between ProLogis-Macquarie U.S.
                LLC and
                Automated Interiors, LLC., dated May 23, 2007.(25)******10.24
            
            Settlement
                Agreement and Mutual Release dated October 5, 2007, by and between
                Company
                and Nana Yalley(22)******10.25
            
            Consent
                Order dated October 4, 2007, by and between Company and Crowne Office
                Suites, Inc.(22)10.26
            
            Settlement
                Agreement and Mutual Release dated November 5, 2007, by and between
                Company and EricYoung.(23)10.27
            
            Settlement
                Agreement and General Release dated January 17, 2008, by and among
                the
                Company, Winston Johnson, and Rosemary Nguyen.(26)10.28
            
            Repurchase
                Rights Agreement dated January 17, 2008, between the Company and
                Rosemary
                Nguyen.(26)10.29
            
            Settlement
                Agreement and General Release dated December 28, 2007, by and among
                the
                Company, Winston Johnson, and David Lefkowitz.(26)10.30
            
            Rights
                Agreement, dated March 20, 2008, between the Company and BPP.(27)******10.31*
            
            Form
                of Loan Agreement and Security Assignment and Form of Promissory
                Note
                dated December 31, 2007.10.32*
            
            Form
                of Loan Agreement and Security Assignment and Form of Promissory
                Note
                dated January 31, 2008.10.33*
            
            Form
                of Loan Agreement and Security Assignment and Form of Promissory
                Note
                dated March 28, 2008.14.1*`
            
            Code
                of Business Conduct and Ethics.16.1
            
            Letter
                from Chavez and Koch dated March 31, 2005.(8)16.2
            
            Letter
                from DeJoya & Griffith, Changes in Registrant’s Certifying Accountant
                dated March 10, 2005.(12)21.1*
            
            List
                of subsidiaries of Registrant.31.1*
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer required
                by
                Rule 13a-14(a) or Rule 15d-14(a).32.1*
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer required
                by
                Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.99.1*
            
            Audit
                Committee Charter99.2*
            
            Nominating
                and Corporate Governance Committee
                Charter




*
                Filed
                    herewith.


(1)
            Incorporated
                herein by reference to the Registrant’s Annual Report on Form 10-KSB for
                the year ended December 31, 2002.




55




(2)
            Incorporated
                herein by reference to the Registrant’s Form 10-SB12G filed on January 17,
                2001.


(3)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed November 30,
                2004.


(4)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed December 17,
                2004.(5)
            Incorporated
                herein by reference to the Registrant’s Form 8-K/A Amendment No. 1 filed
                October 19, 2004.


(6)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed March 31,
                2005.


(7)
            Incorporated
                herein by reference to the Registrant’s Annual Report on Form 10-KSB for
                the year ended December 31, 2004.


(8)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed October 18,
                2005.(9)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed May 16,
                2006.(10)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed June 27,
                2006.


(11)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed June 29,
                2006.(12)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed July 25,
                2006.(13)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed August 24,
                2006.(14)
            Incorporated
                herein by reference to the Registrant’s Form 10-QSB for the quarter ended
                March 31, 2006.(15)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed October 4,
                2006.(16)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed November 3,
                2006.(17)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed December 22,
                2006.(18)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed February 14,
                2007.(19)
            Incorporated
                herein by reference to the Registrant’s Annual Report on Form 10-KSB/A for
                the year ended December 31, 2004, filed January 6, 2006(20)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed June 26,
                2007.(21)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed September 5,
                2007.(22)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed October 22,
                2007.(23)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed November 9,
                2007.(24)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed December 20,
                2007.(25)
            Incorporated
                herein by reference to the Registrant’s Form 10-QSB for the quarter ended
                June 30, 2007.(26)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed January 24,
                2008.(27)
            Incorporated
                herein by reference to the Registrant’s Form 8-K filed April 1,
                2008.





**Item
      14.**  **Principal
      Accountant Fees and Services.**




The
      aggregate fees billed and paid to our independent auditors, DeJoya &
Griffith, for each of our last two years are as follows:




**2007**
            
            **2006**Audit
                Fees
            
            $
            97,500
            
            $
            93,000Audit-Related
                Fees
            
            $
            -
                0 -
            
            $
            -
                0 -Tax
                Fees
            
            $
            -
                0 -
            
            $
            -
                0 -All
                Other Fees
            
            $
            -
                0 -
            
            $
            -
                0 -




56


**Signatures**





In
      accordance with the Section 13 or 15(d) 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)April
                15, 2008
            By:
            /s/
                Winston JohnsonWinston
                Johnson
              Chief
                Executive Officer and Chief Financial
                Officer





In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





By:
            /s/
                Eric LeufroyEric
                Leufroy
              DirectorDate:
                April 15, 2008By:
            /s/
                Thomas MensahThomas
                Mensah
              DirectorDate:April
                15, 2008




57




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To
      the
      Board of Directors and Stockholders


WinSonic
      Digital Media Group, Ltd.


Atlanta,
      Georgia





We
      have
      audited the accompanying balance sheets of WinSonic Digital Media Group, Ltd.
      (A
      Development Stage Company) as of December 31, 2007 and 2006, and the related
      statements of operations, stockholders’ deficit, and cash flows for the years
      ended December 31, 2007 and 2006, and from inception (September 10, 2002) to
      December 31, 2007. These financial statements are the responsibility of the
      Company’s management. Our responsibility is to express an opinion on these
      financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). ** Those
      standards require that we plan and perform the audit to obtain reasonable
      assurance about whether the financial statements are free of material
      misstatement. An audit includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, based on our audits, the financial statements referred to above present
      fairly, in all material respects, the financial position of WinSonic Digital
      Media Group, Ltd. (A Development Stage Company) as of December 31, 2007 and
      2006, and the results of its operations and cash flows for the years ended
      December 31, 2007 and 2006, and from inception (September 10, 2002) to December
      31, 2007 in conformity with accounting principles generally accepted in the
      United States.




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 7 to the financial
      statements, the Company has suffered losses from operations, current liabilities
      exceed current assets, and accumulated deficit is $40,828,551 all of which
      raise
      substantial doubt about its ability to continue as a going concern. Management’s
      plans in regards to these matters are also described in Note 7. The financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.




/s/
      De
      Joya Griffith & Company, LLC


Henderson,
      Nevada





March
      17,
      2008


F-1


WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**BALANCE
      SHEETS**


**As
                  of**
                **Dec
                  31, 2007(Audited)**
              
              **As
                  of**
                **Dec
                  31, 2006**
                **(Audited)****ASSETS**ASSETS:Cash
              
              $
              90,893
              
              $
              3,506Accounts
                  receivable, net of allowance for doubtful accounts of
                $155,000
                  and $0, respectively
              
              
              103,501
              
              
              248,433Prepaid
                  expense
              
              
              38,373
              
              
              67,667Inventory
              
              
              5,994
              
              
              5,387Construction
                  in process
              
              
              305,648
              
              
              254,640**Total
                  current assets**
              
              
              **544,409**
              
              
              **579,633**Fixed
                  assets, net of accumulated depreciation of $908,539 and $784,318,
                  respectively:
              
              
              767,190
              
              
              783,115Goodwill
              
              
              263,524
              
              
              984,291Other
                  assets
              
              
              494,486
              
              
              275,000**TOTAL
                  ASSETS**
              
              **$**
              **2,069,609**
              
              **$**
              **2,622,039**LIABILITIES:Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              5,588,287
              
              $
              2,859,371Customer
                  deposits
              
              
              333,336
              
              
              273,082Accrued
                  payroll and related taxes
              
              
              7,011,351
              
              
              2,138,152Legal
                  settlement liabilities
              
              
              1,213,225
              
              
              775,000Due
                  to other related parties
              
              
              1,091
              
              
              —Loans
                  payable
              
              
              507,518
              
              
              347,743Loans
                  payable -related party
              
              
              201,903
              
              
              414,555Derivative
                  liability related to convertible debentures
              
              
              34,466
              
              
              339,450Warrant
                  liability related to convertible debentures
              
              
              29,909
              
              
              300,420Convertible
                  debentures – 2004/2005 Agreements
              
              
              35,514
              
              
              257,469Convertible
                  debentures, net of debt discount totaling $804,932 and $794,784,
                  respectively
              
              
              1,269,596
              
              
              507,524Current
                  portion of long term liabilities
              
              
              80,950
              
              
              90,197**Total
                  current liabilities**
              
              
              **16,307,146**
              
              
              **8,302,963****Long
                  term debt**
              
              
              **-**
              
              
              44,822**TOTAL
                  LIABILITIES**
              
              
              **16,307,146**
              
              
              **8,347,785**Stockholders'
                  deficit:Preferred
                  stock, $0.001 par value, 20,000,000 shares authorized, no shares
                  issued
                  and outstanding at December 31, 2007 and December 31, 2006,
                  respectively.
              
              
              -
              
              
              -Common
                  stock, $0.001 par value, 200,000,000 shares authorized, 71,319,648
                  and
                  49,578,057 shares issued and outstanding at December 31, 2007 and
                  December
                  31, 2006, respectively.
              
              
              71,319
              
              
              49,578Additional
                  paid-in capital
              
              
              26,520,895
              
              
              13,609,264Common
                  stock payable
              
              
              -
              
              
              1,357,426Common
                  stock receivable
              
              
              (1,200
              )
              
              -Common
                  stock advance for future services
              
              
              -
              
              
              (48,175
              )Accumulated
                  deficit during development stage
              
              
              (40,828,551
              )
              
              (20,693,839)
              )**Total
                  stockholders' deficit**
              
              
              **(14,237,537**
              **)**
              
              **(5,725,746)**
              **)****TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              **$**
              **2,069,609**
              
              **$**
              **2,622,039**




*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Balance Sheets.*


F-2


WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**STATEMENTS
      OF OPERATIONS**


(Audited)







**For
                the years ended**
              **December
                31,**
            
            **Inception**
              **(September**
              **10,
                2002) to****2007**
            
            **2006**
            
            **December
                31, 2007**REVENUE
            
            $
            1,524,995
            
            $
            759,495
            
            $
            2,342,301COST
                OF GOODS SOLD
            
            
            2,108,448
            
            
            498,739
            
            
            3,756,347GROSS
                PROFIT
            
            
            **(583,453**
            **)**
            ****
            **260,756**
            ****
            ****
            **(1,414,046**
            **)**EXPENSES:Selling,
                general and administrative
            
            
            2,392,146
            
            
            1,800,055
            
            
            8,302,298Research
                and development
            
            
            89,329
            
            
            -
            
            
            89,329Payroll
                expense – selling, general and administrative
            
            
            7,502,052
            
            
            3,906,987
            
            
            13,470,306Payroll
                expense – research and development
            
            
            396,054
            
            
            -
            
            
            396,054Consulting
                services - related party
            
            
            474,705
            
            
            352,029
            
            
            2,898,002Depreciation
                expense
            
            
            124,221
            
            
            162,622
            
            
            1,182,518Total
                expenses
            
            
            **10,978,507**
            ****
            ****
            **6,221,693**
            ****
            ****
            **26,338,507**OPERATING
                LOSS
            
            
            **(11,561,960**
            **)**
            ****
            **(5,960,937**
            **)**
            ****
            **(27,752,553**
            **)**OTHER
                INCOME/(EXPENSES):Interest
                expense
            
            
            (7,217,519
            )
            
            (882,765
            )
            
            (10,356,703
            )Interest
                expense – related party
            
            
            (45,384
            )
            
            (294,165
            )
            
            (339,549
            )Impairment
                of goodwill
            
            
            (720,767
            )
            
            -
            
            
            (720,767
            )Gain
                on legal settlement
            
            
            942,636
            
            
            -
            
            
            942,636Legal
                settlement costs
            
            
            (2,107,213
            )
            
            (198,000
            )
            
            (3,325,213
            )Unrealized
                  gain (loss) on adjustment of derivative and warrant liability to
                  fair
                  value of underlying securities
            
            
            575,495
            
            
            (942,757
            )
            
            602,923Interest
                income
            
            
            -
            
            
            -
            
            
            730Other
                income
            
            
            -
            
            
            34,493
            
            
            119,945Total
                other income/(expenses)
            
            
            **(8,572,752**
            **)**
            ****
            **(2,283,194**
            **)**
            ****
            **(13,075,998**
            **)**NET
                LOSS BEFORE PROVISION FOR INCOME TAXES
            
            
            **(20,134,712**
            **)**
            ****
            **(8,244,131**
            **)**
            ****
            **(40,828,551**
            **)**PROVISION
                FOR INCOME TAXES
            
            
            -
            
            
            -
            
            
            -NET
                LOSS
            
            $
            **(20,134,712**
            **)**
            **$**
            **(8,244,131**
            **)**
            **$**
            **(40,828,551**
            **)**Basic
                weighted average number of common shares outstanding
            
            
            56,405,502
            
            
            44,454,006Net
                loss per basic and diluted common share
            
            $
            (0.36
            )
            $
            (0.19
            )





*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Statements of Operations.*


F-3


WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**STATEMENTS
      OF CASH FLOWS**


(Audited)





**For
                the years ended**
              **December
                31**
            
            **Inception**
              **(September**
              **10,
                2002) to****2007**
            
            **2006**
            
            **December
                31,**
              **2007****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (20,134,712
            )
            $
            (8,244,131
            )
            $
            (40,828,551
            )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
            
            
            124,221
            
            
            162,622
            
            
            1,182,518Accretion
                  of principal and interest related to convertible
                  debentures
            
            
            2,308,856
            
            
            806,517
            
            
            4,226,791Unrealized
                (gain) loss on adjustment of derivative and
              Warrant
                liability to fair value of underlying securities
            
            
            (575,495
            )
            
            942,757
            
            
            (602,923
            )Stock
                based compensation
            
            
            2,032,818
            
            
            1,167,419
            
            
            6,429,452Provision
                for doubtful accounts
            
            
            155,000
            
            
            -
            
            
            155,000Impairment
                of goodwill
            
            
            720,767
            
            
            -
            
            
            720,767Gain
                on legal settlement
            
            
            (942,636
            )
            
            -
            
            
            (942,636
            )Operating
                expenses paid with stock, options and warrants
            
            
            -
            
            
            1,036,822
            
            
            1,036,822Operating
                expenses paid by loans payable
            
            
            -
            
            
            60,000
            
            
            60,000Interest
                expense paid with stock
            
            
            -
            
            
            185,621
            
            
            185,621Financing
                costs paid with stock and stock payable
            
            
            3,400,552
            
            
            -
            
            
            3,400,552Financing
                costs related to conversion of loans payable and loans payable –
                related party to stock
            
            
            285,424
            
            
            -
            
            
            285,424Consulting
                services paid with stock and stock payable
            
            
            437,650
            
            
            -
            
            
            437,650Amortization
                of common stock advances for future services
            
            
            48,175
            
            
            -
            
            
            48,175Interest
                accrued and added to notes
            
            
            136,015
            
            
            179,561
            
            
            315,576Forgiveness
                of accrued interest - Digital Services International, Inc.
            
            
            -
            
            
            -
            
            
            152,592Other
                non-cash financing costs
            
            
            29,032
            
            
            -
            
            
            29,032Change
                in operating assets and liabilities:Increase
                in accounts receivable
            
            
            (10,068
            )
            
            (273,829
            )
            
            (283,897
            )Decrease
                (increase) in prepaid expenses
            
            
            29,294
            
            
            (48,871
            )
            
            (36,053
            )Increase
                in inventory
            
            
            (607
            )
            
            -
            
            
            (607
            )Increase
                in construction in process
            
            
            (51,008
            )
            
            (224,676
            )
            
            (275,684
            )Increase
                in other assets
            
            
            (219,486
            )
            
            (25,000
            )
            
            (244,486
            )Increase
                in advances to related companies
            
            
            1,091
            
            
            -
            
            
            1,091Increase
                in accounts payable and accrued expenses
            
            
            2,396,565
            
            
            734,392
            
            
            5,469,252Increase
                in customer deposits
            
            
            60,254
            
            
            346,940
            
            
            407,194Increase
                in accrued payroll and related taxes
            
            
            4,873,199
            
            
            1,546,801
            
            
            8,063,707Increase
                in legal settlement liabilities
            
            
            2,107,213
            
            
            205,000
            
            
            3,332,213**Net
                cash used in operating activities**
            
            
            **(2,787,886**
            **)**
            ****
            **(1,442,055**
            **)**
            ****
            **(7,275,408**
            **)****CASH
                FLOWS FROM INVESTING ACTIVITIES:**Cash
                acquired through business acquisition
            
            
            -
            
            
            16,670
            
            
            16,670Purchase
                of fixed assets
            
            
            (169,426
            )
            
            (192,814
            )
            
            (1,617,890
            )**Net
                cash used in investing activities**
            
            
            **(169,426**
            **)**
            ****
            **(176,144**
            **)**
            ****
            **(1,601,220**
            **)****CASH
                FLOWS FROM FINANCING ACTIVITIES:**Decrease
                in bank overdraft
            
            
            -
            
            
            (14,468
            )
            
            -Proceeds
                from loans payable
            
            
            190,000
            
            
            15,678
            
            
            625,251Payment
                on loans payable
            
            
            -
            
            
            (23,335
            )
            
            (23,335
            )Proceeds
                from loan payable - related party
            
            
            395,893
            
            
            114,985
            
            
            1,334,604Payment
                on loan payable - related party
            
            
            (72,086
            )
            
            (117,970
            )
            
            (350,056
            )Payment
                on convertible debentures
            
            
            (64,813
            )
            
            -
            
            
            (64,813
            )Proceeds
                from convertible debentures
            
            
            2,433,205
            
            
            1,646,815
            
            
            5,283,270Proceeds
                from common stock issued in connection with exercise of
                warrants
            
            
            162,500
            
            
            -
            
            
            162,500Proceeds
                from common stock issued
            
            
            -
            
            
            -
            
            
            2,000,100**Net
                cash provided by financing activities**
            
            
            **3,044,699**
            
            
            **1,621,705**
            
            
            **8,967,521****NET
                INCREASE IN CASH**
            
            
            **87,387**
            
            
            **3,
                506**
            
            
            **90,893****CASH,
                BEGINNING OF PERIOD**
            
            
            **3,506**
            
            
            -
            
            
            -**CASH,
                END OF PERIOD**
            
            **$**
            **90,893**
            
            **$**
            **3,506**
            
            **$**
            **90,893****SUPPLEMENTARY
                INFORMATION:**Interest
                paid
            
            $
            7,668
            
            $
            47,124
            
            $
            54,7892Income
                taxes paid
            
            $
            -
            
            $
            -
            
            $
            -**NON-CASH
                ACTIVITIES:**Issuance
                of common stock for common stock payable
            
            **$**
            -
            
            $
            -
            
            $
            820,000Forgiveness
                of salary payable to officer
            
            **$**
            -
            
            $
            432,644
            
            $
            702,644Forgiveness
                of payroll tax for officer
            
            **$**
            -
            
            $
            -
            
            $
            20,655Issuance
                of common stock as deposit on lease obligation
            
            **$**
            -
            
            $
            -
            
            $
            250,000Issuance
                of common stock and stock payable as payment for subsidiaries
                acquired
            
            **$**
            -
            
            $
            939,528
            
            $
            939,528Issuance
                of common stock as payment on loans payable and loans payable - related
                party
            
            **$**
            585,984
            
            $
            80,000
            
            $
            896,984Issuance
                of common stock and warrants for salary payable
            
            **$**
            
            
            $
            329,058
            
            $
            515,679Issuance
                of common stock upon conversion of debentures
            
            **$**
            1,928,034
            
            $
            1,523,186
            
            $
            3,569,218Adjustment
                to paid in capital for accumulated depreciation
            
            **$**
            -
            
            $
            -
            
            $
            281,481Issuance
                of common stock and stock payable for legal settlement
            
            **$**
            968,886
            
            $
            450,000
            
            $
            1,418,886




*The
      accompanying notes to financial statements should be*


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





F-4




WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**STATEMENT
      OF STOCKHOLDERS' DEFICIT**


**Additional**
                
                **Common**
                
                **Common**
                
                **Common**
                  **Stock
                    Advance**
                
                **Accumulated
                    Deficit****Preferred Stock**
                
                **Common Stock**
                
                **Paid-in**
                
                **Stock**
                
                **Stock**
                
                **for**
                  **Future**
                
                **During**
                  **Development**
                
                **Total**
                  **Stockholders’****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Capital**
                
                **Payable**
                
                **Receivable**
                
                **Services**
                
                **Stage**
                
                **Deficit****Balance,
                    September 10, 2002 (Inception) - No Par Stock**
                
                
                **10,000,000**
                
                **$**
                **-**
                
                
                **10,000,000**
                
                **$**
                **-**
                
                **$**
                **-**
                
                **$**
                **-**
                
                **$**
                **-**
                
                **$**
                **-**
                
                **$**
                **-**
                
                **$**
                **-**Reverse
                    Merger - Reacquisition of all outstanding shares of WinSonic
                    Acquisition
                    Sub, Inc. - No Par Stock (Recasted to inception)
                
                
                (10,000,0000
                )
                
                -
                
                
                (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
                )


F-5




**Additional**
              
              **Common**
              
              **Common**
              
              **Common**
                **Stock
                  Advance**
              
              **Accumulated
                  Deficit**
                  **During****Preferred
                  Stock**
              
              **Common
                  Stock**
              
              **Paid-in**
              
              **Stock**
              
              **Stock**
              
              **for
                  Future**
              
              **Development**
              
              **Total****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Payable**
              
              **Receivable**
              
              **Services**
              
              **Stage**
              
              **Stockholders’
                  Deficit**Issuance
                  of common stock related to reverse-merger
              
              
              -
              
              
              -
              
              
              23,956,138
              
              
              23,956
              
              
              (123,487
              )
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              (99,531
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,790,794
              )
              
              (5,790,794
              )**Balance,
                  December 31, 2004 (Restated)**
              
              
              **-**
              
              **$**
              **-**
              
              
              **33,620,884**
              
              **$**
              **33,621**
              
              **$**
              **2,918,261**
              
              **$**
              **820,000**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **(8,344,095**
              **)**
              **$**
              **(4,572,213**
              **)**Issuance
                  of common stock for services, $1.30 average price per share
              
              
              **-**
              
              
              -
              
              
              94,615
              
              
              95
              
              
              122,905
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              123,000Issuance
                  of common stock for services, $0.82 average price per share
              
              
              **-**
              
              
              -
              
              
              91,463
              
              
              91
              
              
              74,909
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              75,000Issuance
                  of common stock for services, $0.68 average price per share
              
              
              **-**
              
              
              -
              
              
              66,667
              
              
              67
              
              
              45,267
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              45,334Issuance
                  of common stock for equity investment in NATVN
              
              
              **-**
              
              
              -
              
              
              1,670,000
              
              
              1,670
              
              
              (1,670
              )
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              -Issuance
                  of common stock founder to relieve related party note payable due
                  him, at
                  $0.33 average price per share
              
              
              **-**
              
              
              -
              
              
              700,000
              
              
              700
              
              
              230,300
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              231,000Issuance
                  of common stock to founder for services, $0.33 average price per
                  share
              
              
              **-**
              
              
              -
              
              
              500,000
              
              
              500
              
              
              164,500
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              165,000Issuance
                  of common stock for services, $0.70 average price per share
              
              
              **-**
              
              
              -
              
              
              900,000
              
              
              900
              
              
              629,100
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              630,000Issuance
                  of common stock for services, $0.48 average price per share
              
              
              **-**
              
              
              -
              
              
              225,000
              
              
              225
              
              
              107,775
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              108,000Issuance
                  of common stock in satisfaction of convertible debentures debts
                  of
                  $118,000, at $0.20 average price per share
              
              
              **-**
              
              
              -
              
              
              590,000
              
              
              590
              
              
              117,410
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              118,000Issuance
                  of common stock as lease deposit, $0.27 average price per share
              
              
              **-**
              
              
              -
              
              
              925,927
              
              
              926
              
              
              249,074
              
              
              -
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              250,000Issuance
                  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
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              **-**
              
              
              281,481




F-6




****
              ****
              ****
              ****
              ****
              
              
              **Additional**
              
              **Common**
              
              **Common**
              
              **Common**
                **Stock**
              
              **Accumulated
                  Deficit**
                  **During****Preferred
                  Stock**
              
              **Common
                  Stock**
              
              **Paid-in**
              
              **Stock**
              
              **Stock**
              
              **Advance**
                **for
                  Future**
              
              **Development**
              
              **Total
                  Stockholders’****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Payable**
              
              **Receivable**
              
              **Services**
              
              **Stage**
              
              **Deficit**Forgiveness
                  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**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **(12,449,708**
              **)**
              **$**
              **(5,621,696**
              **)**Issuance
                  of common stock in accordance with mutual general release and settlement
                  agreement at $0.50 average price per share
              
              
              **-**
              
              
              -
              
              
              900,000
              
              
              900
              
              
              449,100
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              450,000Issuance
                  of common stock in conversion of shareholder note payable, 0.20
                  per share
              
              
              **-**
              
              
              -
              
              
              3,184,899
              
              
              3,185
              
              
              633,795
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              636,980Shares
                  issued to employee for services
              
              
              **-**
              
              
              -
              
              
              500,000
              
              
              500
              
              
              4,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              5,000Issuance
                  of stock in acquisition of subsidiary
              
              
              **-**
              
              
              -
              
              
              411,956
              
              
              412
              
              
              168,490
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              168,902Issuance
                  of stock to employees
              
              
              **-**
              
              
              -
              
              
              750,000
              
              
              750
              
              
              299,250
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              300,000Issuance
                  of common stock subject to conversion of option for services at
                  $0.39
                  average price per share
              
              
              **-**
              
              
              -
              
              
              82,051
              
              
              82
              
              
              31,918
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              32,000Incentive
                  stock options for employees
              
              
              **-**
              
              
              -
              
              
              -
              
              
              -
              
              
              1,167,419
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,167,419Discount
                  allocated to warrant on convertible debt
              
              
              **-**
              
              
              -
              
              
              -
              
              
              -
              
              
              1,248,688
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,248,688




F-7




**Additional**
              
              **Common**
              
              **Common**
              
              **Common**
                **Stock
                  Advance**
              
              **Accumulated**
                **Deficit****Preferred
                  Stock**
              
              **Common
                  Stock**
              
              **Paid-in**
              
              **Stock**
              
              **Stock**
              
              **for**
                **Future**
              
              **During**
                **Development**
              
              **Total
                  Stockholders’****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Payable**
              
              **Receivable**
              
              **Services**
              
              **Stage**
              
              **Deficit**Initial
                  fair value of embedded derivative related to convertible debt
              
              
              **-**
              
              
              -
              
              
              -
              
              
              -
              
              
              605,479
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              605,479Fair
                  market value of options to purchase shares of common stock at $0.01
                  to
                  $0.53 per share, issued to consultants for financial consulting
                  services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              197,847
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              197,847To
                  record forgiveness of accrued salary for officer
              
              
              **-**
              
              
              -
              
              
              -
              
              
              -
              
              
              399,919
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              399,919Issuance
                  of stock to shareholder in repayment of funds loaned to Company
                  at $0.53
                  per share
              
              
              **-**
              
              
              -
              
              
              489,850
              
              
              490
              
              
              259,129
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              259,619To
                  record forgiveness of debt by related party
              
              
              **-**
              
              
              -
              
              
              -
              
              
              -
              
              
              6,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,000Issuance
                  of shares upon exercise of convertible notes at $0.40 per share
              
              
              **-**
              
              
              -
              
              
              2,153,010
              
              
              2,153
              
              
              859,051
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              861,204Issuance
                  of common stock subject to conversion of option for services at
                  $0.65 per
                  share
              
              
              **-**
              
              
              -
              
              
              89,231
              
              
              89
              
              
              57,911
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              58,000Fair
                  market value of shares issued to financial consultant for services
                  at fair
                  market value ranging from $0.01 to $0.53 per share
              
              
              **-**
              
              
              -
              
              
              410,000
              
              
              410
              
              
              160,940
              
              
              -
              
              
              -
              
              
              (42,875
              )
              
              -
              
              
              118,475Shares
                  issued upon exercise of warrant by consultant at $0.01 per share
              
              
              -
              
              
              -
              
              
              300,000
              
              
              300
              
              
              2,700
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,000Shares
                  issued as repayment of loans valued at $0.40 per share
              
              
              -
              
              
              -
              
              
              62,504
              
              
              62
              
              
              24,940
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              25,002Discount
                  of beneficial conversion feature on convertible notes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              97,475
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              97,475Forgiveness
                  of salary by related party
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              32,725
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              32,725Fair
                  market value of warrants issued to employees for services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              324,058
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              324,058Fair
                  market value of warrants issued as interest payment for cash
                  advance
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              44,163
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              44,163




F-8




**Additional**
              
              **Common**
              
              **Common**
              
              **Common**
                **Stock**
                **Advance**
              
              **Accumulated**
                **Deficit****Preferred
                  Stock**
              
              **Common
                  Stock**
              
              **Paid-in**
              
              **Stock**
              
              **Stock**
              
              **for**
                **Future**
              
              **During**
                **Development**
              
              **Total**
                **Stockholders’****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Payable**
              
              **Receivable**
              
              **Services**
              
              **Stage**
              
              **Deficit**Fair
                  market value of shares issued for consulting services at $0.40
                  per share
              
              
              -
              
              
              -
              
              
              40,000
              
              
              40
              
              
              15,960
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              16,000Stock
                  to be issued in acquisition of subsidiary
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              630,626
              
              
              -
              
              
              -
              
              
              -
              
              
              630,626Stock
                  to be issued for consulting services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              316,800
              
              
              -
              
              
              (5,300
              )
              
              -
              
              
              311,500Stock
                  to be issued in acquisition of subsidiary
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              140,000
              
              
              -
              
              
              -
              
              
              -
              
              
              140,000Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,244,131
              )
              
              (8,244,131
              )**Balance,
                  December 31, 2006**
              
              
              **-**
              
              **$**
              **-**
              
              
              **49,578,057**
              
              **$**
              **49,578**
              
              **$**
              **13,609,264**
              
              **$**
              **1,357,426**
              
              **$**
              **-**
              
              **$**
              **(48,175**
              **)**
              **$**
              **(20,693,839**
              **)**
              **$**
              **(5,725,746**
              **)**Incentive
                  stock option for employees
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,032,818
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,032,818Issuance
                  of stock for financing costs
              
              
              -
              
              
              -
              
              
              6,990,197
              
              
              6,990
              
              
              3,393,562
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,400,552Amortization
                  of common stock advance for future services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              48,175
              
              
              -
              
              
              48,175Issuance
                  of stock in satisfaction of convertible debentures
              
              
              -
              
              
              -
              
              
              6,549,069
              
              
              6,549
              
              
              1,921,485
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,928,034Issuance
                  of stock in satisfaction of loan payable and loan payable – related
                  party
              
              
              -
              
              
              -
              
              
              1,133,257
              
              
              1,133
              
              
              584,851
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              585,984Issuance
                  of stock for consulting services
              
              
              -
              
              
              -
              
              
              333,000
              
              
              333
              
              
              176,317
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              176,650Issuance
                  of stock as payment of stock payable
              
              
              -
              
              
              -
              
              
              2,097,972
              
              
              2,098
              
              
              1,085,328
              
              
              (1,087,426
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of stock for exercise of warrants
              
              
              -
              
              
              -
              
              
              650,000
              
              
              650
              
              
              161,850
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              162,500Discount
                  allocated to warrant on convertible debt
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,366,403
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,366,403Initial
                  fair value of embedded derivative related to convertible
                  debt
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              934,593
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              934,593Issuance
                  of stock warrants
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              18,326
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              18,326Stock
                  issued in error to be returned in 2008
              
              
              -
              
              
              -
              
              
              1,200,000
              
              
              1,200
              
              
              
              
              
              
              
              
              (1,200
              )
              
              
              
              
              
              
              
              -Issuance
                  of common stock for legal settlement liability
              
              
              -
              
              
              -
              
              
              2,788,096
              
              
              2,788
              
              
              1,236,098
              
              
              (270,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              968,886Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (20,134,712
              )
              
              (20,134,712
              )**Balance,
                  December 31, 2007**
              
              
              **-**
              
              **$**
              **-**
              
              
              **71,319,648**
              
              **$**
              **71,319**
              
              **$**
              **26,520,895**
              
              **$**
              **-**
              
              **$**
              **(1,200**
              **)**
              **$**
              **-**
              
              **$**
              **(40,828,551**
              **)**
              **$**
              **(14,237,537**
              **)**




F-9




**WINSONIC
      DIGITAL MEDIA GROUP, LTD**




**NOTES
      TO THE FINANCIAL STATEMENTS**





**NOTE
      1 - ORGANIZATION AND PURPOSE**





Media
      and
      Entertainment.com, Inc., (the “Public Company”) was incorporated on April 27,
      2000. On October 7, 2004, the Public Company consummated an Agreement and Plan
      of Reorganization to acquire all of the outstanding capital stock of WinSonic
      Holdings, Ltd. (the “Private Company”), a closely held private company, in an
      exchange for 8,000,000 shares of the Public Company's common stock (the
“WinSonic Transaction”). Prior to the WinSonic Transaction, the Public Company
      had no operations or assets and 23,956,138 shares of common stock issued and
      outstanding. Following the WinSonic Transaction, the Public Company changed
      its
      name from Media and Entertainment.com, Inc. to WinSonic Digital Media Group,
      Ltd. (the “Company”).





The
      accounting treatment of the WinSonic Transaction was determined by the following
      considerations:





1.
            The
                Public Company was a non-operating public company (having no operations
                or
                assets);


2.
            The
                former sole shareholder and CEO of the Private Company became the
                controlling shareholder of the combined company,
                and;


3.
            The
                management and operations of the combined company continue to be
                those of
                the Private Company.





For
      accounting purposes, the WinSonic Transaction is considered to be a capital
      transaction in substance, rather than a business combination. As a result,
      the
      WinSonic Transaction is treated in the accompanying financial statements as
      the
      equivalent of the issuance of shares by a private company (WinSonic Holdings)
      for the non-monetary assets of a non-operational public company (Media and
      Entertainment.com), accompanied by a recapitalization. The accounting treatment
      for the WinSonic Transaction is similar to that of a reverse acquisition.
      Accordingly, the historical financial information of the accompanying financial
      statements is that of the Private Company. All shares included in the Statement
      of Stockholders' Deficit have been presented as if the acquisition had occurred
      at the date of inception of the Private Company, September 10,
      2002.





The
      shares of common stock of the Public Company outstanding prior to the merger
      -i.e., 24 million shares - have been shown in the accompanying financial
      statements as a recapitalization of the Company as of October 7,
      2004.





As
      part
      of the Agreement and Plan of Reorganization, the Public Company issued a total
      of 8 million shares of its common stock. Of these 8 million shares,
      approximately 2 million shares were issued to various creditors of the Private
      Company in accordance with exchange agreements between those creditors and
      the
      Private Company.





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





WinSonic
      holds a 49% equity interest in WinSonic Diversity, LLC and completed the
      acquisitions of Automated Interiors, LLC (“AI”), Tytess Design and Development,
      Inc. (“Tytess”), and DV Photo Shop, Ltd., (the “Store”) during 2006. These
      actions represented a series of strategic investments in new markets and new
      services that expand the offerings of the Company while complimenting the
      Company’s planned business. Together with the Company’s existing digital
      distribution platform, comprised of the WinSonic Digital Cable Systems Network,
      Ltd.’s network, the Company should be able to deliver customized, bundled
      solutions to a wider range of customers that include custom wiring,
      centrally-located utilities, project management, telephone, internet,
      audio/video and digital TV.




**A
      Development Stage Company**





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 there
      from. As of December 31, 2007, the planned operations of the Company have not
      fully commenced nor has it received significant revenues from those
      operations.





F-10




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





**Segment
      and Geographic Information**





In
      accordance with the provisions of SFAS No. 131, “Disclosures about Segments of
      an Enterprise and Related Information”, the Company has begun to report in five
      reportable operating segments as follows: (i) Digital Media Group (ii) Digital
      Distribution Group, (iii) Integrated Services Group, (iv) WinSonic Diversity
      Group, and (v) Corporate Group. The Company operates primarily in the greater
      Atlanta, Georgia metropolitan area.





As
      further described herein, the Company now combines business and financial
      activity of its various subsidiary companies and operating divisions within
      business segments. The business activity associated with the development,
      marketing and sale of digital media & entertainment products and services of
      WinSonic Digital Media Group, Ltd., and the Store **** are
      combined in the Digital Media Group business segment. The business activity
      of
      WinSonic Digital Cable Systems Network, Ltd. shall comprise the Digital
      Distribution Group business segment. The business activity of Tytess
      Design & Development, LLC and **** Automated
      Interiors, LLC are combined in the Integrated Services Group business segment.
      The business activity of WinSonic Diversity, LLC is represented by the WinSonic
      Diversity Group business segment. The business activities associated with
      corporate management, administration and finance of WinSonic Digital Media
      Group, Ltd are included in the Corporate Group business segment.





**Principles
      of Consolidation**





The
      attached consolidated financial statements include the accounts of the Company
      and its subsidiaries. The financial statements include the accounts of the
      Company’s wholly-owned subsidiaries and its 49%-owned subsidiary WinSonic
      Diversity, LLC (“Diversity”). As a certified Minority Business Enterprise,
      Diversity enables the Company to qualify for and pursue opportunities with
      various entities including the Federal Communications Commission, Public
      Utilities Commission, Universal Service, National Telecommunications and
      Information Administration, National Information Infrastructure and the
      Department of Commerce that focus on providing services to people from all
      economic backgrounds. Diversity
      is focused on developing urban and rural communities by providing resources
      and
      services that improve quality of life. Diversity
      has been included in the consolidated financial statements of the Company in
      accordance with Financial Accounting Standards Board Interpretation No. 46,
      “Consolidation of Variable Interest Entities”. The Company has determined that
      Diversity meets the requirements for consolidation based on the common control
      of the Company and Diversity and the fact that Diversity relies exclusively
      on
      the Company to provide financial support. All significant inter-company
      transactions have been eliminated in consolidation. ****





**Basis
      of Presentation**





Certain
      prior year amounts in the financial statements have been reclassified to conform
      with the current year presentation. Specifically, the Company reclassified
      customer deposits as a liability from accounts receivable, billings on
      construction in process to accounts receivable and a rental deposit to other
      assets from common stock payable. These reclassifications had no effect on
      previously reported net loss.





**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.





F-11




**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 December 31, 2007, the Company did
      not have any accounts with balances in excess of the insured balances. As of
      December 31, 2007 and December 31, 2006, the Company had a balance of $90,893
      and $3,506, respectively, in its cash accounts. Currently, cash management
      is
      handled by Company management. Typically, the cash balances are less than
      $100,000 per account.





**Accounts
      Receivable:**





Accounts
      receivable is comprised of uncollateralized customer obligations due under
      normal trade terms requiring payment within 30 days from the invoice date.
      The
      carrying amount of accounts receivable is reviewed periodically for
      collectability. If management determines that collection is unlikely, an
      allowance that reflects management’s best estimate of the amounts that will not
      be collected is recorded. Management reviews each accounts receivable balance
      that exceeds 30 days from the invoice date and, based on an assessment of
      creditworthiness, estimates the portion, if any, of the balance that will not
      be
      collected. At December 31, 2007 the Company recorded a reserve for doubtful
      accounts of $155,000 and at December 31, 2006, there was no reserve for doubtful
      accounts.




**Use
      of Estimates:**





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





**Fair
      Value of Financial Instruments**





SFAS
      No.
      107, “Disclosures About Fair Value of Financial Instruments,” requires the
      Company to disclose, when reasonably attainable, the fair market values of
      its
      assets and liabilities that are deemed to be financial instruments. The carrying
      amounts and estimated fair values of the Company’s financial instruments
      approximate their fair value due to their short-term nature.





**Earnings
      (Loss) Per Share Calculations**





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





2007
            
            2006Shares
                issuable under stock options
            
            
            2,680,120
            
            
            2,913,319Shares
                issuable pursuant to warrants to purchase common stock
            
            
            8,907,173
            
            
            5,747,041Shares
                issuable pursuant to convertible debt agreements
            
            
            8,394,670
            
            
            6,653,079Shares
                issuable for common stock payable
            
            
            -
            
            
            2,916,15419,981,963
            
            
            18,229,593




F-12




**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,
      the Company applies SFAS No. 123(R), “Share-Based Payment,” (“SFAS No 123(R)”)
      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).





The
      Company’s Employee Stock Option activity for the years ended December 31, 2007
      and 2006 is presented below:


**December
                    31, 2007**
                
                **December
                    31, 2006**Options
                
                Weighted
                  Average
                  Exercise
                  Price
                
                Options
                
                Weighted
                  Average
                  Exercise
                  PriceOutstanding
                    - Beginning of Period
                
                9,309,304
                
                $0.68
                
                3,750,000
                
                $0.84Granted
                    or committed
                
                
                3,625,000
                
                
                0.62
                
                
                7,159,304
                
                
                0.61Exercised
                
                
                -
                
                
                -
                
                
                (600,000
                )
                
                0.01Forfeited
                
                
                (2,897,816
                )
                
                0.58
                
                
                (1,000,000
                )
                
                1.00Canceled
                
                
                (400,000
                )
                
                0.01
                
                
                -
                
                
                -Outstanding
                    - End of Period
                
                
                9,636,488
                
                $
                0.72
                
                
                9,309,304
                
                $
                0.68Exercisable
                    - End of Period
                
                
                9,636,488
                
                $
                0.72
                
                
                5,577,547
                
                $
                0.78





During
      the years ended December 31, 2007 and 2006, the Company committed to issue
      options to employees for 3,625,000 and 7,159,304 shares of common stock,
      respectively. The fair value of the options granted during the years ended
      December 31, 2007 and 2006 was $1,517,000 and $2,747,000, respectively. The
      Company recorded compensation expense of approximately $2,033,000 and
      $1,167,000, respectively, related to the vesting of the Company’s outstanding
      options. Of the outstanding options, 4,234,301 have a term of ten years from
      the
      date of grant and are exercisable by employees up to three months after their
      employment is terminated. The balance of the options granted will be included
      in
      the Company’s 2008 option plan and will have terms and conditions determined
      under that plan.




On
      January 4, 2008, the Company issued new offer letters to all current employees.
      Pursuant to the offer letters, the Company accelerated the vesting on all
      remaining stock options with an exercise price of $1.00 for these employees.
      The
      Company also canceled stock options exercisable into up to 400,000 shares of
      common stock with an exercise price of $0.01 because the Company had not
      obtained the senior funding necessary for such stock options to become
      exercisable. In exchange for the canceled stock options, the Company committed
      to issue 400,000 shares of fully vested stock options pursuant to the Company’s
      2008 option plan when the plan is established and approved. As a result of
      the
      acceleration of the stock options with an exercise price of $1.00 and the
      cancellation of certain unvested stock options with an exercise price of $0.01,
      and the commitment to issue an equal number of new stock options, the Company
      recorded additional stock based compensation totaling $193,000. In addition,
      during the year ended December 31, 2007 the Company achieved a milestone when
      its stock began trading on the OTCBB. This milestone triggered the vesting
      of an
      additional one third of all outstanding stock options with an exercise price
      of
      $0.01 and the Company recorded additional stock based compensation expense
      totaling $375,000.




**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 warrants have
      characteristics significantly different from those of traded options, and
      because changes in the subjective input assumptions can materially affect the
      fair value estimate, in management’s opinion, the existing models do not
      necessarily provide a reliable single measure of the fair value of its employee
      stock options.





F-13




In
      accordance with SFAS No. 123(R), the Company recognized the fair value of the
      options in the statement of operations over the vesting
      period.  Fair value was determined using
      the Black-Scholes option pricing model
      based on the following assumptions: risk free interest rate of 4.00%
      to
      4.95%; no dividend yield; volatility factors of the expected market price of
      the
      Company’s stock of 166% to 233%; and weighted average expected life of the
      options of three years (for options issued with an exercise price of $1.00
      per
      share) and one and one-half years (for options issued with an exercise price
      of
      $0.01 per share).





**Fixed
      Assets:**





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





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




Prior
      to
      2007, the Company used the declining balance method of depreciation. The Company
      changed the method of depreciation to the straight-line method which it felt
      was
      more appropriate to reflect the usage of the Company’s fixed assets. The change
      was immaterial and was applied prospectively. Depreciation expense for the
      years
      ended December 31, 2007 and December 31, 2006 was $124,221 and $162,622,
      respectively.





**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 by the amount by which the
      carrying amount of an asset group exceeds fair value of the asset
      group.





**Revenues
      and Expenses Recognition:**





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





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





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





F-14




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





**Research
      and Development Costs:**





Research
      and development costs are charged to expense as incurred. During the year ended
      December 31, 2007, the Company incurred research and development costs totaling
      $485,383, or 4.5% of total operating expenses. There were no material research
      and development expenses during the year ended December 31, 2006.





**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
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets” (“SFAS 156”), which amends SFAS No. 140. SFAS No. 156 may be adopted as
      early as January 1, 2006 by 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 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 does not service any financial assets or liabilities
      and the adoption of SFAS No. 156 had no impact on the Company’s consolidated
      financial position, results of operations or cash flows.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements"* ("SFAS
      157), which provides guidance on how to measure assets and liabilities that
      use
      fair value. SFAS 157 will apply whenever another US GAAP standard requires
      (or
      permits) assets or liabilities to be measured at fair value but does not expand
      the use of fair value to any new circumstances. This standard also will require
      additional disclosures in both annual and quarterly reports. SFAS 157 will
      be
      effective for years beginning after November 15, 2007 (January 1, 2008 for
      the
      Company). The Company is currently evaluating the impact, if any, the adoption
      of SFAS 157 will have on its financial statements. Based on the analysis done
      so
      far, the Company does not expect SFAS 157 to have a material impact on its
      financial statements.




In
      September 2006, the FASB issued SFAS 158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans – an
      amendment of FASB Statements No. 87, 88, 106, and 132(R)* (“SFAS
      158”) *and
      SFAS 87, Employers’ Accounting for Pensions* (“SFAS
      87”). SFAS 158 requires the recognition of an asset or liability for the
      overfunded or underfunded status of all defined benefit plans included in the
      Company’s financial statements. The Company does not have a defined benefit plan
      currently and does not expect SFAS 158 to have any impact on its financial
      statements.




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




F-15




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




·
            Recognized
                financial assets and financial liabilities unless a special exception
                applies;




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




·
            Non-financial
                insurance contracts, and




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






This
      statement also establishes presentation and disclosure requirements designed
      to
      facilitate comparisons between entities that choose different measurement
      attributes for similar types of assets and liabilities.  The statement is
      effective as of the beginning of an entity’s first year that begins after
      November 15, 2007.  The Company does not plan early adoption and does not
      expect a material impact on its financial statements from the eventual adoption
      of SFAS 159.




In
      December 2007, the FASB issued SFAS 160, *Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB 51* (“SFAS
      160”). SFAS 160 establishes new accounting and reporting standards for
      noncontrolling interests in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS 160 will require entities to classify noncontrolling
      interests as a component of stockholders’ equity and will require subsequent
      changes in ownership interests in a subsidiary to be accounted for as an equity
      transaction. Additionally, SFAS 160 will require entities to recognize a
      gain or loss upon the loss of control of a subsidiary and to remeasure any
      ownership interest retained at fair value on that date. This statement also
      requires expanded disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the noncontrolling owners.
      SFAS 160 is effective on a prospective basis for years, and interim periods
      within those years, beginning on or after December 15, 2008, except for the
      presentation and disclosure requirements, which are required to be applied
      retrospectively. Early adoption is not permitted.




At
      December 31, 2007, the Company did not have any noncontrolling interests in
      subsidiaries. Management is currently evaluating the effects, if any, that
      SFAS 160 will have upon the presentation and disclosure of noncontrolling
      interests in the consolidated financial statements.




In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities - an amendment of FASB Statement No. 133,”
(SFAS “161”) as amended and interpreted, which requires enhanced disclosures
      about an entity’s derivative and hedging activities and thereby improves the
      transparency of financial reporting. Disclosing the fair values of derivative
      instruments and their gains and losses in a tabular format provides a more
      complete picture of the location in an entity’s financial statements of both the
      derivative positions existing at period end and the effect of using derivatives
      during the reporting period. Entities are required to provide enhanced
      disclosures about (a) how and why an entity uses derivative instruments, (b)
      how
      derivative instruments and related hedged items are accounted for under
      Statement 133 and its related interpretations, and (c) how derivative
      instruments and related hedged items affect an entity’s financial position,
      financial performance, and cash flows. SFAS No. 161 is effective for financial
      statements issued for fiscal years and interim periods beginning after November
      15, 2008. Early adoption is permitted.




At
      December 31, 2007, the Company did not have any derivative instruments or
      hedging activities.




**NOTE
      3 – MERGERS AND ACQUISITIONS**





During
      the year ended December 31, 2006, the Company acquired three subsidiaries,
      Automated Interiors, LLC on April 18. 2006, Tytess Design and Development,
      Inc.
      on November 2, 2006 and DV Photo Shop on November 20, 2006. The purchase price
      of the acquisitions consisted of the following:




F-16




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





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





**Automated
      Interiors:**





Effective
      as of April 18, 2006, the Company purchased all of the membership interests
      of
      AI for 411,956 shares of restricted common stock, valued at $0.41 per share,
      for
      a total price of $168,902. Through AI, the Company has the capability to help
      developers of all sizes manage the transformation in technology and migrate
      from
      their traditional voice and data services to feature-rich digital services
      and
      solutions.





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





The
      purchase price was allocated as follows:





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





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




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





**Tytess
      Design and Development:**





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





Tytess
      was incorporated on May 16, 2003 in the State of Georgia, and has offices and
      design facilities located in Atlanta, Georgia. Tytess designs, engineers and
      provides project management services for construction projects, primarily
      buildings. Tytess will also provide engineering services to facilitate the
      deployment of telecommunication services being offered by the Company and the
      Company’s network. Tytess’s operations are centered primarily in the Southeast
      region of the United States. Tytess has, to date, utilized the services of
      independent subcontractors for staffing needs.





The
      purchase price was allocated as follows:





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




F-17




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




Cash
            
            $
            (3,840
            )Accounts
                receivable
            
            
            -0-Fixed
                assets
            
            
            10,075Other
                assets
            
            
            25,510Current
                liabilities
            
            
            (121,886
            )Long-term
                liabilities
            
            
            -0-Net
                tangible assets (liabilities) acquired
            
            $
            (90,141
            )





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





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





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





The
      purchase price was allocated as follows:





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





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




Cash
            
            $
            5,387Accounts
                receivable
            
            
            -0-Fixed
                assets
            
            
            34,860Current
                liabilities
            
            
            -0-Long-term
                liabilities
            
            
            -0-Net
                tangible assets acquired
            
            $
            40,247





**Goodwill:**





Goodwill,
      which represents the excess of the purchase price over the fair value of
      tangible and identified intangible assets acquired, is not being amortized
      but
      will be reviewed annually for impairment, or more frequently if impairment
      indicators arise, in accordance with SFAS No. 142, “Goodwill and Other
      Intangible Assets” (“SFAS 142”). In part, goodwill reflects the competitive
      advantages the Company expects to realize from the synergy of AI and Tytess
      services, the expanded product offerings through the Store facilities, and
      the
      WinSonic product line. The Company analyzed goodwill as of December 31, 2007
      and
      determined that impairment had occurred and the Company recorded an impairment
      of the goodwill associated with the Tytess acquisition totaling $720,767. To
      analyze goodwill, the Company prepared a five year forecast of operations for
      each business unit that had recorded goodwill and discounted the forecasted
      numbers to determine whether there was an impairment of goodwill. Tytess has
      experienced losses in the past year and is expected to generate additional
      losses in the future, based on this and the discounted forecasted numbers for
      Tytess, the Company determined that the goodwill was impaired. Goodwill is
      not
      expected to be deducted for tax purposes.





F-18




**Pro
      forma results of operations:**





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





On
      an
      unaudited pro forma basis, the combined information represents the combined
      operations of the Company and AI, as though both of the companies had been
      combined as of the beginning of each of the periods presented:


**For
                  the years ended December 31,****2007**
                **(unaudited)**
              
              **2006**
                **(unaudited)**Total
                  pro forma revenues
              
              $
              803,000
              
              $
              1,182,000Pro
                  forma net loss
              
              $
              (15,779,000
              )
              $
              (9,324,000
              )Pro
                  forma net loss per share – basic and diluted
              
              $
              0.28
              
              $
              0.21Reported
                  net loss
              
              $
              (20,135,000
              )
              $
              (8,244,000
              )





On
      November 20, 2007, WinSonic McCrary, LLC (“WinSonic McCrary”), a newly-created
      Georgia limited liability company and wholly owned subsidiary of Diversity,
      entered into an Asset Purchase Agreement with Colonel McCrary Trucking, LLC
      (“Colonel McCrary”), a Georgia limited liability company, and all of the members
      of Colonel McCrary. Pursuant to the Asset Purchase Agreement, Colonel McCrary
      was to sell substantially all of its assets to WinSonic McCrary. The aggregate
      purchase price for the assets was to be 4,287,490 restricted shares of the
      Company’s common stock. In addition, as further consideration for the
      transaction, WinSonic McCrary was to assume and discharge certain liabilities
      and indebtedness, as specified in the Asset Purchase Agreement. The Asset
      Purchase Agreement included representations, covenants and indemnification
      obligations customary for transactions of this nature. The closing of this
      transaction did not occur and following negotiations among the parties, the
      Asset Purchase Agreement expired in accordance with its terms. (See “Note 15 -
      Subsequent Events” for further details.)





**NOTE
      4 - PROPERTY AND EQUIPMENT, NET**





The
      major
      classifications of property and equipment consist of the following as of
      December 31:




F-19





**December
                31,**
              **2007**
            
            **December
                31,**
              **2006**Computer
                equipment
            
            $
            1,130,510
            
            $
            1,114,994Infrastructure
            
            
            158,400
            
            
            158,400Software
            
            
            109,610
            
            
            89,970Furniture
                & fixtures
            
            
            93,478
            
            
            84,503Automobiles
            
            
            13,500
            
            
            74,631Leasehold
                improvements
            
            
            6,150
            
            
            -Equipment
                and tools
            
            
            164,081
            
            
            44,935Less:
                accumulated depreciation
            
            
            (908,539
            )
            
            (784,318
            )Net
                Fixed Assets
            
            **$**
            **767,190**
            
            **$**
            **783,115**








Depreciation
      expense for the years ended December 31, 2007 and 2006 was $124,221 and
      $162,622, respectively.





**NOTE
      5 - LOANS PAYABLE**





The
      Company had outstanding loans payable to certain individuals who are not related
      parties of $507,518 and $347,743 as of December 31, 2007 and December 31, 2006,
      respectively. Proceeds from these loans were used for working capital purposes.
      The following is a summary of the loans payable:




F-20




**December 31,**
              
              **December 31,****Interest Rate**
              
              **Loans Payable**
              
              **2007**
              
              **2006**Unstated
              
              The
                Company received investment commitments under the terms of warrant
                agreements from eight investors. The investors have requested that
                the
                Company return their original investment. The Company treats the
                investments as notes payable. During 2006, the Company and the investors
                agreed to convert three of the investments into 6% convertible debenture
                with an attached warrant. The exchanged debentures and the warrants
                are
                both exercisable at $0.40 per share. (See Note 6 – Convertible
                Debentures). Currently five of the original investors are outstanding.
                No
                interest has been accrued upon the remaining notes.
              
              $
              111,000
              
              $
              111,0006.00%
              
              A
                loan consisting of principal of $108,000 with no repayment terms
                or
                maturity date. Accrued interest payable as of December 31, 2007 and
                December 31, 2006 is $26,203 and $19,723, respectively.
              
              
              134,203
              
              
              127,7236.00%
              
              A
                loan consisting of principal of $40,000 with no repayment terms or
                maturity date. Accrued interest payable as of December 31, 2007 and
                December 31, 2006 is $11,420 and $9,020, respectively.
              
              
              51,420
              
              
              49,0206.00%
              
              The
                Company issued a promissory note with a maturity date of October
                17, 2007
                to a financial consultant in connection with services rendered advising
                the Company on public market issues. Accrued interest payable as
                of
                December 31, 2007 is $690. The Company is in default on this
                note.
              
              
              60,690
              
              
              60,00025.00%
              
              The
                Company issued three promissory notes with a maturity date of February
                18,
                2008. Accrued interest payable as of December 31, 2007 is $205
              
              
              150,205
              
              
              -Total
                Loans Payable
              
              $
              507,518
              
              $
              347,743




In
      addition, during first quarter of 2007, the Company borrowed $40,000 from an
      unrelated party with an interest rate of 6% which began accruing five days
      after
      the maturity date of June 25, 2007. During the third quarter of 2007, the
      Company was in default on this loan and issued an aggregate of 208,333 shares
      of
      its common stock, valued at $0.69 per share, to cure the default and to repay
      the outstanding principal balance of the note and $605 of accrued interest.
      In
      connection with the repayment of the loan, the Company recorded financing costs
      totaling $103,145.





During
      the fourth quarter of 2007, the Company borrowed $150,000 from unrelated
      parties. In connection with the loans, the Company will issue an aggregate
      of
      750,000 shares of its common stock and recorded financing costs totaling
      $363,750. The 750,000 shares of common stock are recorded as accrued expenses
      and shares were issued in the first quarter of 2008.





**Long
      Term Liabilities:** On April
      18, 2006, the Company acquired the outstanding membership interests of AI and
      assumed long term liabilities of $131,901. The long term liabilities are due
      to
      an officer of AI and represented cash he advanced to fund AI’s operations and
      the obligations for two vehicles purchased by AI. In the third quarter of 2007,
      the net book value of the two vehicles and the related debt at the date of
      purchase were transferred to the officer of AI and all payments made by the
      Company on the vehicle obligations were recorded as additional officer
      compensation. Following is a summary of AI’s long-term debt at December 31, 2007
      and December 31, 2006:




F-21




**December 31,**
            
            **December 31,****2007**
            
            **2006**15.25%
                loan payable to a third party lender for the purchase of a vehicle;
                monthly payments of $575 through August 2011, secured by the vehicle
                purchased. The balance of loan was transferred to an officer of AI
                during
                the third quarter of 2007.
            
            $
            -
            
            $
            23,12919.50%
                loan payable to a third party lender for the purchase of a vehicle;
                monthly payments of $897 through January 3, 2011, secured by the
                vehicle purchased. The balance of loan was transferred to an officer
                of AI
                during the third quarter of 2007.
            
            
            -
            
            
            30,940Unsecured,
                interest free loan payable to an officer for various cash advances,
                expenses paid and assets transferred to AI by the creditor; payoff
                due on
                December 4, 2007; 6% interest to be paid on any outstanding balance
                as of
                December 4, 2007. The Company is in default on this note.
            
            
            80,950
            
            
            80,950Total
                long term debt
            
            
            80,950
            
            
            135,019Less:
                Current portion of long-term debt
            
            
            (80,950
            )
            
            (90,197
            )Net
                Long Term Debt
            
            $
            -
            
            $
            44,822




**NOTE
      6 - CONVERTIBLE DEBENTURES**





**2004/2005
      Agreements** :
      During
      December 2004 and January 2005, the Company received an aggregate of $1,015,000
      from the issuance of convertible notes and warrants. The offering was made
      to
      accredited investors. The convertible notes, which accrued interest of 6% per
      annum, were due in December 2005 or upon the occurrence of certain events
      relating to potential changes in the capital structure of the Company. In
      connection with the issuance of the convertible notes, warrants to purchase
      up
      to 1,450,000 shares of the Company’s common stock at an exercise price of $0.70
      per share were issued to the accredited investors.





On
      December 15, 2005, the maturity dates of these convertible notes were extended
      to June 30, 2006. Following the amendments to the convertible notes, the note
      holders had the right 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 amendments reduced
      the
      exercise price of the warrants to $0.40 per share.





During
      the third quarter of 2006, following the expiration of the amended maturity
      dates of the convertible notes, all but three of the note holders agreed to
      convert their notes, plus accrued interest, into common stock of the Company
      at
      the rate of $0.40 per share. During the third quarter of 2007, two of the
      remaining three note holders agreed to convert their notes, plus accrued
      interest into common stock of the Company at the rate of $0.40 per share. The
      Company has continued to accrue interest on the one remaining note through
      December 31, 2007. In the aggregate, the Company has issued a total of 2,653,010
      shares of its restricted common stock in connection with the conversion of
      these
      notes.




F-22




The
      issuance of these convertible notes and warrants would normally be recorded
      as
      equity obligations. However, due to the indeterminate number of shares which
      might be issued upon conversion, the Company is required to record a liability
      relating to the outstanding warrants and the embedded derivative of the
      convertible notes (included in the current liabilities as “derivative
      liability”). As of December 31, 2007, the contingency related to the conversion
      pricing which caused the indeterminate share calculation was resolved with
      the
      conversion of all but one of the convertible notes. During 2006 the Company
      transferred the derivative and warrant liabilities to paid-in capital. The
      following table summarizes the convertible notes and related warrants and
      embedded derivative liabilities at December 31, 2007 and December 31,
      2006:




**December
                31,**
            
            **December
                31,****2007**
            
            **2006**Derivative
                liability
            
            $
            34,466
            
            $
            339,450Warrant
                liability
            
            
            29,909
            
            
            300,420Convertible
                debentures
            
            
            35,514
            
            
            257,469Subtotal
            
            
            99,889
            
            
            897,339Adjustment
                of derivative and warrant liability to fair value
            
            
            602,923
            
            
            27,428Accretion
                of principal and interest related to convertible
                debentures
            
            
            312,188
            
            
            90,233Total
                Proceeds from convertible debentures
            
            
            1,015,000
            
            
            1,015,000Plus:
                Accrued interest
            
            
            112,951
            
            
            103,673Less:
                Notes and interest converted
            
            
            (1,092,437
            )
            
            (861,204
            )Total
                Convertible debentures
            
            
            35,514
            
            
            257,469Less:
                Current portion of convertible debentures
            
            
            (35,514
            )
            
            (257,469
            )Total
                Non-current Convertible Debentures
            
            $
            -
            
            $
            -




**2005/2006/2007
      Debentures:** During
      the third quarter of 2005 and during 2006, the Company entered into a series
      of
      agreements with accredited investors, pursuant to which the Company issued
      an
      aggregate of approximately $1.8 million of convertible debentures, as further
      described below. The debentures, which include interest of 6.0% per annum,
      mature 12 months from the issue date, and are convertible into restricted shares
      of the Company’s common stock at conversion prices between $0.20 and $0.40 per
      share. In connection with the issuance of the debentures, warrants were issued
      to the accredited investors which are exercisable for a period of three years
      at
      exercise prices between $0.20 and $0.40 per share.





Specifically,
      during the third quarter of 2005, the Company issued six convertible debentures
      with a total principal amount of $188,250. During the fourth quarter of 2005,
      an
      aggregate of $118,000 of these convertible debentures were converted into
      590,000 restricted shares of common stock. During 2006, the Company issued
      an
      aggregate of approximately $1.8 million of convertible debentures. During 2006,
      40 of these investors elected to convert an aggregate of $632,477 in principal
      plus accrued interest of the convertible debentures into 3,162,385 shares of
      restricted common stock.





During
      the year ended December 31, 2007, the Company raised an additional $2,433,000
      through the issuance of 60 convertible debentures with various due dates and
      other terms that were substantially similar to the debentures issued during
      2005
      and 2006. In connection with the issuance of these debentures, the Company
      issued warrants exercisable into 7,058,948 shares of the Company’s common stock.
      In addition, during the year ended December 31, 2007 the Company issued
      1,026,007 shares of its restricted common stock and in first quarter 2008 the
      Company will issue 500,000 shares of its restricted common stock in connection
      with the issuance of five of the convertible debentures. These restricted
      shares, valued at $684,165, were recorded as financing costs in the accompanying
      statements of operations.





During
      the year ended December 31, 2007, 55 holders of convertible debentures converted
      $1,660,760 in principal and $36,103 of accrued interest into an aggregate of
      6,049,069 shares of restricted common stock. In addition, the Company repaid
      three convertible debenture, including accrued interest, in the amount of
      $49,813 and made partial payment of another convertible debenture, including
      accrued interest, in the amount of $15,000. The Company also increased the
      principal amount of one convertible debenture to $10,000 with one investor
      in
      exchange for the investor agreeing to extend the maturity date of its $5,000
      convertible debenture plus interest of $590. The increase of $4,410 has been
      recorded as financing costs in the accompanying statements of operations. In
      addition, the Company issued warrants to purchase up to 62,500 shares of its
      common stock to one investor to extend the maturity date of its convertible
      debenture. The fair value of the warrants issued totaled $18,326 which has
      been
      recorded as financing costs in the accompanying statements of
      operations.




F-23




On
      February 9, 2008, the Company issued to three accredited investors an aggregate
      of $30,000 in 6% Convertible Subordinated Promissory Notes and warrants to
      purchase up to 75,000 shares of the Company’s common stock. The convertible
      notes, which accrue interest at 6%, mature on February 9, 2009. The investors
      have the option, at any time prior to payment or conversion, to convert any
      unpaid principal and interest into shares of common stock at a price per share
      equal to $0.20. In addition, the notes are convertible if the Company completes
      an equity financing which raises proceeds of at least $3,000,000 or if the
      Company completes certain specified transactions. The notes include covenants
      and events of default which are customary for promissory notes of this nature.
      The notes also provide the investors certain piggy-back registration rights
      with
      respect to the shares of common stock into which the notes are convertible.
      The
      warrants, which have an exercise price of $0.40 per share, expire on February
      9,
      2009. The warrants may be exercised at any time prior to expiration and provide
      the investors certain piggy-back registration rights with respect to the shares
      of common stock into which the warrants are exercisable.





As
      a
      result of the foregoing, as of December 31, 2007, the Company had 80 convertible
      debentures outstanding. The outstanding convertible debentures represented
      a
      principal balance of $2,074,528 and a potential obligation for the Company
      to
      issue 8,416,220 shares of common stock.





In
      connection with the convertible debentures described above, as of December
      31,
      2007, the Company has issued warrants to purchase 16,666,208 shares of common
      stock at exercise prices ranging from $0.20 to $0.50, equaling a potential
      aggregate funding for the Company of $4,398,307. These warrants have expiration
      dates between July 5, 2008 and July 26, 2010.





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





**Summary of 2005/2006/2007 Debentures & Warrants**
            
            **Convertible Notes**
            
            **Warrants****Proceeds**
            
            **Shares**
            
            **Proceeds**
            
            **Shares**Proceeds
                received during third quarter of 2005
            
            $
            188,250
            
            
            941,250
            
            $
            -
            
            
            941,250Conversions
                during fourth quarter of 2005
            
            
            (118,000
            )
            
            (590,000
            )
            
            -
            
            
            -Total
                outstanding at December 31, 2005
            
            
            70,250
            
            
            351,250
            
            
            -
            
            
            941,250Proceeds
                received during 2006
            
            
            1,647,875
            
            
            8,239,374
            
            
            -
            
            
            8,239,374Accounts
                payable and loans converted to convertible notes
            
            
            176,577
            
            
            467,584
            
            
            -
            
            
            364,136Conversions
                during 2006
            
            
            (632,477
            )
            
            (3,162,385
            )
            
            -
            
            
            -Accrued
                Interest
            
            
            41,143
            
            
            212,110
            
            
            -
            
            
            -Total
                outstanding at December 31, 2006
            
            
            1,303,368
            
            
            6,107,933
            
            
            -
            
            
            9,544,760Proceeds
                received during 2007
            
            
            2,433,206
            
            
            8,276,240
            
            
            -
            
            
            7,058,948Increase
                for payment term extension during 2007
            
            
            4,410
            
            
            22,050
            
            
            -
            
            
            62,500Accrued
                Interest
            
            
            95,220
            
            
            383,131
            
            
            -
            
            
            -Conversions
                during 2007
            
            
            (1,696,863
            )
            
            (6,049,069
            )
            
            -
            
            
            -Payments
                during 2007
            
            
            (64,813
            )
            
            (324,065
            )
            
            -
            
            
            -Total
                outstanding at December 31, 2007
            
            $
            2,074,528
            
            
            8,416,220
            
            $
            -
            
            
            16,666,208




The
      Company has determined that the convertible debentures contain a beneficial
      conversion feature and qualify for treatment under Emerging Issue Task Force
      No.
      00-27. The estimated fair value of the warrants of $7,449,190 has been
      determined using the Black-Scholes option pricing model with the following
      assumptions: stock price volatility ranging from 131% to 234%; risk free
      interest rate of 3.5% to 4.5%; dividend yield of 0%; and a two to three year
      term. The face amount of the convertible debentures (i.e., $4,450,907) was
      proportionately allocated to the convertible debentures and the warrants in
      the
      amount of $1,837,269 and $2,613,638, respectively. The convertible debentures
      proportionate allocation factor was then further allocated between the
      convertible debentures and the beneficial conversion feature and $1,635,061
      was
      allocated to the beneficial conversion feature and the balance of $202,208
      was
      allocated to the convertible debentures. The combined total value of the
      warrants and the beneficial conversion feature amounting to $4,248,699 has
      been
      accounted for as a debt discount which is being amortized and treated as
      interest expense over the term of the convertible debentures. For the year
      ended
      December 31, 2007, the Company amortized a total of $2,308,856. The discounts
      and amortization are summarized in the following table:




F-24




**December 31,**
            
            **December 31,****2007**
            
            **2006**BCF
                discount to Paid in capital
            
            $
            (1,635,061
            )
            $
            (702,953
            )Warrant
                Discount to Paid in capital
            
            
            (2,613,638
            )
            
            (1,248,688
            )Proceeds
                from convertible debentures
            
            
            4,450,907
            
            
            2,011,641Subtotal
            
            
            202,208
            
            
            60,000Deduct
                value converted to common stock
            
            
            (2,393,011
            )
            
            (734,250
            )Convertible
                debt not subject to accretion converted to stock
            
            
            (2,000
            )
            
            -Principal
                payments made
            
            
            (57,145
            )
            
            -Balance
                of convertible debt not subject to accretion per above
            
            
            (200,208
            )
            
            (60,000
            )Total
                discount to accrete
            
            
            1,798,543
            
            
            1,217,391Interest
                expense on convertible debentures - Amortized
            
            
            (993,611
            )
            
            (405,660
            )Interest
                expense on convertible debentures - Accrued
            
            
            (75,777
            )
            
            (41,864
            )Convertible
                debt not subject to accretion
            
            
            (200,208
            )
            
            (60,000
            )Total
                Current Liability
            
            $
            (1,269,596
            )
            $
            (507,524
            )




**Defaults
      on Convertible Debentures**





Thirty-six
      of the Company’s convertible debentures have matured without conversion or
      repayment. As of December 31, 2007, 4 convertible debenture holders agreed
      to
      extend the terms of their convertible debentures and 32 convertible debentures
      totaling $614,889 were in default. (See “Note 15 – Subsequent Events” for
      further details.)





**NOTE
      7 - RELATED PARTY TRANSACTIONS**





**Loans
      Payable - Related Party**





During
      2006, the Company issued two non-interest bearing notes to an officer of the
      Company in the amounts of $78,192 and $1,793. Under the terms of the notes,
      the
      officer had the right to demand repayment prior to September 29, 2007 and the
      Company had the right to repay the amounts by issuing shares of the Company’s
      restricted common stock at a per share price of $0.20. During the second quarter
      of 2007, the officer requested repayment and the Company issued 399,924 shares
      of restricted common stock in the third quarter of 2007.




**Loans
      from Founder:**





**2007** :
      During
      the year ended December 31, 2007, the CEO of the Company entered into certain
      loan transactions with certain third parties and in turn has loaned an aggregate
      of $428,393 to the Company. During the year ended December 31, 2007, the Company
      accrued interest on the outstanding principal balance of these loans in the
      amount of $7,494. As a condition to the loan transactions with such third
      parties, the CEO has assigned or committed to assign to such third parties
      an
      aggregate of 2,948,474 of his personal shares of the Company’s common stock.
      During the year ended December 31 2007, the Company repaid loan amounts of
      $72,086 including accrued interest, and issued 600,000 shares of the Company’s
      common stock to third parties on behalf of the CEO in exchange for debt
      forgiveness from the CEO in the amount of $179,971. As of December 31, 2007,
      the
      outstanding balance of these loans was $181,392 in principal and $2,437 in
      accrued interest.




F-25




During
      the fourth quarter of 2007, the Company issued to the CEO an aggregate of
      $45,917 in 6% Convertible Subordinated Promissory Notes and warrants to purchase
      up to 114,791 shares of the Company’s common stock. The two convertible notes
      with balances of $40,917 and $5,000, which accrue interest at 6%, mature on
      October 30, 2009 and November 11, 2009, respectively. The CEO has the option,
      at
      any time prior to payment or conversion, to convert any unpaid principal and
      interest into shares of common stock at a price per share equal to $0.20. In
      addition, the notes are convertible if the Company completes an equity financing
      which raises proceeds of at least $3,000,000 or if the Company completes certain
      specified transactions. The notes include covenants and events of default which
      are customary for promissory notes of this nature. The notes also provide the
      CEO certain piggy-back registration rights with respect to the shares of common
      stock into which the notes are convertible. The warrants, which have an exercise
      price of $0.40 per share, expire on October 30, 2009 and November 11, 2009.
      The
      warrants may be exercised at any time prior to expiration and provide the CEO
      certain piggy-back registration rights with respect to the shares of common
      stock into which the warrants are exercisable.





**2006:** During
      2006, the CEO of the Company loaned $20,000 to the Company on an interest-free
      basis. During 2006, $15,000 was repaid leaving an unpaid obligation of $5,000
      as
      of December 31, 2007.





**2005** : On
      September 15, 2005, the Company received a loan of $80,000 from the CEO. Under
      the terms of the promissory note governing the loan, interest accrues at 10%
      per
      annum, with principal and interest payable on December 1, 2005. Unpaid principal
      and interest after December 1, 2005 is subject to additional interest of 5%
      in
      excess of the rate otherwise applicable to the unpaid balance. During 2006,
      the
      Company issued 400,000 shares of restricted common stock to repay the principal
      of the loan and the balance of the accrued interest does not accrue additional
      interest. The balance of the accrued interest payable at December 31, 2007
      was
      $13,074.




**2004:** As
      of
      December 31, 2006, the Company had a loan payable totaling $316,496 to the
      CEO
      which included principal of $209,000. Under the terms of the loan, interest
      accrued at the rate of 10% per annum. During the year ended December 31, 2007,
      the Company paid $32,500 to the CEO as partial repayment of this loan. On
      January 17, 2008, the Company entered into an agreement with the CEO, and
      Rosemary Nguyen related to a settlement in the Rosemary Nguyen v. Winsonic
      Digital Media Group, Ltd. and Winston Johnson matter. Pursuant to this
      agreement, the Company is required to issue 80,000 shares of its common stock
      to
      Ms. Nguyen, which shares shall be deemed to have been fully paid for on November
      20, 2004. In addition, the Company is required to issue 1,996,521 restricted
      shares of its common stock to Ms. Nguyen as full settlement of this matter.
      The
      balance of this loan from the CEO related top this matter was repaid at that
      time by issuance of the shares of the Company’s common stock to Ms. Nguyen.
      During the quarter ended December 31, 2007, in connection with this matter,
      the
      Company reclassified $314,584 from loans payable – related party to legal
      settlement liabilities. (See “Note 9 – Summary of Legal Proceedings” and
“Note 15 – Subsequent Events” for further details.)





**Consulting
      Agreements**





During
      the year ended December 31, 2007, the Company entered into nine consulting
      agreements with shareholders to assist the Company in the development of
      capitalization plans which will provide the capital resources necessary to
      accomplish the operating and strategic plans of the Company. As compensation
      for
      the services provided, the Company issued 333,000 shares of the Company’s
      restricted common stock which were valued at $176,650 in payment for five of
      the
      agreements. The remaining four agreements require the issuance of an additional
      500,000 shares of the Company’s restricted common stock. These shares were
      valued at $261,000 and were issued during the first quarter of 2008. In
      addition, the Company hired the wife of an executive of AI to perform design
      services totaling $35,055 and paid a Board member $2,000 as a consulting fee.
      The costs of these consulting agreements totaled $474,705 and are included
      in
      the accompanying statement of operations as consulting services – related
      party.





**Share
      issuances**





During
      the year ended December 31, 2007, the Company issued 500,000 shares of the
      Company’s restricted common shares in anticipation of closing a financing
      transaction with a related party which did not materialize. The shares were
      subsequently canceled in January 2008. The Company also issued 700,000 shares
      of
      the Company’s restricted common shares to reimburse the CEO for certain
      financing transactions in excess of the correct amount of shares. The shares
      were subsequently canceled in March 2008.




F-26




**NOTE
      8 - STOCKHOLDERS’ EQUITY**





Effective
      June 22, 2007, the Company increased the number of shares of common stock the
      Company is authorized to issue from 50,000,000 to 200,000,000 and increased
      the
      number of shares of preferred stock the Company is authorized to issue from
      5,000,000 to 20,000,000.





During
      fiscal year 2002, the Company issued 990,600 stock warrants, of which 509,600
      warrants were issued to four individuals for consulting services, 385,000
      warrants were issued to three individuals to settle debts, and 96,000 warrants
      were issued to six individuals and one company for cash, all with a conversion
      price of $1.00 per share.





During
      fiscal year 2003, the Company committed to issue 820,000 shares of common stock
      as part of a payable of $820,000 for shares of stock valued at $1.00 per share
      to a company as part of the consideration for purchase of computer equipment
      and
      infrastructure valued at $1,667,000. The remaining balance of $847,000 has
      been
      financed through a promissory note payable. (See “Note 5 - Loans Payable.”)





During
      fiscal year 2003, the Company issued 189,500 stock warrants, of which 87,000
      were issued to one individual for consulting services, and 102,500 were issued
      to four individuals for cash, all with a conversion price of $1.00 per
      share.





During
      fiscal year 2004, the Company issued 6,004,200 shares of common stock to the
      Chairman/CEO for past services.





During
      fiscal year 2004, as discussed in Note 1, the Company issued 23,956,138 shares
      of common stock related to the reverse merger with Media &
Entertainment.com, Inc. These shares represent issued and outstanding shares
      of
      the Public Company prior to the merger, and have been reflected as a
      recapitalization of Winsonic as of October 7, 2004 — the date of the
      merger.





During
      fiscal year 2004, the Company issued 1,980,946 shares of common stock to eleven
      individuals and one company for consulting services rendered totaling $1,490,309
      or $0.75 average price per share.





During
      fiscal year 2004, the Company issued 758,000 shares of common stock to eleven
      individuals and one company in satisfaction of debts totaling $331,000 and
      accrued interest of $242,500.





During
      fiscal year 2004, the Company issued 921,600 shares of common stock to eight
      individuals and one company as a result of stock warrants exercised at $1.00
      per
      share.





During
      fiscal year 2004, the Company converted 258,000 of outstanding stock warrants
      into $198,000 of debts and $60,000 of additional paid in capital related to
      seven individuals and one company.





During
      fiscal year 2005, the Company issued 252,745 shares of common stock to a private
      limited partnership. The Company issued 94,615 of these shares at $1.30 per
      share during January, 91,463 of these shares at $0.82 per share in March, and
      66,667 of these shares at $0.68 per share in June, all 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. These 2005
      issuances were made pursuant to a “cashless exercise” of a warrant where the
      warrant holder received a reduced number of shares of common stock upon
      conversion based on the current market value of the stock. For January 2005,
      the
      warrant holders received 94,615 shares of stock and contributed 5,385 shares
      valued at $1.30 per share worth $7,000 (the cost of their warrants). For
      September, the warrant holders received 91,463 shares and contributed 8,537
      shares valued at $0.82 per share, worth $7,000 (the cost of their warrants).
      For
      June, the warrant holders received 66,667 shares of common stock and contributed
      8,333 shares valued at $0.68 per share, worth $5,666 (the cost of their
      warrants).




F-27




During
      fiscal year 2005, the Company issued 1,670,000 shares to Native American
      Television Network, Inc. (“NATVN”) in exchange for 4,000,000 shares of common
      stock, in accordance with a stock exchange agreement entered into by both
      parties. 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 were also shareholders and co-founders
      in NATVN, owning approximately 9% of the total outstanding equity in NATVN.
      Because 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 December 31, 2005, since there were no tangible or intangible assets and
      signed agreements in place. (See “Note 13 - Equity Investment” for further
      details regarding this transaction.)





During
      fiscal year 2005, the Company issued 700,000 shares of common stock to its
      founder to relieve related party loan payable due him valued at $231,000 or
      $0.33 average price per share. (See “Note 7 - Related Party Transactions” for
      further details regarding this transaction.)





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. (See
      “Note 7 - Related Party Transactions” for further details regarding this
      transaction.)





During
      fiscal year 2005, the Company issued 900,000 shares of common stock to two
      consultants for services valued at $630,000 or $0.70 average price per share.





During
      fiscal year 2005, the Company issued 225,000 shares of common stock to two
      consultants for services valued at $108,000 or $0.48 average price per share.





During
      fiscal year 2005, the Company issued 590,000 shares of common stock to four
      investors in satisfaction of convertible debenture obligations of $118,000
      at
      $0.20 average price per share. (See “Note 6 - Convertible Debentures” for
      further details regarding this transaction.)





During
      fiscal year 2005, the Company issued 925,927 shares of common stock to its
      landlord for lease deposits valued at $250,000 or $0.27 average price per share.





During
      fiscal year 2005, the Company issued 820,000 shares of common stock to one
      company as a result of conversion of common stock payable valued at $820,000
      or
      $1.00 per share.





During
      fiscal year 2005, the Company credited additional paid-in capital for a $281,481
      adjustment to accumulated depreciation for the return of computer equipment,
      infrastructure and software. (See “Note 4 - Property And Equipment, Net” for
      further detail regarding this transaction).





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. (See “Note 7 -
      Related Party Transactions” for further detail regarding this
      transaction).





During
      fiscal year 2005, the Company recorded common stock payable for 818,182 common
      shares valued at $270,000 or $0.33 average price per share to an officer per
      a
      separation agreement,. (See “Note 11 - Commitments and Contingencies” for
      further detail regarding this transaction).





During
      fiscal year 2005, the Company recorded forgiveness of accrued salary to an
      officer per a separation agreement by crediting additional paid in capital
      for
      $270,000. (See “Note 11 - Commitments and Contingencies” for further detail
      regarding this transaction).





During
      fiscal year 2005, the Company recorded forgiveness of accrued payroll taxes
      for
      an officer per a separation agreement by crediting additional paid in capital
      for $59,982. (See “Note 11 - Commitments and Contingencies” for further detail
      regarding this transaction).





During
      fiscal year 2005, the Company recorded the vesting of stock options to purchase
      500,000 shares of the Company’s common stock per a separation agreement valued
      at $131,068 at December 31, 2005, using the Black Scholes valuation method.
      (See
“Note 2 - Summary of Significant Accounting Policies” and “Note 11 - Commitments
      and Contingencies” for further detail regarding this transaction).




F-28




During
      fiscal year 2005, the Company recorded the forgiveness of interest expense
      of a
      related party by crediting additional paid in capital for $152,592. (See “Note 5
      - Loans Payable” for further detail regarding this transaction).





During
      the year ended December 31, 2006, the Company issued 900,000 shares of its
      common stock at $0.50 per share in settlement of a legal action. The settlement
      and the credit to stockholders’ equity were valued at $450,000. (See “Note 9 -
      Summary of Significant Legal Proceedings” for further details.)





During
      2006, the Company issued 3,184,899 shares of its common stock at $0.20 per
      share
      in connection with conversions of various convertible notes payable that had
      been issued during the year.





During
      the year ended December 31, 2006, 500,000 shares of common stock were issued
      to
      the former chief financial officer of the Company in connection with employment
      incentive options, which were granted to him in connection with his employment
      during 2005. In accordance with the accounting treatment under SFAS No. 124(R)
      and SFAS No. 125, the Company had previously recognized compensation expenses
      of
      $185,000 upon the grant and vesting of the options during the fourth quarter
      of
      2005 and the first quarter of 2006.





During
      the year ended December 31, 2006, the Company issued 411,956 shares of common
      stock at $0.41 per share as consideration for the acquisition of all of the
      outstanding equity of AI. Also, in connection with the acquisition of AI and
      as
      an employment incentive, the Company issued 750,000 shares of common stock,
      valued at $0.40, to five key employees of AI during April 2006.





During
      the year ended December 31, 2006, 82,051 shares of restricted common stock
      were
      issued at $0.39 per share pursuant to a “cashless exercise” of options held by
      an advisor. The advisor had received options for services rendered during 2004.
      Based on the current market value of the stock, the option holder received
      a
      reduced number of shares of common stock upon exercise.





During
      the year ended December 31, 2006, the Company issued 489,850 shares of its
      common stock in repayment of funds loaned to the Company at $0.53 per
      share.





During
      the year ended December 31, 2006, the Company issued 2,153,010 shares of its
      common stock upon exercise of convertible notes at $0.40 per share.





During
      the year ended December 31, 2006, the Company issued 89,231 shares of its common
      stock upon the exercise of options issued for services at $0.65 per
      share.





During
      the year ended December 31, 2006, the Company issued 410,000 shares of its
      common stock to various financial consultants for services at fair market values
      ranging from $0.01 to $0.53 per share.





During
      the year ended December 31, 2006, the Company issued 300,000 shares of its
      common stock upon the exercise of a warrant issued to a consultant at $0.01
      per
      share.





During
      the year ended December 31, 2006, the Company issued 62,504 shares of its common
      stock as repayment of various loans valued at $0.40 per share.





During
      the year ended December 31, 2006, the Company issued 40,000 shares of its common
      stock to a financial consultant, valued at $0.40 per share, whose services
      were
      employed to assist the Company in its financial reporting and disclosures.





During
      the year ended December 31, 2006, the Company committed to issue 1,146,593
      and
      241,379 shares of common stock in connection with the acquisitions of Tytess
      and
      Store, respectively.





During
      the year ended December 31, 2007, the Company issued 6,990,197 restricted shares
      of the Company’s common stock in connection with certain financing transactions.
      In addition, 57 holders of the Company’s convertible debentures agreed in
      writing to convert their debentures into restricted shares of the Company’s
      common stock at prices ranging from $0.20 to $0.50 per share (See “Note 6 –
Convertible Debentures” for further details regarding these conversions.). Based
      on these agreements, the Company converted $1,860,760 of principal and $67,274
      of accrued interest on these debentures in exchange for the issuance of
      6,549,069 restricted shares of the Company’s common stock.




F-29




During
      the year ended December 31, 2007, the Company repaid loans payable and loans
      payable – related party amounts of $40,605 and $259,955, respectively.
      Specifically, the Company repaid these loans payable by issuing 1,133,257
      restricted shares of the Company’s common stock at prices ranging from $0.20 to
      $0.69 and, in connection therewith, incurred financing costs of $285,424.





During
      the year ended December 31, 2007, the Company issued an aggregate of 543,000
      restricted shares of its common stock as payment for consulting services,
      210,000 of such restricted shares were previously recorded as common stock
      payable. In addition, the Company issued 241,379, 1,146,593 and 500,000
      restricted shares of common stock in each case which were previously recorded
      as
      a common stock payable for the acquisition of DV Photo Shop, Tytess and
      technology from James E. Thomas, respectively.





During
      the year ended December 31, 2007, the Company issued 650,000 restricted shares
      of the Company’s common stock in connection with the exercise of
      warrants.





During
      the year ended December 31, 2007, the Company issued 500,000 restricted shares
      of the Company’s common stock in anticipation of closing a financing transaction
      which did not materialize. The shares were subsequently canceled in January
      2008. The Company also issued 700,000 shares of the Company’s restricted common
      shares to reimburse the CEO for certain financing transactions in excess of
      the
      correct amount of shares. The shares were subsequently canceled in March
      2008.





During
      the year ended December 31, 2007, the Company issued 800,000, 1,964,286 and
      23,810 restricted shares of its common stock to David Lefkowitz, Nana Yalley
      and
      Crowne Office Suites, Inc., respectively, pursuant to their settlement
      agreements (See “Note 9- Summary of Legal Proceedings”).




F-30




The
      following table summarizes the stock transactions for the year ended December
      31, 2007, by date of the transaction:





**Price per**
            
            **Cost of**Date of Share Issuance
            
            **Shares**
            
            **Share**
            
            **Shares****Shares
                issued in connection with certain financing
                transactions:**7/20/2007
            
            
            200,000
            
            
            0.42
            
            $
            84,0007/20/2007
            
            
            100,000
            
            
            0.36
            
            
            36,0007/20/2007
            
            
            300,000
            
            
            0.30
            
            
            90,0007/20/2007
            
            
            500,000
            
            
            0.35
            
            
            175,0009/10/2007
            
            
            333,334
            
            
            0.42
            
            
            140,0009/10/2007
            
            
            1,200,000
            
            
            0.45
            
            
            540,0009/10/2007
            
            
            3,216,500
            
            
            0.50
            
            
            1,608,25012/31/2007
            
            
            (700,000
            )
            
            0.50
            
            
            (349,300
            )9/10/2007
            
            
            400,000
            
            
            0.72
            
            
            288,0009/30/2007
            
            
            260,000
            
            
            0.49
            
            
            127,4009/30/2007
            
            
            126,007
            
            
            0.66
            
            
            83,1659/30/2007
            
            
            294,397
            
            
            0.69
            
            
            203,13410/18/2007
            
            
            50,000
            
            
            0.60
            
            
            30,00010/19/2007
            
            
            14,016
            
            
            0.63
            
            
            8,83010/19/2007
            
            
            224,629
            
            
            0.49
            
            
            109,97010/19/2007
            
            
            125,000
            
            
            0.63
            
            
            78,75011/19/2007
            
            
            73,160
            
            
            0.38
            
            
            27,80111/19/2007
            
            
            66,666
            
            
            0.42
            
            
            28,00011/19/2007
            
            
            68,333
            
            
            0.43
            
            
            29,38211/19/2007
            
            
            138,155
            
            
            0.45
            
            
            62,1706,990,197
            
            
            
            
            $
            3,400,552**Shares
                issued for convertible debentures:**7/20/2007
            
            
            2,121,444
            
            
            0.20
            
            $
            424,2888/10/2007
            
            
            920,023
            
            
            0.20
            
            
            184,0049/18/2007
            
            
            79,340
            
            
            0.20
            
            
            15,8689/19/2007
            
            
            52,918
            
            
            0.20
            
            
            10,5849/30/2007
            
            
            800,511
            
            
            0.20
            
            
            160,1029/30/2007
            
            
            288,673
            
            
            0.35
            
            
            101,0369/30/2007
            
            
            1,400,000
            
            
            0.50
            
            
            700,0009/30/2007
            
            
            500,000
            
            
            0.46
            
            
            231,23310/19/2007
            
            
            77,170
            
            
            0.20
            
            
            15,43411/19/2007
            
            
            118,436
            
            
            0.40
            
            
            47,37512/17/2007
            
            
            190,554
            
            
            0.20
            
            
            38,1116,549,069
            
            
            
            
            $
            1,928,034**Shares
                issued as repayment of loans payable and loans payable - related
                party:**7/20/2007
            
            
            399,924
            
            
            0.20
            
            $
            79,9849/30/2007
            
            
            733,333
            
            
            0.69
            
            
            506,0001,133,257
            
            
            
            
            $
            585,984**Shares
                issued for consulting services:**7/20/2007,
                previously recorded as common stock payable
            
            
            150,000
            
            
            0.40
            
            $
            60,0007/20/2007,
                previously recorded as common stock payable
            
            
            60,000
            
            
            0.53
            
            
            31,8009/30/2007
            
            
            100,000
            
            
            0.35
            
            
            35,0009/30/2007
            
            
            50,000
            
            
            0.55
            
            
            27,5009/30/2007
            
            
            150,000
            
            
            0.62
            
            
            93,00010/19/2007
            
            
            15,000
            
            
            0.69
            
            
            10,35012/5/2007
            
            
            18,000
            
            
            0.60
            
            
            10,800543,000
            
            
            
            
            $
            268,450**Shares
                issued for 2006 acquisitions previously recorded as common stock
                payable:**7/20/2007
            
            
            1,146,593
            
            
            0.55
            
            $
            630,6267/20/2007
            
            
            241,379
            
            
            0.58
            
            
            140,0007/20/2007
            
            
            500,000
            
            
            0.45
            
            
            225,0001,887,972
            
            
            
            
            $
            995,626**Shares
                issued in connection with exercise of warrants:**11/19/2007
            
            
            250,000
            
            
            0.01
            
            $
            2,50011/19/2007
            
            
            400,000
            
            
            0.40
            
            
            160,000650,000
            
            
            
            
            $
            162,500**Shares
                issued in error:**500,000
            
            
            0.001
            
            $
            500700,000
            
            
            0.001
            
            
            7001,200,000
            
            
            
            
            $
            1,200**Shares
                issued for legal settlements:**5/25/2007
            
            
            200,000
            
            
            0.29
            
            $
            58,00010/5/2007
            
            
            1,964,286
            
            
            0.44
            
            
            871,88610/15/2007
            
            
            23,810
            
            
            0.63
            
            
            15,00012/17/2007
            
            
            600,000
            
            
            0.49
            
            
            294,0002,788,096
            
            
            
            
            $
            1,238,886




F-31




The
      Company neither received nor paid any commissions in connection with the
      issuances of securities described above. The Company believes 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.





**Convertible
      Notes and Warrants:**





Since
      inception, the Company has issued convertible notes together with warrants
      to
      fund current operations and other transactions. The notes accrue interest at
      6%
      per annum and mature on various dates or upon the occurrence of certain events
      relating to the capital structure of the Company.





The
      following table summarizes the Company’s warrant activities for the period from
      inception to December 31, 2007:





**Number of**
            
            **Weighted Average****Warrants**
            
            **Exercise Price**Balance
                as of December 31, 2003
            
            
            -
            
            $
            -Warrants
                issued
            
            
            1,164,286
            
            
            0.70Warrants
                cancelled/expired
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2004
            
            
            1,164,286
            
            
            0.70Warrants
                issued
            
            
            285,714
            
            
            0.70Warrants
                cancelled due to extension agreement
            
            
            (1,450,000
            )
            
            (0.70
            )Warrants
                replaced due to extension agreement
            
            
            2,537,500
            
            
            0.40Warrants
                issued
            
            
            941,250
            
            
            0.20Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2005
            
            
            3,478,750
            
            
            0.35Warrants
                issued
            
            
            8,603,510
            
            
            0.21Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2006
            
            
            12,082,260
            
            
            0.25Warrants
                issued
            
            
            7,121,448
            
            
            0.34Warrants
                exercised
            
            
            (400,000
            )
            
            (0.40
            )Balance
                as of December 31, 2007
            
            
            18,803,708
            
            $
            0.28




These
      warrants have expiration dates between July 5, 2008 and July 26,
      2010.




F-32




In
      addition, the Company has issued warrants in connection with certain consulting
      agreements. The following table summarizes the Company’s warrant activities
      related to consulting agreements from inception to December 31,
      2007:





**Number
                of**
            
            **Weighted
                Average****Warrants**
            
            **Exercise
                Price**Balance
                as of December 31, 2004
            
            
            -
            
            $
            -Warrants
                issued
            
            
            600,000
            
            
            0.41Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2005
            
            
            600,000
            
            
            0.41Warrants
                issued
            
            
            702,354
            
            
            0.14Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2006
            
            
            1,302,354
            
            
            0.26Warrants
                issued
            
            
            -
            
            
            -Warrants
                exercised
            
            
            (250,000
            )
            
            0.01Balance
                as of December 31, 2007
            
            
            1,052,354
            
            $
            0.32




These
      warrants have expiration dates between June 3, 2008 and September 10,
      2009.





**NOTE
      9 - SUMMARY OF LEGAL PROCEEDINGS**




From
      time
      to time, the Company is involved in litigation with customers, vendors,
      suppliers and others in the ordinary course of business, and a number of such
      claims may exist at any given time. All such existing proceedings are not
      expected to have a material adverse impact on the Company’s results of
      operations or financial condition.





An
      estimated liability of
      $1,213,000 and
      $775,000 for legal settlements was recorded as of December 31, 2007 and December
      31, 2006, respectively. Included in the estimated liability for legal
      settlements as of December 31, 2007 is a general accrual of $159,000 for claims
      threatened and not yet filed. Other than as described below and in “Note 15 -
      Subsequent Events”, the Company is not currently involved in any legal
      proceedings that may be deemed to be material to our financial condition.




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





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





On
      March
      16, 2006, the Company issued 900,000 restricted shares of common stock to Mr.
      Collazo in settlement of this matter; however, pursuant to a motion filed by
      Mr.
      Collazo, the Court
      ordered the Company to reissue the 900,000 shares of common stock to
      Mr. Collazo as of September 20, 2002 without the restrictions. On
      July 13, 2006, a judgment of possession of property was entered against the
      Company for the issuance of the 900,000 shares without restrictions. See “Note
      15 – Subsequent Events” for further details.




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




This
      is a
      collection suit for $19,800. The disputed amount was expensed in general and
      administrative expense in 2004 and accrued within accounts payable of the
      Company as of December
      31, 2007 .




F-33




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





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





On
      or
      about April 17, 2006, the Company was notified of a default judgment rendered
      against it in a collection suit in Travis County, Texas in the amount of
      $474,285 plus $90,000 in attorney fees. The entire amount of the judgment and
      attorney’s fees have been expensed as a general and administrative expense and
      accrued within accounts payable as of December 31, 2007.





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





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





The
      disputed amount of $75,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2004 and accrued within accounts payable at
      December 31, 2007. The parties reached a settlement in March of 2006, pursuant
      to which the Company agreed to pay the sum of $75,000 in three (3) installment
      payments of $25,000, commencing in June 2006, in exchange for the dismissal
      of
      the action. On August 15, 2006, Netscaler filed a declaration to set aside
      the
      dismissal and to enter judgment in the amount of $100,769 against the Company.
      As of the date of this report, no further action has been taken in this
      matter.





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





The
      disputed amount of $25,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2005 and accrued within accounts payable as of
      December 31, 2007. On
      September 15, 2006, this matter was dismissed by the court; however, the
      plaintiff has indicated that it will either file a motion to set aside the
      dismissal or bring a new action. As of the
      date
      of this report ,
      no
      further action has been taken in this matter.





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





This
      was
      an action for breach of a lease agreement against the Company. The disputed
      amount of $50,193 was expensed as a general and administrative expense in 2005
      and accrued within accounts payable of the Company as of December 31, 2007.
      The
      Company filed its answer contesting service and a motion to open default on
      April 18, 2006.





The
      parties entered into a consent order on October 3, 2007, pursuant to which
      the
      Company issued the plaintiff 23,810 shares of the Company’s restricted common
      stock valued at $15,000 and paid the plaintiff $10,000. The Company also paid
      the plaintiff an additional $10,000 on November 5, 2007 in full satisfaction
      of
      the Company’s obligations under the consent order. Subsequently, the plaintiff
      returned to the Company all property that remained on the leased premises and
      dismissed the complaint with prejudice. As a result of the foregoing, the
      Company believes this matter is now closed.





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





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




F-34




The
      parties entered into a settlement agreement on May 4, 2007, pursuant to which
      the Company agreed to issue 200,000 unrestricted shares of the Company’s common
      stock to Mr. Lefkowitz and pay $160,000 in installments, which would be
      discounted upon the sale of the stock. The Company issued the 200,000
      unrestricted shares on May 17, 2007, but did not make any cash payments to
      Mr.
      Lefkowitz. On June 15, 2007, Mr. Lefkowitz filed a motion for leave to file
      an
      amended complaint, which was denied by the court. On July 2, 2007, Mr. Lefkowitz
      filed a complaint for fraudulent inducement and breach of the settlement
      agreement executed between the parties in the Lefkowitz matter. Mr. Lefkowitz
      sought $100,000 in damages under the fraudulent inducement claim and $100,000
      under the breach of contract claim. The complaint was dismissed for failure
      to
      plead the propriety of the court’s jurisdiction. The plaintiff filed an amended
      complaint on August 21, 2007. Plaintiff’s amended complaint was dismissed on
      September 25, 2007, pursuant to the Company’s motion for failing to plead fraud
      with the requisite particularity. On
      October 9, 2007, the plaintiff filed a second amended complaint which the
      Company answered on October 25, 2007.





On
      December 28, 2007, the Company entered into a settlement agreement and general
      release with Winston Johnson, the Company’s Chairman and CEO, and David
      Lefkowitz, which resolved this matter.





Pursuant
      to the settlement agreement, the Company issued Mr. Lefkowitz 600,000 restricted
      shares of the Company’s common stock. The settlement agreement sets forth
      certain terms and conditions regarding the sale of such restricted shares,
      and
      provides that if $180,000 has not been realized from the sale of such restricted
      shares prior to March 15, 2008, Mr. Lefkowitz is entitled to the proceeds of
      the
      sale of all of such restricted shares. If the proceeds from the sale of such
      restricted shares exceed $180,000 prior to March 15, 2008, the Company is
      entitled to the return of any unsold restricted shares. As a result of the
      foregoing, the Company believes this matter is now closed.





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





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





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




In
      January of 2007, the restrictions
      were removed from Mr. Yalley’s shares. On March 19, 2007, the Court granted Mr.
      Yalley’s motion to amend his complaint to include allegations of breach of
      contract, and the amended complaint was filed on March 20, 2007. On
      April
      6, 2007, the Company filed its response to the amended complaint.





On
      October 5, 2007, the parties entered into a settlement agreement pursuant to
      which the Company agreed to issue to Mr. Yalley an aggregate of 1,964,286
      restricted shares of the Company’s common stock and a stock option to purchase
      up to 500,000 shares of restricted shares of the Company’s common stock at the
      price of $1.00 per share up to December 9, 2010. Simultaneously with the
      execution of the settlement agreement, the parties executed a stipulation and
      order for dismissal. As a result of the foregoing, the Company believes this
      matter is now closed.




F-35




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





This
      was
      an action for breach of contract brought by Eric Young, a former chief financial
      officer and member of the Board of Directors of the Company. Mr. Young sought
      damages totaling $354,784, which included $103,934 in unpaid wages, $50,850
      in
      unpaid consulting fees and an additional $200,000 in severance payments. The
      Company filed its response to the complaint on February 12, 2007, in which
      the
      Company asserted a counterclaim for breach of fiduciary duty and unjust
      enrichment.





The
      parties entered into a settlement and release agreement on November 5, 2007,
      pursuant to which the Company issued to plaintiff a warrant to purchase up
      to
      380,000 shares of restricted shares of the Company’s common stock with an
      exercise price of $1.00 per share and an expiration date of December 9, 2010
      and
      to remove the restrictive legend for the previously issued 500,000 shares.
      In
      addition, the Company is required to pay:




(a)
            on
                or before November 7, 2007, (i) $15,000.00 to Mr. Young and (ii)
                $1,000.00
                to Mr. Young’s counsel, Beverly Adams;


(b)
            on
                or before November 27, 2007, (i) $15,000.00 to Mr. Young and (ii)
                $1,000.00 to Mr. Young’s counsel;


(c)
            on
                or before December 27, 2007, (i) $15,000.00 to Mr. Young and (ii)
                $1,000.00 to Mr. Young’s counsel;


(d)
            on
                or before January 27, 2008, (i) $25,000.00 to Mr. Young and (ii)
                $1,000.00 to Mr. Young’s counsel; and


(e)
            on
                or before February 27, 2008, (i) $180,000.00 to Mr. Young and (ii)
                $1,000.00 to Mr. Young’s counsel.




As
      of the
      date of this report, the Company has paid $30,000 to Mr. Young and $2,000 to
      his
      counsel. The Company is currently in default on this settlement agreement and
      as
      a result the Company believes this matter remains open.





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





This
      is
      an action for breach of contract against the Company. The disputed amount of
      $56,527 was capitalized as computer equipment in 2006 and accrued within
      accounts payable of the Company as of December 31, 2007. The Company was served
      with the summons and complaint on April 4, 2007 and filed its answer and
      defenses on May 15, 2007. Plaintiff subsequently filed a motion to strike the
      Company’s answer and moved for summary judgment. During the third quarter of
      2007, the Company responded to the motions to strike the Company’s answer and
      for summary judgment and has requested oral arguments on the summary judgment
      motion. As of the date of this filing no other significant action has been
      taken
      in this matter.





**Rosemary
      Nguyen v. WinSonic Digital Media Group, Ltd. and Winston
      Johnson** (Superior Court of Ca., Orange County – complaint filed August 1,
      2007)





This
      is a
      collection action for $432,897. The disputed amount originates from a loan
      agreement entered into between plaintiff and defendants on or about November
      30,
      2004. The complaint alleges that plaintiff is due 80,000 shares of the Company’s
      common stock pursuant to the loan. This suit was settled on January 17, 2008,
      See “Note 15 – Subsequent Events” for further details.





**Phillip
      Ghee v. WinSonic Digital Media Group, Ltd. and WinSonic Diversity,
      LLC** (Superior Court of Ga., Fulton County – complaint filed October 19,
      2007).





This
      is
      an action for breach of contract by Phillip Ghee, a former employee of the
      Company. Mr. Ghee seeks damages of $236,000, which includes amounts for alleged
      salary, alleged deferred earnings, and an alleged severance package as set
      forth
      in Mr. Ghee’s written employment agreement with the Company dated March 25,
      2006. The complaint also seeks damages for the undetermined value of alleged
      unused vacation time and vested stock options. The complaint further alleges
      that on or about October 2, 2006, Mr. Ghee entered into new employment
      agreements with defendants that split the responsibilities outlined in the
      March
      2006 employment agreement between the two defendants. On December 3, 2007,
      the
      Company filed its answer which disputed the amount allegedly owed to the
      plaintiff. As of the date of this filing, no other significant action has been
      taken in this matter.




F-36




**Context
      Ventures, Inc. v. WinSonic Digital Media Group, Ltd.** (State
      Court of Fulton County, State of Georgia)





This
      is
      an action for garnishment against the Company based on an alleged debt of
      $336,546.78 owed by the Company’s CEO, Winston Johnson. The Company defaulted on
      answering the garnishment amount, which opened the Company to liability for
      payment of Mr. Johnson’s alleged debt. On October 3, 2007, the Company moved to
      open the default. Context Ventures, Inc. opposed the opening of the default
      on
      January 11, 2008. As of the date of this filing, no other significant action
      has
      been taken in this matter.





**NOTE
      10 - 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 December 31, 2007, the Company has recognized
      $2,342,000 of revenues, and has had accumulated losses of approximately
      $40,829,000 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.





**NOTE
      11 - COMMITMENTS AND CONTINGENCIES** ****





**Employment
      Agreements**





On
      October 8, 2004, the Company entered into a binding offer letter with Winston
      Johnson, as Chairman and CEO. Under the terms of employment, Mr. Johnson was
      to
      receive a base salary of $290,000 per annum, with $7,000 per month deferred
      until the next funding occurs or January 1, 2005, whichever occurred first.
      Mr.
      Johnson was eligible for an annual incentive bonus based on performance. The
      agreement was terminable at will with or without cause (as defined in the offer
      letter). As of March 30, 2007, Mr. Johnson’s salary was reduced to zero until
      the Company’s common stock began trading on the OTCBB. Mr. Johnson’s salary was
      restored as of October 1, 2007.  The employment agreement of October 8,
      2004 also provided for the grant of incentive or non-statutory stock options
      to
      purchase 1,000,000 shares of common stock for $1.00 per share. Mr. Johnson
      is
      fully vested in these options.




On
      November 5, 2005, the Company entered into a binding offer letter with Eric
      Young, as Chief Operating Officer and Chief Financial Officer. Under the terms
      of his employment, Mr. Young was to receive a base salary and certain stock
      options, in each case, as set forth in the offer letter. As was disclosed on
      the
      Company’s Form 8-K filed on August 24, 2006, Mr. Young resigned on August 1,
      2006 to pursue other opportunities. Thereafter, Mr. Young filed suit against
      the
      Company concerning the number of options that vested upon his resignation and
      the expiration of the exercise period of said options. See “Note 9 –
Summary of Legal Proceedings”





Effective
      June 6, 2006, Joseph Morris succeeded Eric Young as Chief Operating Officer
      of the Company. Previously, Mr. Morris served as Chief Operating
      Officer of AI, which was acquired on April 18, 2006.  Mr. Morris'
      initial base salary was $150,000 per annum. As an employment incentive, Mr.
      Morris was granted stock options to purchase 50,000 shares of the Company’s
      Common Stock at an
      exercise price of $0.01, of which 1/3 vested immediately, 1/3 at the closing
      of
      the next round of funding, and the remaining 1/3 when the Company’s common stock
      resumed trading on the OTCBB. Additionally,
      Mr. Morris was granted stock options to purchase 100,000 of the Company's common
      stock at an average price of $1.00 per share, of which 10% vested immediately
      and the remaining 90% vested at the rate of 1/12 th per
      month for twelve months. The fair value of the options granted totaled $53,329.
      On March 12, 2007, Mr. Morris’ base salary was increased to $200,000 per annum
      and he was granted additional stock options to purchase 200,000 shares of the
      Company’s common stock at an
      exercise price of $0.01, of which 1/3 vested immediately, 1/3 at the closing
      of
      the next round of funding, and the remaining 1/3 when the Company’s common stock
      resumed trading on the OTCBB. On
      March
      12, 2007, Mr. Morris was granted additional stock options to purchase 400,000
      of
      the Company's common stock at an average price of $1.00 per share, of which
      10%
      vested immediately and the remaining 90% will vest at the rate of
      1/12 th per
      month for twelve months. The fair value of the additional options granted
      totaled $232,441. Effective December 7, 2007, Joseph Morris resigned from the
      Company as Chief Operating Officer.




F-37




Effective
      August 8, 2006, Jeffrey L. Burke was hired as Executive Vice President of the
      Company. Mr. Burke's base salary is $270,000 per annum. As an employment
      incentive, Mr. Burke was granted stock options to purchase 750,000 shares of
      the
      Company’s common stock at an
      exercise price of $0.01, of which 1/3 vested immediately, 1/3 at the closing
      of
      the next round of funding, and the remaining 1/3 when the Company’s common stock
      resumed trading on the OTCBB. Additionally, Mr.
      Burke
      was granted options to purchase 500,000 of the Company's common stock at an
      average price of $1.00 per share, of which 10% vested immediately and the
      remaining 90% vested at the rate of 1/12 th per
      month for twelve months. The fair value of the options granted totaled $481,492.
      Effective December 13, 2007, Jeffrey Burke resigned from the Company.





The
      Company is in the process of negotiating separation agreements with Mr. Morris
      and Mr. Burke.





Following
      Mr. Morris’ resignation, effective December 16, 2007, the Company appointed
      Bobby Reed to the position of Vice President of Operations. The Company is
      currently in the process of negotiating the terms of Mr. Reed’s
      employment.





Effective
      November 26, 2007, the Company appointed Katie Ashcraft to the position of
      Vice
      President of Finance for the Company. The Company is currently in the process
      of
      negotiating the terms of Ms. Ashcraft’s employment.





In
      addition to the employment agreements with the officers and directors above,
      the
      Company also has signed employment agreements with 18 employees. Under the
      terms
      of all its employment agreements, the Company has committed to compensation
      expenses of approximately $2,246,000.





During
      the year ended December 31, 2007 the Company suspended the accrual of certain
      salary deferrals, which were provided for in employment agreements, from March
      30, 2007 until the Company began trading on the OTCBB. In addition, all employee
      vacation grants were reduced from four weeks to two weeks. In accordance with
      this policy, deferred salary amounts were not accrued from March 30, 2007 to
      September 1, 2007 and were considered to be forfeited. This action taken by
      the
      Company resulted in a savings of approximately $487,000 in 2007.





On
      January 4, 2008, the Company issued new offer letters to all current employees.
      Pursuant to the offer letters, the Company accelerated the vesting on all
      remaining stock options with an exercise price of $1.00 for these employees.
      The
      Company also canceled stock options exercisable into up to 400,000 shares of
      common stock with an exercise price of $0.01 because the Company had not
      obtained the senior funding necessary for such stock options to become
      exercisable. In exchange for the canceled stock options, the Company committed
      to issue 400,000 shares of fully vested stock options pursuant to the Company’s
      2008 option plan when the plan is established and approved. As a result of
      the
      acceleration of the stock options with an exercise price of $1.00 and the
      cancellation of certain unvested stock options with an exercise price of $0.01,
      and the commitment to issue an equal number of new stock options, the Company
      recorded additional stock based compensation totaling $193,000. In addition,
      during the year ended December 31, 2007 the Company achieved a milestone when
      its stock began trading on the OTCBB. This milestone triggered the vesting
      of an
      additional one third of all outstanding stock options with an exercise price
      of
      $0.01 and the Company recorded additional stock based compensation expense
      totaling $375,000.





During
      the year ended December 31, 2007 and as a result of the issuance of the new
      offer letters, the Company terminated 17 employees, adjusted the salaries of
      12
      employees, accepted the resignation of six employees whose positions were not
      replaced and cancelled the contract of a consultant. These actions are expected
      to result in additional savings of approximately $3,430,000 per year. In
      connection with the above actions, the Company recorded severance costs of
      $1,714.000 during the year ended December 31, 2007.




F-38




**Payroll
      and Sales Tax Liabilities**





Automated
      Interiors has not remitted its sales taxes for 2006 and 2007. In addition,
      the
      Company and its subsidiaries have not remitted payroll taxes withheld from
      their
      employees’ checks and the companies’ matching portion to the Internal Revenue
      Service and various state taxing authorities. The Company has accrued interest
      and penalty up to and including December 31, 2007. Sales tax payable as of
      December 31, 2007 totaling $136,900 (including penalty of $25,100 and interest
      of $11,300) is included in the accompanying balance sheet in the line item
      “Accounts payable and accrued expenses”. Total payroll taxes withheld and match
      amounts as of December 31, 2007 totaled $1,408,000 (including penalty of
      $216,600 and interest of $119,500). This amount is included in the accompanying
      balance sheet in the line item “Accrued payroll and related taxes”.





Until
      paid, these liabilities will increase for additional penalties and interest.
      The
      Company is currently in negotiations with the taxing authorities to establish
      payment plans.





**Consulting
      Contracts**





During
      the first quarter of 2006, the Company engaged a financial consultant to assist
      management with accounting and reporting issues. The contract included an hourly
      fee of $100 per hour, as well as, warrants to purchase up to 150,000 shares
      of
      the Company’s restricted Common Stock at $0.28 per share, based upon the
      completion of certain milestones. Additionally, during the first quarter, the
      Company contracted with three consultants to perform services. The Company
      has
      issued 125,000 options, exercisable at $0.01 per share to one of the consultants
      as consideration for financial planning services rendered. (The options were
      subsequently exercised during the third quarter of 2006). 150,000 warrants
      were
      also issued, exercisable at $0.01 per share for services performed in assisting
      the Company in locating and securing office space under favorable terms; and
      10,000 warrants exercisable at $0.01 were issued to a financial consultant
      for
      services rendered in assisting with accounting matters. The Company has recorded
      an expense of $130,106, based upon the fair market value of the vested warrants.





During
      the second quarter of 2006, the Company entered into consulting agreements
      with
      three consultants. The first agreement was executed on April 12, 2006 between
      the Company and a financial consultant, who was engaged to assist the Company
      with its accounting and reporting issues. The contract included an hourly fee
      of
      $100 per hour, as well as, warrants to purchase up to 25,000 shares of the
      Company’s restricted common stock at $0.50 per share, based upon the completion
      of certain milestones. The milestones were accomplished by September 30, 2006,
      and the Company has accrued expense of $9,359 based upon the fair market value
      of the vested warrants. The second agreement, which was executed on May 26,
      2006
      for strategic and long-term financial advisory services, provided for the
      issuance of 185,000 shares of common stock of the Company. The agreement had
      a
      three-month term, and the Company issued the shares to the consultant on August
      23, 2006. The shares, when issued were valued at the market price of the
      Company’s stock, at the date of the agreement, in the amount of $48,100, ($0.26
      per share) of which the Company recognized consulting expenses of $19,867 during
      the second quarter and the remaining balance of $28,233 in the third quarter.
      The third agreement was executed on June 12, 2006 between the Company and a
      consultant for switch management and consulting services. The agreement has
      an
      indefinite term; but can be terminated by either party upon 30 days written
      notice. Additionally, it provides for a minimum of ten hours per week and
      includes an hourly fee of $25.00.





During
      the third quarter of 2006, the Company entered into three consulting agreements.
      The first agreement was executed on July 28, 2006 for business development
      and
      financial advisory services in exchange for 150,000 shares of the Company’s
      Common Stock. The agreement had a one year term. The second agreement, which
      was
      executed on August 1, 2006 for strategic and long-term financial advisory
      services, had a six-month term and provided for the issuance of 60,000 shares
      of
      the Company’s Common Stock. The stock was issued to the consultant during the
      third quarter of 2007. Also during the third quarter of 2006, the Company issued
      75,000 shares of common stock and a warrant to purchase 50,000 shares of common
      stock at $0.28 per share as consideration for consulting services rendered
      during 2006. The warrants and stock totaled $115,110 and have been included
      in
      selling, general and administrative expense for the third quarter of
      2006.




F-39




On
      October 17, 2006, the Company entered into a consulting agreement with Coral
      Capital Partners, in which Coral agreed to provide various reports and opinions
      on a number of issues, including the merger between WinSonic Holdings, Ltd.
      and
      WinSonic Digital Cable Systems, Ltd. and Media and Entertainment, Inc. As
      compensation for the services provided, the Company agreed to compensate Coral
      Capital a fee equal to $75,000, which included a note to Coral Capital for
      $60,000, as well as, the issuance of 40,000 shares of the Company’s Common Stock
      in lieu of the remaining $15,000 cash. The Company is currently in default
      on
      the note. The agreement has an indefinite term; but can be terminated by either
      party upon written notice. Additionally, it provides for all reasonable
      out-of-pocket expenses limited to no more than $1,000 per month, unless approved
      in writing by the company. The stock was issued to the consultant on December
      19, 2006. Additionally, during October, the Company retained the services of
      a
      software engineer to provide services and expertise in developing special
      applications for the Company. As part of his engagement, the Company agreed
      to
      issue 500,000 shares of restricted stock to him. The obligation was recognized
      during the fourth quarter when the commitment was made and the expense, based
      upon the fair market value of the stock at the time of the issuance was included
      in the operating results. Finally, during December of 2006, the Company secured
      the services of one of the directors. As inducement to join the board of
      directors, the Company issued 150,000 shares of restricted common stock. The
      shares and options issued during the fourth quarter of 2006 were valued at
      $301,000 and are included in the accompanying statement of operations as
      selling, general and administrative expenses.





During
      the year ended December 31, 2007, the Company entered into nine consulting
      agreements with shareholders to assist the Company in the development of
      capitalization plans which will provide the capital resources necessary to
      accomplish the operating and strategic plans of the Company. As compensation
      for
      the services provided, the Company issued 333,000 shares of the Company’s
      restricted common stock which were valued at $176,650 in payment for five of
      the
      agreements. The remaining four agreements require the issuance of an additional
      500,000 shares of the Company’s restricted common stock. These shares were
      valued at $261,000 and were issued during the first quarter of 2008. In
      addition, the Company hired the wife of an executive of AI to perform design
      services totaling $35,055 and paid a Board member $2,000 as a consulting fee.
      The costs of these consulting agreements totaled $474,705 and are included
      in
      the accompanying statement of operations as consulting services – related
      party.





**Lease
      Agreements**





***Centennial
      Tower Office Lease Agreement***





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





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





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





The
      lease
      agreement was amended on February 23, 2006, to include expanded rental space
      of
      9,415 square feet, bringing the total rental square feet to 18,800. Under the
      lease, the Company is obligated to pay base monthly rents of $34,566 per
      month.





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





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




F-40




The
      term
      of the lease commenced on May 1, 2007 and expires on April 30, 2017. An
      improvement allowance of $123,000 has been provided to the Company, of which
      the
      unused portion after May 1, 2008 may be applied to base monthly rental at the
      Company’s sole option.





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





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





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




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





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




***Landquest
      IV, LLC Office Lease Agreement***





In
      June
      2007, the Company entered into a Lease Agreement with Landquest IV, LLC for
      approximately 2,490 square feet of rentable space located at 3560 Camp Creek
      Parkway, Suite 130, East Point, Georgia 30344. The lease commences in October
      2007 and continues through September of 2012. The Company will use the space
      for
      retail sale of electronic equipment. Under the lease, the Company is obligated
      to pay base monthly rents of $5,810 per month.





As
      of
      December 31, 2007, approximate future commitments under the Company’s leases are
      as follows:





**Year**
            
            **Amount**2008
            
            $
            778,3762009
            
            
            778,5492010
            
            
            791,3772011
            
            
            804,5952012
            
            
            794,8602013
                through 2017
            
            
            2,789,053Total
            
            $
            6,736,810




Rent
      expense totaled $723,567 and $278,311 for the years ended December 31, 2007
      and
      2006, respectively.




F-41




**NOTE
      12 – SEGMENT INFORMATION**





In
      accordance with the provisions of SFAS No. 131, “Disclosures about Segments of
      an Enterprise and Related Information”, the Company has elected to report in
      five reportable operating segments, including: (i) Digital Media Group (ii)
      Digital Distribution Group, (iii) Integrated Services Group, (iv) WinSonic
      Diversity Group, and (v) Corporate Group.





As
      further described herein, the Company now combines business and financial
      activity of its various subsidiary companies and operating divisions within
      business segments. The business activity associated with the development,
      marketing and sale of digital media & entertainment products and services of
      WinSonic Digital Media Group, Ltd., and the Store **** are
      combined in the Digital Media Group business segment. The business activity
      of
      WinSonic Digital Cable Systems Network, Ltd. shall comprise the Digital
      Distribution Group business segment. The business activity of Tytess
      Design & Development, LLC and **** Automated
      Interiors, LLC are combined in the Integrated Services Group business segment.
      The business activity of WinSonic Diversity, LLC is represented by the WinSonic
      Diversity Group business segment. The business activities associated with
      corporate management, administration and finance of WinSonic Digital Media
      Group, Ltd are included in the Corporate Group business segment.




The
      following tables summarize segment information for the years ended December
      31,
      2007 and 2006:





**December 31, 2007****Digital**
            
            **Digital**
            
            **Integrated**
            
            **Winsonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate**
            
            **Total**Revenue
            
            $
            20,632
            
            $
            4,000
            
            $
            1,468,796
            
            $
            25,066
            
            $
            6,500
            
            $
            1,524,994Gross
                profit
            
            
            10,709
            
            
            4,000
            
            
            (603,821
            )
            
            (841
            )
            
            6,500
            
            
            (583,453
            )Operating
                expenses
            
            
            626,944
            
            
            1,998,253
            
            
            1,846,867
            
            
            70,835
            
            
            6,435,608
            
            
            10,978,507Loss
                from operations
            
            
            (616,235
            )
            
            (1,994,253
            )
            
            (2,450,688
            )
            
            (71,676
            )
            
            (6,429,108
            )
            
            (11,561,960
            )Net
                loss
            
            
            (616,235
            )
            
            (1,994,253
            )
            
            (3,203,985
            )
            
            (71,676
            )
            
            (14,248,563
            )
            
            (20,134,712
            )Total
                assets
            
            
            262,000
            
            
            570,128
            
            
            569,963
            
            
            1,793
            
            
            665,725
            
            
            2,069,609




**December
                31, 2006****Digital**
            
            **Digital**
            
            **Integrated**
            
            **Winsonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate**
            
            **Total**Revenue
            
            $
            1,363
            
            $
            -
            
            $
            738,372
            
            $
            -
            
            $
            19,760
            
            $
            759,495Gross
                profit
            
            
            1,363
            
            
            -
            
            
            265,301
            
            
            -
            
            
            (5,908
            )
            
            260,756Operating
                expenses
            
            
            263,361
            
            
            912,637
            
            
            550,542
            
            
            -
            
            
            4,495,153
            
            
            6,221,693Income
                (loss) from operations
            
            
            (261,998
            )
            
            (912,637
            )
            
            (285,241
            )
            
            -
            
            
            (4,501,061
            )
            
            (5,960,937
            )Net
                income (loss)
            
            
            (261,998
            )
            
            (912,637
            )
            
            (290,643
            )
            
            -
            
            
            (6,778,853
            )
            
            (8,244,131
            )Total
                assets
            
            
            200,262
            
            
            579,630
            
            
            1,430,620
            
            
            -
            
            
            411,527
            
            
            2,622,039




F-42







**NOTE
      13 - EQUITY INVESTMENT**




**Native
      American Television Network, Inc.**





On
      September 29, 2005, in accordance with a stock exchange agreement between the
      two parties, the Company issued 1,670,000 shares of common stock to NATVN and
      the Company acquired 4,000,000 shares of stock in NATVN, representing 27% of
      the
      NATVN equity. 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 Principals (GAAP). The President
      of the Company and a Company shareholder were also shareholders and co-founders
      in NATVN, owning approximately 9% of the total outstanding equity in
      NATVN.  Because 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 December 31, 2007 and 2006.




The
      expected value of the investment to the Company is based upon the promising
      mutually beneficial opportunities that exist between the Company, NATVN and
      a
      significant number of potential digital-services subscribers within the American
      Indian community; however, there are currently no signed agreements in place.
      NATVN is currently negotiating with representatives of the potential
      digital-services subscribers; however, contractual agreements with the potential
      subscribers have not been secured. Without the agreement 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.





NATVN,
      based in Albuquerque, New Mexico, is a recently formed company that intends
      to
      launch the first Western Hemisphere, pan-tribal digital cable channel. The
      Company will provide to NATVN its nationwide distribution platform and technical
      support, expertise and personnel. NATVN will provide the Company with commercial
      airtime on a regularly scheduled program that offers air space to advertisers
      with the exception of paid programming or long form advertisements.




The
      investment in NATVN will be accounted for under the “equity” method. The equity
      method of accounting is used if the investor has the ability to significantly
      influence the investee’s financial and operating policies, or if an investor is
      accounting for an investment in a corporate joint venture, but holds less than
      50% of the investee. Under the equity method, an investment is initially
      recorded at cost. Thereafter, the carrying amount of the investment is increased
      for the investor’s proportionate share of the investee’s gains, or is reduced
      for the proportionate share of the investee’s losses or for distributions
      received from the investee. As of December 31, 2007, there were no significant
      operations commenced by NATVN.





**NOTE
      14 – INCOME TAXES**




The
      income tax provision is summarized as follows for the years ended December
      31:




2007
            
            2006Current:Federal
            
            $
            -
            
            $
            -State
                and local
            
            
            -
            
            
            -Deferred
            
            
            -
            
            
            -Total
                income tax provision (benefit)
            
            $
            -
            
            $
            -




Deferred
      income taxes are determined on the liability method in accordance with SFAS
      No. 109, “Accounting for Income Taxes” (“SFAS 109”).  Under
      SFAS 109, deferred tax assets and liabilities are determined based on the
      difference between the tax basis of an asset or liability and its reported
      amount in the Consolidated Financial Statements using enacted tax
      rates.  Future tax benefits attributable to these differences are
      recognized to the extent that realization of such benefits are more likely
      than
      not.





F-43




Significant
      components of deferred tax assets were as follows as of December
      31:





2007
            
            2006Net
                operating loss carryforward
            
            $
            11,317,000
            
            $
            7,243,000Stock
                based compensation
            
            
            865,000
            
            
            -12,182,000
            
            
            7,243,000Valuation
                allowance
            
            
            (12,182,000
            )
            
            (7,243,000
            )Net
                deferred tax asset
            
            $
            -
            
            $
            -




As
      of
      December 31, 2007 and 2006 the Company had a federal net operating loss
      carryforward of approximately $32,334,000 and $20,694,000, respectively,
      expiring in years 2017 through 2027. As it is not more likely than not that
      the
      resulting deferred tax benefits will be realized, a full valuation allowance
      has
      been recognized for such deferred tax assets. The utilization of net operating
      loss carry forwards may be significantly limited under the Internal Revenue
      Code
      as a result of ownership changes due to the Company’s stock and other equity
      offerings.




The
      sources and tax effects of the differences are as follows for the year ended
      December 31:




2007
            
            2006Income
                taxes at the federal statutory rates
            
            
            (35.0
            )%
            
            (35.0
            )%Change
                in valuation allowance
            
            
            35.0
            %
            
            35.0
            %Effective
                rate of income tax
            
            
            0.0
            %
            
            0.0
            %





On
      January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”
(“FIN 48”), which clarifies the accounting for uncertainty in tax positions by
      prescribing a recognition threshold for positions taken or expected to be taken
      in a tax return that result in a benefit.




At
      the
      date of the adoption, the Company had no gross unrecognized tax
      benefits.  The adoption of FIN 48 did not result in a cumulative
      effect adjustment to retained earnings.  FIN 48 also requires
      companies to reclassify uncertain tax positions not expected to be settled
      within one year to long-term liabilities.  The Company had no material
      uncertain tax positions therefore the Company had no amounts to reclassify
      upon
      adoption and at December 31, 2007.





The
      Company recognizes interest and penalties related to unrecognized tax positions
      as a component of income tax expense.  As of December 31, 2007, the
      Company had no accrued interest and penalties related to uncertain tax
      positions.  During the year ended December 31, 2007, the Company
      recognized no amount for interest and penalties within income tax
      expense.





The
      Company is subject to U.S. federal income tax, as well as income tax in multiple
      states.  For all major taxing jurisdictions, the tax years 2004
      through 2007 remain open to examination.  As of December 31, 2007, the
      Company does not anticipate that total unrecognized tax benefits will
      significantly change during the next year.





**NOTE
      15 - SUBSEQUENT EVENTS**





**Convertible
      Notes and Other Financing Agreements**





Through
      March 31, 2008, the Company borrowed $292,691 from unrelated parties. In
      connection with the loans, the Company issued an aggregate of 2,314,919 shares
      of its common stock and recorded financing costs totaling $654,394.





F-44




On
      February 9, 2008, the Company issued to three accredited investors an aggregate
      of $30,000 in 6% Convertible Subordinated Promissory Notes and warrants to
      purchase up to 75,000 shares of the Company’s common stock. The convertible
      notes, which accrue interest at 6%, mature on February 9, 2009. The investors
      have the option, at any time prior to payment or conversion, to convert any
      unpaid principal and interest into shares of common stock at a price per share
      equal to $0.20. In addition, the notes are convertible if the Company completes
      an equity financing which raises proceeds of at least $3,000,000 or if the
      Company completes certain specified transactions. The notes include covenants
      and events of default which are customary for promissory notes of this nature.
      The notes also provide the investors certain piggy-back registration rights
      with
      respect to the shares of common stock into which the notes are convertible.
      The
      warrants, which have an exercise price of $0.40 per share, expire on February
      9,
      2009. The warrants may be exercised at any time prior to expiration and provide
      the investors certain piggy-back registration rights with respect to the shares
      of common stock into which the warrants are exercisable.





**Defaults
      on Convertible Debentures**





As
      of
      December 31, 2007, 32 of the Company’s convertible debentures had matured
      without conversion or repayment and were in default. Subsequent to December
      31,
      2007, ten of these convertible debenture holders agreed in writing to exercise
      their conversion option and one of these convertible debenture holders agreed
      to
      extend the terms of their convertible debentures and 21 convertible debentures
      totaling $338,748 were still in default.





**Stock
      Activity**





Subsequent
      to December 31, 2007, the Company issued 6,359,333 shares of its restricted
      common stock as further described below.





The
      Company issued 650,000 and 920,534 shares related to the exercise of stock
      options and financing warrants, respectively. The proceeds from the exercise
      of
      these options and warrants totaled $284,107. The Company issued 350,000 shares
      in connection with two consulting agreements, the costs of which were accrued
      at
      December 31, 2007. The Company issued 1,903,994 shares in connection with
      certain financing agreements, 1,800,000 of these shares with costs totaling
      $946,750 were accrued as financing costs at December 31, 2007. In addition,
      16
      of the 80 holders of the Company’s convertible debentures agreed in writing to
      exercise their conversion option at $0.20 per share. Based on these agreements,
      the Company converted $422,825 of principal and $23,087 of accrued interest
      in
      exchange for 2,229,877 shares of its restricted common stock.  The Company
      issued 575,000 shares of its restricted common stock to employees as additional
      compensation. The Company also issued 2,076,521 shares of its restricted common
      stock to Rosemary Nguyen pursuant to a settlement agreement described
      below.





Subsequent
      to December 31, 2007, the Company canceled 1,146,593 shares of its restricted
      common stock previously issued in connection with the Tytess acquisition. The
      Company recorded the transaction at par value and no gain or loss was recognized
      by the Company. In addition, 1,200,000 shares previously issued in error were
      canceled. ****





**Legal
      Proceedings**





On
      January 17, 2008, the Company entered into a Settlement Agreement and General
      Release (the “Nguyen Settlement Agreement”) with Winston Johnson, the Company’s
      Chairman and CEO, and Rosemary Nguyen, which resolved the Rosemary Nguyen v.
      Winsonic Digital Media Group, Ltd. and Winston Johnson legal proceeding
      described in the Company’s prior filings with the Securities and Exchange
      Commission.





Pursuant
      to the Nguyen Settlement Agreement, the Company is required to issue 80,000
      shares of its common stock to Ms. Nguyen, which shares shall be deemed to have
      been fully paid for on November 20, 2004. In addition, the Company is required
      to issue 1,996,521 restricted shares of its common stock to Ms. Nguyen (the
      “Restricted Shares”). The shares were issued to Ms. Nguyen on January 23, 2008.
      The Nguyen Settlement Agreement also provides for the discharge of all of the
      ongoing legal proceedings between the parties and each agreed to release the
      other from any and all claims related thereto.





In
      connection with the Nguyen Settlement Agreement, Ms. Nguyen and the Company
      entered into a Repurchase Rights Agreement (the “Repurchase Agreement”) on
      January 17, 2008. The Repurchase Agreement gives the Company the right to
      repurchase a specified amount of the Restricted Shares from Ms. Nguyen at a
      price of $0.291 per share during the time periods and in the amounts set forth
      below:




F-45




·
            Until
                March 15, 2008, the Company may repurchase 51,547
                shares;


·
            Between
                February 16, 2008 and March 15, 2008, the Company may repurchase
                51,547
                shares;


·
            Between
                March 16, 2008 and April 15, 2008, the Company may repurchase 85,911
                shares; and


·
            Between
                April 16, 2008 and May 30, 2008 (subject to extension for 30 days
                for a
                cash payment of $15,000), the Company may repurchase 1,807,516
                shares.





The
      Company’s repurchase rights described above are subject to extension in certain
      circumstances for up to fifteen days. The Repurchase Agreement also restricts
      Ms. Nguyen from selling the Restricted Shares during the time when the Company
      has a repurchase right with respect to those shares. The Company has not
      exercised its rights under the Repurchase Agreement. ******





**Shalanda
      Marshall v. WinSonic Digital Media Group, Ltd.** (Superior Court of Fulton County, State of Georgia)




This
      is
      an action for breach of contract by Shalanda Marshall, a former employee of
      the
      Company. Ms. Marshall seeks damages consisting of alleged salary and stock
      options as set forth in Ms. Marshall’s written employment agreement with the
      Company dated February 2, 2007. As of the date of this filing, no other
      significant action has been taken in his matter.





**Caesar
      Collazo v. WinSonic Digital Media Group, Ltd.** (Superior Court of Fulton County, State of Georgia)





This
      is
      an action to domesticate and enforce the judgment against the Company rendered
      in the matter Media and Entertainment.Com, Inc. v. Caesar Collazo, Superior
      Court of California, County of Los Angeles, referenced herein.





**Material
      Agreements**





Effective
      January 14, 2008, the Company appointed Anita Griffith to the position of Chief
      Information Officer. On February 15, 2008, Ms. Griffith resigned from her
      position as Chief Information Officer.





On
      November 20, 2007, WinSonic McCrary, LLC (“WinSonic McCrary”), a Georgia limited
      liability company and wholly-owned subsidiary of WinSonic Diversity, LLC
      (“WinSonic Diversity”) entered into an Asset Purchase Agreement with Colonel
      McCrary Trucking, LLC (“Colonel McCrary”), a Georgia limited liability company,
      and all the members of Colonel McCrary. The closing of the transaction did
      not
      take place in accordance with the Asset Purchase Agreement. As a result,
      following discussions among the parties, the Asset Purchase Agreement expired
      in
      accordance with its terms.





On
      January 22, 2008, WinSonic Digital Media Group, Ltd. (the “Company”) entered
      into a Stock Purchase Agreement (the “SPA”) with Tap It, Inc., a Delaware
      Corporation (“Tap It”) pursuant to which the Company agreed to purchase
      2,291,667 shares of Tap It’s common stock (the “Initial Shares”) for $550,000
      (the “Purchase Price”). In addition to the Initial Shares, the SPA also gives
      the Company the option to purchase an additional 6,041,667 shares of Tap It’s
      common stock. The initial closing of the SPA did not occur as scheduled. As
      a
      result, following discussions among the parties, the SPA was
      terminated.





On
      March
      20, 2008, the Company entered into a rights agreement with Blue Pie Productions
      Pty Ltd (“BPP”) pursuant to which BPP granted the Company an exclusive license
      to reproduce, commercialize, maintain and market select BPP products, goods
      and
      services within the United States and Canada.  In consideration for
      the license, the Company agreed to pay a total of $200,000, due and payable
      forty-five days after the Company’ files its Annual Report on Form 10-K for the
      year ended December 31, 2007.  The license is granted for a period of
      36 months and can be extended at any time.  BPP may terminate the
      Agreement upon the occurrence of certain events, including the Company’s failure
      to meet specified sales targets.





F-46




**Committees
      of the Board of Directors and Business Code of Conduct and
      Ethics**





**Audit
      Committee**





Effective
      March 24, 2008 , the Board of Directors established an audit committee, which
      will consist of Mr. Eric Leufroy, as chairman, and other members to be
      identified at a later date, each of whom is (or will be) an independent director
      under NASD listing standards. The audit committee's duties, which are specified
      in our Audit Committee Charter (see Exhibit 99.1 to this Form 10-KSB), will
      include, but are not limited to:





•
      reviewing and discussing with management and the independent auditor the annual
      audited financial statements, and recommend to the Board of Directors whether
      the audited financial statements should be included in our Form 10-KSB;


•
      discussing with management and the independent auditor significant financial
      reporting issues and judgments made in connection with the preparation of our
      financial statements;


•
      discussing with management and the independent auditor the effect on our
      financial statements of regulatory and accounting initiatives and off-balance
      sheet structures;


•
      discussing with management major financial risk exposures and the steps
      management has taken to monitor and control such exposures, including our risk
      assessment and risk management policies;


•
      reviewing disclosures made to the audit committee by our Chief Executive Officer
      and Chief Financial Officer during their certification process for our Form
      10-KSB and Form 10-QSB about any significant deficiencies in the design or
      operation of internal controls or material weaknesses therein and any fraud
      involving management or other employees who have a significant role in our
      internal controls;


•
      verifying the rotation of the lead (or coordinating) audit partner having
      primary responsibility for the audit and the audit partner responsible for
      reviewing the audit as required by law;


•
      reviewing and approving all related-party transactions;


•
      inquiring and discussing with management our compliance with applicable laws
      and
      regulations;


•
      pre-approving all audit services and permitted non-audit services to be
      performed by our independent auditor including the fees and terms of the
      services to be performed;


•
      appointing or replacing the independent auditor;


•
      determining the compensation and oversight of the work of the independent
      auditor (including resolution of disagreements between management and the
      independent auditor regarding financial reporting) for the purpose of preparing
      or issuing an audit report or related work; and


•
      establishing procedures for the receipt, retention and treatment of complaints
      received by us regarding accounting, internal accounting controls or reports
      which raise material issues regarding our financial statements or accounting
      policies.





**Financial
      Experts on Audit Committee**





The
      audit
      committee will at all times be composed exclusively of "independent directors"
      who are "financially literate" as defined under NASD listing standards. NASD
      listing standards define "financially literate" as being able to read and
      understand fundamental financial statements, including a company's balance
      sheet, income statement and cash flow statement.





The
      Board
      of Directors has determined that Mr. Eric Leufroy satisfies NASD definition
      of
      financial sophistication and also qualifies as an "audit committee financial
      expert," as defined under rules and regulations of the Securities and Exchange
      Commission.





**Nominating
      and Corporate Governance Committee**





Effective
      March 24, 2008, the Board of Directors established a nominating and corporate
      governance committee, which will consist of Mr. Eric Leufroy, as Chairman and
      other members to be identified at a later date, each of whom is (or will be)
      an
      independent director. The nominating and corporate governance committee is
      responsible for overseeing the selection of persons to be nominated to serve
      on
      our Board of Directors. The nominating and corporate governance committee
      considers persons identified by its members, management, shareholders,
      investment bankers and others.





F-47




*Guidelines
      for Selecting Director Nominees*





The
      guidelines for selecting nominees, which are specified in the Nominating and
      Corporate Governance Charter (see Exhibit 99.2 to this Form 10-KSB), generally
      provide that persons to be nominated should be actively engaged in business
      endeavors, have an understanding of financial statements, corporate budgeting
      and capital structure, be familiar with the requirements of a publicly traded
      company, be familiar with industries relevant to our business endeavors, be
      willing to devote significant time to the oversight duties of the Board of
      Directors of a public company, and be able to promote a diversity of views
      based
      on the person's education, experience and professional employment. The
      nominating and corporate governance committee evaluates each individual in
      the
      context of the Board of Directors as a whole, with the objective of recommending
      a group of persons that can best implement our business plan, perpetuate our
      business and represent shareholder interests. The nominating and corporate
      governance committee may require certain skills or attributes, such as financial
      or accounting experience, to meet specific needs of the Board of Directors
      that
      arise from time to time. The nominating and corporate governance committee
      does
      not distinguish among nominees recommended by shareholders and other
      persons.





**Code
      of Business Conduct and Ethics**





Effective
      March 24, 2008 we amended our code of business conduct and ethics which is
      applicable to our directors, officers and employees.





The
      amended code of business conduct and ethics (the “Code”) covers a wide range of
      business practices and procedures. Ethical conduct and business success are
      inseparable, and no important business objective can be achieved without
      following this fundamental principle. The Code does not and cannot cover every
      issue that may arise; it does, however, set out basic principles to guide all
      officers, directors and employees of the Company. All of our employees, officers
      and directors must conduct themselves accordingly and seek to avoid even the
      appearance of improper behavior. This Code should also be provided to and
      followed by the Company's agents and representatives, including
      consultants.





Those
      who
      violate the standards in this Code will be subject to disciplinary action,
      up to
      and including termination of employment. The Code has been filed as Exhibit
      14.1
      to this Form 10-KSB.





F-48