10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Mark One)

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

the quarter ended September 30, 2008

OR

¨ 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.

(Exact name of registrant as specified 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)

(404) 230-5705

(Registrant’s telephone number, including area code)

(not applicable)

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

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer ¨	Smaller Reporting Company x
(do not check if smaller reporting company)

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

Yes ¨ Nox

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. As of November 10, 2008, 95,421,519 shares of the registrant’s Common Stock, $0.001 par value, were outstanding.

EXPLANATORY NOTE

Winsonic Digital Media Group, Ltd. is filing this Amendment on Form 10-Q/A (“Form l0-Q/A”) to our quarterly report for the quarter ended September 30, 2008 initially filed with the U.S. Securities and Exchange Commission (“SEC”) on November 14, 2008 (the "Original Filing"), solely to include Exhibits 31.1 and 32.1 with the Original Filing. Exhibits 31.1 and 32.1 were mistakenly excluded from the Original Filing when it was filed on November 14, 2008.

Quarterly Report on Form 10-Q/A

Quarter Ended September 30, 2008

Table of Contents 

	Page
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements:
Condensed Consolidated Balance Sheets, September 30, 2008 (Unaudited) and December 31, 2007 (Audited)	3
Condensed Consolidated Statements of Operations, for the three and nine month periods ended September 30, 2008 and 2007 and from inception (September 10, 2002) to September 30, 2008 (Unaudited)	4
Condensed Consolidated Statements of Cash Flows, for the nine months ended September 30, 2008 and 2007 and from inception (September 10, 2002) to September 30, 2008 (Unaudited)	5
Condensed Statement of Stockholders’ Deficit (Unaudited)	6
Condensed Notes to the Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	35
Item 4T. Controls and Procedures	35
PART II OTHER INFORMATION
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3. Defaults Upon Senior Securities	37
Item 4. Submission of Matters to a Vote of Security Holders	37
Item 5. Other Information	37
Item 6. Exhibits	37
SIGNATURES	39
EXHIBIT INDEX

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of			As of
	September 30, 2008			Dec 31, 2007
	(Unaudited)			(Audited)
ASSETS
ASSETS:
Cash	$	15,125		$	90,893
Accounts receivable, net of allowance for doubtful accounts of $219,365 and $155,000, respectively		22,943			103,501
Prepaid expense		91,611			38,373
Inventory		5,533			5,994
Construction in process		203,271			305,648
Other current assets		8,094			8,094
Total current assets		346,577			552,503
Fixed assets, net of accumulated depreciation of $1,014,310 and $908,539, respectively:		753,569			767,190
Goodwill		263,524			263,524
Intangibles		565,000			-
Other assets		542,489			486,392
TOTAL ASSETS	$	2,471,159		$	2,069,609
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES:
Current liabilities:
Accounts payable and accrued expenses	$	5,187,601		$	5,588,287
Bank overdraft		3,741			-
Customer deposits		287,186			333,336
Accrued payroll and related taxes		7,272,332			7,011,351
Legal settlement liabilities		268,870			1,213,225
Due to other related parties		-			1,091
Loans Payable		1,323,156			507,518
Loans Payable-related party		307,448			201,903
Derivative liability related to convertible debentures		5,269			34,466
Warrant liability related to convertible debentures		1,275			29,909
Line of Credit – Advance		90,000			-
Convertible debentures 2004/2005		36,970			35,514
Convertible debentures, net of debt discount totaling $23,073 and $908,539, respectively		1,586,529			1,223,217
Convertible debentures – related party, net of debt discount totaling $7,422 and $42,017, respectively		48,447			46,379
Notes Payable		693,272			-
Notes Payable-related party		84,956			80,950
Other current liabilities		126,448			-
Total current liabilities		17,323,500			16,307,146
Restructuring reserve – long term		403,725			-
TOTAL LIABILITIES		17,727,225			16,307,146
Stockholders' deficit:
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		-			-
Common stock, $0.001 par value, 200,000,000 shares authorized, 95,421,519 and 71,319,648 shares issued and outstanding at September 30, 2008 and December 31, 2007		95,421			71,319
Additional paid-in capital		33,611,279			26,520,895
Common stock receivable		-			(1,200	)
Accumulated deficit during development stage		(48,962,766	)		(40,828,551	)
Total stockholders' deficit		(15,256,066	)		(14,237,537	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	2,471,159		$	2,069,609

The accompanying notes to the financial statements should be

read in conjunction with these Balance Sheets.

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WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the three-months ended September 30,						For the nine months ended September 30,						September 10, 2002 (Inception) to September 30,
	2008			2007			2008			2007			2008
REVENUE	$	91,861		$	233,181		$	510,754		$	1,368,865		$	2,853,055
COST OF SALES		285,364			1,005,093			877,946			2,785,644			4,634,293
GROSS PROFIT		(193,503	)		(771,912	)		(367,192	)		(1,416,779	)		(1,781,238	)
EXPENSES:
Selling, general and administrative		1,134,170			1,826,551			3,893,188			5,445,225			28,563,794
Research & development		35,209			66,783			190,429			201,599			675,812
Depreciation and amortization expense		15,425			(10,440	)		47,810			13,721			1,230,328
Total expenses		1,184,804			1,882,894			4,131,427			5,660,545			30,469,934
OPERATING LOSS		(1,378,307	)		(2,654,806	)		(4,498,619	)		(7,077,324	)		(32,251,172	)
OTHER INCOME/(EXPENSES):
Interest expense		(486,102	)		(3,241,239	)		(3,056,026	)		(5,647,111	)		(13,412,729	)
Interest expense – related party		(4,769	)		(41,824	)		(12,125	)		(116,683	)		(351,674	)
Impairment of goodwill														(720,767	)
Legal settlement costs		(100,750	)		(1,100,000	)		(100,750	)		(1,160,000	)		(3,425,963	)
Gain on legal settlement		-			-			-			-			942,636
Unrealized (loss) gain on adjustments of derivative and warrant liability to fair value of underlying securities		3,506			(345,454	)		57,831			579,337			660,754
Interest income		-			-			-			-			730
Other income		-			-			(3	)		(383	)		119,942
Restructuring charge		(524,523	)		-			(524,523	)		-			(524,523	)
Total other income/(expenses)		(1,112,638)	)		(4,037,609	)		(3,635,596	)		(6,344,840	)		(16,711,594	)
NET LOSS	$	(2,490,945	)	$	(6,692,415	)	$	(8,134,215	)	$	(13,422,164	)	$	(48,962,766	)
Basic weighted average number of common shares outstanding		90,446,250			56,053,950			83,936,082			51,787,515
Net loss per basic common share	$	(0.03	)	$	(0.12	)	$	(0.10	)	$	(0.26	)

The accompanying notes to the financial statements should be

read in conjunction with these Statements of Operations.

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WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the nine months ended September 30,						September 10, 2002  (Inception) to
	2008			2007			September 30, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(8,134,215	)	$	(13,422,164	)	$	(48,962,766	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		105,772			84,554			1,288,290
Accretion of principal and interest related to convertible debentures		811,238			1,612,939			5,038,029
Unrealized gain on adjustment of derivative and warrant liability to fair value of underlying securities		(57,831	)		(579,337	)		(660,754	)
Stock based compensation		401,454			1,626,001			6,330,906
Operating expenses paid with stock, options and warrants		168,750			-			1,205,572
Consulting expenses paid with stock, options and warrants		280,600			165,850			718,250
Operating expenses paid by note payable		-			-			60,000
Interest expense paid with stock		-			-			185,621
Financing costs paid with stock and warrants		1,930,724			3,647,523			5,331,276
Financing costs related to conversion of loans payable and loans payable – related parties		-			285,424			285,424
Amortization of common stock advances for future services		-			48,175			48,175
Interest accrued		323,402			96,719			638,978
Forgiveness of accrued interest - Digital Services International, Inc.		-			-			152,592
Provision for doubtful accounts		550,239			-			705,239
Impairment of goodwill		-			-			720,767
Loss (gain) on legal settlement		100,750			-			(841,886	)
Other		-			29,732			29,032
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable		(19,681	)		89,913			(303,578	)
Decrease (increase) in prepaid expenses		27,762			(59,934	)		(8,291	)
Decrease (increase) in inventory		461			(1,356	)		(146	)
Decrease (increase) in construction in process		102,377			44,060			(173,307	)
Increase in other assets		(56,097	)		(60,816	)		(300,583	)
Increase in advances to related companies		-			48,570			1,091
Increase in accounts payable and accrued expenses		905,951			1,099,225			6,375,203
(Decrease) increase in customer deposits		(46,150	)		(90,945	)		361,044
Increase in accrued payroll and related taxes		714,695			2,257,297			8,778,402
Increase (decrease) in legal settlement liabilities		(9,920	)		1,160,000			3,322,293
Increase (decrease) in other liabilities		529,082			-			529,082
Net cash used in operating activities		(1,370,637	)		(1,918,570	)		(8,646,045	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through business acquisitions		-			-			16,670
Purchase of fixed assets		(92,151	)		(140,269	)		(1,710,041	)
Net cash used in investing activities		(92,151	)		(140,269	)		(1,693,371	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft		3,741			7,829			3,741
Proceeds from loans payable		695,250			40,000			1,320,501
Payment on loans payable		(2,458	)		-			(25,793	)
Proceeds from loan payable - related party		125,624			395,893			1,460,228
Payment on note payable - related party		(26,130	)		(37,000	)		(376,186	)
Proceeds from note payable		50,380						50,380
Payment on note payable		(28,493	)		(39,448	)		(93,306	)
Proceeds from Line of credit – advance		90,000			-			90,000
Payments on convertible debentures		-			-			(64,813	)
Proceeds from convertible debentures		52,000			1,688,474			5,335,270
Proceeds from common stock issued in connection with exercise of warrants		307,106			-			469,606
Proceeds from common stock issued		120,000			-			2,120,100
Net cash provided by financing activities		1,387,020			2,055,748			10,354,541
NET (DECREASE) INCREASE IN CASH		(75,768	)		(3,091	)		15,125
CASH, BEGINNING OF PERIOD		90,893			3,506			-
CASH, END OF PERIOD	$	15,125		$	415		$	15,125
SUPPLEMENTARY INFORMATION:
Interest paid	$	34		$	4,448		$	54,826
Income taxes paid	$	-		$	-		$	-
NON-CASH ACTIVITIES:
Forgiveness of salary payable to officer	$	-		$	-		$	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	$	465,000		$	-		$	1,404,528
Issuance of common stock as payment on notes payable - related party	$	-		$	585,984		$	896,984
Conversion of share notes to common stock	$	535,263		$			$	535,263
Issuance of common stock and warrants for salary payable and employee bonus	$	538,287		$			$	1,053,961
Issuance of common stock as payment of note interest	$	1,917		$	-		$	1,917
Issuance of common stock upon conversion of debentures	$	-		$	1,827,115		$	3,569,218
Adjustment to paid in capital for accumulated depreciation	$	-		$	-		$	281,481
Issuance of common stock for legal settlement	$	934,435		$	58,000		$	2,353,320
Issuance of common stock as payment for accrued financing costs	$	944,833		$	-		$	944,833
Issuance of common stock as payment for accrued consulting expense	$	261,000		$	-		$	261,000
Issuance of common stock as exercise of stock options	$	8,517		$	-		$	8,517
Issuance of common stock as prepayment of store design and hosting expenses from new licensing agreement	$	81,000		$	-		$	81,000
Issuance of common stock for purchase of license rights	$	100,000		$	-		$	100,000

The accompanying notes to financial statements should be

read in conjunction with these Statements of Cash Flows.

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WINSONIC DIGITAL MEDIA GROUP, LTD.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT

(UNAUDITED)

																		Common Stock		Accumulated
																		Advance		Deficit
											Additional		Common		Common			for		During			Total
	Preferred Stock				Common Stock						Paid-in		Stock		Stock			Future		Development			Stockholders’
	Shares		Amount		Shares			Amount			Capital		Payable		Receivable			Services		Stage			Deficit
Balance, December 31, 2007		-	$	-		71,319,648		$	71,319		$	26,520,895	$	-	$	(1,200	)	$	-	$	(40,828,551	)	$	(14,237,537	)
Incentive stock option for employees		-		-		-			-			401,454		-		-			-		-			401,454
Issuance of stock for financing costs		-		-		10,360,699			10,361			2,839,029		-		-			-		-			2,849,390
Issuance of warrants for financing costs		-		-		-			-			26,167		-		-			-		-			26,167
Issuance of common stock as employee bonus		-		-		1,325,000			1,325			167,425		-		-			-		-			168,750
Issuance of stock in DVerb acquisition		-		-		1,500,000			1,500			463,500		-		-			-		-			465,000
Issuance of stock in satisfaction of convertible debentures		-		-		2,676,633			2,677			532,586		-		-			-		-			535,263
Issuance of stock for consulting services		-		-		2,235,000			2,235			539,365		-		-			-		-			541,600
Issuance of stock as payment of loan interest		-		-		3,994			4			1,913		-		-			-		-			1,917
Issuance of stock in lieu of employee salaries		-		-		1,537,962			1,538			536,749		-		-			-		-			538,287
Issuance of stock for exercise of stock options		-		-		851,666			852			7,665		-		-			-		-			8,517
Issuance of stock for exercise of warrants		-		-		1,035,534			1,035			306,071		-		-			-		-			307,106
Discount allocated to warrant on convertible debt		-		-		-			-			10,550		-		-			-		-			10,550
Discount allocated to the beneficial conversion feature		-		-		-			-			26,250		-		-			-		-			26,250
Shares returned to Company		-		-		(2,346,593	)		(2,347	)		1,147		-		1,200			-		-			-
Issuance of common stock for legal settlement liability		-		-		2,076,521			2,077			932,358		-		-			-		-			934,435
Issuance of common stock for license rights and prepaid expenses		-		-		1,645,455			1,645			179,355		-		-			-		-			181,000
Issuance of common stock for funds		-		-		1,200,000			1,200			118,800		-		-			-		-			120,000
Net loss		-		-		-			-			-		-		-			-		(8,134,215	)		(8,134,215	)
Balance, September 30, 2008 (Unaudited)		-	$	-		95,421,519		$	95,421			33,611,279		-		-					(48,962,766	)		(15,256,066	)

The accompanying notes to the financial statements should be

read in conjunction with this Statement of Stockholders’ Deficit.

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WINSONIC DIGITAL MEDIA GROUP, LTD

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2008

NOTE 1 - ORGANIZATION AND PURPOSE

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 “Digital Store”). These actions represent a series of strategic investments in new markets and new services that expand the offering of the Company, while complimenting our existing business. Together with our existing digital distribution platform comprised of the WinSonic Digital Cable Systems Network, Ltd. 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, 2008, the Company has not fully commenced operations 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, 2008 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 consolidated 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, 2007. The results of operations for the nine months ended September 30, 2008 are not necessarily indicative of the operating results for the full year.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Segment and Geographic Information

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

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

Principles of Consolidation

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

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Basis of Presentation

Certain prior year amounts in the financial statements have been reclassified to conform with the current year presentation. Specifically, the Company reclassified customer deposits as a liability from accounts receivable and billings on construction in process to accounts receivable. These reclassifications had no effect on previously reported net loss. In addition, the Company has removed from SG&A expenses the R&D and Network operational costs to identify those business activities of R&D and Cost of Sales.

Use of Estimates

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

Fair Value of Financial Instruments

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

Earnings (Loss) Per Share Calculations

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

	Three Months ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
Shares issuable under stock options		2,010,568		2,040,656		3,747,715		1,702,692
Shares issuable pursuant to warrants to purchase common stock		3,257,690		7,438,013		3,477,173		6,923,102
Shares issuable pursuant to convertible debt agreements		8,154,813		7,778,394		7,409,704		7,454,145
Shares payable		-		-		-		729,039
		13,423,071		17,257,063		14,634,592		16,808,978

Stock Based Compensation: Stock Options

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

The Company’s Employee Stock Option activity for the nine months ended September 30, 2008 and 2007 is presented below:

	2008						2007
				Average						Average
	Options			Exercise Price			Options			Exercise Price
Outstanding -
Beginning of Period		9,636,488		$	0.72			9,309,304		$	0.78
Granted or Committed		1,926,667			0.33			3,475,000			0.65
Exercised		(851,666	)		(0.01	)		-			-
Canceled		(1,000,000	)		(0.19	)		(1,335,793	)		(0.65	)
Outstanding -
End of Period		9,711,489		$	0.76			11,448,511		$	0.68
Exercisable -
End of Period		9,508,989		$	0.76			9,493,456		$	0.73

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During the nine months ended September 30, 2008 and 2007, the Company committed to issue options to employees for 1,926,667 and 3,475,000 shares of common stock, respectively. The fair value of the options granted during the nine months ended September 30, 2008 and 2007 was $616,781 and $1,517,482, respectively. The Company recorded compensation expense of approximately $401,455 and $1,626,001, respectively, related to the vesting of the Company’s outstanding options. The balance of the options granted will be included in the Company’s 2008 Employee Option plan and will have terms and conditions determined under that plan.

On January 4, 2008, the Company issued new offer letters to all current employees. Pursuant to the offer letters, the Company accelerated the vesting on all remaining stock options with an exercise price of $1.00 for these employees. The Company also canceled stock options exercisable into up to 400,000 shares of common stock with an exercise price of $0.01 because the Company had not obtained the senior funding necessary for such stock options to become exercisable. In exchange for the canceled stock options, the Company committed to issue 400,000 shares of fully vested stock options pursuant to the Company’s 2008 Employee Option plan when the plan is established and approved. As a result of the acceleration of the stock options with an exercise price of $1.00 and the cancellation of certain unvested stock options with an exercise price of $0.01, and the commitment to issue an equal number of new stock options, the Company recorded additional stock based compensation totaling $193,000 and was reflected as additional payroll expense in the fourth quarter of 2007. As of September 30, 2008, the Company’s 2008 Employee Option Plan is not yet finalized or implemented.

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), the Company recognized the fair value of the options in the statement of operations over the vesting period.  Fair value was determined using the Black-Scholes option pricing model based on the following assumptions: risk free interest rate of 2.75% 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 market and at $1.00 per share strike price) and one and one-half years (for options issued at $0.01 per share strike price). 

Recently Issued Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133,” (SFAS “161”) as amended and interpreted, which requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. Disclosing the fair values of derivative instruments and their gains and losses in a tabular format provides a more complete picture of the location in an entity’s financial statements of both the derivative positions existing at period end and the effect of using derivatives during the reporting period. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Early adoption is permitted. At September 30, 2008, the Company did not have any derivative instruments or hedging activities. Management is aware of the requirements of SFAS 161 and will disclose when appropriate.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60” SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. This clarification will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. SFAS 163 will be effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of SFAS 163 will have a material impact on its financial condition or results of operation.

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In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (including Partial Cash Settlement). The FSP requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), commonly referred to as an Instrument C under Emerging Issues Task Force (“EITF”) Issue No. 90-19, “Convertible Bonds with Issuer Options to Settle for Cash Upon Conversion,” to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and is to be applied retrospectively to all periods presented (retroactive restatement) pursuant to the guidance in Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections.” The Company has determined the FSP does not impact the accounting treatment of the Company’s existing convertible notes. As the Company considers the issuance and terms of convertible debt instruments in the future, the Company will evaluate the impact that the adoption of FSP APB 14-1 will have on its consolidated financial statements.

NOTE 3 – MERGERS AND ACQUISITIONS

The Company completed no acquisitions during 2007.

On January 22, 2008, WinSonic Digital Media Group, Ltd. (the “Company”) entered into a Stock Purchase Agreement (the “SPA”) with Tap It, Inc., a Delaware Corporation (“Tap It”) pursuant to which the Company agreed to purchase 2,291,667 shares of Tap It’s common stock (the “Initial Shares”) for $550,000 (the “Purchase Price”). The Purchase Price was to be paid through a combination of (a) cash, (b) the cancellation of promissory notes issued by Tap It to the Company, and (c) offsetting up to $50,000 of expenses incurred by the Company related to the transactions contemplated by the SPA and owed to the Company by Tap It pursuant to a certain provision of the SPA. The Company intended to purchase the Initial Shares on January 31, 2008. In addition to the Initial Shares, the SPA also gave the Company the option to purchase an additional 6,041,667 shares of Tap It’s common stock, which option could have been exercised, in whole or in part, at various times until August 1, 2008. Payments made in connection with the exercise of this option were to be made through a combination of (a) cash or (b) the cancellation of promissory notes issued by Tap It to the Company. The SPA also contained representations and warranties of each party and certain covenants between the parties typical for a transaction of this nature. The initial closing of the SPA did not occur as scheduled. As a result, following discussions among the parties, the SPA was terminated. As of September 30, 2008, advances totaling $226,704 are being discussed with an attempt to further negociate with Tap It for a Promissory Note and repayment. (See “Part I. Financial Information, Item 1. Financial Statements, Balance Sheet - Other assets”.)

On April 24, 2008, WinSonic Digital Media Group, Ltd. (the “Company”) entered into an Asset and Goodwill Purchase Agreement (the “APA”) with Dverb Media Group, Inc., a Georgia Corporation (“Dverb Media”) pursuant to which the Company agreed to issue 1,500,000 shares of WinSonic common stock (the “Purchase Price”) valued at $465,000. The Purchase Price was to be paid entirely through the issuance of 1,000,000 shares to James E. Thomas and 500,000 shares to the nine (9) Dverb Media employees and/or supporters for marketing relationships and business development for the proprietary rights, use and ownership of the existing and ongoing software development for the Social Networking product “DVERB”. Dverb Media Group, Inc. became a wholly owned subsidiary of WinSonic and is in the business segment Digital Media Group.

 NOTE 4 - PROPERTY AND EQUIPMENT, NET

The major classifications of property and equipment consist of the following as of September 30, 2008 and December 31, 2007:

	September 30,			December 31,
	2008			2007
Computer equipment	$	1,130,510		$	1,130,510
Infrastructure		158,400			158,400
Software		115,067			109,610
Furniture & fixtures		98,056			93,478
Automobiles		13,500			13,500
Leasehold improvements		80,226			6,150
Equipment and tools		172,120			164,081
Less: accumulated depreciation		(1,014,310	)		(908,539	)
Net Fixed Assets	$	753,569		$	767,190

Depreciation expense for the nine months ended September 30, 2008 and 2007 was $105,772 and $84,554, respectively.

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NOTE 5 - LOANS PAYABLE

The Company had outstanding loans payable to certain individuals who are not related parties of $1,323,156 and $507,518 as of September 30, 2008 and December 31, 2007, 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	2008		2007
Unstated	The Company received investment commitments under the terms of warrant agreements from eight investors. The investors have requested that the Company return their original investment. The Company treats the investments as notes payable. During 2006, the Company and the investors agreed to convert three of the investments into 6% convertible debentures with an attached warrant. The exchanged debentures are convertible at $0.40 per share and the warrants are exercisable at $0.40 per share. (See Note 6 - Convertible Debentures). Currently five of the original Investments are outstanding. No interest has been accrued on 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, 2008 and December 31, 2007 is $31,067 and $26,203, respectively.		139,067		134,203
6.00%	A loan consisting of principal of $40,000 with no repayment terms or maturity date. Accrued interest payable as of September 30, 2008 and December 31, 2007 is $13,221 and $11,420, respectively.		53,221		51,420
6.00%	The Company issued a promissory note for $60,000 with a maturity date of October 17, 2007 to a financial consultant in connection with services rendered advising the Company on public market issues. Accrued interest payable as of September 30, 2008 and December 31, 2007 is $3,393 and $690, respectively. The Company is in default on this note.		63,393		60,690
25.00%	The Company issued six promissory notes for a total principal balance of $220,000 with a maturity date of February 15, 2008. Accrued interest payable as of September 30, 2008 and December 31, 2007 is $89,459 and $205, respectively. The Company is in default on these notes.		309,459		150,205
6.00%	The Company issued five promissory notes with a principal balance of $122,691 and maturity date of November 30, 2008. Accrued interest payable as of September 30, 2008 is $5,824.		128,516		-
6.00%	The Company issued one promissory note for $100,000 with a maturity date of April 13, 2008. Accrued interest payable as of September 30, 2008 is $5,852. The Company is in default on this note.		105,852		-
6.00%	The Company issued one promissory note for $35,000 with a maturity date of April 25, 2008. Accrued interest payable as of September 30, 2008 is $961. The Company is in default on this note.		35,961		-
6.00%	The Company issued seven promissory notes with a principal balance of $180,000 and maturity date of November 30, 2008. Accrued interest payable as of September 30, 2008 is $7,856.		187,858		-
6.00%	The Company issued two promissory notes with a principal balance of $26,059 with a maturity date of June 30, 2008. Accrued interest payable as of September 30, 2008 is $919. The Company is in default on these notes.		26,978		-
6.00%	The Company issued a promissory note with a principal balance of $2,458 with a maturity date of September 19, 2008. The note balance as of September 30, 2008 is $0.		-		-
6.00%	The Company issued five promissory notes with a principal balance of $159,041and maturity date of December 31, 2008. Accrued interest payable as of September 30, 2008 is $2,810.		161,851		-
	Total Loans Payable	$	1,323,156	$	507,518

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During the third quarter of 2008, the Company borrowed a total of $2,458 and repaid one loan during the quarter for $2,458 including interest from unrelated parties. In connection with these loans, the Company issued an aggregate of 32,780 shares of its common stock as security assignment and recorded financing costs totaling $3,934. (See “Note 16 – Subsequent Events” for further details.)

NOTE 6 - CONVERTIBLE DEBENTURES

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

On December 15, 2005, the maturity dates of these convertible notes were extended to June 30, 2006. Following the amendments to the convertible notes, the noteholders 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.

Prior to December 31, 2007, all but one of the noteholders 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, 2008. In the aggregate, the Company has issued a total of 2,680,627 shares of its restricted common stock in connection with the conversion of these notes.

During the nine months ended September 30, 2008, the Company issued 500,000 shares of its restricted common stock related to the exercise of warrants with proceeds totaling $200,000. The Company has issued a total of 900,000 shares of its restricted common stock in connection with the exercise of warrants related to 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, 2008, 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. The following table summarizes the convertible notes and related warrants and embedded derivative liabilities at September 30, 2008 and December 31, 2007:

	September 30,			December 31,
	2008			2007
Derivative liability	$	5,269		$	34,466
Warrant liability		1,275			29,909
Convertible debentures		36,970			35,514
Subtotal		43,514			99,889
Adjustment of derivative and warrant liability to fair value		660,755			602,923
Accretion of principal and interest related to convertible debentures		310,731			312,188
Total Proceeds from convertible debentures		1,015,000			1,015,000
Plus: Accrued interest		114,407			112,951
Less: Notes and interest converted		(1,092,437	)		(1,092,437	)
Total Convertible debentures		36,970			35,514
Less: Current portion of convertible debentures		(36,970	)		(35,514	)
Total Non-Current Convertible Debentures	$	-		$	-

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Post 2004/2005 Agreements: During 2005, 2006 and 2007 the Company entered into a series of agreements with accredited investors, pursuant to which the Company issued 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.

During the nine months ended September 30, 2008, the Company issued to four accredited investors an aggregate of $52,000 in 6% Convertible Subordinated Promissory Notes and warrants to purchase up to 130,000 shares of the Company’s common stock. The convertible notes, which accrue interest at 6%, mature in the first quarter of 2009. The investors have the option, at any time prior to payment or conversion, to convert any unpaid principal and interest into shares of common stock at a price per share equal to $0.20. In addition, the notes are convertible if the Company completes an equity financing which raises proceeds of at least $3,000,000 or if the Company completes certain specified transactions. The notes include covenants and events of default which are customary for promissory notes of this nature. The notes also provide the investors certain piggy-back registration rights with respect to the shares of common stock into which the notes are convertible. The warrants, which have an exercise price of $0.40 per share, expire in the first quarter of 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.

During the nine months ended September 30, 2008, nineteen holders of convertible debentures converted $503,825 in principal and $31,438 of accrued interest into an aggregate of 2,676,633 shares of restricted common stock.

As a result of the foregoing, as of September 30, 2008, the Company had 65 convertible debentures outstanding. The outstanding convertible debentures represented a note balance of $1,665,470 and a potential obligation for the Company to issue 8,327,354 shares of common stock.

In connection with the convertible debentures described above, as of September 30, 2008, the Company has issued warrants to purchase 16,796,208 shares of common stock at exercise prices ranging from $0.20 to $0.50, equaling a potential aggregate funding for the Company of $4,450,307. These warrants have expiration dates between July 5, 2008 and July 26, 2010. During the nine months ended September 30, 2008, the Company issued 1,035,534 shares of common stock related to the exercise of warrants with proceeds totaling $307,106.

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

Summary of Post 2004/2005 Debentures & Warrants	Convertible Notes						Warrants
	Proceeds			Shares			Proceeds		Shares
Total outstanding at December 31, 2007		2,074,528			10,372,642			-		16,666,208
Proceeds received during 2008		52,000			260,000			-		730,000
Accrued Interest		74,205			371,345			-		-
Conversions during 2008		(535,263	)		(2,676,633	)		-		-
Warrants exercised		-			-			107,106		(535,534	)
Warrants expired		-			-			-		(941,250	)
Total outstanding at September 30, 2008	$	1,665,470			8,327,354		$	107,106		15,919,424

The Company has determined that the convertible debentures contain a beneficial conversion feature and qualify for treatment under Emerging Issue Task Force No. 00-27. The estimated fair value of the warrants of $7,462,588 has been determined using Black-Scholes option pricing model under the following assumptions: stock price volatility ranging from 131% to 377%; risk free interest rate of 3.5% to 4.5%; dividend yield of 0%; and a one to three year term. The face amount of the convertible debentures (i.e., 4,502,907 was proportionately allocated to the convertible debentures and the warrants in the amount of $1,878,719 and $2,624,188, respectively.) The convertible debentures proportionate allocation factor was then further allocated between the convertible debentures and the beneficial conversion feature and $1,661,310 was allocated to the beneficial conversion feature and the balance of $217,409 was allocated to the convertible debentures. The combined total value of the warrants and the beneficial conversion feature amounting to $4,285,498 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, 2008 and 2007, the Company amortized a total of $811,237 and $1,612,939, respectively. The discounts and amortization are summarized in the following table:

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	September 30,			December 31,
	2008			2007
BCF discount to Paid in capital	$	(1,661,310	)	$	(1,635,061	)
Warrant Discount to Paid in capital		(2,624,188	)		(2,613,638	)
Proceeds from convertible debentures		4,502,907			4,450,907
Subtotal		217,409			202,208
Deduct value converted to common stock		(2,896,835	)		(2,393,011	)
Convertible debt not subject to accretion converted to stock		(2,000	)		(2,000	)
Principal payments made		(57,145	)		(57,145	)
Balance of convertible debt not subject to accretion		(215,409	)		(200,208	)
Total discount to accrete		1,331,518			1,798,543
Interest expense on convertible debentures - Amortized		(1,301,024	)		(993,611	)
Interest expense on convertible debentures - Accrued		(118,543	)		(75,777	)
Convertible debt not subject to accretion		(215,409	)		(200,208	)
Total Current Liability	$	(1,634,976	)	$	(1,269,596	)

Defaults on Convertible Debentures

As of September 30, 2008, 53 convertible debentures totaling $1,357,031 were in default. (See “Note 16 – Subsequent Events” for further details.)

NOTE 7 - RELATED PARTY TRANSACTIONS

Loans Payable - Related Party

During the nine months ended September 30, 2008, the Company borrowed funds for operational expenses of $125,624 from related parties and each Promissory Note bears 6% annum interest rate and becomes due December 31, 2008 with the exception of one note being due November 30, 2008. In connection with the loans, the Company issued 960,341 shares of its common stock to the related parties and recognized $162,202 in financing costs.

On April 18, 2006, the Company acquired the outstanding membership interests of AI and assumed an unsecured, interest free loan payable to an officer for various cash advances, expenses paid and assets transferred to AI by the officer. The note totaling $80,950 was due on December 4, 2007 and bears interest at 6% per annum from that date. The Company is in default on this note. As of September 30, 2008, the Company has accrued a total of $4,006 in interest related to this debt.

Loans from Founder

2007: During the year ended December 31, 2007, the CEO of the Company entered into certain loan transactions with certain third parties and in turn has loaned an aggregate of $428,393 to the Company. During the year ended December 31, 2007, the Company accrued interest on the outstanding principal balance of these loans in the amount of $7,494. As a condition to the loan transactions with such third parties, the CEO has assigned or committed to assign to such third parties an aggregate of 2,948,474 of his personal shares of the Company’s common stock. During the twelve months ended December 31, 2007, the Company repaid loan amounts of $72,086 including accrued interest, and issued 600,000 shares of the Company’s common stock to third parties on behalf of the CEO in exchange for debt forgiveness from the CEO in the amount of $179,971. As of September 30, 2008, the outstanding balance of these loans was $164,405 in principal and $6,829 in accrued interest.

During the fourth quarter of 2007, the Company issued to the CEO of the Company an aggregate of $45,917 in 6% Convertible Subordinated Promissory Notes and warrants to purchase up to 114,791 shares of the Company’s common stock. The two convertible notes with balances of $40,917 and $5,000, which accrue interest at 6%, mature on October 30, 2009 and November 11, 2009, respectively. The CEO has the option, at any time prior to payment or conversion, to convert any unpaid principal and interest into shares of common stock at a price per share equal to $0.20. In addition, the notes are convertible if the Company completes an equity financing which raises proceeds of at least $3,000,000 or if the Company completes certain specified transactions. The notes include covenants and events of default which are customary for promissory notes of this nature. The notes also provide the CEO certain piggy-back registration rights with respect to the shares of common stock into which the notes are convertible. The warrants, which have an exercise price of $0.40 per share, expire on October 30, 2009 and November 11, 2009. The warrants may be exercised at any time prior to expiration and provide the CEO certain piggy-back registration rights with respect to the shares of common stock into which the warrants are exercisable. As of September 30, 2008, the outstanding balance of these notes was $45,917 in principal and $2,530 in accrued interest.

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2006: During 2006, the CEO of the Company advanced $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, 2008.

2005: On September 15, 2005, the Company received a loan of $80,000 from the CEO. Under the terms of the promissory note governing the loan, interest accrues at 10% per annum, with principal and interest payable on December 1, 2005. Unpaid principal and interest after December 1, 2005 is subject to additional interest of 5% in excess of the rate otherwise applicable to the unpaid balance. During 2006, the Company issued 400,000 shares of restricted common stock to repay the principal of the loan and the balance of the accrued interest does not accrue additional interest. The balance of the accrued interest payable at September 30, 2008 was $13,074.

Share issuances

During the nine months ended September 30, 2008, the Company cancelled 500,000 shares of the Company’s restricted common shares issued during 2007 in anticipation of closing a financing transaction with a related party, WinSonic Diversity, which did not materialize. The Company also cancelled 700,000 shares of the Company’s restricted common shares issued to the CEO in 2007 for certain financing transactions in excess of the correct amount of shares.

NOTE 8 – OTHER NOTES PAYABLES

On April 29, 2008, the Company entered into a loan agreement with Neighborhood Community Bank, assuming the responsibility for a loan originally entered into by Colonel McCrary Trucking, LLC and guaranteed by Winston Johnson. A loan in the amount of $500,000 was originally entered into by Colonel McCrary Trucking, LLC for working capital in preparation for the WinSonic Diversity, LLC, WinSonic Digital Media Group, Ltd. and Colonel McCrary Trucking, LLC transaction with WinSonic McCrary, LLC. Winston Johnson entered into a personal guarantee with Neighborhood Community Bank, pledging 2,000,000 of his personal shares. The Asset Purchase Agreement for the proposed transaction with WinSonic McCrary, LLC expired in accordance with its terms during first quarter 2008. Colonel McCrary Trucking, LLC defaulted on the original loan and Neighborhood Community Bank sought to collect the balance from the personal guarantee of Winston Johnson. Since the loan was originally related to a potential acquisition of the Company, Mr. Johnson transferred responsibility for the loan to the Company. As of September 30, 2008, the balance of the loan is $461,206, bears interest at 6% and matures on December 31, 2008. The Company paid the initial loan closing fees and interest payments as required, but has not made any scheduled payments since then and the loan is currently in default. The Company is in the process of filing a lien on the assets of Colonel McCrary Trucking LLC for recovery of the loan balance.

On April 30, 2008, the Company entered into a loan agreement with a group of consultants and former employees for payment of services received by the Company during the first quarter of 2008. The loan agreement reclassifies previously recorded accrued payroll and accounts payable to a note payable in the amount of $116,897 which bears interest at 6% per annum. The note provides for payments to the group as follows: $8,068 upon execution; $9,401 on May 31, 2008; $20,134 on June 30, 2008; $47,003 on July 31, 2008 and $9,401 on August 15, 2008. The balance of the note ($22,890) relates to the payroll taxes to be withheld for the employees and is payable to the Internal Revenue Service and state taxing authorities on a pro-rata basis on the same dates as the payments to the group. The Company met the first three obligations per the terms of the Note. However, the Company did not make the third quarter payments and the loan agreement had a stipulation clause for severance payments to become due and payable when the note became in default as well as the interest rate changing to 12% per annum. With the changes, as of September 30, 2008, the balance of the loan is $181,686 including accrued interest.

NOTE 9 – MATERIAL AGREEMENTS

On April 2, 2008, WinSonic Digital Media Group, Ltd. and WinSonic Digital Cable Systems Network (a subsidiary) entered into a Memorandum of Understanding (“MOU”) with Sosiate, Inc. to set forth guidelines and basis for a relationship among the companies. The companies believe that this relationship may lead to a variety of revenue opportunities; whereby, WinSonic can provide global facilities-based digital distribution co-location and network services for the Jamroom, an internet-based social network owned by Sosiate. There is no assigned value to this agreement at this time.

On July 26, 2008, the Company signed an MOU with Swagg Media Group, Inc. (“Swagg Media”) that outlines a “partnership” between the Company and Swagg Media. This MOU expresses the parties intentions regarding the establishment of a joint marketing program, a technology deployment program, equity investments by the parties, and defines the technology and services provided by each party, the operational roles and responsibilities, and the first phase implementation.

On July 29, 2008, the Company signed an MOU with RainySongs Group, Inc. (“RainySongs”) that outlines a potential “partnership” between the Company and RainySongs. This MOU expresses the parties intentions to develop, provide and deploy transport, applications services, and regulated and unregulated distribution services to the entertainment industry, and to such other industries or governmental agencies mutually agreed to by the parties.

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On July 10, 2008, the Company entered into a Consulting Agreement with Burton Goldstein & CO., LLC for media and entertainment label and artist business development services.

On July 14, 2008, the Company and Hallmark Investments, Inc. terminated the Investment Placement Agent agreement; whereby, Hallmark would no longer have the exclusivity on securing financing for the Company. The agreement was deemed null and void as of the signing date of July 14, 2008.

On July 30, 2008, the Company entered into a Consulting Agreement with Troy Mathews for marketing product evaluation and positioning, SWOT analysis, customer analysis by product category, channel/distribution strategy, and other go-to-market strategy development.

On August 1, 2008, the Company entered into a Software Programming services contract with JECR, Inc. (“JECR”); whereby, JECR will provide 3D Social Networking Application services preparing for the First User Trial. As part of the compensation arrangements, the Company issued 150,000 shares of restricted common stock.

On August 6, 2008, the Company entered into a Consulting Agreement with IT/IS Telecom Solutions. Under the Agreement, the IT/IS team was to provide: (1) additional perspectives and insight into the overall goals and objectives driving the WDMG business plan and how the company might deal with its various corporate objectives, and (2) Subject Matter Experts (SMEs) to assist in the overall development effort. On November 12, 2008, IT/IS Telecom Solutions terminated its Agreement with the Company. As of the date of termination, the Company had never determined any Statement of Work (SOW) plans or authorized IT/IS Telecom Solutions to work on any projects.

On September 15, 2008, the Company entered into non-binding Term Sheet for a minimum of $250,000 Loan facility with the Simmons-Richardson Group to be secured by issuance of 250,000 shares of restricted common stock to be followed by a Convertible Secured Debenture Purchase Agreement upon formal execution of the agreement. This agreement is for providing bridge financing dedicated to the launch of specific revenue generating projects. Terms of the loan facility allow the investment group to appoint one director to the board of directors. These investors have commenced assisting WinSonic in recruiting and appointing key technical positions and management. (See “Note 16 – Subsequent Events” for further details.)

On September 16, 2008, the Company entered into a Rights Agreement Addendum which updated the prior March 20, 2008 agreement between WinSonic Digital Media Group, Ltd. and Blue Pie Productions Pty Ltd (“BPP”) pursuant to which BPP granted the Company an exclusive license to reproduce, commercialize, maintain and market select BPP products, goods and services such as: Distribution model, Blue Pie Sonic branding product, Blue Pie Music license product, Blue Pie and Magic Blue Creative Social networking product, Blue Pie Banner Ad and Graphic product, Magic Blue Creative web development, eCommerce and information systems, and Blue Pie Vault Digital Music Store within the United States and Canada (North America territory). The prior rights agreement is converted to a non-exclusive license for (remains thirty-six months) to sell the Blue Vault Digital stores and WinSonic will represent the Blue Pie catalogue for North America with full rights to engage and develop new markets for the exploitation of the Blue Pie digital entertainment catalogue of music, video, games, film and data. In addition, a Digital Store Agreement was executed on September 16, 2008 between Blue Vault Digital Pty, Ltd. and WinSonic Digital Media Group, Ltd and WinSonic Cable Networks, Ltd. in which Blue Vault Digital will build the “WinSonic” branded music store. In consideration for the services and rights under the amended Rights Agreement and the Digital Store Agreement, the Company agreed to pay a total of $294,000 for the Non-exclusive License rights, new WinSonic Digital Store build, hosting and database management, and training. The payment comprised of $181,000 being paid upon contract signing with the issuance of 1,645,455 shares of restricted common stock, a cash payment of $50,000 becoming due ninety days after the execution of the amended agreement, and the remaining $63,000 due quarterly over the following year for hosting and database management support charges. Of the $181,000 payment, $100,000 was classified as an Intangible asset - License rights and $81,000 was classified as Prepaid expenses.

On September 30, 2008, the Company entered into a Content Licensing Agreement between Isolation Network, Inc. (d/b/a “INgrooves and “ONE” Digital Distribution) and WinSonic Digital Media Group, Ltd. for which WinSonic will be permitted to sell permanent digital transmissions of content and be granted the non-exclusive right to sell eMasters to the End-Users. In consideration for the delivery of content files from INgrooves and ONE Digital Distribution, a total of $50,000 one time fee with $25,000 due upon execution of contract and then the remaining $25,000 due no later than ninety days thereafter.

NOTE 10 - STOCKHOLDERS’ EQUITY

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

During the nine months ended September 30, 2008, the Company issued 10,360,699 restricted shares of the Company’s common stock valued at $2,849,390 in connection with certain financing transactions (the costs of 1,800,000 of these shares were accrued as financing costs at December 31, 2007). In addition, approximately 19 holders of the Company’s convertible debentures were contacted and agreed in writing to convert their debentures into restricted shares of the Company’s common stock at $0.20 per share (See “Note 6 – Convertible Debentures” for further details regarding these conversions.). Based on these agreements, the Company converted $503,825 of principal and $31,438 of accrued interest on these debentures in exchange for the issuance of 2,676,633 restricted shares of the Company’s common stock. 

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During the nine months ended September 30, 2008, the Company issued an aggregate of 2,235,000 restricted shares valued at $541,600 of its common stock as payment for consulting services.

During the nine months ended September 30, 2008, the Company issued 1,645,455 restricted shares valued at $181,000 of its common stock as partial consideration of $100,000 in license rights and $81,000 as payment of store build and hosting support charges.

During the nine months ended September 30, 2008, the Company issued an aggregate of 1,500,000 restricted shares valued at $465,000 of its common stock in connection with the DVerb acquisition (See “Note 3 - Mergers and Acquisitions”).

During the nine months ended September 30, 2008, the Company issued 851,666 and 1,035,534 restricted shares of the Company’s common stock in connection with the exercise of stock options and warrants, respectively. The proceeds from the exercise of these options and warrants totaled $315,623.

During the nine months ended September 30, 2008, the Company issued an aggregate of 1,537,962 restricted shares valued at $538,287 of its common stock as payment for employee salaries and 1,325,000 restricted shares of its common stock valued at $168,750 as payment for employee bonuses.

During the year ended December 31, 2007, the Company issued 500,000 shares of the Company’s restricted common shares in anticipation of closing a financing transaction which did not materialize. The shares were canceled in January 2008. During the year ended December 31, 2007, the Company also issued 700,000 shares of the Company’s restricted common shares to reimburse the CEO for certain financing transactions in excess of the correct amount of shares. The shares were canceled in March 2008. The Company also canceled 1,146,593 shares of its restricted common stock previously issued in connection with the Tytess acquisition. The Company recorded the transaction at par value and no gain or loss was recognized by the Company.

The Company also issued 2,076,521 to Rosemary Nguyen pursuant to a settlement agreement (See “Note 11- Summary of Legal Proceedings”).

The following table summarizes, by date, the stock transactions for the nine months ended September 30, 2008:

				Price per		Cost of
Date of Share Issuance	Shares			Share		Shares
Shares issued in connection with certain financing transactions:
01/02/2008		25,000			0.61	$	15,250
01/02/2008		175,000			0.51		89,250
01/09/2008		500,000			0.60		300,000
01/15/2008		375,000			0.46		172,500
01/15/2008		725,000			0.51		369,750
01/15/2008		500,000			0.19		95,000
04/02/2008		40,000			0.30		12,000
04/07/2008		1,831,860			0.25		457,965
04/07/2008		88,589			0.39		34,550
04/08/2008		175,000			0.34		59,500
04/08/2008		1,236,243			0.38		469,772
04/09/2008		44,471			0.39		17,343
05/14/2008		225,000			0.38		84,000
06/02/2008		207,600			0.24		49,824
06/10/2008		66,353			0.29		19,242
06/10/2008		869,329			0.20		173,866
06/17/2008		300,000			0.20		60,000
06/23/2008		150,000			0.19		28,500
06/26/2008		300,000			0.17		51,000
08/26/2008		532,780			0.12		63,935
08/28/2008		243,817			0.12		29,258
08/29/2008		280,532			0.12		33,664
08/31/2008		500,000			0.12		60,000
09/04/2008		750,000			0.11		82,500
09/19/2008		100,000			0.10		10,000
09/29/2008		119,125			0.09		10,721
		10,360,699				$	2,849,390
Shares issued for payment of loan interest:
01/15/2008		3,994			0.48		1,917
Shares issued for conversion of convertible debentures:
01/02/2008		60,038			0.20	$	11,945
01/15/2008		105,507			0.20		21,101
03/11/2008		2,064,332			0.20		412,866
04/02/2008		388,483			0.20		77,696
04/10/2008		58,273			0.20		11,655
		2,676,633				$	535,263
Shares issued for payment of consulting services:
01/02/2008		250,000			0.46	$	115,000
01/02/2008		100,000			0.50		50,000
02/14/2008		100,000			0.38		38,000
04/02/2008		150,000			0.64		96,000
05/15/2008		150,000			0.35		52,500
06/10/2008		300,000			0.20		60,000
08/05/2008		150,000			0.15		22,500
08/27/2008		200,000			0.11		22,000
09/04/2008		485,000			0.11		53,350
09/29/2008		350,000			0.09		32,250
		2,235,000				$	541,600
Shares canceled that were previously issued for 2006 acquisitions:
03/28/2008		(1,146,593	)		0.001	$	(1,147	)
Shares issued in connection with DVerb acquisition:
04/24/2008		1,500,000			0.31	$	465,000
Shares issued in connection with exercise of warrants:
01/10/2008		500,000			0.40	$	200,000
03/11/2008		420,534			0.20		84,106
04/11/2008		115,000			0.20		23,000
		1,035,534				$	307,106
Shares issued in connection with exercise of stock options:
01/23/2008		150,000			0.01	$	1,500
03/28/2008		500,000			0.01		5,000
04/11/2008		100,000			0.01		1,000
04/16/2008		35,000			0.01		350
04/23/2008		33,333			0.01		333
06/30/2008		33,333			0.01		334
		851,666				$	8,517
Shares issued for employee bonus:
03/28/2008		575,000			0.15	$	86,250
09/04/2008		750,000			0.11		82,500
		1,325,000				$	168,750
Shares issued for employee compensation:
05/20/2008		1,113,633			0.35		389,772
06/04/2008		424,329			0.35		148,515
		1,537,962				$	538,287
Shares issued for funds:
07/23/2008		100,000			0.10	$	10,000
07/24/2008		500,000			0.10		50,000
07/25/2008		100,000			0.10		10,000
08/26/2008		500,000			0.10		50,000
		1,200,000				$	120,000
Shares issued in error:
02/01/2008		(500,000	)		0.001	$	(500	)
03/28/2008		(700,000	)		0.001		(700	)
		(1,200,000	)			$	(1,200	)
Shares issued for license rights and prepaid expenses:
		1,645,455			0.11	$	181,000
09/16/2008		1,645,455				$	181,000
Shares issued for legal settlement:
01/23/2008		2,076,521			0.45	$	934,435

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The Company neither received nor paid any commissions in connection with the issuances of securities described above. The Company believes that the issuance of such securities was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to the provisions of Section 4(2) of the Securities Act.

Convertible Notes and Warrants:

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

The following table summarizes the Company’s warrant activities for the period from January 1, 2008 to September 30, 2008:

	Number of  Warrants			Weighted Average Exercise Price
Balance as of December 31, 2007		18,803,708			0.28
Warrants issued		730,000			0.24
Warrants exercised		(1,035,534	)		(0.30	)
Warrants expired		(941,250	)		(0.29	)
Balance as of September 30, 2008		17,556,924		$	0.28

These warrants have expiration dates between October 11, 2008 and July 26, 2010.

In addition, the Company has issued warrants in connection with certain consulting agreements. The following table summarizes the Company’s warrant activities related to consulting agreements from January 1, 2008 to September 30, 2008:

	Number of  Warrants			Weighted Average Exercise Price
Balance as of December 31, 2007		1,052,354		$	0.32
Warrants issued		-			-
Warrants exercised		-			-
Warrants expired		(350,000	)		(0.70	)
Balance as of September 30, 2008		702,354		$	0.14

These warrants have expiration dates between January 31, 2009 and September 10, 2009.

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NOTE 11 - SUMMARY OF LEGAL PROCEEDINGS

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

An estimated liability of $268,870 and $1,213,225 for legal settlements was recorded as of September 30, 2008 and December 31, 2007, respectively. Included in the estimated liability for legal settlements as of September 30, 2008 is a general accrual of $148,870 for claims threatened and not yet filed. Other than as described below and in “Note 15 - Subsequent Events”, the Company is not currently involved in any legal proceedings that may be deemed to be material to our financial condition.

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

On March 16, 2006, the Company issued 900,000 restricted shares of common stock to Mr. Collazo in settlement of this matter; however, pursuant to a motion filed by Mr. Collazo, the Court entered a judgment in July 2006 ordering the Company to reissue the 900,000 shares of common stock to Mr. Collazo as of September 20, 2002 without the restrictions.  The Company did not reissue the stock to Mr. Collazo due to the existence of an attorney’s lien on Mr. Collazo’s judgment in this matter and because the Company believed that Collazo had not returned the initial shares of stock. On May 16, 2008, the Superior Court of Fulton County, Georgia (Collazo v. WDMG, No. 2008-CV-147069) domesticated the California judgment. On or about May 17, 2008, Collazo filed a motion for contempt because the Company had not issued the unrestricted shares. On June 13, 2008, the Fulton County Superior Court entered an Order requiring the Company to pay Collazo $702,000 plus interest pursuant to the relief requested in Collazo’s motion for contempt. On July 11, 2008, the Company filed its notice of intent to appeal the June 13th Order to the Georgia Court of Appeals. As of the date of this Report, no other significant action has been taken 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, 2008.

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, 2008.

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

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

The disputed amount of $75,000 in this collection lawsuit was expensed as a general and administrative expense in 2004 and accrued within accounts payable at March 31, 2008. 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.

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

The disputed amount of $25,000 in this collection lawsuit was expensed as a general and administrative expense in 2005 and accrued within accounts payable as of March 31, 2008. 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.

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

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

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

(a) on or before November 7, 2007, (i) $15,000 to Mr. Young and (ii) $1,000 to Mr. Young’s counsel, Beverly Adams;

(b) on or before November 27, 2007, (i) $15,000 to Mr. Young and (ii) $1,000 to Mr. Young’s counsel;

(c) on or before December 27, 2007, (i) $15,000 to Mr. Young and (ii) $1,000 to Mr. Young’s counsel;

(d) on or before January 27, 2008, (i) $25,000.to Mr. Young and (ii) $1,000 to Mr. Young’s counsel; and

(e) on or before February 27, 2008, (i) $180,000 to Mr. Young and (ii) $1,000 to Mr. Young’s counsel.

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

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

This is an action for breach of contract against the Company. The disputed amount of $56,527 was capitalized as computer equipment in 2006 and accrued within accounts payable of the Company as of March 31, 2008. 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.

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

This is an action for breach of contract by Phillip Ghee, a former employee of the Company. Mr. Ghee seeks damages of $236,000, which includes amounts for alleged salary, alleged deferred earnings, and an alleged severance package as set forth in Mr. Ghee’s written employment agreement with the Company dated March 25, 2006. The complaint also seeks damages for the undetermined value of alleged unused vacation time and vested stock options. The complaint further alleges that on or about October 2, 2006, Mr. Ghee entered into new employment agreements with defendants that split the responsibilities outlined in the March 2006 employment agreement between the two defendants. On December 3, 2007, the Company filed its answer which disputed the amount allegedly owed to Mr. Ghee. The Company responded to Mr. Ghee’s initial discovery requests on June 16, 2008. On July 30, 2008, Mr. Ghee filed an Amended Complaint in which he added a claim for fraud and now seeks punitive damages. On August 13, 2008, the Company filed its Answer to the Amended Complaint which denied the fraud claim and disputed the amount alleged owed to Mr. Ghee. As of the date of this filing, no other significant action has been taken in this matter.

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

This is an action for garnishment against the Company based on an alleged debt of $240,000 owed by the Company’s CEO, Winston Johnson. The Company defaulted on responding to the garnishment action, which opened the Company to liability for payment of Mr. Johnson’s alleged debt. On October 3, 2007, the Company moved to open the default. Context Ventures, Inc. opposed the opening of the default on January 11, 2008. The Company files amended answers every 45 days to the garnishment action to update the Court regarding the status of Mr. Johnson’s employment compensation. As of the date of this filing, no other significant action has been taken in this matter, but an amended agreement is in process for mid October, 2008 for the reduced debt amount and payment terms.

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Cheryl Lee and Bruce Lee v. Winsonic Digital Media Group, Ltd., et al. (Superior Court of Fulton County, Georgia, 2008-CV-147282 – Complaint filed February 29, 2008)

This is an action for breach of contract and constructive fraud against the Company based on actions by the Company’s subsidiary, Defendant Tytess Design and Development, Inc. Plaintiffs seek compensatory damages of $691,707, as well as punitive damages and attorney’s fees. The dispute involves a contract between Tytess and Plaintiffs regarding the construction of a home for Plaintiffs. The Company did not answer Plaintiffs’ Complaint. As of the date of this filing, no other significant action has been taken in this matter.

NOTE 12 - GOING CONCERN

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2008, the Company has had accumulated losses of $48,962,766 from operations since inception. The Company’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to achieve and maintain profitable operations. Management plans to raise equity capital to finance the operating and capital requirements of the Company. Amounts raised will be used for further development of the Company’s products, to provide financing for marketing and promotion, to secure additional property and equipment, and for other working capital purposes. While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Employment Agreements

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

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

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

The Company has negotiated a separation agreement with Mr. Morris. The separation agreement provided for the Company to pay Mr. Morris $3,000 upon execution (and has been paid), $100,000 on December 31, 2008 and $150,000 on December 31, 2009. In addition, the severance agreement provides Mr. Morris the opportunity to exercise 250,000 of his $0.01 options and 462,500 of his $1.00 options that were previously granted to him.

Effective August 8, 2006, Jeffrey L. Burke was hired as Executive Vice President of the Company. Mr. Burke's base salary was $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 and subject to the implementation of the Company’s 2008 Employee Option Plan. The fair value of the options granted totaled $481,492. Effective December 13, 2007, Jeffrey Burke resigned from the Company as Executive Vice President.

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The Company is still in the process of negotiating the final separation agreement with Mr. Burke.

Following Mr. Morris’ resignation, effective December 16, 2007, the Company appointed Bobby Reed to the position of Vice President of Operations. Mr. Reed’s base salary was $180,000 per annum. As an employment incentive, Mr. Reed was granted stock options to purchase 400,000 shares of the Company’s common stock at fair value in the Company’s 2008 option plan when the plan is created and approved. For accounting purposes, management has treated the options similar to the $1.00 options previously issued to employees. The options granted vested 10% 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 $184,400. Effective April 21, 2008, Mr. Reed’s position was eliminated.

The Company has negotiated a separation agreement with Mr. Reed. The separation agreement provided for the Company to pay Mr. Reed $13,457 in the form of stock on May 1, 2008 (certificate was issued), $13,457 in equal monthly installments beginning January 2009, $12,753 on June 30, 2008, $12,423 on July 31, 2008 and $12,423 on August 31, 2008. In addition the severance agreement provides Mr. Reed the opportunity to exercise $400,000 of his options that were previously granted to him. As of September 30, 2008, the Company has not made an installment payment.

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

On January 4, 2008, the Company issued new employment agreements to all current employees. In the employment agreements, the Company accelerated the vesting on all remaining $1.00 options for these employees. The Company also canceled options totaling 400,000 shares equal to the remaining one third of the $0.01 options held by current employees, related to obtaining senior funding that has not occurred. In exchange for the canceled options, the Company committed to issue 400,000 shares of fully vested replacement options at fair value in the Company’s 2008 option plan when the plan is created and approved. As a result of the acceleration of the $1.00 options and the cancellation of certain unvested $0.01 options and commitment to re-issue an equal number of market value options, the Company recorded additional stock based compensation totaling $193,000. In addition, during the year ended December 31, 2007, the Company achieved a milestone by trading its stock on the OTCBB. This milestone triggered the vesting of an additional one third of all outstanding $0.01 options and the Company recorded additional stock based compensation expense totaling $375,000 related to this vesting the third quarter of 2007.

During the year ended December 31, 2007, and as a result of the issuance of the new employment agreements, the Company terminated 17 employees, adjusted the salaries of 12 employees, accepted the resignation of six employees whose positions were not replaced and cancelled the contract of a consultant. These actions are expected to result in additional savings of approximately $3,430,000 per year. In connection with the above actions, the Company recorded severance costs of $1,714,000 during the fourth quarter of 2007. On May 1, 2008, the Company issued 1,537,962 shares of restricted stock to ten current and ex-employees to further reduce prior liabilities for deferred and unpaid salaries.

During May 2008, three accounting personnel resigned and in June 2008, the Company entered into three Accounting contract agreements for services of a Chief Accounting Officer, Senior Accounting Manager, and for Payroll and Sales Tax accounting support.

Payroll and Sales Tax Liabilities

Automated Interiors has not remitted its sales taxes for 2006, 2007 and 2008. In addition, the Company and its subsidiaries have not remitted payroll taxes withheld from their employees’ checks and the companies’ matching portion to the Internal Revenue Service and various state taxing authorities. The Company has accrued interest and penalties up to and including September 30, 2008. Sales tax payable as of September 30, 2008 total $145,883 (including penalties and interest) is included in the accompanying balance sheet in the line item “Accounts payable and accrued expenses”. Total payroll taxes withheld and Company matching amounts as of September 30, 2008 totaled $2,171,047 (including penalties and interest of $360,000). This amount is included in the accompanying balance sheet in the line item “Accrued payroll and related taxes”.

These liabilities, until paid, will continue to increase by additional penalties and interest accruals. The Company is currently in negotiations with the taxing authorities to establish payment plans. Effective July 1, 2008, all payroll taxes are being appropriately withheld per pay period and the tax deposits are being held in a designated payroll account for timely remittance.

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Lease Agreements

Centennial Tower Office Lease Agreement

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

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

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

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

55 Marietta Street Office Lease Agreements

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

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

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

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

Additionally, on June 22, 2006, the Company entered into a two-year lease agreement with JT Communications, LLC for the exclusive right to use a cabinet and the non-exclusive right to use the office space located on JT Communications’ premises on the 5 th floor of 55 Marietta Street in Atlanta, Georgia. The term of the lease commenced on July 1, 2006 and expires on June 30, 2008; however, it is subject to automatic renewals for a one-year periods on the same terms and conditions, unless the Company notifies JT Communications that it does not want to renew. The Company abandoned the office space in May of 2007 and will be responsible for the lease through June 30, 2008. As of September 30, 2008, $16,689 is due and payable.

ProLogis-Macquarie U.S. LLC Office Lease Agreement

On May 23, 2007, AI entered into a Lease Agreement with ProLogis-Macquarie U.S. LLC for approximately 11,006 square feet of rentable space located at 5290 Westgate Drive Suite B, Atlanta, Georgia 30336. The lease commenced on June 1, 2007 and continues through May 31, 2012. AI planned to use the space to house its Logistics Management Center and for training purposes. Under the lease, AI is obligated to pay base monthly rents of $2,430 per month in the first year, $2,503 per month in the second year, $2,579 per month in the third year, $2,656 per month in the fourth year and $2,736 per month in the fifth year. During the third quarter of 2007, AI abandoned the space and will be responsible for the lease until the space is leased to another party. During the third quarter of 2008, a restructuring charge of $163,504 was recorded related to the outstanding obligation.

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 has abandoned the space, which it originally intended to use for retail sale of electronic equipment. Under the lease, the Company is obligated to pay base monthly rents of $5,810 per month.During the third quarter of 2008, a restructuring charge of $361,019 was recorded related to the outstanding obligation.

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As of September 30, 2008, approximate future commitments under the Company’s leases are as follows:

Year	Amount
2008	$	228,263
2009		778,549
2010		791,377
2011		804,595
2012		794,860
2013 through 2017		2,789,053
Total	$	6,186,697

Rent expense totaled $527,240 and $470,169 for the nine months ended September 30, 2008 and 2007, respectively.

NOTE 14 – SEGMENT INFORMATION

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

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

The following tables summarize segment information for the periods ended September 30, 2008 and 2007:

	Three Months Ended September 30, 2008
	Digital			Digital			Integrated			WinSonic
	Media			Distribution			Services			Diversity			Corporate
	Group			Group			Group			Group			Group			Total
Revenue	$	-		$	-		$	91,861		$	-		$	-		$	91,861
Gross profit		-			(215,182	)		20,030			-			1,649			(193,503	)
Operating expenses		47,892			4,703			130,598			62,122			939,489			1,184,804
Loss from operations		(47,892	)		(219,885	)		(110,568	)		(62,122	)		(937,840	)		(1,378,307	)
Net loss		(47,907	)		(220,014	)		(644,307	)		(69,022	)		(1,509,695	)		(2,490,945	)
Total assets		(627,593	)		(2,028,534	)		(133,234	)		(173,890	)		5,434,410			2,471,159

	Three Months Ended September 30, 2007
	Digital			Digital			Integrated			WinSonic
	Media			Distribution			Services			Diversity		Corporate
	Group			Group			Group			Group		Group			Total
Revenue	$	7,027		$	-		$	219,654		$	-	$	6,500		$	233,181
Gross profit		3,700			(179,306	)		(601,800	)		-		5,494			(771,912	)
Operating expenses		101,929			49,966			462,137			-		1,268,862			1,882,894
Loss from operations		(98,229	)		(229,272	)		(1,063,937	)		-		(1,263,368	)		(2,654,806	)
Net income (loss)		(98,229	)		(229,898	)		(1,082,625	)		-		(5,281,663	)		(6,692,415	)
Total assets		(101,046	)		(1,063,352	)		1,262,592			-		2,469,651			2,567,845

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	Nine months ended September 30, 2008
	Digital			Digital			Integrated			WinSonic
	Media			Distribution			Services			Diversity			Corporate
	Group			Group			Group			Group			Group			Total
Revenue	$	2,567		$	-		$	508,187		$	-		$	-		$	510,754
Gross profit		1,781			(412,309	)		43,336			-			-			(367,192	)
Operating expenses		245,235			11,366			416,546			583,889			2,874,391			4,131,427
Loss from operations		(243,454	)		(423,675	)		(373,210	)		(583,889	)		(2,874,391	)		(4,498,619	)
Net loss		(243,471	)		(423,803	)		(925,536	)		(602,346	)		(5,939,059	)		(8,134,215	)
Total assets		(627,593	)		(2,028,534	)		(133,234	)		(173,890	)		5,434,410			2,471,159

	Nine months ended September 30, 2007
	Digital			Digital			Integrated			WinSonic
	Media			Distribution			Services			Diversity		Corporate
	Group			Group			Group			Group		Group			Total
Revenue	$	14,530		$	4,000		$	1,343,835		$	-	$	6,500		$	1,368,865
Gross profit		6,770			(1,020,402	)		(408,641	)		-		5,494			(1,416,779	)
Operating expenses		300,503			103,257			1,347,026			-		3,909,759			5,660,545
Loss from operations		(293,733	)		(1,123,659	)		(1,755,667	)		-		(3,904,265	)		(7,077,324	)
Net income (loss)		(293,732	)		(1,124,286	)		(1,778,615	)		-		(10,225,531	)		(13,422,164	)
Total assets		(101,046	)		(1,063,352	)		1,262,592			-		2,469,651			2,567,845

NOTE 15 – RESTRUCTURING AND IMPAIRMENT CHARGES

The Company abandoned two facilities (see NOTE 13 - COMMITMENTS AND CONTINGENCIES, Lease Agreements) as part of its cost reduction program implemented in 2008. This action resulted in a restructuring charge of approximately $524,523 in the third quarter of 2008 related to lease commitments. The Company has not made any payments in 2008 and does not expect to make any payments until the third quarter of 2009.

	Amount
Balance as of December 31, 2007	$	-
Q3 2008 restructuring charge		524,523
Q3 2008 payments		-
Balance as of September 30, 2008 (unaudited)	$	524,523

NOTE 16 - SUBSEQUENT EVENTS

Defaults on Convertible Debentures

As of November 12, 2008, the Company had contacted most of the Investor Convertible noteholders, and 19 of the Company’s convertible debentures had matured without conversion, extension, or repayment and were in default totaling $914,517.

Defaults on Loan Payable

As of November 12, 2008, the Company had contacted most of the Loan noteholders, the majority of which executed note admendments extending the maturity dates, and only 5 of the Company’s loan payable notes were in default totaling $127,124.

Defaults on Note Payable

On October 21, 2008 the Company received a notice from the State Court of Fulton County for Lasier et al v. WinSonic Digital Media Group, Ltd. Civil File Action No. 08VF004614F, for a court date of November 18, 2008. As of July 1, 2008, the Company became in default on the First Philadelphia Group (“Group’) loan agreement with a group of consultants and former employees for payment of services received by the Company during the first quarter of 2008. The amounts in default are for the payments (and interest) due for the principal sums of $20,134 on June 30, 2008, $47,003 on July 31, 2008 and $9,401 on August 15, 2008 and with estimated additional amount being due for $100,750 per the default clause in the loan agreement. The Company has been in discussion with the “Group” stating its intentions to make final payments upon funding.

Stock Activity

Since September 30, 2008, the Company has not issued or committed to issue any shares of its restricted common stock.

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Material Agreements

During October 2008, the Company has entered into numerous Memorandum of Understanding Agreements (“MOU”) in connection with securing revenue contracts (hosting digital ready service), developing company business plans, and other business development activities.

On October 14, 2008, the Company entered into a confidential Term Sheet with Kaival, LLC for cash investment funds of $1,500,000 and a revolving Line of Credit for $5,000,000. A total of 20,000,000 shares of Common and Preferred Stock will be issued in addition to the repayment terms of the Line of Credit with an annum interest rate of prime plus one percent, two designated board seats, and a business strategy person to be involved in the business decisions involving finance and marketing.

On October 15, 2008, the WinSonic Digital Cable Networks, Ltd. entered into a Mutual Confidentiality Agreement (MCA) with Net-Structure Asset Management Solutions, LLC to explore one or more business relationships or transactions together.

On October 15, 2008, the Company entered into a Consulting Agreement with Jumpstart Marketing, Inc.; whereby, Jumpstart will act as a consultant to WinSonic assisting with the procurement of digital catalog content databases enabling WinSonic to market downloadable or streaming music, software, video games, movies, television shows, etc. to the consumer and commercial markets.

On October 15, 2008, there was an amended agreement for Context Ventures, Inc. v. WinSonic Digital Media Group, Ltd. (State Court of Fulton County, State of Georgia). This is an action for garnishment against the Company based on an alleged debt of $240,000 owed by the Company’s CEO, Winston Johnson. The Company defaulted on responding to the garnishment action, which opened the Company to liability for payment of Mr. Johnson’s alleged debt. On October 3, 2007, the Company moved to open the default. Context Ventures, Inc. opposed the opening of the default on January 11, 2008. The Company files amended answers every 45 days to the garnishment action to update the Court regarding the status of Mr. Johnson’s employment compensation. Within ten days of the execution of the revised agreement, dated October 15, 2008, Mr. Johnson and Mr. Hoover will file a consent order in the Georgia Action for the settlement agreement on the shares of stock. This agreement states the reduced debt amount for a total of $240,000 and payment terms for $80,000 each due on October 30, 2008, November 30, 2008, and December 30, 2008.

On October 17, 2008, the Company entered into a Convertible Secured Debenture Purchase Agreement (replaced the initial non-binding Term Sheet dated September 15, 2008) for a minimum of $250,000 investment funding. This agreement is for providing bridge financing dedicated to the launch of specific revenue generating projects. Terms of the loan facility allow the investment group to appoint one director to the board of directors. These investors have commenced assisting WinSonic in recruiting and appointing key technical positions and management. In addition, the Company has committed to reserving 2,083,333 shares of common stock for the issuance upon conversion of the Convertible Debenture and 2,083,333 shares of common stock for issuance upon exercise of the Warrants.

On November 3, 2008, the Company entered into a Consulting Agreement with Viard Consulting Services to assist in its compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Viard Consulting Services is a global consulting and internal audit firm composed of experts specializing in compliance, risk and advisory services. The services to be provided under this Agreement include, but are not limited to the following:

1) Identify the various business cycles of the Company’s various business cycles and conduct a risk assessment on each cycle.

2) Conduct a full review of the management governance process.

3) Assemble a project team to conduct an evaluation of the project

4) Define significant processes, materiality and fraud.

5) Document and evaluate internal control at the entity-wide level.

6) Help management develop policies and procedures

7) Document and evaluate procedures and processes at transaction level

8) Evaluate overall the effectiveness of internal controls.

9) Develop independent testing procedures.

10) Execute testing procedures.

11) Identify deficiencies.

12) Establish a remediation plan and coordinate implementation thereof.

13) Conduct re-testing as required.

14) Summarize findings and report to the Board of Directors and management as required.

15) Assist management with questions raised by the external auditors

On November 12, 2008, IT/IS Telecom Solutions terminated its Agreement with the Company. As of the date of termination, the Company had never determined any Statement of Work (SOW) plans or authorized IT/IS Telecom Solutions to work on any projects.

Previously, On August 6, 2008, the Company entered into a Consulting Agreement with IT/IS Telecom Solutions. Under the Agreement, the IT/IS team was to provide: (1) additional perspectives and insight into the overall goals and objectives driving the WDMG business plan and how the company might deal with its various corporate objectives, and (2) Subject Matter Experts (SMEs) to assist in the overall development effort.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

Segment Reporting Disclosures

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

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

The diagram below depicts the Company’s segment structure.

Business Segment Group	Business Unit
Digital Media Group	·  WinSonic Digital Media Group, Ltd. ·  WinSonic Digital Store, LLC
Digital Distribution Group	·  WinSonic Digital Cable Systems Network, Ltd.
Integrated Services Group	·  Automated Interiors, LLC ·  Tytess Design & Development, LLC
WinSonic Diversity Group	·  WinSonic Diversity, LLC
Corporate Group	·  WinSonic Digital Media Group, Ltd. ·  Intercompany Eliminations

As a “development stage company” the Company has not commenced material commercial operations. As of September 30, 2008, the Company has recorded $2,853,055 of revenue since inception. During the three and nine month periods ended September 30, 2008, the consolidated operations of the Company yielded revenue of $91,861 and $510,754, respectively.

General

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

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Based on the actions taken in 2008, we believe we are now positioned in 2009 to capitalize on our relationships in the entertainment and communication industries to own and control the digital rights and distribution of as much music and video content as possible. In addition, we plan to leverage our preferential communication licenses, interconnection, co-location, and wholesale pricing agreements with global service providers to reliably and cost effectively distribute its digitally formatted voice, video and data products and services. We also plan to fully protect our developing intellectual property and Internet– based browser applications and once ready for market, allow us to capitalize on the rapidly expanding social networking, virtual reality and e-commerce markets.

Consolidated Results of Operations

The following table includes the consolidated information for the operations of the Company for the three and nine month periods ended September 30, 2008 and 2007:

	Three Months Ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue	$	91,861		$	233,181		$	510,754		$	1,368,865
Gross profit		(193,503	)		(771,912	)		(367,192	)		(1,416,779	)
Expenses		1,184,804			1,882,894			4,131,427			5,660,545
Operating loss		(1,378,307	)		(2,654,806	)		(4,498,619	)		(7,077,324	)
Other income/(expense), net		(1,112,638	)		(4,037,609	)		(3,635,596	)		(6,344,840	)
Net loss		(2,490,945	)		(6,692,415	)		(8,134,215	)		(13,422,164	)
Loss per basic and diluted common share	$	(0.03	)	$	(0.12	)	$	(0.10	)	$	(0.26	)

Consolidated results of operations for the three months ended September 30, 2008 generated $91,861 in revenues, representing a 61% decrease from the reported $233,181 in revenues for the same period in 2007. All of the 2008 revenue was derived from our Integrated Services Group activities consisting of Automated Interiors and Tytess which was comparable to the same period in 2007. The decrease in revenues for the three months ended September 30, 2008 as compared to the same period in 2007 is related to suspending all work on construction projects for Tytess and a decrease in revenues for Automated Interiors. For the three months ended September 30, 2007, Tytess generated $64,382 in revenue and none for the same period in 2008. Automated Interiors revenues declined from $155,272 in 2007 to $91,861 in 2008, as AI still faces the cash flow and staffing challenges that have prevented it from being able to complete jobs to allow for greater revenue recognition in 2008. Digital Store revenues were $7,027 in 2007 and Corporate Group had revenue of $6,500 in 2007.

The aggregate net loss for the nine months ended September 30, 2008 was $8,134,215 compared to a loss of $13,422,164 for the same period in 2007. Of this 2008 amount, $883,804, or 11% of the total, was derived from our Integrated Services Group, which included a restructuring charge of $524,523 for two leased facilities. The balance was generated through our (1) Digital Media Group which generated a loss of $424,471 of the total (2) our Digital Distribution Network Group, which generated a loss of $423,803, of the total, (3) our WinSonic Diversity Group, which generated a loss of $602,346 and (4) our Corporate Group which generated a loss of $5,828,700.

Operating Expenses

As further detailed below, $4,131,427 in the operating expenses for the nine months ended September 30, 2008, includes $1,448,853 in non-cash accruals and one-time items (bad debt expense, stock-based compensation, consulting and depreciation). With the termination of certain personnel during the fourth quarter of 2007 and first quarter of 2008, adjustment of salaries on a going-forward basis and the elimination of certain non-essential expenses, the current plan for monthly average operating expense is estimated to be $240,000, prior to legal expenses and audit retainers, which would be a decrease from the 2007 monthly average of $915,000. Operating expenses decreased from second quarter 2008 by 26% or $422,547 to $1,184,804 for the three months ended September 30, 2008, and compared to $1,882,894 for the same period in the prior year, representing a decrease of 37%. The decrease was comprised of a decrease in payroll expense, partially offset by higher consulting and contract services, depreciation and amortization expense, as further discussed below.

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A breakdown of consolidated operating expenses for the three and nine month periods ended September 30, 2008 and 2007 is set forth below.

	Three Months Ended September 30,					Nine months ended September 30,
	2008		2007			2008		2007
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Operating Expenses
Selling, general and administrative	$	709,175	$	770,877		$	2,139,183	$	1,060,264
Research and development		35,209		27,975			112,383		47,381
Payroll expense - SG&A		424,995		1,055,674			1,754,005		4,384,961
Payroll expense - R&D		-		38,808			78,046		154,218
Depreciation and amortization expense		15,425		(10,440	)		47,810		13,721
Total Operating Expenses	$	1,184,804	$	1,882,894		$	4,131,427	$	5,660,545

Selling, general and administrative expense

SG&A expense increased by $1,078,919 for the nine months ended September 30, 2008 compared to the same period in 2007, primarily higher consulting and contract service fees, including non-cash compensation costs, and general office expenses.

Included in SG&A expense for the nine months ended September 30, 2008 is bad debt expense of $550,239. Bad debt expense is a non-cash expense item, related to the recognition of uncollectible accounts receivable for Automated Interiors and a $450,000 write-off of a receivable from Colonel McCrary Trucking, LLC.

Research and development expense

R&D expenses for the nine months ended September 30, 2008 were related to the Digital Media Group activities, including consulting costs, in preparation of the planned commercial launch of our social networking web environment.

Payroll expense – SG&A and R&D

Payroll expense decreased $2,707,128 during the nine months ended September 30, 2008 compared to the same period in 2007. The decrease is related to a decrease in stock based compensation and an overall decrease in employees due to initiatives begun in the last half of 2007 and up through second quarter 2008.

Monthly payroll expense averaged $328,000 for the year-ended December 31, 2007 and for the last two quarters of 2007 the average was approximately $264,000 per month. The average was lower towards the end of the year due to the elimination of certain personnel and the elimination of the deferred payroll accrual. Payroll and payroll related expenses are $1,832,051 for the first three quarters of 2008 (trending toward a monthly average of $153,000), due to the personnel changes and the adjustment of salaries that was implemented on January 4, 2008.

SFAS 123(R) requires the Company to recognize expense for the fair value of the options granted over the vesting period as additional payroll expense. Pursuant to SFAS 123(R), the Company recognizes the expense of employee incentive options that vest during the reporting period.  Stock based compensation, a non-cash expense, incurred during the nine months ended September 30, 2008 was $487,704 compared with $1,626,001 for the same period in the prior year. On January 4, 2008, the Company issued new offer letters to all current employees. Pursuant to the offer letters, the Company accelerated the vesting on all remaining stock options with an exercise price of $1.00 for these employees. The Company also canceled stock options exercisable into up to 400,000 shares of common stock with an exercise price of $0.01 because the Company had not obtained the senior funding necessary for such stock options to become exercisable. In exchange for the canceled stock options, the Company committed to issue 400,000 shares of fully vested stock options pursuant to the Company’s 2008 option plan when the plan is established and approved. All options granted prior to that date were fully vested and expensed as of December 31, 2007. The expense for options that have vested during the nine months ended September 30, 2008 relate only to the options that have been granted subsequent to December 31, 2007.

Depreciation and amortization

Depreciation and amortization expense for the three months ended September 30, 2008 totaled $15,425 compared to $11,000 (pre-adjustment) for the same period in 2007 and is a non-cash expense related to historical capital asset purchases. In the third quarter of 2007 there was a $(21,440) adjustment to depreciation to remove personal vehicles from AI’s records. Depreciation associated with WDCSN has been reclassified and is in the Cost of Operations of $57,886 for the nine months ending September 2008.

Other Income/(Expense)

Other income/(expense) totaled $(1,112,638) for the three months ended September 30, 2008 compared to $(4,037,609) during the same period in 2007. Other income/(expense) was comprised of primarily non-cash items. The consolidated breakdown of other income/(expense) for the three and nine months ended September 30, 2008 and 2007 is provided for below.

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	Three Months Ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Other income/(expense):
Interest expense	$	(486,102	)	$	(3,241,239	)	$	(3,056,026	)	$	(5,647,111	)
Interest expense - related party		(4,769	)		(41,824	)		(12,125	)		(116,683	)
Legal settlement cost		(100,750	)		(1,100,000	)		(100,750	)		(1,160,000	)
Unrealized gain on adjustment of derivative and warrant liability to fair value of underlying securities		3,506			345,454			57,831			579,337
Other Expense		(524,523	)		-			(524,526	)		(383	)
Total other income/(expense)	$	(1,112,638	)	$	(4,037,609	)	$	(3,635,596	)	$	(6,344,840	)

Interest expense and related-party interest expense totaled $490,871 during the three months ended September 30, 2008 compared to $3,283,063 during the same period in 2007 and is comprised of non-cash items. The interest expense relates to the required accounting treatment for discounted convertible debt with detachable warrants and shares or additional warrants issued in connection with financing transactions. The increase is related to higher finance costs related to shares issued in financing transactions offset by lower accretion of the discount on convertible debt with detachable warrants.

Under GAAP, the Company is required to record the warrants and the embedded derivative of the related convertible debentures as liabilities. Changes in the value of these liabilities are reflected on the Company’s income statement as “Unrealized gain (loss) on adjustment of derivative and warrant liability to fair value of underlying securities.” For the three months ended September 30, 2008, the Company recorded an unrealized gain of $3,506 compared to an unrealized gain of $345,454 for the same period in 2007 from the adjustment of these liabilities. The decrease in gain for the three months ended September 30, 2008 compared to the same period in 2007 is related to the prior year liability adjustments during that period.

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.

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

	Three Months Ended September 30, 2008								Three Months Ended September 30, 2007
Unaudited	Cash		Non-Cash			Total			Cash		Non-Cash			Total
Total expenses	$	811,640	$	373,164		$	1,184,804		$	1,228,603	$	654,291		$	1,882,894
Total other income/(expense)		-		(1,112,638	)		(1,112,638	)		-		(4,037,609	)		(4,037,609	)
Total	$	811,640	$	1,485,802		$	2,297,442		$	1,228,603	$	4,691,900		$	5,920,503

	Nine months ended September 30, 2008									Nine months ended September 30, 2007
Unaudited	Cash			Non-Cash			Total			Cash			Non-Cash			Total
Total expenses	$	2,682,574		$	1,448,853		$	4,131,427		$	3,854,973		$	1,805,572		$	5,660,545
Total other income/(expense)		(3	)		(3,635,593	)		(3,635,596	)		(383	)		(6,344,457	)		(6,344,840	)
Total	$	2,682,577		$	5,084,446		$	7,767,022		$	3,855,356		$	8,150,029		$	12,005,385

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Business Segment Results of Operations

The following tables include the separate and consolidated business segment information for the operations of the Company for the three and nine month periods ended September 30, 2008 and 2007:

	Three Months Ended September 30, 2008
	Digital			Digital			Integrated			WinSonic
(Unaudited)	Media			Distribution			Services			Diversity			Corporate
	Group			Group			Group			Group			Group			Total
Revenue	$	-		$	-		$	91,861		$	-		$	-		$	91,861
Gross profit		-			(215,182	)		20,030			-			1,649			(193,503	)
Operating expenses		47,892			4,703			130,598			62,122			939,489			1,184,804
Loss from operations		(47,892	)		(219,885	)		(110,568	)		(62,122	)		(937,840	)		(1,378,307	)
Net loss		(47,907	)		(220,014	)		(644,307	)		(69,022	)		(1,509,695	)		(2,490,945	)

	Three Months Ended September 30, 2007
	Digital			Digital			Integrated			WinSonic
	Media			Distribution			Services			Diversity		Corporate
	Group			Group			Group			Group		Group			Total
Revenue	$	7,027		$	-		$	219,654		$	-	$	6,500		$	233,181
Gross profit		3,700			(179,306	)		(601,800	)		-		5,494			(771,912	)
Operating expenses		101,929			49,966			462,137			-		1,268,862			1,882,894
Loss from operations		(98,229	)		(229,272	)		(1,063,937	)		-		(1,263,368	)		(2,654,806	)
Net income (loss)		(98,229	)		(229,898	)		(1,082,625	)		-		(5,281,663	)		(6,692,415	)

	Nine months ended September 30, 2008
	Digital			Digital			Integrated			WinSonic
	Media			Distribution			Services			Diversity			Corporate
	Group			Group			Group			Group			Group			Total
Revenue	$	2,567		$	-		$	508,187		$	-		$	-		$	510,754
Gross profit		1,781			(412,309	)		43,336			-			-			(367,192	)
Operating expenses		245,235			11,366			416,546			583,889			2,874,391			4,131,427
Loss from operations		(243,454	)		(423,675	)		(373,210	)		(583,889	)		(2,874,391	)		(4,498,619	)
Net loss		(243,471	)		(423,803	)		(925,536	)		(602,346	)		(5,939,059	)		(8,134,215	)

	Nine months ended September 30, 2007
	Digital			Digital			Integrated			WinSonic
	Media			Distribution			Services			Diversity		Corporate
	Group			Group			Group			Group		Group			Total
Revenue	$	14,530		$	4,000		$	1,343,835		$	-	$	6,500		$	1,368,865
Gross profit		6,770			(1,020,402	)		(408,641	)		-		5,494			(1,416,779	)
Operating expenses		300,503			103,257			1,347,026			-		3,909,759			5,660,545
Loss from operations		(293,733	)		(1,123,659	)		(1,755,667	)		-		(3,904,265	)		(7,077,324	)
Net income (loss)		(293,732	)		(1,124,286	)		(1,778,615	)		-		(10,225,531	)		(13,422,164	)

Digital Media Group

For the three months ended September 30, 2008, Digital Media Group included the operations of the Digital Store and the R&D activities related to the Digital Media Group’s preparation of the planned commercial launch of its social networking web environment. The increase in operating expenses for the Digital Media Group is primarily related to the increase in R&D activities.

Digital Distribution Group

During late 2006, the Company accelerated its preparation to begin full operation of its Network. The costs incurred during the three months ended September 30, 2008 represent the personnel and facilities costs associated with those efforts. Since the Network did not achieve full operations in 2007, the Company eliminated certain non-essential personnel during 2007. In addition, on January 4, 2008, the Company implemented further personnel changes and made certain salary adjustments to further cut the costs associated with the Digital Distribution Group. These cost reductions are reflected in the operating expenses for the three months ended September 30, 2008. The Company will increase personnel, as needed, when the Digital Distribution Group becomes fully operational.

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Integrated Services Group

The decrease in revenues for the three months ended September 30, 2008 as compared to the same period in 2007 is related to suspending all work on construction projects for Tytess and a decrease in revenues for Automated Interiors. For the three months ended September 30, 2007, Tytess generated $64,382 in revenue and none for the same period in 2008. Automated Interiors revenues declined from $155,272 in 2007 to $91,861 in 2008, as AI still faces cash flow and staffing challenges that have prevented it from being able to complete jobs to allow for greater revenue recognition in 2008. The decrease in revenues for Tytess has been a result of construction being halted due to projected cost over-runs and the expanded completion time frames estimated to perform the contracts. Since Tytess uses the percentage of completion method for revenue recognition, no further revenue could be recognized until construction resumes, which has not happened. In addition, Automated Interiors encountered a slow-down during the last half of 2007 in its revenue due to cash flow and staffing challenges and has been unable to complete jobs to allow for revenue recognition. The situation has continued in 2008. Since Automated Interiors recognizes revenue on the completed contract method, it is necessary to complete the project to recognize any revenue associated with the project, regardless of how close to completion the project actually is or how much cash has actually been received on the project.

The gross margin for Automated Interiors for the three months ended September 30, 2008 was $20,030, compared to $52,852 in the second quarter and a negative $29,546 in the first quarter. Automated Interiors continues to have cash flow and staffing challenges which have not allowed it to timely complete jobs to allow for revenue recognition.

Total operating costs have decreased for the three months ended September 30, 2008 compared to the same period in 2007. The decrease is primarily comprised of $87,258 for Tytess and the balance is related to Automated Interiors. Since Tytess has suspended all work on its construction projects, the Company has terminated all general and administrative employees and eliminated all related costs. The decrease for Automated Interiors is mainly comprised by a decrease in payroll and related employee expenses. Payroll and related expenses have decreased due to certain personnel changes and the adjustment of salaries that was implemented on January 4, 2008.

WinSonic Diversity Group

WinSonic Diversity Group’s operations were not consolidated until the fourth quarter of 2007. The operating expenses for the three months ended September 30, 2008 consisted of occupancy costs totaling $20,000, certain consulting costs totaling $40,000 and interest and late fees on the assumed Colonel McCrary LLC debt of $9,000.

Corporate Group

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

Operating expenses for the Corporate Group decreased by $329,373 during the three months ended September 30, 2008 compared to the same period in 2007. The decrease was primarily related to a decrease in reduction in payroll and various minor decreases in office related supplies and services in other expense items.

On January 4, 2008, the Company issued new offer letters to all current employees. Pursuant to the offer letters, the Company accelerated the vesting on all remaining stock options with an exercise price of $1.00 for these employees. The Company also canceled stock options exercisable into up to 400,000 shares of common stock with an exercise price of $0.01 because the Company had not obtained the senior funding necessary for such stock options to become exercisable. In exchange for the canceled stock options, the Company committed to issue 400,000 shares of fully vested stock options pursuant to the Company’s 2008 option plan when the plan is established and approved. All options granted prior to that date were fully vested and expensed as of December 31, 2007. The expense for options that have vested during the three months ended September 30, 2008 relate only to the options that have been granted subsequent to December 31, 2007.

Liquidity and Capital Resources

The Company had a working capital deficit of $16,976,923 as of September 30, 2008, compared to a deficit of $15,754,643 as of December 31, 2007.

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

During the nine months ended September 30, 2008, the Company used $1,370,637 in its operating activities, compared with $1,918,570 for the same period in 2007.

During the nine months ended September 30, 2008 the Company’s investing activities used $92,151 for the purchase of fixed assets, compared to $140,269 for the same period in 2007.

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During the nine months ended September 30, 2008 the Company’s financing activities generated $1,387,020 compared to $2,055,748 for the same period in 2007. The funds generated from the Company’s financing activities during the nine months ended September 30, 2008 consists primarily of proceeds from loans payable of $695,250, proceeds from Company’s common stock of $307,106, proceeds from share issuance of $120,000 and an increase in the bank overdraft in the amount of $3,741. For the same period in 2007, the Company raised $40,000 from loans payable, $395,893 from loans payable - related party (net of repayments), proceeds from share notes of $1,688,474, and an increase in the bank overdraft in the amount of $7,829.

From inception, the Company has raised $10,354,541 to fund operations.  Of the total funds raised, $8,646,045 was used to provide the necessary resources for the development stage operations of the Company and $1,693,371 was used to purchase fixed assets. The funds include $5,740,063 which was raised through convertible debentures and warrants, $2,490,637 which was raised through loans (net of repayments), and $3,741 from an increase in the bank overdraft.  The Company also raised $2,120,100 from the issuance of common stock.

During the nine months ended September 30, 2008 the Company’s net cash position decreased by $75,768.

During the remainder of 2008, the Company anticipates the monthly cash requirements will be at least $240,000, excluding legal and auditing fees. The Company is in the process of negotiating funding to meet these requirements. There can be no assurance; however, that the Company will be able to obtain this funding or as to the terms of any such funding.

Continuing Operations

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

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

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

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

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.

Critical Accounting Policies

Basis of Accounting

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

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Use of Estimates

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

Stock Based Compensation

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

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

During the three months ended September 30, 2008 and 2007, the Company committed to issue options to employees for 0 and 635,108 shares of common stock, respectively. The fair value of the options granted during the three months ended September 30, 2008 and 2007 was $0 and 2,833, respectively. The Company recorded compensation expense of $104,331 for September 30, 2008 related to the vesting of the Company’s outstanding options. The balance of the options granted will be included in the Company’s 2008 Employee option plan and will have terms and conditions determined under that plan.

On January 4, 2008, the Company issued new offer letters to all current employees. Pursuant to the offer letters, the Company accelerated the vesting on all remaining stock options with an exercise price of $1.00 for these employees. The Company also canceled stock options exercisable into up to 400,000 shares of common stock with an exercise price of $0.01 because the Company had not obtained the senior funding necessary for such stock options to become exercisable. In exchange for the canceled stock options, the Company committed to issue 400,000 shares of fully vested stock options pursuant to the Company’s 2008 option plan when the plan is established and approved. As a result of the acceleration of the stock options with an exercise price of $1.00 and the cancellation of certain unvested stock options with an exercise price of $0.01, and the commitment to issue an equal number of new stock options, the Company recorded additional stock based compensation totaling $193,000 and was reflected as additional payroll expense in the fourth quarter of 2007.

Revenues and Expenses Recognition

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

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

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

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

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

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Recently Issued Accounting Pronouncements

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

At September 30, 2008, the Company did not have any derivative instruments or hedging activities.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60,” SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. This clarification will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. SFAS 163 will be effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of SFAS 163 will have a material impact on its financial condition or results of operation.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (including Partial Cash Settlement). The FSP requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), commonly referred to as an Instrument C under Emerging Issues Task Force (“EITF”) Issue No. 90-19, “Convertible Bonds with Issuer Options to Settle for Cash Upon Conversion,” to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and is to be applied retrospectively to all periods presented (retroactive restatement) pursuant to the guidance in Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections.” The Company has determined the FSP does not impact the accounting treatment of the Company’s existing convertible notes. As the Company considers the issuance and terms of convertible debt instruments in the future, the Company will evaluate the impact that the adoption of FSP APB 14-1 will have on its consolidated financial statements.

Off-Balance Sheet Arrangements

As of September 30, 2008, 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. Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to certain market risks, including changes in interest rates and currency exchange rates.  The Company does not undertake any specific actions to limit those exposures.

Item 4T. Controls and Procedures.

Our management team, under the leadership and with the participation of our Chief Executive Officer (who is also our Chief Financial Officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of December 31, 2007. The evaluation was performed based on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on this evaluation, our management concluded that our disclosure controls and procedures were not effective, we found one area of potential deficiency or material weakness to be addressed in the Company's internal controls, as of December 31, 2007, continuing into 2008, 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. This material weakness was identified previously and through the third quarter as a shortcoming in communication from the Chief Executive Officer (who is also our Chief Financial Officer). Specifically, the second quarter ledger entry was regarding one Board Consent Shares for a Shareholder agreement from first quarter that was not submitted to the accounting staff timely for the first quarter recording of such transactions. These findings to date have generally been considered to be immaterial in value, but the discovery of these items would indicate internal controls were not strong enough in those prior periods to prevent these errors from occurring. Since December 2007 and during the nine months of 2008, numerous procedures and controls have been implemented by management including enhanced employee file management, formation of an audit committee, and improved communication between the CEO/CFO and the accounting staff on all financial and operational transactions.

Our management team is diligently developing and implementing additional controls and procedures to ensure that such information required for disclosure is recorded, processed, summarized and reported timely and accurately. With the addition of the Vice President of Finance, Chief Accounting Officer, and other accounting staff added since 2007, the Company has greatly improved its internal control over financial reporting during the nine months ended September 30, 2008.

Our management team is diligently developing and implementing additional controls and procedures to ensure that such information required for disclosure is recorded, processed, summarized and reported timely and accurately. To date, our efforts have focused upon replacing our Chief Financial Officer, who resigned in 2006. The resignation of our CFO has exacerbated an existing problem of sufficiency of accounting personnel. In addition to the Vice President of Finance/CFO employee, we are currently using consultants for key accounting positions while waiting for significant funding to have them enter into permanent employment agreements with the Company.

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

With the addition of a Vice President of Finance, Chief Accounting Officer (consultant) and other consulting accounting staff during 2008, the Company has greatly improved its internal control over financial reporting during the nine months ended September 30, 2008.

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On November 3, 2008, the Company entered into a Consulting Agreement with Viard Consulting Services to assist in its compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Viard Consulting Services is a global consulting and internal audit firm composed of experts specializing in compliance, risk and advisory services. The services to be provided under this Agreement include, but are not limited to the following:

1) Identify the various business cycles of the Company’s various business cycles and conduct a risk assessment on each cycle.

2) Conduct a full review of the management governance process.

3) Assemble a project team to conduct an evaluation of the project

4) Define significant processes, materiality and fraud.

5) Document and evaluate internal control at the entity-wide level.

6) Help management develop policies and procedures

7) Document and evaluate procedures and processes at transaction level

8) Evaluate overall the effectiveness of internal controls.

9) Develop independent testing procedures.

10) Execute testing procedures.

11) Identify deficiencies.

12) Establish a remediation plan and coordinate implementation thereof.

13) Conduct re-testing as required.

14) Summarize findings and report to the Board of Directors and management as required.

15) Assist management with questions raised by the external auditors

The Company issued 1,645,455 restricted shares of common stock as payment for license rights and prepaid hosting expenses. The Company issued 2,076,521 restricted shares of common stock as payment per legal settlement. The Company issued 1,200,000 restricted shares of common stock for cash consideration. The Company issued 1,500,000 restricted shares of common stock as consideration for the purchase of intangible asset.

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

Part II - Other Information

Item 1. Legal Proceedings

See “Note 11 - Summary of Legal Proceedings” and “Note 16 - 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 1A Risk Factors

Not applicable

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

During the nine months ended September 30, 2008, the Company received proceeds of $52,000 from the issuance of convertible debentures to four accredited investors. In connection with the issuance of such convertible debentures, the Company also issued warrants to purchase an aggregate of up to 130,000 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 nine months ended September 30, 2008, the Company issued an aggregate of 24,101,871 restricted shares of common stock as further described below. The Company issued 10,360,699 restricted shares of common stock in connection with certain financing transactions. The Company issued an aggregate of 2,676,633 restricted shares of common stock to nineteen holders of the Company’s convertible debentures who converted such debentures. The Company issued 2,235,000 restricted shares of common stock as payment for consulting services. The Company issued 1,645,455 restricted shares of common stock as payment for license rights and prepaid hosting expenses. The Company issued 2,076,521 restricted shares of common stock as payment per legal settlement. The Company issued 1,200,000 restricted shares of common stock for cash consideration. The Company issued 1,500,000 restricted shares of common stock as consideration for the purchase of intangible asset. The Company issued 1,035,534 and 851,666 in connection with the exercise of warrants and options, respectively. The Company issued 2,862,962 shares as employee compensation. In addition the Company received back into the treasury 1,146,593 shares previously issued for the acquisition of Tytess and 1,200,000 shares which were issued in error in 2007. 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.

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Item 3. Defaults Upon Senior Securities

As of September 30, 2008, 10 loans payable totaling $505,682 are in default, 53 of the Company’s share notes payable totaling $1,357,031 are in default, the Company’s Short-Term Promissory Note for $181,686 is in default, and one of the Company’s loans payable - related party in the amount of $84,956 is in default.

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

None

Item 5. Other Information

None

Item 6. Exhibits.

10.1	Form of Loan Agreement and Security Assignment and Form of Promissory Note dated April 8, 2008.
10.2	Form of Loan Agreement and Security Assignment and Form of Promissory Note dated April 17, 2008.
10.3	Assets and Goodwill Purchase Agreement by and between WinSonic Digital Media Group, Ltd. and Dverb Media Group dated April 24, 2008.
10.4	Loan Bank Agreement dated April 29, 2008 by and between WinSonic Digital Media Group, Ltd. and Neighborhood Community Bank for original loan entered into by Colonel McCrary Trucking, LLC.
10.5	Form of Loan Agreement and Security Assignment and Form of Promissory Note dated April 30, 2008 by and between WinSonic Digital Media Group, Ltd. and First Philadelphia, LLC.
10.6	Form of Loan Agreement and Security Assignment and Form of Promissory Note dated June 2-10, 2008 (due June 30, 2008).
10.7	Form of Loan Agreement and Security Assignment and Form of Promissory Note dated June 2-10, 2008 (due December 31, 2008).
10.8	Form of Loan Agreement and Security Assignment and Form of Promissory Note Senior Debt dated June 16-23, 2008 (due December 31, 2008).
10.9	Form of Consulting Accounting Services - COA June 17, 2008.
10.10	Form of Equity Agreement and Security Assignment dated July 23-30, 2008.
10.11	Form of Memorandum (MOU) Agreement Swagg Media dated July 26, 2008.
10.12	Form of Memorandum (MOU) Agreement RainySongs dated July 29, 2008.
10.13	Form of Consulting Business Development Svcs- B Goldstein July 10, 2008.
10.14	Form of Contract Software Programming Svcs- JECR, Inc. August 1, 2008.
10.15	Form of Consulting Executive Business Planning & Business Development Svcs- IT/IS August 6, 2008.

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10.16	Form of Consulting Placement Agent Terminate Svcs- Hallmark Investments, Inc. July 14, 2008.
*10.17	Form of Loan Agreement and Security Assignment and Form of Promissory Note dated August 28, 2008 (due December 31, 2008).
*10.18	Form of Loan Agreement and Security Assignment and Form of Promissory Note dated August 29, 2008 (due December 31, 2008).
*10.19	Form of Equity Agreement and Security Assignment dated August 26, 2008.
*10.20	Form of Equity Agreement and Security Assignment dated August 26, 2008.
*10.21	Form of Equity Agreement and Security Assignment dated August 28, 2008.
*10.22	Form of Equity Agreement and Security Assignment dated September 29, 2008.
*10.23	Distribution Rights Agreement dated March 20, 2008 between Blue Pie Productions Pty, Ltd. and WinSonic Digital Media Group, Ltd., and WinSonic Digital Cable Networks, Ltd. as amended by Rights Agreement Addendum dated September 16, 2008.
*10.24	Content Licensing Agreement dated September 30, 2008 between Isolation Network, Inc. d/b/a INgrooves and ONE Digital Distribution and WinSonic Digital Media Group, Ltd.
*10.25	Digital Store Agreement dated September 16, 2008 between Blue Vault Digital Pty, Ltd. and WinSonic Digital Media Group, Ltd. and WinSonic Digital Cable Systems Network, Ltd.
*10.26	Form of a Confidential Term Sheet Kaival, LLC dated October 14, 2008.
*10.27	Form of a Mutual Confidentiality Agreement (MCA) Net-Structure Asset Management Solutions, LLC and WinSonic Cable Networks, Ltd. dated October 15, 2008.
*10.28	Form of a Consulting Agreement Jumpstart Marketing, Inc. And WinSonic Digital Media Group, Inc. dated October 15, 2008.
*10.29	Form of a Convertible Secured Debenture Purchase Agreement dated October 17, 2008.
*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.
99.1	Form of Letter Board Member Resignation Effective April 17, 2008.

* Filed herewith

(10.1-10.16 Previously filed)

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	WINSONIC DIGITAL MEDIA GROUP, LTD. (Registrant)
November 14, 2008		/s/ Winston Johnson
		Winston Johnson Chairman & CEO (Principal Executive Officer and Principal Financial Officer)

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EX-10.24

EX-10.27