UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

for the quarter ended September 30, 2007

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

for the transition period from _______ to _______

Commission file number 000-32231 

  

WINSONIC DIGITAL MEDIA GROUP, LTD.

(Name of small business issuer in its charter)

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

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

Issuer’s telephone number (404) 230-5705

(not applicable)

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

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days.

Yes x No ¨

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

The issuer had 68,828,844 shares of common stock outstanding as of November 13, 2007.

Transitional Small Business Disclosure Format (Check one): Yes ¨ No x

Quarterly Report on Form 10-QSB

Quarter Ended September 30, 2007

Table of Contents 

	Page
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets, September 30, 2007 (Unaudited) and December 31, 2006	2
Consolidated Statements of Operations, for the three months and nine months endedSeptember 30, 2007 and 2006 and from inception (September 10, 2002) to September 30, 2007 (Unaudited)	3
Consolidated Statements of Cash Flows, for the nine months ended September 30, 2007 and 2006 and from inception (September 10, 2002) to September 30, 2007 (Unaudited)	4
Statement of Stockholders’ Deficit (Unaudited)	5
Notes to the Financial Statements (Unaudited)	9
Item 2. Management’s Discussion and Analysis	30
Item 3. Controls and Procedures	37
PART II OTHER INFORMATION
Item 1. Legal Proceedings	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3. Defaults Upon Senior Securities	38
Item 6. Exhibits	38
SIGNATURES	39
EXHIBIT INDEX

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

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

		Unaudited  9/30/2007			Audited  12/31/2006
ASSETS
ASSETS:
Cash	$	415		$	3,506
Accounts receivable		374,699			464,612
Prepaid expense		127,601			67,667
Inventory		6,743			5,387
Construction in process		210,580			254,640
Total current assets		720,038			795,812
Fixed assets, net of accumulated depreciation of $868,871 and $784,318, respectively		777,700			783,115
Goodwill		984,291			984,291
Other assets		85,816			25,000
TOTAL ASSETS	$	2,567,845		$	2,588,218
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Current liabilities:
Accounts payable and accrued expenses	$	3,958,596		$	2,859,371
Bank overdraft		7,829			-
Billings on construction in process		398,316			489,261
Accrued payroll and related taxes		4,395,449			2,138,152
Legal settlement liabilities		1,877,000			775,000
Due to other related parties		48,570			-
Loans payable		354,384			347,743
Loans payable -related party		542,279			414,555
Derivative liability related to convertible debentures		32,411			339,450
Warrant liability related to convertible debentures		28,122			300,420
Convertible debentures - 2004/2005 Agreements		35,025			257,469
Convertible debentures, net of debt discount totaling $355,200 and $794,784, respectively		1,074,504			507,524
Current portion of long term liabilities		80,950			90,197
Total current liabilities		12,833,435			8,519,142
Long term debt		-			44,822
TOTAL LIABILITIES		12,833,435			8,563,964
Stockholders' deficit:
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively.		-			-
Common stock, $0.001 par value, 200,000,000 shares authorized, 66,312,433 and 49,578,057 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively.		66,312			49,578
Additional paid-in capital		23,425,377			13,609,264
Common stock payable		358,724			1,107,426
Common stock advance for future services		-			(48,175	)
Accumulated deficit during development stage		(34,116,003	)		(20,693,839	)
Total stockholders' deficit		(10,265,590	)		(5,975,746	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	2,567,845		$	2,588,218

The accompanying notes to the financial statements should be

read in conjunction with these Balance Sheets.

2

WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS & NINE MONTHS ENDED SEPTEMBER 30, 2007 & 2006

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

	For the three months ended September 30,						For the nine months ended September, 30						Inception (September 10, 2002) to September
	2007			2006			2007			2006			30, 2007
REVENUE	$	233,181		$	310,364		$	1,368,865		$	547,140		$	2,186,171
COST OF GOODS SOLD		824,780			284,993			1,760,235			440,942			3,408,134
GROSS PROFIT		(591,599	)		25,371			(391,370	)		106,198			(1,221,963	)
EXPENSES:
Selling, general and administrative		935,122			477,531			2,041,920			1,190,788			7,952,072
Payroll expense		1,094,482			984,366			4,539,179			2,854,260			10,507,433
Consulting services - related party		20,930			-			20,930			-			2,444,227
Depreciation and amortization expense		13,301			35,176			84,554			107,170			1,142,851
Total expenses		2,063,835			1,497,073			6,686,583			4,152,218			22,046,583
OPERATING LOSS		(2,655,434	)		(1,471,702	)		(7,077,953	)		(4,046,020	)		(23,268,546	)
OTHER INCOME/(EXPENSES):
Interest expense		(3,240,611	)		(417,687	)		(5,646,865	)		(844,054	)		(8,786,048	)
Interest expense - related party		(41,824	)		(27,021	)		(116,683	)		(66,391	)		(410,848	)
Legal settlement costs		(1,100,000	)		13,500			(1,160,000	)		2,000			(2,378,000	)
Unrealized gain (loss) on adjustments of derivative and warrant liability to fair value of underlying securities		345,454			(520,006	)		579,337			(814,709	)		606,765
Interest income		-			29			-			321			730
Other income		-			(1,033	)		-			28			119,944
Total other income/(expenses)		(4,036,981	)		(952,218	)		(6,344,211	)		(1,722,805	)		(10,847,457	)
NNET LOSS BEFORE PROVISION FOR INCOME TAXES		(6,692,415	)		(2,423,920	)		(13,422,164	)		(5,768,825	)		(34,116,003	)
PROVISION FOR INCOME TAXES		-			-			-			-			-
NET LOSS	$	(6,692,415	)	$	(2,423,920	)	$	(13,422,164	)	$	(5,768,825	)	$	(34,116,003	)
Basic weighted average number of common shares outstanding		56,053,950			46,539,328			51,787,515			43,218,180
Net loss per basic and diluted common share	$	(0.12	)	$	(0.05	)	$	(0.26	)	$	(0.13	)

The accompanying notes to the financial statements should be

read in conjunction with these Statements of Operations.

3

WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 & 2006

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

		For the nine months ended September 30,						September 10, 2002 (Inception) to
		2007			2006			September 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(13,422,164	)	$	(5,768,825	)	$	(34,116,003	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		84,554			107,170			1,142,851
Accretion of principal and interest related to convertible debentures		1,612,939			(756,052	)		3,530,874
Unrealized gain on adjustment of derivative and warrant liability to fair value of underlying securities		(579,337	)		814,709			(606,765	)
Stock based compensation		1,626,001			1,810,819			6,022,635
Operating expenses paid with stock, options and warrants		-			-			1,036,822
Operating expenses paid by note payable		-			-			60,000
Interest expense paid with stock		-			-			185,621
Financing costs paid with stock and stock payable		3,647,523			-			3,647,523
Financing costs related to conversion of notes and related party notes to stock		285,424			-			285,424
Consulting services paid with stock and stock payable		165,850			-			165,850
Amortization of common stock advances for future services		48,175			-			48,175
Interest accrued and added to notes		96,719			-			276,280
Forgiveness of accrued interest - Digital Services International, Inc.		-			-			152,592
Other non-cash financing costs		29,732			-			29,732
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable		89,913			(153,586	)		(183,916	)
Increase in prepaid expenses		(59,934	)		(16,101	)		(125,281	)
Increase in inventory		(1,356	)		-			(1,356	)
Decrease (increase) in construction in process		44,060			(74,687	)		(180,616	)
Increase in other assets		(60,816	)		(27,843	)		(85,816	)
Increase in advances to related companies		48,570			-			48,570
Increase in accounts payable and accrued expenses		1,099,225			391,867			4,171,912
(Decrease) increase in billings on construction in process		(90,945	)		86,986			255,995
Increase in accrued payroll and related taxes		2,257,297			1,257,664			5,447,805
Increase in legal settlement liabilities		1,160,000			5,000			2,385,000
Net cash used in operating activities		(1,918,570	)		(2,322,879	)		(6,406,092	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through business acquisitions		-			20,511			16,670
Purchase of fixed assets		(140,269	)		(180,691	)		(1,588,733	)
Net cash used in investing activities		(140,269	)		(160,180	)		(1,572,063	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft		7,829			(8,909	)		7,829
Proceeds from loans payable		40,000			69,666			475,251
Payment on loans payable		-			-			(23,335	)
Proceeds from loan payable - related party		395,893			20,082			1,334,604
Payment on note payable - related party		(37,000	)		(120,830	)		(314,970	)
Payment on convertible debentures		(39,448	)					(39,448	)
Proceeds from convertible debentures		1,688,474			1,233,950			4,538,539
Proceeds from common stock issued		-			1,289,100			2,000,100
Net cash provided by financing activities		2,055,748			2,483,059			7,978,570
NET (DECREASE) INCREASE IN CASH		(3,091	)		-			415
CASH, BEGINNING OF PERIOD		3,506			-			-
CASH, END OF PERIOD	$	415		$	-		$	415
SUPPLEMENTARY INFORMATION:
Interest paid	$	4,448			47,695		$	51,572
Income taxes paid	$	-		$	-		$	-
NON-CASH ACTIVITIES:
Issuance of common stock for common stock payable	$	-		$	19,867		$	820,000
Forgiveness of salary payable to officer	$	-		$	399,919		$	702,644
Forgiveness of payroll tax for officer	$	-		$	-		$	20,655
Issuance of common stock as deposit on lease obligation	$	-		$	-		$	250,000
Issuance of common stock and stock payable as payment for subsidiaries acquired	$	-		$	168,902		$	939,528
Issuance of common stock as payment on loans payable and loan payable - related party	$	585,984		$	-		$	896,984
Issuance of common stock and warrants for salary payable	$	-		$	314,823		$	515,679
Issuance of common stock upon conversion of debentures	$	1,827,115		$	889,709		$	3,468,299
Adjustment to paid in capital for accumulated depreciation	$	-		$	-		$	281,481
Issuance of common stock for legal settlement	$	58,000		$	450,000		$	508,000

The accompanying notes to financial statements should be

read in conjunction with these Statements of Cash Flows.

4

WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' DEFICIT

(UNAUDITED)

																	Common		Accumulated
																	Stock		Deficit
											Additional			Common			Advance for		During			Total
	Preferred Stock					Common Stock					Paid-in			Stock			Future		Development			Stockholders'
	Shares			Amount		Shares			Amount		Capital			Payable			Services		Stage			Deficit
Balance, September 10, 2002 (Inception) - No Par Stock		10,000,000		$	-		10,000,000		$	-	$	-		$	-		$	-	$	-		$	-
Reverse Merger - Reacquisition of all outstanding shares of Winsonic Acquisition Sub, Inc. - No Par Stock (Recasted to inception)		(10,000,000	)		-		(10,000,000	)		-		-			-			-		-			-
Issuance of common stock to founder for services		-			-		6,004,200			6,004		-			-			-		-			6,004
Balance, September 10, 2002 (Recasted)		-		$	-		6,004,200		$	6,004	$	-		$	-		$	-	$	-		$	6,004
Issuance of stock warrants (December 26, 2002)		-			-		-			-		-			990,600			-		-			990,600
Net 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			-		-			1,009,500
Net loss		-			-		-			-		-			-			-		(1,905,884	)		(1,905,884	)
Balance, December 31, 2003 (Restated)		-		$	-		6,004,200		$	6,004	$	-		$	2,000,100		$	-	$	(2,553,301	)	$	(547,197	)
Issuance of common stock for services, $0.75 average price per share		-			-		1,980,946			1,981		1,488,328			-			-		-			1,490,309
Issuance of common stock in satisfaction of debts of $331,000 and deemed interest of $242,500		-			-		758,000			758		572,742			-			-		-			573,500
Issuance of common stock, $1.00 price per share		-			-		921,600			922		920,678			(921,600	)		-		-			-
Conversion of common stock payable to loan payable		-			-		-			-		60,000			(258,500	)		-		-			(198,500	)
Issuance of common stock related to reverse-merger		-			-		23,956,138			23,956		(123,487	)		-			-		-			(99,531	)
Net loss		-			-		-			-		-			-			-		(5,790,794	)		(5,790,794	)
Balance, December 31, 2004 (Restated)		-		$	-		33,620,884		$	33,621	$	2,918,261		$	820,000		$	-	$	(8,344,095	)	$	(4,572,213	)

5

WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' DEFICIT

(UNAUDITED)

															Common		Accumulated
															Stock		Deficit
									Additional			Common			Advance for		During			Total
	Preferred Stock				Common Stock				Paid-in			Stock			Future		Development			Stockholders'
	Shares		Amount		Shares		Amount		Capital			Payable			Services		Stage			Deficit
Issuance of common stock for services, $1.30 average price per share		-		-		94,615		95		122,905			-			-		-			123,000
Issuance of common stock for services, $0.82 average price per share		-		-		91,463		91		74,909			-			-		-			75,000
Issuance of common stock for services, $0.68 average price per share		-		-		66,667		67		45,267			-			-		-			45,334
Issuance of common stock for equity investment in NATVN		-		-		1,670,000		1,670		(1,670	)		-			-		-			-
Issuance of common stock to founder to relieve related party note payable due him, at $0.33 average price per share		-		-		700,000		700		230,300			-			-		-			231,000
Issuance of common stock to founder for services, $0.33 average price per share		-		-		500,000		500		164,500			-			-		-			165,000
Issuance of common stock for services, $0.70 average price per share		-		-		900,000		900		629,100			-			-		-			630,000
Issuance of common stock for services, $0.48 average price per share		-		-		225,000		225		107,775			-			-		-			108,000
Issuance of common stock in satisfaction of convertible debentures debts of $118,000, at $0.20 average price per share		-		-		590,000		590		117,410			-			-		-			118,000
Issuance of common stock as lease deposit, $0.27 average price per share		-		-		925,927		926		249,074			(250,000	)		-		-			-
Issuance of common stock for common stock payable, $1.00 average price per share		-		-		820,000		820		819,180			(820,000	)		-		-			-
Return of pledged assets, reversal of accumulated depreciation, and forgiveness of debt - related party		-		-		-		-		281,481			-			-		-			281,481
Forgiveness of interest expense - related party		-		-		-		-		152,592			-			-		-			152,592
Vested common stock award for officer		-		-		-		-		185,000			-			-		-			185,000
Common stock payable to officer for separation agreement, $0.33 average price per share		-		-		-		-		-			270,000			-		-			270,000
Record forgiveness of accrued salary for officer per separation agreement		-		-		-		-		270,000			-			-		-			270,000
Record adjustment for accrued payroll taxes for officer per separation agreement		-		-		-		-		20,655			-			-		-			20,655
Vested stock options granted to officer for separation agreement		-		-		-				131,068			-			-		-			131,068
Net loss		-		-		-		-		-			-			-		(4,105,613	)		(4,105,613	)
Balance, December 31, 2005		-	$	-		40,204,556	$	40,205	$	6,517,807		$	20,000		$	-	$	(12,449,708	)	$	(5,871,696	)

6

WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' DEFICIT

(UNAUDITED)

														Common			Accumulated
														Stock			Deficit
										Additional		Common		Advance for			During			Total
	Preferred Stock					Common Stock				Paid-in		Stock		Future			Development			Stockholders'
	Shares		Amount			Shares		Amount		Capital		Payable		Services			Stage			Deficit
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		-		-			-			450,000
Issuance of common stock in conversion of shareholder note payable, 0.20 per share		-			-		3,184,899		3,185		633,795		-		-			-			636,980
Shares issued to employee upon exercise of warrant at $0.01 per share		-			-		500,000		500		4,500		-		-			-			5,000
Issuance of stock in acquisition of subsidiary		-			-		411,956		412		168,490		-		-			-			168,902
Issuance of stock for services to employees		-			-		750,000		750		299,250		-		-			-			300,000
Issuance of common stock subject to conversion of option for services at $0.39 average price per share		-			-		82,051		82		31,918		-		-			-			32,000
Incentive stock options for employees		-			-		-		-		1,167,419		-		-			-			1,167,419
Discount allocated to warrant on convertible debt		-			-		-		-		1,248,688		-		-			-			1,248,688
Initial fair value of embedded derivative related to convertible debt		-			-		-		-		605,479		-		-			-			605,479
Fair market value of options to purchase shares of common stock at $0.01 to $0.53 per share, issued to consultants for financial consulting services		-			-		-		-		197,847		-		-			-			197,847
To record forgiveness of accrued salary for officer		-			-		-		-		399,919		-		-			-			399,919
Issuance of stock to shareholder in repayment of funds loaned to Company at $0.53 per share		-			-		489,850		490		259,129		-		-			-			259,619
To record forgiveness of debt by related party		-			-		-		-		6,000		-		-			-			6,000
Issuance of shares upon exercise of convertible notes at $0.40 per share		-			-		2,153,010		2,153		859,051		-		-			-			861,204
Issuance of common stock subject to conversion of option for services at $0.65 per share		-			-		89,231		89		57,911		-		-			-			58,000
Fair 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	)		-			118,475
Shares issued upon exercise of warrant by consultant at $0.01 per share		-			-		300,000		300		2,700		-		-			-			3,000
Shares issued as repayment of loans valued at $0.40 per share		-			-		62,504		62		24,940		-		-			-			25,002
Discount of beneficial conversion feature on convertible notes		-			-		-		-		97,475		-		-			-			97,475
Forgiveness of salary by related party		-			-		-		-		32,725		-		-			-			32,725
Fair market value of warrants issued to employees for services		-			-		-		-		324,058		-		-			-			324,058
Fair market value of warrants issued as interest payment for cash advance		-			-		-		-		44,163		-		-			-			44,163
Fair market value of shares issued for consulting services at $0.40 per share		-			-		40,000		40		15,960		-		-			-			16,000
Stock to be issued in acquisition of subsidiary		-			-		-		-		-		630,626		-			-			630,626
Stock to be issued for consulting services		-			-		-		-		-		316,800		(5,300	)		-			311,500
Stock to be issued in acquisition of subsidiary		-			-		-		-		-		140,000		-			-			140,000
Net loss		-			-		-		-		-		-		-			(8,244,131	)		(8,244,131	)
Balance, December 31, 2006		-		$	-		49,578,057	$	49,578	$	13,609,264	$	1,107,426	$	(48,175	)	$	(20,693,839	)	$	(5,975,746	)

7

WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' DEFICIT

(UNAUDITED)

														Common		Accumulated
														Stock		Deficit
									Additional		Common			Advance for		During			Total
	Preferred Stock				Common Stock				Paid-in		Stock			Future		Development			Stockholders'
	Shares		Amount		Shares		Amount		Capital		Payable			Services		Stage			Deficit
Incentive stock options for employees		-		-		-		-		1,626,001		-			-		-			1,626,001
Stock and stock payable for financing costs		-		-		6,930,238		6,930		3,368,019		272,574			-		-			3,647,523
Amortization of common stock advance for future services		-		-		-		-		-		-			48,175		-			48,175
Issuance of stock in satisfaction of convertible debentures		-		-		6,162,909		6,163		1,820,952		-			-		-			1,827,115
Issuance of stock in satisfaction of loan payable and loan payable - related party		-		-		1,133,257		1,133		584,851		-			-		-			585,984
Issuance of stock and stock payable for consulting services		-		-		210,000		210		99,490		66,150			-		-			165,850
Issuance of stock as payment of stock payable		-		-		2,097,972		2,098		1,085,328		(1,087,426	)		-		-			-
Discount allocated to warrant on convertible debt		-		-		-		-		971,831		-			-		-			971,831
Initial fair value of embedded derivative related to convertible debt		-		-		-		-		183,515		-			-		-			183,515
Issuance of stock warrants		-		-		-		-		18,326		-			-		-			18,326
Issuance of common stock for legal settlement liability		-		-		200,000		200		57,800		-			-		-			58,000
Net loss		-		-		-		-		-		-			-		(13,422,164	)		(13,422,164	)
Balance, September 30, 2007		-	$	-		66,312,433	$	66,312	$	23,425,377	$	358,724		$	-	$	(34,116,003	)	$	(10,265,590	)

The accompanying notes to the financial statements should be

read in conjunction with this Statement of Stockholders’ Deficit.

8

WINSONIC DIGITAL MEDIA GROUP, LTD

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

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

During 2006, the Company acquired a 49% equity interest in Winsonic Diversity, LLC and completed the acquisitions of Automated Interiors, LLC (“AI”), Tytess Design and Development, Inc. (“Tytess”) and Winsonic Digital Store, Ltd. (formerly DV Photo Shop, Ltd.) (the “Store” or “WDS”). These actions represent a series of strategic investments in new markets and new services that expand the offering of the Company, while complimenting our existing business. Together with our existing digital distribution platform comprised of the Winsonic Digital Cable Systems Network, Ltd. networks, we are now 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.

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

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted for purposes of filing interim financial statements with the Securities and Exchange Commission. The condensed financial statements included in this report should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, 2006 and the supplementary information filed in connection with the acquisition of AI. The results of operations for the nine months ended September 30, 2007 are not necessarily indicative of the operating results for the full year.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

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.

9

Cash and Cash Equivalents

 

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

Concentration of Credit Risk

The Company maintains its cash and cash equivalents in bank accounts in three financial institutions. The Federal Deposit Insurance Corporation insures deposits up to $100,000 per account. As of September 30, 2007, the Company did not have any accounts with balances in excess of the insured balances. As of September 30, 2007 and December 31, 2006, the Company had a balance of $415 and $3,506 respectively, in its cash accounts. Currently, cash management is handled by Company management.

Accounts Receivable

Accounts receivable is uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The carrying amount of accounts receivable is reviewed for collectability on a monthly basis. 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 September 30, 2007 and December 31, 2006 there was no reserve for doubtful accounts.

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	5 Years
Furniture & Fixtures	7 Years
Computer Equipment	5 Years
Transportation Equipment	5 Years
Software	3 Years

Impairment of Long-Lived Assets

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

Revenues and Expenses Recognition

Revenues for the Company are 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.

10

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 contractmethod requires AI to defer revenue and expense recognition until the contract has been substantially completed.

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

Stock Based Compensation: Stock Options

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

During the nine months ended September 30, 2007, the Company committed to issue options for 3,475,000 shares of common stock to employees and recorded a related compensation expense of $854,000 for the vested portion of such options. The compensation expense is based on the fair market value of the options utilizing the Black-Scholes option pricing model. The Company’s employee stock option activity for the nine months ended September 30, 2007 and September 30, 2006 is presented below:

	Nine months ended					Nine months ended
	September 30, 2007					September 30, 2006
				Weighted Average					Weighted Average
	Options			Exercise Price		Options			Exercise Price
Outstanding - Beginning of Period		9,309,304		$	0.78		4,000,000		$	0.82
Granted or committed		3,475,000			0.65		4,800,000			0.66
Exercised		-			-		(600,000	)		0.01
Cancelled		(1,335,793	)		0.65		(1,000,000	)		1.00
Outstanding - End of Period		11,448,511		$	0.68		7,200,000		$	0.69
Exercisable - End of Period		9,493,456		$	0.73		3,992,894		$	0.80

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.

In accordance with SFAS No. 123(R) titled "Share-Based Payment," the Company recognized the fair value of the options in the statement of operations on the date of grant.   Fair value was determined using the Black-Scholes option pricing model based on the following assumptions: risk free interest rate of 4.00% 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).  The fair value recognized during the nine months ended September 30, 2007 was $1,626,001.

11

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.

Earnings (Loss) Per Share Calculations

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

Recently Issued Accounting Pronouncements

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

- Recognized financial assets and financial liabilities unless a special exception applies

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

- Non-financial insurance contracts

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

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

NOTE 3 - ACQUISITIONS

During the year ended December 31, 2006, the Company acquired three subsidiaries, consisting of the acquisition of 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:

	Purchase Price		Shares Issued		Other Consideration
Automated 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.

12

Automated Interiors:
 

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

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

The purchase price was allocated as follows:

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

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

Cash	$	20,511
Accounts receivable		190,783
Fixed assets		66,532
Other assets		6,775
Current 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 acquired the outstanding share capital of Tytess from its sole shareholder for 1,146,593 shares of the Company’s restricted common stock, valued at $0.55 per share, for a total purchase price of $630,626.

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. In addition to the construction projects currently being designed and managed by Tytess, the combined operation of Tytess and Winsonic have successfully contracted with a major telephone network to design (architectural and engineering services) and manage the construction and installation of telephone infrastructure and the design and deployment of network services. Tytess will also provide engineering services to facilitate the deployment of telecommunication services being offered by the Company and the Company’s network. Tytess’s operations are centered primarily in the Southeast region of the United States. Tytess has, to date, utilized the services of independent subcontractors for staffing needs.

The purchase price was allocated as follows:

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

13

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

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

DV Photo Shop:

On November 20, 2006 the Company acquired the assets of DV Photo Shop. The assets and operations acquired were transferred to a newly created Georgia corporation and the store’s name was changed to Winsonic Digital Store, Ltd. (“the Store”). The assets were acquired for 241,379 shares of the Company’s 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 a conversion price of $0.58 per share.

The Store has its only retail facility in Atlanta, Georgia. The operations of the Store include an urban retail store located in downtown Atlanta, which specializes in photography development, digital photography and the sale of mobile phones, accessories, and wireless communications services. The Store continues to offer the same products and services it offered before the acquisition; however, its future offerings may 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.

The purchase price was allocated as follows:

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

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

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

Goodwill:

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

14

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

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

	Three months ended
	September 30,
	2007			2006
	(unaudited)			(unaudited)
Total pro forma revenues	$	161,772		$	310,364
Pro forma net loss	$	(5,768,883	)	$	(2,423,920	)
Pro forma net loss per share - basic and diluted	$	(0.10	)	$	(0.05	)
Reported net loss	$	(6,692,415	)	$	(2,423,920	)

	Nine months ended
	September 30,
	2007			2006
	(unaudited)			(unaudited)
Total pro forma revenues	$	703,639		$	972,647
Pro forma net loss	$	(11,318,117	)	$	(5,712,201	)
Pro forma net loss per share - basic and diluted	$	(0.21	)	$	(0.12	)
Reported net loss	$	(13,422,164	)	$	(5,768,825	)

NOTE 4 - 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.

Issuance of Common Stock

During the nine months ended September 30, 2007, the Company issued 6,930,238 restricted shares of the Company’s common stock in connection with certain financing transactions. In addition, fifty 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 11 - Convertible Debentures” of the Notes to the Financials for further details regarding these conversions.). Based on these agreements, the Company converted $1,765,760 of principal and $61,355 of accrued interest on these debentures in exchange for the issuance of 6,162,909 restricted shares of the Company’s common stock. 

15

During the nine months ended September 30, 2007, the Company repaid loans payable and loans payable - related party amounts of $40,605 and $259,956, 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 $0.31 and, in connection therewith, incurred financing costs of $285,424.

During the nine months ended September 30, 2007, the Company issued an aggregate of 420,000 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 nine months ended September 30, 2007, the Company issued 200,000 restricted shares of its common stock in partial settlement of a lawsuit (See “Note 6- Summary of Legal Proceedings”).

In addition, the Company has issued restricted shares of its common stock subsequent to September 30, 2007 (See “Note 13 - Subsequent Events.”).

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. To date, no warrants have been exercised. During the first, second and third quarters of 2007, the Company raised $179,500, $373,500 and $1,135,474, respectively, in connection with offering of convertible notes and warrants. (For a more detailed discussion, see “Note 11 - Convertible Debentures” and “Note 13 - Subsequent Events.”)

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

	Number of			Weighted Average
	Warrants			Exercise Price
Balance as of December 31, 2003		-		$	-
Warrants issued		1,164,286			0.70
Warrants cancelled/expired		-			-
Warrants exercised		-			-
Balance as of December 31, 2004		1,164,286			0.70
Warrants issued		285,714			0.70
Warrants cancelled due to extension agreement		(1,450,000	)		(0.70	)
Warrants replaced due to extension agreement		2,537,500			0.40
Warrants issued		941,250			0.20
Warrants exercised		-			-
Balance as of December 31, 2005		3,478,750			0.35
Warrants issued		8,603,510			0.21
Warrants exercised		-			-
Balance as of December 31, 2006		12,082,260			0.25
Warrants issued		5,415,082			0.31
Warrants exercised		-			-
Balance as of September 30, 2007		17,497,342		$	0.27

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 for the period ending September 30, 2007:

16

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

NOTE 5 - 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 nine months ended September 30, 2007, the CEO of the Company entered into certain loan transactions with certain third parties and in turn has loaned an aggregate of $428,392 to the Company. During the nine months ended September 30, 2007, the Company accrued interest on the outstanding principal balance of these loans in the amount of $5,933. 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 nine months ended September 30 2007, the Company repaid loan amounts of $37,000 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 September 30, 2007, the outstanding balance of these loans was $216,393 in principal and $962 in accrued interest. In addition, as of September 30, 2007, the CEO is committed to issue 570,743 shares of the Company’s common stock in connection with these loans.

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 September 30, 2007.

2005: On September 15, 2005, the Company received a loan of $80,000 from the CEO. Under the terms of the promissory note governing the loan, interest 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 the fiscal year 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 September 30, 2007 was $13,074.

2004: As of September 30, 2007 and December 31, 2006, the Company had a loan payable totaling $306,850 and $316,496, respectively, to the CEO which included principal of $209,000. Under the terms of the loan, interest accrues at the rate of 10% per annum. During the nine months ended September 30 2007, the Company paid $32,500 to the CEO as repayment of this loan. The Company is also obligated to issue to the CEO 80,000 shares of common stock valued at $64,000 in connection with the repayment of this loan. Accrued interest included in the loan balances as of September 30, 2007 and December 31, 2006 was $33,850 and $43,496, respectively.

17

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 September 30, 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%). As of September 30, 2007, there has been no significant operations commenced by Winsonic Diversity.

NOTE 6 - SUMMARY OF LEGAL PROCEEDINGS

An estimated liability of $1,877,000 and $775,000 for legal settlements was recorded as of September 30, 2007 and December 31, 2006, respectively. Other than as described below and in Note 13 “Subsequent Events”, the Company is not currently involved in any legal proceedings that may be deemed to be material to our financial condition.

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

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

On March 16, 2006, the Company issued 900,000 restricted shares 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.  As of the date of this report, the Company has not reissued the stock to Mr. Collazo due to the existence of an attorney’s lien on Mr. Collazo’s judgment in this matter.

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

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

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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 September 30, 2007.

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

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

The disputed amount of $75,000 in this collection lawsuit was expensed as a general and administrative expense in 2004 and accrued within accounts payable as of September 30, 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 September 30, 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 is an action for breach of a lease agreement against the Company. The disputed amount of $50,193 was expensed as a general and administrative expense in 2005 and accrued within accounts payable of the Company as of September 30, 2007. The Company filed its Answer contesting service and a Motion to Open Default on April 18, 2006. See “Note 13 - Subsequent Events” of the Notes to the Financials for further details regarding this matter.

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

This is an action for breach of contract brought by David Lefkowitz, Caesar Collazo’s attorney in Collazo vs. Media and Entertainment.com 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.

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 seeks $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. See “Note 13 - Subsequent Events” of the Notes to the Financials for further details regarding this matter.

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

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

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

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

On April 6, 2007, the Company filed its response to the amended complaint, which included a counter-claim for fraud against Mr. Yalley. The Company’s position is that Mr. Yalley deliberately withheld critical information from the Company during the negotiations of the reverse merger with Media and Entertainment.com and participated in fraudulent acts immediately preceding and after the merger. During the nine months ending September 30, 2007, the Company accrued additional costs of $1,100,000 related to this matter. See “Note 13 - Subsequent Events” of the Notes to the Financials for further details regarding this matter.

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

This is an action for breach of contract brought by Eric Young, a former chief financial officer and Director of the Board of Directors of the Company. Mr. Young seeks damages totaling $354,784, which includes $103,934 in unpaid wages, $50,850 in unpaid consulting fees and an additional $200,000 in severance payments. The Company filed its response to the complaint on February 12, 2007, in which the Company asserted a counterclaim for breach of fiduciary duty and unjust enrichment. See “Note 13 - Subsequent Events” of the Notes to the Financials for further details regarding this matter.

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

This is an action for breach of contract against the Company. The disputed amount of $56,527 was capitalized as computer equipment in 2006 and accrued within accounts payable of the Company as of September 30, 2007. The Company was served with the summons and complaint on April 4, 2007 and filed its answer and defenses on May 15, 2007. Plaintiff subsequently filed a motion to strike the Company’s answer and moved for summary judgment. 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.

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

NOTE 7 - GOING CONCERN

The financial statements included in this report 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 September 30, 2007, the Company has recognized approximately $2,186,000 of revenues, and has had accumulated losses from operations of approximately $34,116,000 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 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 8 - PROPERTY AND EQUIPMENT, NET

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

	September 30,			December 31,
	2007			2006
Computer equipment	$	1,131,208		$	1,114,994
Infrastructure		158,400			158,400
Software		101,775			89,970
Furniture & fixtures		87,478			84,503
Automobiles		13,500			74,631
Equipment and tools		154,210			44,935
Less: accumulated depreciation		(868,871	)		(784,318	)
Net Fixed Assets	$	777,700		$	783,115

Depreciation expense for the three months and nine months ended September 30, 2007 was $13,301 and $84,554, respectively. For the three months and nine months ended September 30, 2006, depreciation expense was $35,176 and $107,170, respectively. Depreciation expense from inception to September 30, 2007 was $1,142,851.

NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The Company has projected losses on the completion of two residential construction contracts and one commercial construction contract for Tytess and has accrued approximately $363,000 as additional cost of goods sold in the accompanying statements of operations.

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NOTE 10 - LOANS PAYABLE

The Company had outstanding loans payable to certain individuals who are not related parties of $354,384 and $347,743 as of September 30, 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:

			September 30,		December 31,
Interest Rate	Loans Payable		2007		2006
Unstated		The Company issued eight convertible promissory notes, due October 2005, convertible into shares of common stock at any time prior to maturity. During 2006, the Company and the creditors agreed to convert three of the notes into 6% convertible debenture with an attached warrant. The exchanged debentures and the warrants are both exercisable at $0.40 per share. (See Note 10 – Convertible Debentures). Currently five of the original notes are still delinquent and in default. No interest has been accrued upon the remaining notes.	$	111,000	$	111,000
6.00%		A loan consisting of principal of $108,000 with no repayment terms or maturity date. Accrued interest payable as of September 30, 2007 and December 31, 2006 is $24,569 and $19,723, respectively.		132,569		127,723
6.00%		A loan consisting of principal of $40,000 with no repayment terms or maturity date. Accrued interest payable as of September 30, 2007 and December 31, 2006 is $10,815 and $9,020, respectively.		50,815		49,020
Unstated		The Company issued a promissory note to a financial consultant in connection with services rendered advising the Company on public market issues. The note is non-interest bearing, with no repayment terms or maturity date. No interest has been imputed.		60,000		60,000
		Total Loans Payable	$	354,384	$	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.

Long Term Liabilities: Effective as of April 18, 2006, the Company acquired the outstanding membership interests of AI, which included the assumption of 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 officer compensation. Following is a summary of AI’s long-term debt at September 30, 2007 and December 31, 2006:

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	September 30,			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.	$	-		$	23,129
19.50% 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.		-			30,940
Unsecured, interest free loan payable to an officer for various cash advances, expenses paid and assets transferred to AI by the creditor; payoff due on December 4, 2007; 6% interest to be paid on any outstanding balance as of December 4, 2007.		80,950			80,950
Total long term debt		80,950			135,019
Less: Current portion of long-term debt		(80,950	)		(90,197	)
Net Long Term Debt	$	-		$	44,822

NOTE 11 - 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 September 30, 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.

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 September 30, 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. For all but one of the convertible notes, the Company transferred the derivative and warrant liabilities to paid-in capital. The following table summarizes the convertible notes and related warrant and embedded derivative liabilities at September 30, 2007 and December 31, 2006:

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	September 30,			December 31,
	2007			2006
Derivative liability	$	32,411		$	339,450
Warrant liability		28,122			300,420
Convertible debentures		35,025			257,469
Subtotal		95,558			897,339
Adjustment of derivative and warrant liability to fair value		606,765			27,428
Accretion of principal and interest related to convertible debentures		312,677			90,233
Total Proceeds from convertible debentures		1,015,000			1,015,000
Plus: Accrued interest		112,462			103,673
Less: Notes and interest converted		(1,092,437	)		(861,204	)
Total Convertible debentures		35,025			257,469
Less: Current portion of convertible debentures		(35,025	)		(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 $1.6 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.

In the first and second quarters of 2007, the Company raised an additional $553,000 through the issuance of 24 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 1,990,000 shares of the Company’s common stock. In addition, the Company issued 900,000 shares of its restricted common stock in connection with the issuance of three of the convertible debentures. These restricted shares, valued at $301,000, were recorded as financing costs in the accompanying statements of operations.

In addition, in the second quarter of 2007, 31 convertible debentures were converted into an aggregate of 2,099,992 shares payable. In connection therewith the Company reclassified $419,999 in debentures and accrued interest to common stock payable. The Company issued these restricted shares of common stock in the third quarter. In addition, the Company repaid one convertible debenture, including accrued interest, in the amount of $11,348 and made partial payment of another convertible debenture, including accrued interest, in the amount of $7,000. The Company also increased its convertible debentures balance 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.

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During the third quarter of 2007, the Company continued to raise funds via issuances of convertible debentures with substantially similar terms as the debentures previously issued. For the three months ended September 30, 2007, the Company raised approximately $1.1 million through the issuance of 25 convertible debentures. These convertible debentures have various maturity dates and in connection with the issuance of such convertible debentures, the Company issued warrants to purchase up to 3,362,582 shares of its common stock to the investors. In addition, the Company issued 126,007 shares of its restricted common stock in connection with the issuance of one of the convertible debentures. These restricted shares, valued at $83,165, were recorded as financing costs in the accompanying statements of operations. Also during the third quarter of 2007, 17 holders of convertible debentures converted $1,164,060 in principal and $11,886 of accrued interest into an aggregate of 4,062,917 shares of restricted common stock. The Company also repaid one convertible debenture, including accrued interest, in the amount of $21,100.

As a result of the foregoing, as of September 30, 2007, the Company had 77 convertible debentures outstanding. The outstanding convertible debentures represented a principal balance of $1,429,704 and a potential obligation for the Company to issue 5,918,342 shares of common stock.

In connection with the convertible debentures described above, as of September 30, 2007, the Company has issued warrants to purchase 14,959,842 shares of common stock at exercise prices ranging from $0.20 to $0.50, equaling a potential aggregate funding for the Company of $3,646,176. 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		$	-		941,250
Conversions during fourth quarter of 2005		(118,000	)		(590,000	)		-		-
Total outstanding at December 31, 2005		70,250			351,250			-		941,250
Proceeds received during 2006		1,647,875			8,239,374			-		8,239,374
Accounts payable and loans converted to convertible notes		176,577			467,584			-		364,136
Conversions 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			-		9,544,760
Proceeds received during 2007		1,688,474			5,352,582			-		5,352,582
Increase for payment term extension during 2007		4,410			22,050			-		62,500
Accrued Interest		68,844			295,926			-		-
Conversions during 2007		(1,595,944	)		(5,662,909	)		-		-
Payments during 2007		(39,448	)		(197,240	)		-		-
Total outstanding at September 30, 2007	$	1,429,704			5,918,342		$	-		14,959,842

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 $6,606,401 has been determined using Black-Scholes option pricing model under the following assumptions: stock price volatility ranging from 131% to 219%; 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., $3,706,176) was proportionately allocated to the convertible debentures and the warrants in the amount of $1,487,109 and $2,219,067, respectively. The convertible debentures proportionate allocation factor was then further allocated between the convertible debentures and the beneficial conversion feature and $883,983 was allocated to the beneficial conversion feature and the balance of $603,126 was allocated to the convertible debentures. The combined total value of the warrants and the beneficial conversion feature amounting to $3,103,050 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 nine months ended September 30, 2007, the Company amortized a total of $1,612,939. The discounts and amortization are summarized in the following table:

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	September 30,			December 31,
	2007			2006
BCF discount to Paid in capital	$	(883,983	)	$	(702,953	)
Warrant Discount to Paid in capital		(2,219,067	)		(1,248,688	)
Proceeds from convertible debentures		3,706,176			2,011,641
Subtotal		603,126			60,000
Deduct value converted to common stock		(1,944,415	)		(734,250	)
Convertible debt not subject to accretion converted to stock		(355,596	)		-
Principal payments made		(35,000	)		-
Balance of convertible debt not subject to accretion per above		(247,530	)		(60,000	)
Total discount to accrete		1,123,635			1,217,391
Interest expense on convertible debentures - Amortized		(768,435	)		(405,660	)
Interest expense on convertible debentures - Accrued		(58,539	)		(41,864	)
Convertible debt not subject to accretion		(247,530	)		(60,000	)
Total Current Liability	$	(1,074,504	)	$	(507,524	)

Defaults on Convertible Debentures

Fifteen of the Company’s convertible debentures have matured without conversion or repayment. As of September 30, 2007, 14 convertible debenture holders agreed to extend the terms of their convertible debentures and one convertible debenture totaling $30,000 currently remains in default.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Network Operations and Office Lease Agreement

55 Marietta Street Office Lease Agreements

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

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

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

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

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

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ProLogis-Macquarie U.S. LLC Office Lease Agreement

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

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 September 30, 2007, approximate future commitments under the Company’s leases are as follows:

Year	Amount
2007	$	173,101
2008		749,235
2009		778,695
2010		790,899
2011		803,474
2012 through 2017		3,521,256
Total	$	6,816,660

Employment Agreements/Employee Matters

On October 8, 2004, the Company entered into a binding offer letter with Winston Johnson, as Chairman and CEO. Under the terms of employment, Mr. Johnson was to receive a base salary of $290,000 per annum with $7,000 per month deferred until the next funding occurs or January 1, 2005, whichever occurred first. Mr. Johnson is eligible for annual incentive bonuses based on performance. The agreement is terminable at will with or without cause (as defined therein). As of March 30, 2007, Mr. Johnson’s salary was further reduced to zero until the Company has completed its next round of financing and its common stock is traded on the OTCBB.

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

On November 5, 2005, the Company entered into a binding offer letter with Eric Young, as Chief Operating Officer and Chief Financial Officer. Under the terms of his employment, Mr. Young was to receive a base salary 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 6 - Summary of Legal Proceedings” and Note 13 - “Subsequent Events” of the Notes to the Financials for details regarding the legal proceedings with Mr. Young.

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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. 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 1/12^th per month for twelve months. The fair value of the additional options granted totaled $232,441.

Effective August 8, 2006, Jeffrey L. Burke succeeded Mr. Yalley as Executive Vice President of the Company. Mr. Burke's base salary is $270,000 per annum. As an employment incentive, Mr. Burke was granted stock options to purchase 750,000 shares of the Company’s common stock at an exercise price of $0.01, of which 1/3 vested immediately, 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.

In addition to the employment agreements with the officers and directors, the Company also signed employment agreements with 26 employees. Under the terms of all its employment agreements, the Company has committed to compensation expenses of approximately $3,312,637, of which $1,259,375 will be deferred until the financial condition of the Company improves.

During the nine months ended September 30, 2007, the Company gave notice to its employees that the terms of their employment agreements would change effective immediately. The change consisted of ceasing all salary deferrals until such time as the financial condition of the Company improves. In addition, all vacation grants for employees were reduced from four weeks to two weeks. Deferred salary amounts not accrued by March 30, 2007 were considered to be forfeited. This action taken by the Company is expected to result in an annualized savings of approximately $1,259,000. In addition, the Company terminated seven employees, adjusted the salaries of five employees and cancelled the contract of a consultant. These actions are expected to result in additional savings of approximately $1,244,000 per year.

NOTE 13 - SUBSEQUENT EVENTS

Legal Proceedings

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

The parties entered into a Consent Order on October 3, 2007, pursuant to which the Company issued the plaintiff $15,000 of restricted shares of the Company’s common stock and paid the plaintiff $10,000. The Company also paid the plaintiff an additional $10,000 on November 5, 2007. Upon full payment by the Company, the plaintiff is to return to the Company all property that remained on the leased premises and dismiss the complaint without prejudice. As of the date of this filing, no other significant action has been taken in this matter.

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

On October 9, 2007, Plaintiff filed a Second Amended Complaint. The Company answered the Second Amended Complaint on October 25, 2007. As of the date of this filing, no other significant action has been taken in this matter.

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

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. During the nine months ending September 30, 2007, the Company accrued additional costs related to this matter in the amount of $1,100,000 based on this settlement agreement. Simultaneously with the execution of the settlement agreement, the parties executed a stipulation and order for dismissal.

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

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

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 with an expiration date of December 9, 2010. 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.

Private Placement

On October 12, 2007, the Company issued to six accredited investors an aggregate of $365,000 in 6% Convertible Subordinated Promissory Notes and warrants to purchase up to 912,500 shares of the Company’s common stock. The convertible notes, which accrue interest at 6%, mature on October 11, 2008. 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 October 11, 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.

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Stock Issuances

Subsequent to the end of the third quarter of 2007, the Company issued 451,145 shares of its restricted common stock (of which 262,129 shares were previously recorded as common stock payable) in connection with certain financing agreements. In addition,two of the 77 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 $15,000 of principal and $434 of accrued interest in exchange for 77,170 shares of its restricted common stock.  The Company also issued 1,964,286 and 23,810 to Nana Yalley and Crowne Office Suites, Inc., respectively, pursuant to their settlement agreements described above.

Item 2. Management’s Discussion and Analysis

Forward-Looking Statements

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

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

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

General

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

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

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

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

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Winsonic Digital Cable Systems Network, Ltd.

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

Automated Interiors, LLC

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

Tytess Design & Development, LLC

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

Winsonic Digital Store, Ltd.

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

Winsonic Diversity, LLC

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

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Discussion of Certain Transactions and Developments

Sassy Development Corporation, Inc.
 

On May 23, 2007, the Company entered into an agreement with Sassy Development Corporation, Inc. (“SDC”) to provide consulting services to the Company for a period of ninety days, including assistance in formulating strategic and financial planning objectives, assistance in the development of capitalization plans, and financial advisement to the Company. SDC provided the services in exchange for 100,000 shares of the Company’s common stock (valued at $0.35 per share) which were issued in September 2007.

Scott Roderick Consulting Agreement

As of August 27, 2007, the Company entered into an agreement with Scott Roderick to provide consulting services to the Company, including assistance in development of capitalization plans which will provide capital resources necessary to accomplish the Company’s operating and strategic plans. Mr. Roderick provided the services in exchange for 150,000 shares of the Company’s common stock (valued at $0.62 per share).

Material Changes in Results of Operations

As a “development stage company” the Company has not commenced material commercial operations. As of September 30, 2007, the Company has recorded $2,186,000 of revenue since inception. During the nine months ended September 30, 2007, the consolidated operations of the Company, combined with WDCSN, AI, Tytess and WDS yielded revenue of $1,369,000.

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

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

	For the three months ended September 30, 2007
	WDMG			WDCSN			AI			Tytess			WDS			Combined
Revenue	$	6,500		$	-		$	155,272		$	64,382		$	7,027		$	233,181
Gross Profit		6,500			-			(94,532	)		(507,267	)		3,700			(591,599	)
SG & A expenses		1,269,869			296,681			374,252			87,885			35,147			2,063,834
Loss from operations		(1,263,370	)		(296,681	)		(468,784	)		(595,152	)		(31,447	)		(2,655,434	)
Net Loss	$	(5,281,762	)	$	(296,681	)	$	(487,121	)	$	(595,404	)	$	(31,447	)	$	(6,692,415	)
Loss per share – basic and diluted																$	(0.12	)

	For the three months ended September 30, 2006
	WDMG			WDCSN		AI			Tytess		WDS		Combined
Revenue	$	-		$	-	$	310,364		$	-	$	-	$	310,364
Gross Profit		-			-		25,371			-		-		25,371
SG & A expenses		1,318,112			-		178,961			-		-		1,497,073
Loss from operations		(1,318,112	)		-		(153,590	)		-		-		(1,471,702	)
Net Loss	$	(2,263,446	)	$	-	$	(160,474	)	$	-	$	-	$	(2,423,920	)
Loss per share – basic and diluted													$	(0.05	)

For the three months ended September 30, 2007, the Company incurred an operating loss of $2,655,000 compared to an operating loss of $1,472,000 for the same period in 2006. Total operating expenses for the three months ended September 30, 2007 primarily consisted of selling, general and administrative expenses of $935,000, payroll expense of $1,094,000, consulting services - related party of $21,000 and depreciation expense of $13,000, compared to selling, general and administrative expenses of $477,000, payroll expense of $984,000 and depreciation expense of $35,000, in the same period of 2006. The increases in the expenses are related to the acquisitions of Tytess and WDS in 2006 and the addition of personnel and occupancy costs related to the planned expansion of the Company’s business operations for WDCSN, which is expected to be fully operational in the first quarter of 2008.

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Pursuant to SFAS No. 123(R), the Company recognizes the expense of employee incentive options that vest during the reported period.  The combined payroll expense for the three months ended September 30, 2007 and 2006 include compensation expenses of $541,000 and $323,507, respectively, arising from vested employee stock options committed to employees during each quarter.  For additional information, see “Note 2 - Summary of Significant Accounting Policies, Stock Based Compensation” of the financial statements.

For the three months ended September 30, 2007, the Company incurred interest expense of $3,282,000 compared to an interest expense of $445,000 for the same period in 2006. The increase of $2,837,000 is primarily due to financing costs of $2,260,000 which are related to shares of the Company’s common stock which were issued in certain financing arrangements as well as shares of the Company’s common stock used to repay a loan payable and loans payable - related party at a discounted price. In addition, the accretion of debt discount on convertible debentures increased by $513,000 in the three months ended September 30, 2007. This increase is due primarily to several holders of the convertible debentures issued in the current quarter converting such debentures to shares of the Company’s common stock during the quarter, resulting in acceleration of the amortization of the related debt discount. Interest expense - related party increased to $42,000 for the three months ended September 30, 2007 from $27,000 for the same period in 2006. The increase is related to the increase in the balance of related party notes payable and convertible debentures.

Under Generally Accepted Accounting Principles (“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 in the Company’s income statement as “Unrealized gain (loss) on adjustment of derivative and warrant liability to fair value of underlying securities.” During the three months ended September 30, 2007 the Company recorded an unrealized gain of approximately $345,000 compared to an unrealized loss of approximately $520,000 for the same period ended September 30, 2006 from the adjustment of such liabilities.

For the three months ended September 30, 2007, the Company recorded legal settlement costs of $1,100,000 compared to $(13,500) for the same period in 2006. The increase for the three months ended September 30, 2007 was related to the costs of the Nana Yalley settlement which was settled in October 2007.

For the three months ended September 30, 2007, the Company recorded a net loss of $6,692,000, compared to the same period in 2006 when the Company recorded a net loss of approximately $2,424,000.

The increased loss recognized during the three months ended September 30, 2007 was primarily due to an increase in operating expenses in the amount of $567,000, an increase in other income (expense) of $3,085,000 and a decrease in gross profit of $617,000. The gross profit reduction relates to a decrease in AI gross profit in the amount of $120,000 and a gross loss for Tytess in the amount of $507,000 offset by gross profit in the amount of $4,000 for the business operations of WDS which was acquired in 2006 and gross profit in the amount of $6,000 for WDMG. The decrease in AI gross margin was due to cost over-runs on several large projects. The negative gross margin on Tytess is due to the recognition of cost over-runs in excess of future revenue associated with two residential construction contracts. The increase in operating expenses is primarily comprised of $420,000 related to expenses of WDCSN, Tytess and WDS and $105,000 in payroll tax late payment penalty assessments for AI. The increase in other income (expense) relates to the charge to financing costs of $2,260,000 which are related to shares of the Company’s common stock which were issued in certain financing arrangements as well as shares of the Company’s common stock used to repay a loan payable and loans payable - related party at a discounted price, an increase in the accretion of debt discount on convertible debentures increased by $513,000 and an increase in legal settlement costs of $1,100,000. These were partially offset by a decrease in the “unrealized gain/loss on adjustment of derivative and warrant liability to fair value of underlying securities” in the amount of $865,000.

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Nine months Ended September 30, 2007 Compared to Nine months Ended September 30, 2006

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

	For the nine months ended September 30, 2007
	WDMG			WDCSN			AI			Tytess			WDS			Combined
Revenue	$	6,500		$	4,000		$	697,139		$	646,696		$	14,530		$	1,368,865
Gross Profit		6,500			4,000			34,666			(443,307	)		6,771			(391,370	)
SG & A expenses		3,910,768			1,329,885			1,104,655			242,371			98,904			6,686,583
Loss from operations		(3,904,268	)		(1,325,885	)		(1,069,989	)		(685,678	)		(92,133	)		(7,077,953	)
Net Loss	$	(10,225,531	)	$	(1,325,885	)	$	(1,092,586	)	$	(686,029	)	$	(92,133	)	$	(13,422,164	)
Loss per share – basic and diluted																$	(0.26	)

	For the nine months ended September 30, 2006
	WDMG			WDCSN		AI			Tytess		WDS		Combined
Revenue	$	-		$	-	$	547,140		$	-	$	-	$	547,140
Gross Profit		-			-		106,198			-		-		106,198
SG & A expenses		3,878,072			-		274,146			-		-		4,152,218
Loss from operations		(3,878,072	)		-		(167,948	)		-		-		(4,046,020	)
Net Loss	$	(5,597,654	)	$	-	$	(171,171	)	$	-	$	-	$	(5,768,825	)
Loss per share – basic and diluted													$	(0.13	)

For the nine months ended September 30, 2007, the Company incurred an operating loss of $7,078,000 compared to an operating loss of $4,046,000 for the same period in 2006. Total operating expenses for the nine month period ended September 30, 2007 primarily consisted of selling, general and administrative expenses of $2,042,000, payroll expense of $4,539,000, consulting services - related party of $21,000 and depreciation expense of $85,000, compared to selling, general and administrative expenses of $1,191,000, payroll expense of $2,854,000 and depreciation expense of $107,000, for the same period in 2006. The increases in the expenses are primarily related to the acquisitions of AI, Tytess, and WDS in 2006 and the addition of personnel and occupancy costs related to the planned expansion of the Company’s business operations for WDCSN which is expected to be fully operational in the first quarter of 2008.

Pursuant to SFAS No. 123(R), the Company recognizes the expense of employee incentive options that vest during the reported period.  The combined payroll expense for the nine months ended September 30, 2007 and 2006 include compensation expenses of $1,626,000 and $744,000, respectively, arising from vested employee stock options committed to employees during each quarter.  For additional information, see “Note 2 - Summary of Significant Accounting Policies, Stock Based Compensation” of the financial statements.

For the nine months ended September 30, 2007, the Company incurred interest expense of $5,764,000 compared to an interest expense of $910,000 for the same period in 2006. The increase of $4,854,000 is primarily due to financing costs of $3,956,000, which are related to shares of the Company’s common stock issued in connection with certain financing arrangements, as well as shares of the Company’s common stock used to repay a loan payable and loans payable - related party at a discounted price and the accretion of interest related to convertible debentures in the amount of $1,613,000 during the nine months ended September 30, 2007 compared to accretion of interest related to convertible debentures of $759,000 for the same period in 2006. Interest expense - related party increased to $117,000 for thenine months ended September 30, 2007 compared to $66,000 for the same period in 2006. The increase is related to the increase in the balance of related party notes payable and convertible debentures.

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.” During the nine months ended September 30, 2007 the Company recorded an unrealized gain of approximately $579,000 compared to an unrealized loss of approximately $815,000 for the same period in 2006 from the adjustment of the same liabilities.

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For the nine months ended September 30, 2007, the Company recorded legal settlement costs of $1,160,000 compared to $(2,000) for the same period in 2006. The increase for the nine months ended September 30, 2007 was primarily related to the costs of the Nana Yalley settlement which was settled in October 2007.

For the nine months ended September 30, 2007, the Company recorded a net loss of $13,422,000, compared to the same period in 2006 when the Company recorded a net loss of approximately $5,769,000.

The increased loss recognized during the nine months ended September 30, 2007 compared to the same period in 2006 was primarily related to an increase in operating expenses in the amount of $2,534,000, an increase in other income (expense) of $4,621,000 and a decrease in gross profit of $497,000. The gross profit relates to a decrease in AI gross profit in the amount of $71,000 and a gross loss for Tytess in the amount $443,000 partially offset by a gross profit in the amount of $7,000 for the business operations of WDS, gross profit of $6,000 for WDMG and gross profit in the amount of $4,000 for WDCSN. The decrease in AI gross margin was due to cost over-runs on several large projects. The negative gross margin on Tytess is due to the recognition of cost over-runs in excess of future revenue associated with two residential construction contracts. The increase in operating expenses is comprised of $1,671,000 related to expenses of WDCSN, Tytess and WDS and an increase in AI expenses of $830,000 related to a full year of expenses in 2007 compared to approximately five and one-half months in 2006. The increase in other income (expense) is primarily due to financing costs of $3,956,000, which are related to shares of the Company’s common stock which were issued in certain financing arrangements, as well as shares of the Company’s common stock used to repay a loan payable and loans payable - related party at a discounted price, the accretion of debt discount on convertible debentures increased by $854,000 in the nine months ended September 30, 2007 and an increase in legal settlement costs of $1,160,000. These were partially offset by a decrease in the “unrealized gain/loss on adjustment of derivative and warrant liability to fair value of underlying securities” in the amount of $1,394,000.

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.

Material Changes in Financial Condition

As of September 30, 2007, the Company had a working capital deficit of $12,113,000, 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, 2006 that there is substantial doubt about the Company’s ability to continue as a going concern without increased revenues and additional financing.

During the nine months ended September 30, 2007 the Company used $1,919,000 in its operating activities, compared with $2,323,000 for the same period in 2006.

During the nine months ended September 30, 2007 the Company’s investing activities used $140,000 for the purchase of fixed assets, compared to $160,000 for the same period in 2006.

During the nine months ended September 30, 2007 the Company’s financing activities generated $2,056,000 compared to $2,483,000 for the same period in 2006. The funds generated from the Company’s financing activities during the nine months ended September 30, 2007 consists primarily of proceeds from loans payable, loans payable - related party and convertible debentures of $2,124,000 and an increase in the bank overdraft in the amount of $8,000 which was partially offset by repayments of $76,000 on loan obligations. For the same period in 2006, the Company raised $1,324,000 from loans payable, loans payable - related party and convertible notes and $1,289,000 from the issuance of shares of the Company’s common stock which was partially offset by a decrease in the bank overdraft in the amount of $9,000 and by the payment of a related party loan payable of $121,000.

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From inception, the Company has raised $7,978,000 to fund operations.  Of the total funds raised, $6,406,000 was used to provide the necessary resources for the development stage operations of the Company and $1,589,000 was used to purchase fixed assets. The funds include cash of $4,499,000 which was raised through convertible debentures and warrants (net of repayments); and cash of $1,472,000 which was raised through loans (net of repayments).  The Company also raised $2,000,000 from the issuance of common stock.

During the nine months ended September 30, 2007 the Company’s net cash position decreased by $3,100 compared to zero for the same period in 2006.

Continuing Operations

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

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

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

While management expects revenue generation to increase, the Company expects to operate with a deficit in cash flows for the next few months. The deficit, which arises primarily from payroll obligations, may be satisfied through a combination of employee salary deferrals and through cash raised primarily from the placement of the Company’s securities (either directly or through convertible debt offerings). On March 30, 2007, the Company gave notice to its employees that the terms of their employment agreements would change effective immediately. The change consisted of ceasing all salary deferrals until deferred until the financial condition of the Company improves. In addition, all vacation grants for employees were reduced from four weeks to two weeks. Deferred salary amounts not accrued by March 30, 2007 were considered to be forfeited. This action taken by the Company is expected to result in an annualized savings of approximately $1,235,000. In addition, the Company terminated seven employees, adjusted the salaries of five employees and cancelled the contract of a consultant. This action taken by the Company is expected to result in additional savings of approximately $1,244,215 per year.Management intends to focus substantial efforts on the funding of the current projects and operational deficit during the next few months. The funding effort will proceed at the same time as commercial operations continue. The Company believes that the current management team has the applicable skills to handle the challenge of covering the cash deficit and developing profitable operations. There is no guarantee that any such financings can be obtained or, if obtained, that such financings will be on adequate or reasonable terms.

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Off-Balance Sheet Arrangements

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

Item 3. Controls and Procedures.

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

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

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

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

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

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

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Part II - Other Information

Item 1. Legal Proceedings

See “Note 6 - Summary of Legal Proceedings” and “Note 13 - Subsequent Events” for a description of the Company’s legal proceedings. Other than as described in such notes, the Company is not currently involved in any legal proceedings that may be deemed to be material to our financial condition.

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

During the quarter ended September 30, 2007, the Company received proceeds of $1,135,474 from the issuance of convertible debentures to 25 accredited investors. In connection with the issuance of such convertible debentures, the Company also issued warrants to purchase an aggregate of up to 3,362,582 shares of common stock of the Company. We neither received nor paid any commissions in connection with the issuance of these securities. 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.

During the quarter ended September 30, 2007, the Company issued an aggregate of 16,534,376 restricted shares of common stock as further described below. The Company issued 6,930,238 restricted shares of common stock in connection with certain financing transactions. The Company issued an aggregate of 6,162,909 restricted shares of common stock to fifty holders of the Company’s convertible debentures who converted such debentures. The Company repaid certain loans payable and loans payable - related party amounts by issuing 1,133,257 restricted shares of common stock. The Company issued 420,000 restricted shares of common stock as payment for consulting services. The Company issued 241,379, 1,146,593 and 500,000 restricted shares of common stock for the acquisition of DV Photo Shop, Tytess and technology from James E. Thomas, respectively. We neither received nor paid any commissions in connection with the issuance of these securities. We believe that the issuance of such securities was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to the provisions of Section 4(2) of the Securities Act.

Item 3. Defaults Upon Senior Securities

Fifteen of the Company’s convertible debentures have matured without conversion or repayment. As of September 30, 2007, 14 convertible debenture holders agreed to extend the terms of their convertible debentures and one convertible debenture totaling $30,000 currently remains in default. Five of the Company's notes payable totaling $111,000 remain in default.

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Item 6. Exhibits.

10.1	Warrant to purchase 1,400,000 shares of the Company’s Common Stock dated August 27, 2007.(1)
10.2	$700,000 6% Convertible Subordinated Promissory Note dated August 27, 2007.(1)
*31.1	Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

_______________

* Filed herewith

(1)Incorporated by reference from the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on August 31, 2007.

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Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	WINSONIC DIGITAL MEDIA GROUP, LTD. (Registrant)
November 14, 2007	By:	/s/ Winston Johnson
		Winston Johnson
		Chairman & CEO (Principal Executive Officer and Principal Financial Officer)

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