**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





(Mark
      One)




x
            Quarterly
                Report Pursuant To Section 13 Or 15 (d) Of The Securities Exchange
                Act Of
                1934





For
                the quarterly period ended:**September****30,
                2006**





Or





o
            Transition
                Report Pursuant To Section 13 Or 15 (d) Of The Securities Exchange
                Act Of
                1934





For
                the transition period from ______________ to
                _______________





Commission
      File Number: **001-15643**


**INFOSMART
                GROUP, INC.**(Exact
                name of registrant as specified in its
                charter)




**California**
            
            **95-4597370**(State
                or other jurisdiction of incorporation of origination)
            
            (I.R.S.
                Employer Identification Number)





**5th
                Floor, QPL Industrial Building, 126-140 Texaco Road,**
              **Tsuen
                Wan, Hong Kong**
            
            **N/A**(Address
                of principal executive offices)
            
            (Zip
                code)




**(852)
                2944-9905**(Registrant's
                telephone number, including area
                code)





Cyber
                Merchants Exchange, Inc.
              ****936A
                Beachland Boulevard Suite 13, Vero Beach, FL 32963
              Former
                fiscal year end: May 31(Former
                name, former address and formal fiscal year, if changed since last
                report)




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 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
      the past 90 days. Yes x No o





The
      registrant is a shell company (as defined by Rule 12b-2 of the Exchange
      Act). Yes o No x




APPLICABLE
      ONLY TO CORPORATE ISSUERS:





Indicate
      the number of shares outstanding of each issuer's classes of common stock,
      as of
      the latest practicable date: 134,426,299 issued and outstanding as of
      November 16, 2006.





Transitional
      Small Business Disclosure Form (Check one): Yes o No x





TABLE
      OF
      CONTENTS


TO
      QUARTERLY REPORT ON FORM 10-QSB


FOR
      QUARTER ENDED SEPTEMBER 30, 2006




**Page**PART
                I
            FINANCIAL
                INFORMATIONItem
                1.
            Financial
                StatementsCondensed
                Consolidated Statements of Operations
            F-1Condensed
                Consolidated Balance Sheets
            F-2
                - 3Condensed
                Consolidated Statements of Cash Flows
            F-4Notes
                to Condensed Consolidated Financial Statements
            F-5Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation
            4Item
                3.
            Controls
                and Procedures
            25PART
                II
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            26Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            26Item
                3.
            Defaults
                Upon Senior Securities
            26Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            26Item
                5.
            Other
                Information
            26Item
                6.
            Exhibits
            26Signatures
            29




(REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK)


2


**CAUTIONARY
      NOTICE REGARDING FORWARD-LOOKING INFORMATION**





All
      statements contained in this Quarterly Report on Form 10-QSB (“Form 10-QSB”) for
      Infosmart Group, Inc., other than statements of historical facts, that address
      future activities, events or developments are forward-looking statements,
      including, but not limited to, statements containing the words “believe,”
“anticipate,” “expect” and words of similar import. These statements are based
      on certain assumptions and analyses made by us in light of our experience and
      our assessment of historical trends, current conditions and expected future
      developments as well as other factors we believe are appropriate under the
      circumstances. However, whether actual results will conform to the expectations
      and predictions of management is subject to a number of risks and uncertainties
      that may cause actual results to differ materially.





Such
      risks include, among others, the following: international, national and local
      general economic and market conditions: our ability to sustain, manage or
      forecast our growth; raw material costs and availability; new product
      development and introduction; existing government regulations and changes in,
      or
      the failure to comply with, government regulations; adverse publicity;
      competition; the loss of significant customers or suppliers; fluctuations and
      difficulty in forecasting operating results; changes in business strategy or
      development plans; business disruptions; the ability to attract and retain
      qualified personnel; the ability to protect technology; and other factors
      referenced in this and previous filings.





Consequently,
      all of the forward-looking statements made in this Form 10-QSB are qualified
      by
      these cautionary statements and there can be no assurance that the actual
      results anticipated by management will be realized or, even if substantially
      realized, that they will have the expected consequences to or effects on our
      business operations. As used in this Form 10-QSB, unless the context requires
      otherwise, “we” or “us” or “Infosmart” or the “Company” means Infosmart Group,
      Inc. and its subsidiaries.


3


**PART
      I - FINANCIAL INFORMATION**





**Item
                1.**
            **Financial
                Statements**


**Infosmart
        Group** **Inc.**
 **(formerly
        Cyber Merchants Exchange Inc.)**
 
 Condensed
        Consolidated Financial Statements
 For
        the
        three and nine months ended September 30, 2006 and 2005
 (Stated
        in US Dollars)
 
  
 
 **INFOSMART
        GROUP INC.**
 **(FORMERLY
        CYBER MERCHANTS EXCHANGE INC.)**
 **CONDENSED
        CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
        2005**
 
 
 Index
        to
        financial statements
 
 
 PAGESCondensed
                  consolidated statements
                  of operations
              F-1Condensed
                  consolidated balance sheets
              F-2
                  - 3Condensed
                  consolidated statements
                  of cash flows
              F-4Notes
                  to condensed consolidated financial statements
              F-5
                  - 24
 
  
  **INFOSMART
        GROUP** **INC.**
 **(FORMERLY
        CYBER MERCHANTS EXCHANGE INC.)**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **FOR
        THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
        2005**
 **(Unaudited)**
 **(Stated
        in US Dollars)**
 
 ***Three
                  months ended***
              
              ***Nine*****months ended*****September
                  30,***
              
              ***September
                  30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005***Total
                  sales
              
              $
              7,560,552
              
              $
              3,990,318
              
              $
              20,122,556
              
              $
              18,479,677Cost
                  of sales
              
              
              (5,405,277
              )
              
              (2,902,758
              )
              
              (14,487,445
              )
              
              (13,078,141
              )Gross
                  profit
              
              
              2,155,275
              
              
              1,087,560
              
              
              5,635,111
              
              
              5,401,536Administrative
                  expenses
              
              
              (384,635
              )
              
              (227,394
              )
              
              (950,529
              )
              
              (583,764
              )Depreciation
                  - note 12
              
              
              (62,852
              )
              
              (54,889
              )
              
              (183,936
              )
              
              (155,543
              )Selling
                  and distributing costs
              
              
              (158,081
              )
              
              (130,406
              )
              
              (396,195
              )
              
              (505,590
              )Income
                  from operations
              
              
              1,549,707
              
              
              674,871
              
              
              4,104,451
              
              
              4,156,639Professional
                  expenses related to Restructuringand
                  Share Exchange - note 6
              
              
              (2,753,390
              )
              
              (165,765
              )
              
              (2,753,390
              )
              
              (165,765
              )Reversal
                  of commission payable
              
              
              -
              
              
              -
              
              
              -
              
              
              717,692Other
                  income - note 7
              
              
              159,767
              
              
              39,930
              
              
              331,017
              
              
              239,375Interest
                  expenses
              
              
              (132,279
              )
              
              (133,864
              )
              
              (407,765
              )
              
              (363,939
              )Income
                  (loss) before income taxes
              
              
              (1,176,195
              )
              
              415,172
              
              
              1,274,313
              
              
              4,584,002Income
                  taxes - note 8
              
              
              (261,176
              )
              
              (72,656
              )
              
              (698,271
              )
              
              (802,201
              )Net
                  income (loss)
              
              
              (1,437,371
              )
              
              342,516
              
              
              576,042
              
              
              3,781,801Series
                  B preferred dividends
              
              
              (66,978
              )
              
              -
              
              
              (66,978
              )
              
              -Series
                  B preferred deemed dividend - note 15
              
              
              (2,297,157
              )
              
              -
              
              
              (2,297,157
              )
              
              -(2,364,135
              )
              
              -
              
              
              (2,364,135
              )
              
              -Net
                  income (loss) applicable to commonShareholders
              
              $
              (3,801,506
              )
              $
              342,516
              
              $
              (1,788,093
              )
              $
              3,781,801Earnings
                  (loss) per share-
                  basic and dilutive
              
              $
              (0.03
              )
              $
              0.00
              
              $
              (0.02
              )
              $
              0.03Weighted
                  average shares outstanding-
                  basic and dilutive
              
              
              119,986,624
              
              
              110,236,846
              
              
              112,429,857
              
              
              110,236,846
 
 See
        the
        accompanying notes to condensed consolidated financial
        statements
  F-1
 
 **INFOSMART
        GROUP** **INC.**
 **(FORMERLY
        CYBER MERCHANTS EXCHANGE INC.)**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **AS
        OF SEPTEMBER 30, 2006 AND DECEMBER 31, 2005**
 **(Stated
        in US Dollars)**
 
 ***As
                  of******September
                  30,***
              
              ***December
                  31,******2006***
              
              ***2005******(Unaudited)***
              
              ***(Audited)*****ASSETS**Current
                  assetsCash
                  and cash equivalents
              
              $
              2,178,209
              
              $
              154,368Restricted
                  cash - note 14(b)
              
              
              630,788
              
              
              263,085Trade
                  receivables
              
              
              6,081,413
              
              
              3,252,678Prepaid
                  expenses and other receivables - note 10
              
              
              2,979,465
              
              
              1,478,343Inventories,
                  net - note 11
              
              
              972,181
              
              
              1,427,790Total
                  current assets
              
              
              12,842,056
              
              
              6,576,264Deferred
                  tax assets - note 8
              
              
              -
              
              
              45,724Plant
                  and equipment, net - note 12
              
              
              18,807,006
              
              
              18,298,753**TOTAL
                  ASSETS**
              
              $
              31,649,062
              
              $
              24,920,741**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****LIABILITIES**Current
                  liabilitiesTrade
                  payables
              
              $
              2,436,155
              
              $
              1,800,984Other
                  payables and accrued liabilities - note 13
              
              
              816,560
              
              
              1,102,953Bank
                  borrowings - note 14
              
              
              2,525,195
              
              
              4,461,840Current
                  obligations under capital leases
              
              
              -
              
              
              52,692Series
                  B preferred stock dividend payable - note 15
              
              
              66,978
              
              
              -Current
                  portion of other loans
              
              
              3,227,308
              
              
              1,996,614Total
                  current liabilities
              
              
              9,072,196
              
              
              9,415,083Non-current
                  portion of other loans
              
              
              -
              
              
              1,750,131Advance
                  from a related party
              
              
              889,423
              
              
              2,217,054Deferred
                  tax liabilities - note 8
              
              
              3,136,032
              
              
              2,497,054**TOTAL
                  LIABILITIES**
              
              $
              13,097,651
              
              $
              15,879,322**COMMITMENTS
                  AND CONTINGENCIES - note 19**
  F-2
 
 **INFOSMART
        GROUP** **INC.**
 **(FORMERLY
        CYBER MERCHANTS EXCHANGE INC.)**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS (cont’d)**
 **AS
        OF SEPTEMBER 30, 2006 AND DECEMBER 31, 2005**
 **(Stated
        in US Dollars)**
 
 ***As
                  of******September
                  30,***
              
              ***December
                  31,******2006***
              
              ***2005******(Unaudited)***
              
              ***(Audited)***Series
                  B Redeemable Convertible Preferred Stock: No par value - note
                  15Authorized
                  1,800,000 shares; issued and outstanding****1,092,857.143
                  shares
              
              $
              3,094,026
              
              $
              -**STOCKHOLDERS’
                  EQUITY**Common
                  stock: No par valueAuthorized
                  40,000,000 shares; issued and outstanding13,428,810
                  shares
              
              
              747,000
              
              
              -Preferred
                  stock: No par value, authorized 7,000,000 shares - note 15
              
              
              -
              
              
              -Series
                  A Convertible Preferred Stock: No par value - note 15Authorized
                  1,200,000 shares; issued and outstanding1,000,000 shares
              
              
              2,046,672
              
              
              619,878Additional
                  paid-in-capital
              
              
              6,072,992
              
              
              -Accumulated
                  other comprehensive income
              
              
              (11,069
              )
              
              31,658Retained
                  earnings
              
              
              6,601,790
              
              
              8,389,883**TOTAL
                  STOCKHOLDERS’ EQUITY**
              
              
              15,457,385
              
              
              9,041,419**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY**
              
              $
              31,649,062
              
              $
              24,920,741
 
 See
        the
        accompanying notes to condensed consolidated financial statements
 
  F-3
  **INFOSMART
        GROUP INC.**
 **(FORMERLY
        CYBER MERCHANTS EXCHANGE INC.)**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**
 **(Unaudited)**
 **(Stated
        in US Dollars)**
 
 ***Nine
                  months ended******September
                  30******2006***
              
              ***2005*****Cash
                  flows from operating activities**Net
                  income
              
              $
              576,042
              
              $
              3,781,801Adjustments
                  to reconcile net income to net cash flowsprovided
                  by operating activities:Depreciation
              
              
              1,344,673
              
              
              1,179,059Income
                  taxes
              
              
              698,271
              
              
              802,201Professional
                  expenses related to Restructuring and Share Exchange
              
              
              2,623,794
              
              
              -Changes
                  in operating assets and liabilities:Trade
                  receivables
              
              
              (2,852,723
              )
              
              (574,040
              )Prepaid
                  expenses and other receivables
              
              
              (1,512,697
              )
              
              (1,928,614
              )Inventories
              
              
              450,367
              
              
              (487,970
              )Trade
                  payables
              
              
              595,552
              
              
              (772,747
              )Advance
                  from a related party
              
              
              (1,321,423
              )
              
              (1,463,225
              )Other
                  payables and accrued liabilities
              
              
              (290,346
              )
              
              (87,671
              )Net
                  cash flows provided by operating activities
              
              
              311,510
              
              
              448,794**Cash
                  flows from investing activities**Acquisition
                  of plant and equipment
              
              
              (1,939,885
              )
              
              (348,601
              )Cash
                  acquired on the acquisition of a subsidiary
              
              
              28,664
              
              
              -Net
                  cash flows (used in) investing activities
              
              
              (1,911,221
              )
              
              (348,601
              )**Cash
                  flows from financing activities**Proceeds
                  from new bank loans
              
              
              618,240
              
              
              1,285,000Repayment
                  of non-recurring bank loans
              
              
              (925,643
              )
              
              (718,145
              )Net
                  advancement (repayment) of other bank borrowings
              
              
              (1,355,836
              )
              
              1,058,044Repayment
                  of other loans
              
              
              (503,574
              )
              
              (111,683
              )Increase
                  in restricted cash
              
              
              (370,076
              )
              
              (126,873
              )(Decrease)
                  increase in bank overdrafts
              
              
              (258,621
              )
              
              317,318Proceeds
                  from issuance of Infosmart common stock
              
              
              999
              
              
              -Proceeds
                  from the issuance of Series B preferred stockand
                  detachable common stock warrants
              
              
              7,650,000
              
              
              -Preferred
                  stock issuance costs and recapitalization costs
              
              
              (1,172,302
              )
              
              -Repayment
                  of obligations under capital leases
              
              
              (52,610
              )
              
              (1,487,118
              )Net
                  cash flows provided by financing activities
              
              
              3,630,577
              
              
              216,543Effect
                  of foreign currency translation on cash and cash
                  equivalents
              
              
              (7,025
              )
              
              1,208Net
                  increase in cash and cash equivalents
              
              
              2,023,841
              
              
              317,944Cash
                  and cash equivalents, beginning of period
              
              
              154,368
              
              
              95,226Cash
                  and cash equivalents, end of period
              
              $
              2,178,209
              
              $
              413,170Supplemental
                  disclosures for cash flow information:Cash
                  paid for:Interest
              
              $
              455,786
              
              $
              396,081Income
                  taxes
              
              
              -
              
              
              -Noncash
                  investing and financing activities:Issuance
                  of Placement Agent warrants
              
              
              644,801
              
              
              -Value
                  of exchange transaction and financing services rendered inexchange for shares of common stock
              
              
              747,000
              
              
              -Value
                  of exchange transaction and financing services rendered inexchange of Series A shares
              
              
              1,426,794
              
              
              -
 
 See
        the
        accompanying notes to condensed consolidated financial statements
 
  F-4
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
 
 **1.**
              **Change
                  of company name and financial year
                  date**
 
 Effective
        on October 12, 2006, the company changed its name from Cyber Merchants Exchange
        Inc. to Infosmart Group Inc. (the “Company”).
 
 On
        August
        16, 2006, the Company’s Board of Directors approved a change of fiscal year end
        date from May 31 to December 31, with all the required filings submitted
        to the
        United States Securities and Exchange Commission.
 
 **2.**
              **Basis
                  of presentation**
 
 The
        accompanying condensed consolidated financial statements of the Company and
        its
        subsidiaries have been prepared in accordance with generally accepted accounting
        principles in the United States of America for interim consolidated financial
        information. Accordingly, they do not include all the information and notes
        necessary for comprehensive consolidated financial statements.
 
 In
        the
        opinion of the management of the Company, all adjustments, which are of a
        normal
        recurring nature, necessary for a fair statement of the results for the
        three-month and nine-month periods have been made. Results for the interim
        period presented are not necessarily indicative of the results that might
        be
        expected for the entire fiscal year. These condensed financial statements
        should
        be read in conjunction with the consolidated financial statements and the
        notes
        for the year ended December 31, 2005 included in the Company’s Form SB2 as filed
        with the Securities and Exchange Commission on September 15, 2006 which became
        effective October 10, 2006.
 
 The
        Company entered into an Exchange Agreement dated July 7, 2006 and amended
        on
        August 14, 2006 (the “Exchange Agreement”) with KI Equity Partners II, LLC (“KI
        Equity”), Infosmart Group Limited (“Infosmart”), the owners of 100% of the
        capital shares of Infosmart, namely Chung Kwok, Po Nei Sze, Prime Corporate
        Developments Limited (“Prime Corporate”) (collectively the “Original Infosmart
        Shareholders”) and Hamptons Investment Group Limited (“HIG”) (collectively the
“Infosmart Shareholders”), and Worldwide Gateway Co., Ltd. The closing of the
        Exchange Agreement occurred on August 16, 2006.
 
 At
        the
        closing of the Exchange Agreement, the Company acquired all of Infosmart’s
        capital shares (the “Infosmart Shares”) from the Infosmart Shareholders, and the
        Infosmart Shareholders transferred and contributed all of their Infosmart
        Shares
        to the Company. In exchange, the Company issued 1,000,000 shares of its Series
        A
        Convertible Preferred Stock (note 15) to the Infosmart Shareholders. Each
        share
        of the Company’s Series A Convertible Preferred Stock (“Series A Preferred
        Stock”) is convertible into 116.72136 shares of the Company's common stock,
        subject to adjustments. The Series A Preferred Stock will immediately and
        automatically be converted into shares of the Company's common stock upon
        the
        approval by a majority of the Company's stockholders (voting together on
        an
        as-converted-to-common-stock basis), following the closing of the Exchange
        Agreement, an increase in the number of authorized shares of the Company's
        common stock from 40,000,000 shares to 300,000,000 shares and a change of
        the
        Company's corporate name to Infosmart Group Inc..
  F-5
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
 
 **2.**
              **Basis
                  of presentation (cont’d)**
 
 As
        a
        result of the closing of the Exchange Agreement, Infosmart became the wholly
        owned subsidiary of the Company and became the Company’s main operational
        business. The Exchange transaction, for accounting and financial reporting
        purposes, is deemed to be a reverse takeover transaction (“RTO”).
 
 The
        RTO
        has been accounted for as a recapitalization of the Company whereby the
        historical financial statements and operations of Infosmart become the
        historical financial statements of the Company, with no adjustment to the
        carrying value of the assets and liabilities. The 944,444.45 shares of the
        Company’s Series A Preferred Stock (which is convertible into 110,236,841 common
        stocks) outstanding prior to the RTO are accounted for at $(21,336) of net
        book
        value of deficit at the time of the RTO (note 5). The accompanying condensed
        consolidated financial statements reflect the recapitalization of the
        stockholders’ equity as if the transaction occurred as of the beginning of the
        first period presented.
 
 For
        the
        purpose of RTO, the companies comprising Infosmart Group underwent the
        restructuring on October 20, 2005 (the “Re-structuring”), Infosmart acquired all
        of the outstanding and issued shares of common stock of its subsidiaries
        from
        their then existing stockholders (the “Former Infosmart Stockholders”) in
        consideration for the issuance of 1 share of $1 each of the Company’s voting
        common stock, representing 100% of the voting power in Infosmart, at the
        direction of the Former Infosmart Stockholders, to Prime Fortune Enterprises
        Limited (“Prime”).
 
 Prime’s
        issued and outstanding ordinary shares were owned as follows: 713 shares
        held by
        Prime Corporate, 212 shares held by Kwok Chung, and 75 shares held by Lui
        Sau
        Wan. On August 11, 2006, at the request of the new investors of Series B
        Redeemable Convertible Preferred Stock and in connection with the RTO, Prime’s
        board of directors approved resolutions for Prime to transfer the one (1)
        issued
        and outstanding ordinary share of Infosmart owned by Prime to Prime shareholder,
        Kwok Chung, in exchange for a cash payment of $1.00 (the “Prime Transfer”), and
        that pursuant to such resolutions, Prime transferred the one Infosmart share
        to
        Kwok Chung on August 11, 2006 in exchange for the $1.00 cash
        payment.
 
 Further,
        on August 11, 2006 and concurrent with the Prime Transfer, Infosmart’s Board
        approved resolutions for the issuance of 999 new shares in Infosmart to Prime
        Corporate, Kwok Chung and Lui Sau Wan, as follows: 713 shares to Prime
        Corporate, 211 shares to Kwok Chung, and 75 shares to Lui Sau Wan, in exchange
        for a cash payment by Prime Corporate, Kwok Chung and Lui Sau Wan of $1.00
        per
        Infosmart share that each receives (the “Infosmart Share Issuance”) or an
        aggregate total payment of $999 for such shares, and that on August 11, 2006,
        the Company issued the 999 Infosmart shares, in amounts as described above,
        to
        Prime Corporate, Kwok Chung and Lui Sau Wan and, in exchange, received the
        $999
        cash payment, pursuant to such resolutions.
 
 **3.**
              **Description
                  of business**
 
 The
        Company, through its wholly owned subsidiary Infosmart, is engaged in the
        business of developing, manufacturing, marketing and sales of recordable
        digital
        versatile disc (“DVDR”), an optical digital disc used for storing data and
        interactive sequences as well as audio and video files, under the two
        cooperation agreements as detailed in the consolidated financial statements
        for
        the year ended December 31, 2005. Due to customers demand, in the third quarter
        of 2006, the Company also started to manufacture recordable compact discs
        (“CDR”).
 
  F-6
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
 
 **3.**
              **Descriptions
                  of business (cont’d)**
 
 The
        key
        raw materials for the production of the Company’s products are PC resin and
        silver granule. PC resin is mainly used in the molding of DVDR and CDR discs.
        Silver granule is mainly used in coating the DVDR and CDR discs.
 
 The
        Company’s main suppliers are located in Hong Kong while the Company’s customers
        are located in both Hong Kong and overseas including Australia, Europe and
        South
        America. The Company’s major customers include distributors and retail traders.
        The Company currently manufactures and ships the products from Hong Kong
        where
        we operate state of the art DVDR manufacturing facilities.
 
 **4.**
              **Summary
                  of significant accounting
                  policies**
 
 *Principles
        of consolidation*
 
 The
        condensed consolidated financial statements include the accounts of the Company
        and its subsidiaries. All significant inter-company balances and transactions
        are eliminated in consolidation.
 
 *Use
        of estimates*
 
 In
        preparing financial statements in conformity with accounting principles
        generally accepted in the United States of America, management makes estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosures of contingent assets and liabilities at the dates of the financial
        statements, as well as the reported amounts of revenues and expenses during
        the
        reporting periods. These accounts and estimates include, but are not limited
        to,
        the valuation of accounts receivable, inventories, deferred income taxes
        and the
        estimation on useful lives of property, plant and equipment. Actual results
        could differ from those estimates.
 
 *Revenue
        recognition*
 
 Revenue
        from sales of the Company’s products is recognized when the significant risks
        and rewards of ownership have been transferred to the buyer at the time of
        delivery and the sales price is fixed or determinable and collection is
        reasonably assured.
 
 *Stock-based
        payment*
 
 The
        Company adopted the SFAS No. 123R, "Share-Based Payment" ("SFAS 123R") using
        the
        modified prospective method. Under SFAS 123R, equity instruments issued to
        service providers for their services are measured at the grant-date fair
        value
        and recognized in the statement of operations over the vesting
        period.
 
 *Basic
        and diluted earnings per share*
 
 The
        Company reports basic earnings per share in accordance with SFAS No. 128,
        “Earnings Per Share”. Basic earnings per share is computed using the weighted
        average number of shares outstanding during the periods presented. The weighted
        average number of shares of the Company represents the common stock outstanding
        during the period. The calculation of the weighted average number of shares
        also
        includes the number of common stock equivalent of Series A Convertible Preferred
        Stock (110,236,846) issued to the Original Infosmart Shareholders for the
        Exchange transaction as they were mandatory converted to common stock after
        the
        balance sheet date.
  F-7
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **4.**
              **Summary
                  of significant accounting policies
                  (cont’d)**
 
 *Basic
        and diluted earnings per share* *(cont’d)*
 
 Diluted
        earning per share is based on the assumption that all dilutive convertible
        shares and stock options were converted or exercised. Dilution is computed
        by
        applying the treasury stock method. Under this method, options and warrants
        are
        assumed to be exercised at the beginning of the period (or at the time of
        issuance, if later), and as if funds obtained thereby were used to purchase
        common stock at the average market price during the period. The Company’s common
        stock equivalents at September 30, 2006 include the following:
 
 Convertible
                  preferred stock Series A
              
              
              116,721,360Convertible
                  redeemable preferred stock Series B
              
              
              29,310,345Detachable
                  common stock warrants
              
              
              29,310,345Placement
                  agent warrants
              
              
              2,931,035178,273,085
 
 *Accounts
        receivables*
 
 The
        Company extends unsecured credit to customers in the normal course of business
        and believes all trade receivables in excess of the allowances for doubtful
        receivables to be fully collectible. Full allowances for doubtful receivables
        are made when the receivables are overdue for 1 year and an allowance is
        also
        made when there is objective evidence that the Company will not be able to
        collect all amounts due according to original terms of receivables. Bad debts
        are written off when identified. The Company does not accrue interest on
        trade
        accounts receivable.
 
 *Inventories*
 
 Inventories
        are valued at the lower of cost or market with cost determined on a first-in,
        first-out basis. In assessing the ultimate realization of inventories, the
        management makes judgments as to future demand requirements compared to current
        or committed inventory levels. The Company’s reserve requirements generally
        increase as the management projected demand requirements; decrease due to
        market
        conditions, product life cycle changes.
 
 *Plant
        and equipment*
 
 Plant
        and
        equipment are stated at cost less accumulated depreciation. Cost represents
        the
        purchase price of the asset and other costs incurred to bring the asset into
        its
        existing use. Maintenance, repairs and betterments, including replacement
        of
        minor items, are charged to expense; major additions to physical properties
        are
        capitalized.
 
 Depreciation
        of plant and equipment is provided using the straight-line method over their
        estimated useful lives. The principal annual rates are as follows:
 
 Production
                  line and equipment
              10%
                  with 30% residual valueLeasehold
                  improvement and others
              20%
 
 Construction
        in progress represents factory under construction, which is stated at cost
        less
        any impairment losses, and is not depreciated. Cost comprises the direct
        costs
        of construction. Construction in progress is reclassified to the appropriate
        category of fixed assets when completed and ready for use.
  F-8
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **4.**
              **Summary
                  of significant accounting policies
                  (cont’d)**
 
 *Impairment
        of long-live assets*
 
 Long-lived
        assets are reviewed for impairment whenever events or changes in circumstances
        indicate that the carrying amount of the assets may not be recoverable. The
        Company recognizes impairment of long-lived assets in the event that the
        net
        book values of such assets exceed the future undiscounted cashflows attributable
        to such assets. No impairment of long-lived assets was recognized for any
        of the
        periods presented.
 
 *Recent
        accounting pronouncements*
 
 In
        February 2006, the Financial Accounting Standards Board issued SFAS No. 155,
        Accounting for Certain Hybrid Financial Instruments, which amends SFAS No.
        133,
        Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 155”),
        and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
        and
        Extinguishments of Liabilities. SFAS No. 155 simplifies the accounting for
        certain derivatives embedded in other financial instruments by allowing them
        to
        be accounted for as a whole if the holder elects to account for the whole
        instrument on a fair value basis. SFAS No. 155 also clarifies and amends
        certain
        other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective
        for
        all financial instruments acquired, issued or subject to a remeasurement
        event
        occurring in fiscal years beginning after September 15, 2006. Earlier adoption
        is permitted, provided the Company has not yet issued financial statements,
        including for interim periods, for that fiscal year. The Company does not
        believe the adoption of SFAS No. 155 will have a material impact on the
        Company’s condensed consolidated financial position or results of
        operations.
 
 The
        Financial Accounting Standards Board (“FASB”) released SFAS No. 156, “Accounting
        for Servicing of Financial Assets,” to simplify accounting for separately
        recognized servicing assets and servicing liabilities. SFAS No. 156 amends
        SFAS
        No. 140, “Accounting for Transfers and Servicing of Financial Assets and
        Extinguishments of Liabilities.” SFAS No. 156 permits an entity to choose either
        the amortization method or the fair value measurement method for measuring
        each
        class of separately recognized servicing assets and servicing liabilities
        after
        they have been initially measured at fair value. SFAS No. 156 applies to
        all
        separately recognized servicing assets and liabilities acquired or issued
        after
        the beginning of an entity’s fiscal year that begins after September 15, 2006.
        SFAS No. 156 will be effective for the Company as of December 31, 2006, the
        beginning of the Company’s 2007 fiscal year. The Company does not believe the
        adoption of SFAS No. 156 will have a material impact on the Company’s condensed
        consolidated financial position or results of operations.
 
 In
        July
        2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes.” This
        interpretation requires that we recognize in our financial statements, the
        impact of a tax position, if that position is more likely than not of being
        sustained on audit, based on the technical merits of the position. The
        provisions of FIN 48 are effective as of the beginning of our 2007 fiscal
        year,
        with the cumulative effect of the change in accounting principle recorded
        as an
        adjustment to opening retained earnings. The Company is currently evaluating
        the
        effect of FIN 48 on its financial statements.
 
  F-9
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
 
 **4.**
              **Summary
                  of significant accounting policies
                  (cont’d)**
 
 *Recent
        accounting pronouncements (cont’d)*
 
 In
        September 2006, the FASB issued SFAS No. 157 “Fair Value Measurement” (“SFAS
        157”). SFAS 157 defines fair value, establishes a framework for measuring fair
        value, and expands disclosures about fair value measurements. This Statement
        shall be effective for financial statements issued for fiscal years beginning
        after November 15, 2007, and interim periods within those fiscal years. Earlier
        application is encouraged, provided that the reporting entity has not yet
        issued
        financial statements for that fiscal year, including any financial statements
        for an interim period within that fiscal year. The provisions of this statement
        should be applied prospectively as of the beginning of the fiscal year in
        which
        this Statement is initially applied, except in some circumstances where the
        statement shall be applied retrospectively. The Company is currently evaluating
        the effect, if any, of SFAS 157 on its financial statements.
 
 The
        FASB
        released SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
        Other Postretirement Plans: an amendment of FASB Statements No. 87, 88, 106,
        and
        132(R),” which requires an employer to recognize the over funded or under funded
        status of defined benefit and other postretirement plans as an asset or
        liability in its statement of financial position and to recognize changes
        in
        that funded status in the year in which the changes occur through an adjustment
        to comprehensive income. This statement also requires an employer to measure
        the
        funded status of a plan as of the date of its year-end statement of financial
        position, with limited exceptions. The Company is required to initially
        recognize the funded status of its defined benefit and other postretirement
        plans as of December 31, 2006, and to provide the required disclosures in
        the
        Company’s 2006 annual report on Form 10-KSB. The Company is assessing the impact
        on the adoption of SFAS No. 158 will have on the Company’s condensed
        consolidated financial position.
 
 **5.**
              **Reverse
                  acquisition**
 
 Pursuant
        to the Exchange Agreement as detailed in note 2, the Company acquired 100%
        ownership interest in Infosmart, in consideration for the issuance by the
        Company of 1,000,000 shares of its Series A Convertible Preferred Stock to
        the
        Infosmart Shareholders. The acquisition of Infosmart has been accounted for
        using the recapitalization accounting treatment which is equivalent to reverse
        takeover accounting basis with Infosmart being the accounting parent and
        the
        Company being the accounting subsidiary. The net deficits of the Company
        at the
        completion date on August 16, 2006 are as follows :-
 
 (Unaudited)Current
                  assetsCash
                  and cash equivalents
              
              $
              28,664Current
                  liabilitiesOther
                  payables and accrued liabilities
              
              
              (50,000
              )Net
                  deficits acquired
              
              $
              (21,336
              )
 
  F-10
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
 
 **6.**
              **Professional
                  expenses related to Restructuring and Share
                  Exchange**
 
 ***Three
                  months ended***
              
              ***Nine*****months ended*****September
                  30,***
              
              ***September
                  30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005***(Unaudited)
              
              (Unaudited)
              
              (Unaudited)
              
              (Unaudited)Issuance
                  of shares of Infosmart’scommon
                  stock to HIG (Note 6(a))
              
              $
              1,426,794
              
              $
              -
              
              $
              1,426,794
              
              $
              -Reverse
                  Merger fees (Note 6(b))
              
              
              450,000
              
              
              -
              
              
              450,000
              
              
              -Issuance
                  of the Company’sCommon
                  stock to professionalparties
                  (Note 6(c))
              
              
              747,000
              
              
              -
              
              
              747,000Others
              
              
              129,596
              
              
              165,765
              
              
              129,596
              
              
              165,765$
              2,753,390
              
              $
              165,765
              
              $
              2,753,390
              
              $
              165,765
 
 Notes:
 
 6(a).
              Under
                  the terms of the Exchange Agreement, immediately prior to the closing
                  of
                  the Exchange Agreement, HIG received 58.82352 shares (exchanged
                  for
                  55,555.55 shares of the Company’s Series A Convertible Preferred Stock) of
                  Infosmart’s common stock as payment for its services as a finder in
                  connection with the exchange
                  transaction.
 6(b).
              Keating
                  Securities, LLC. was paid an advisory fee of
                  $450,000.
 6(c).
              Fees
                  for services rendered by Worldwide Gateway Company Ltd. and Richardson
                  and
                  Patel were settled by issuance of 2,850,000 shares and 459,770
                  shares of
                  the Company’s common stock.
 
 **7.**
              **Other
                  income**
 ***Three
                  months ended***
              
              ***Nine*****months ended*****September
                  30,***
              
              ***September
                  30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005*****(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**Interest
                  income
              
              $
              23,240
              
              $
              2,611
              
              $
              29,347
              
              $
              4,202Scrap
                  sales and other income
              
              
              136,527
              
              
              37,319
              
              
              301,670
              
              
              235,173$
              159,767
              
              $
              39,930
              
              $
              331,017
              
              $
              239,375
 
  F-11
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
 
 **8.**
              **Income
                  taxes**
 
 Income
        taxes are calculated at estimated annual effective tax rate of 17.5% on the
        income before income taxes of the Company.
 
 The
        components of the provision for income taxes are:
 
 ***Three
                  months ended***
              
              ***Nine*****months ended*****September
                  30,***
              
              ***September
                  30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005*****(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**Current
                  taxes
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Deferred
                  taxes
              
              
              261,176
              
              
              72,656
              
              
              698,271
              
              
              802,201$
              261,176
              
              $
              72,656
              
              $
              698,271
              
              $
              802,201
 
 The
        effective income tax expenses differs from the statutory rate of 17.5% in
        Hong
        Kong as follows:
  ***Three
                  months ended***
              
              ***Nine*****months ended*****September
                  30,***
              
              ***September
                  30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005*****(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**Provision
                  for income tax at statutory tax rate
              
              $
              (205,834
              )
              $
              72,656
              
              $
              223,005
              
              $
              802,201Income
                  not subject to tax
              
              
              (9,800
              )
              
              -
              
              
              (9,800
              )
              
              -Non-deductible
                  items for tax
              
              
              476,810
              
              
              -
              
              
              485,066
              
              
              -Effective
                  income tax expenses
              
              $
              261,176
              
              $
              72,656
              
              $
              698,271
              
              $
              802,201
 
 Deferred
        tax (assets) liabilities as of September 30, 2006 and December 31, 2005 are
        composed of the following:
 
 ***As
                  of******September
                  30,***
              
              ***December
                  31,******2006***
              
              ***2005******(Unaudited)***
              
              ***(Audited)***Deferred
                  tax assetsOperating
                  losses available for future periods
              
              $
              -
              
              $
              (573,653
              )Deferred
                  tax liabilitiesTemporary
                  difference on accelerated taxdepreciation
                  on plant and equipment
              
              
              3,136,032
              
              
              3,024,983Deferred
                  tax liabilities, net
              
              $
              3,136,032
              
              $
              2,451,330Recognized
                  in the balance sheet:Net
                  deferred tax assets
              
              $
              -
              
              $
              (45,724
              )Net
                  deferred tax liabilities
              
              
              3,136,032
              
              
              2,497,054$
              3,136,032
              
              $
              2,451,330
 
  F-12
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  
 **9.**
              **Comprehensive
                  income (loss)**
 ***Three
                  months ended***
              
              ***Nine*****months ended*****September
                  30,***
              
              ***September
                  30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005*****(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**Net
                  income (loss)
              
              $
              (1,437,371
              )
              $
              342,516
              
              $
              576,042
              
              $
              3,781,801Foreign
                  currency translationAdjustments
              
              
              (18,575
              )
              
              9,892
              
              
              (42,727
              )
              
              25,028Total
                  comprehensive income (loss)
              
              $
              (1,455,946
              )
              $
              352,408
              
              $
              533,315
              
              $
              3,806,829
 
 **10.**
              **Prepaid
                  expenses and other
                  receivables**
 ***As
                  of******September
                  30,***
              
              ***December
                  31,******2006***
              
              ***2005******(Unaudited)***
              
              ***(Audited)***Prepaid
                  professional expenses related to Restructuring andShare
                  Exchange
              
              $
              -
              
              $
              28,896Other
                  prepaid expenses
              
              
              66,365
              
              
              -Rental
                  and utility deposits
              
              
              26,045
              
              
              49,014Advance
                  to Mega Century
              
              
              88,975
              
              
              24,882Advances
                  to a party of cooperation agreement (the “Third Party”)
              
              
              2,645,157
              
              
              1,227,738Other
                  receivables for advancement
              
              
              152,923
              
              
              147,813$
              2,979,465
              
              $
              1,478,343
 
 The
        advances to the Third Party are interest-free and unsecured and have no fixed
        terms of repayment.
 
 **11.**
              **Inventories**
 ***As
                    of******September
                    30,***
                
                ***December
                    31,******2006***
                
                ***2005******(Unaudited)***
                
                ***(Audited)***Raw
                    materials
                
                $
                396,365
                
                $
                272,124Finished
                    goods
                
                
                575,816
                
                
                1,155,666$
                972,181
                
                $
                1,427,790
 
  F-13
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  
 **12.**
              **Plant
                  and equipment**
 ***As
                    of******September
                    30,***
                
                ***December
                    31,******2006***
                
                ***2005******(Unaudited)***
                
                ***(Audited)***CostsProduction
                    lines and equipment
                
                $
                22,310,758
                
                $
                21,895,934Leasehold
                    improvements
                
                
                1,081,963
                
                
                954,794Furniture,
                    fixtures and office equipment
                
                
                118,959
                
                
                116,078Motor
                    vehicles
                
                
                54,668
                
                
                54,92423,566,348
                
                
                23,021,730Accumulated
                    depreciationProduction
                    lines and equipment
                
                
                5,436,280
                
                
                4,299,143Leasehold
                    improvements
                
                
                518,988
                
                
                363,144Furniture,
                    fixtures and office equipment
                
                
                59,815
                
                
                42,382Motor
                    vehicles
                
                
                26,423
                
                
                18,3086,041,506
                
                
                4,722,977NetProduction
                    lines and equipment
                
                
                16,874,478
                
                
                17,596,791Leasehold
                    improvements
                
                
                562,975
                
                
                591,650Furniture,
                    fixtures and office equipment
                
                
                59,144
                
                
                73,696Motor
                    vehicles
                
                
                28,245
                
                
                36,61617,524,842
                
                
                18,298,753Construction
                    in progress,
                    at cost
                
                
                1,282,164
                
                
                -Plant
                    and equipment, net
                
                $
                18,807,006
                
                $
                18,298,753
 
 An
        analysis of production lines and equipment acquired under capital leases
        and
        pledged to banks for banking facilities (note 14(a)) granted to the Company
        is
        as follows:
 ***Acquired
                    under***
                
                ***Pledged
                    for******capital
                    leases***
                
                ***banking
                    facilities******As
                    of***
                
                ***As
                    of******September
                    30,***
                
                ***December
                    31,***
                
                ***September
                    30,***
                
                ***December
                    31,******2006***
                
                ***2005***
                
                ***2006***
                
                ***2005******(Unaudited)***
                
                ***(Audited)***
                
                ***(Unaudited)***
                
                ***(Audited)***Costs
                
                $
                -
                
                $
                1,677,000
                
                $
                4,789,320
                
                $
                4,192,500Accumulated
                    depreciation
                
                
                -
                
                
                (289,283
                )
                
                (971,282
                )
                
                (723,206
                )Net
                
                $
                -
                
                $
                1,387,717
                
                $
                3,818,038
                
                $
                3,469,294
  F-14
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **12.**
              **Plant
                  and equipment (cont’d)**
 ***Acquired
                    under***
                
                ***Pledged
                    for******capital
                    leases***
                
                ***banking
                    facilities******Nine
                    months ended***
                  ***September
                    30,***
                
                ***Nine
                    months ended***
                  ***September
                    30,******2006***
                
                ***2005***
                
                ***2006***
                
                ***2005******(Unaudited)***
                
                ***(Unaudited)***
                
                ***(Unaudited)***
                
                ***(Unaudited)***Depreciation
                    for the period
                
                $
                -
                
                $
                358,073
                
                $
                252,223
                
                $
                238,872
 
 The
        components of depreciation charged are:
 
 ***Three
                  months ended***
              
              ***Nine*****months ended*****September
                  30,***
              
              ***September
                  30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005******(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***Included
                  in factory overheadsProduction
                  lines and equipment
              
              $
              392,479
              
              $
              363,111
              
              $
              1,160,737
              
              $
              1,023,516Included
                  in operating expensesLeasehold
                  improvements
              
              
              54,186
              
              
              46,187
              
              
              158,024
              
              
              131,095Furniture,
                  fixtures and office equipment
              
              
              5,928
              
              
              5,230
              
              
              17,686
              
              
              15,514Motor
                  vehicles
              
              
              2,738
              
              
              3,472
              
              
              8,226
              
              
              8,93462,852
              
              
              54,889
              
              
              183,936
              
              
              155,543$
              455,331
              
              $
              418,000
              
              $
              1,344,673
              
              $
              1,179,059
 
 **13.**
              **Other
                  payables and accrued
                  liabilities**
 ***As
                    of******September
                    30,***
                
                ***December
                    31,******2006***
                
                ***2005******(Unaudited)***
                
                ***(Audited)***Customers
                    deposits
                
                $
                124,844
                
                $
                201,655Accrued
                    professional fee
                
                
                70,620
                
                
                317,340Staff
                    costs payable
                
                
                141,914
                
                
                173,047Other
                    loans interest payable
                
                
                17,951
                
                
                66,132Other
                    accrued expenses for operations
                
                
                461,231
                
                
                344,779$
                816,560
                
                $
                1,102,953
 
  F-15
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **14.**
              **Bank
                  borrowings**
 ***As
                    of******September
                    30,***
                
                ***December
                    31,******2006***
                
                ***2005******(Unaudited)***
                
                ***(Audited)***Secured:Bank
                    overdrafts repayable on demand
                
                $
                -
                
                $
                256,140Repayable
                    within one yearNon-recurring
                    bank loans
                
                
                406,885
                
                
                794,066Other
                    bank borrowings
                
                
                2,118,310
                
                
                1,747,8472,525,195
                
                
                2,798,053Unsecured:Bank
                    overdrafts repayable on demand
                
                
                -
                
                
                2,883Repayable
                    within one yearOther
                    bank borrowings
                
                
                -
                
                
                1,660,904-
                
                
                1,663,787$
                2,525,195
                
                $
                4,461,840
 
 As
        of
        September 30, 2006, the above banking borrowings were secured by the
        following:
 
 (a)
              first
                  fixed legal charge over 6 DVDR discs production lines with carrying
                  amounts of $3,818,038 (note 12);
 
 (b)
              charge
                  over bank deposit of $268,288; and
 
 (c)
              joint
                  and several guarantees executed by two beneficial shareholders
                  of the
                  Company, a spouse of one of the beneficial shareholders, a director
                  of the
                  Company’s subsidiary and the Third
                  Party.
  F-16
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **15.**
              **Common
                  Stock and Convertible Preferred
                  Stock**
  *Common*
              
              *Series
                  A*
              
              *Series
                  B*Number
                  of shares
              
              *stock*
              
              *stock*
              
              *stock*Balance
                  at January 1, 2006
              
              
              -
              
              
              944,444.45
              
              
              -On
                  August 16, 2006Issuance
                  of common stock for finders fee
              
              
              2,850,000
              
              
              -
              
              
              -Issuance
                  of common stock for legal advise fee
              
              
              459,770
              
              
              -
              
              
              -Issuance
                  of Series A shares for the exchangeof
                  999 shares of Infosmart’s common stockheld
                  by Original Infosmart Shareholders
              
              
              -
              
              
              -
              
              
              -Issuance
                  of Series A shares for the exchangeof
                  58.82352 shares of Infosmart’s commonstock
                  held by HIG
              
              
              -
              
              
              55,555.55
              
              
              -Recapitalisation
              
              
              10,119,040
              
              
              -
              
              
              -Issuance
                  of Series B shares with detachablewarrants
              
              
              -
              
              
              -
              
              
              1,092,857.1429Issuance
                  of Placement Agent warrants
              
              
              -
              
              
              -
              
              
              -Balance
                  at September 30, 2006
              
              
              13,428,810
              
              
              1,000,000.00
              
              
              1,092,857.1429
 
 
 *Additional**Common*
              
              *Series
                  A*
              
              *Series
                  B*
              
              *paid-in*Amount
              
              *stock*
              
              *stock*
              
              *stock*
              
              *capital*Balance
                  at January 1, 2006
              
              $
              -
              
              $
              619,878
              
              $
              -
              
              $
              -On
                  August 16, 2006Issuance
                  of common stock for finders fee
              
              
              627,000
              
              
              -
              
              
              -
              
              
              -Issuance
                  of common stock for legal advise fee
              
              
              120,000
              
              
              -
              
              
              -
              
              
              -Issuance
                  of Series A shares for the exchangeof
                  999 shares of Infosmart’s common stockheld
                  by Original Infosmart Shareholders
              
              
              -
              
              
              -
              
              
              -
              
              
              999Issuance
                  of Series A shares for the exchangeof
                  58.82352 shares of Infosmart’s commonstock
                  held by HIG
              
              
              -
              
              
              1,426,794
              
              
              -
              
              
              -Recapitalisatoin
              
              
              -
              
              
              -
              
              
              -
              
              
              (21,336
              )Issuance
                  of Series B shares with detachableWarrants
              
              
              -
              
              
              -
              
              
              3,738,827
              
              
              5,448,528Issuance
                  of Placement Agent warrants
              
              
              -
              
              
              -
              
              
              (644,801
              )
              
              644,801Balance
                  at September 30, 2006
              
              $
              747,000
              
              $
              2,046,672
              
              $
              3,094,026
              
              $
              6,072,992
 
  F-17
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **15.**
              **Common
                  Stock and Convertible Preferred Stock
                  (cont’d)**
 
 Preferred
        Stock
 
 The
        Company is authorized under its Articles of Incorporation to issue 10,000,000
        shares of preferred stock, no par value per share. Of the 10,000,000 shares
        of
        preferred stock authorized, 1,200,000 shares were designated as Series A
        Convertible Preferred Stock and 1,800,000 shares were designated as Series
        B
        Redeemable Convertible Preferred Stock pursuant to Certificates of Determination
        that were approved by the Company's board of directors, and filed with and
        accepted by, the Secretary of State of the State of California prior to the
        closing of the exchange transaction.
 
 Series
        A Preferred Stock
 
 Under
        the
        terms of the Exchange Agreement, the Infosmart Shares held by the Infosmart
        Shareholders were exchanged for 1,000,000 shares of the Company’s Series A
        Preferred Stock (the “Exchange”). Each Series A Preferred share would be
        convertible into 116.72136 shares of the Company’s common stock (the “Conversion
        Rate”). The Series A Preferred Shares would immediately and automatically be
        converted into shares of the Company’s common stock (the “Mandatory Conversion”)
        at such time as the Company files an amendment to its Articles of Incorporation
        with California’s Secretary of State increasing the authorized number of shares
        of Common Stock from 40,000,000 to 300,000,000 so that the Company has a
        sufficient number of authorized and unissued shares of Common Stock so as
        to
        permit the conversion of all outstanding shares of the Series A Preferred
        Stock,
        and the Company changes its corporate name (collectively, the “Corporate
        Actions”).
 
 The
        Corporate Actions were approved on September 5, 2006 by the Company’s Board of
        Directors and the holders of at least a majority of the Company’s outstanding
        capital stock. All the required filings were submitted to the United States
        Securities and Exchange Commission on October 11, 2006.
 
 Series
        B Preferred Stock and Warrants
 
 The
        consummation of the Exchange was contingent on a minimum of $7 million (or
        such
        lesser amount as mutually agreed by Infosmart and the placement agent) being
        subscribed for, and funded into escrow, by certain accredited and institutional
        investors (“Investors”) for the purchase of shares of Series B Redeemable
        Convertible Preferred Stock of the Company promptly after the closing the
        Exchange under terms and conditions approved by the Company’s board of directors
        immediately following the Exchange (the “Financing”). The closing of the
        Financing was contingent on the closing of the Exchange, and the Exchange
        was
        contingent on the closing of the Financing.
 
  F-18
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **15.**
              **Common
                  Stock and Convertible Preferred Stock
                  (cont’d)**
 
 Series
        B Preferred Stock and Warrants (cont’d)
 
 Immediately
        following the closing of the Exchange, the Company received gross proceeds
        of
        approximately $7.65 million in connection with the Financing from the Investors.
        Pursuant to Subscription Agreements entered into with these Investors, the
        Company sold 1,092,857.143 shares of the Company’s Series B Preferred Stock with
        detachable warrants at a price per share of $7.00. Each share of Series B
        Preferred Stock will be convertible into shares of the Company’s common stock.
        It will be convertible into shares of the Company’s common stock at the election
        of the holder at conversion price equal to $0.261 per share (“Conversion
        Price”). The Company was required to register the common stock underlying the
        Series B Preferred Stock and warrants issued in the Financing with the
        Securities and Exchange Commission for resale by the Investors. After deducting
        placement agents’ commissions and expenses as detailed below, the Company
        received net proceeds of approximately $6.89 million in the
        Financing.
 
 In
        connection with the issuance of the Series B Preferred Stock to the Investors,
        the Company issued warrants to the Investors to purchase an aggregate of
        29,310,345 shares of common stock, on as-converted basis, of the Company.
        The
        warrants have an exercise price of $0.326 per share, subject to
        adjustments.
 
 Keating
        Securities, LLC and Axiom Capital Management, Inc. (“Placement Agents”) acted as
        Placement Agents in connection with the Financing. For their services, the
        Placement Agents received a commission equal to 8% of the gross proceeds
        or
        approximately $587,000 from the offering and a non-accountable expense allowance
        equal to 2% of the gross proceeds or approximately $153,000.
 
 In
        addition, the Placement Agents received, for nominal consideration, five-year
        warrants to purchase 10% of the number of shares of common stock into which
        the
        Series B Preferred Stock issued in the Financing are converted to (“Placement
        Agent Warrants”). The Placement Agent Warrants will be exercisable at any time
        at a price equal 125% of the conversion price, on a net-issuance or cashless
        basis. The Placement Agent Warrants will have registration rights similar
        to the
        registration rights afforded to the holders of Series B Preferred Stock and
        warrants. The Company also paid for the out-of-pocket expenses incurred by
        the
        Placement Agents and all purchasers in the amount of $25,000. Further, the
        Company issued to the Placement Agent, warrants to purchase an aggregate
        of
        2,931,035 shares of our common stock on an as-converted basis at an exercise
        price of $0.326 per share. The warrants are fully vested at the time of grant
        and have a term of five years.
 
 The
        material terms of the Company’s Series B Preferred Stock are summarized below.
 
 Voting:
        The holders of Preferred Stock (including the Investors acquiring such shares
        as
        part of the Financing after the closing of the Exchange) are entitled to
        vote
        together with the holders of the common stock, as a single class, upon all
        matters submitted to holders of common stock for a vote. Each share of Preferred
        Stock will carry a number of votes equal to the number of shares of common
        stock
        issuable as if converted at the record date.
 
 Dividends.
        The Series B Convertible Preferred Stock is cumulative, non-participating
        and
        carries dividends at 8% per annum payable quarterly in cash in US Dollars.
  F-19
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **15.**
              **Common
                  Stock and Convertible Preferred Stock
                  (cont’d)**
 
 Series
        B Preferred Stock and Warrants (cont’d)
 
 Conversion.
        The outstanding and unconverted Series B Convertible Preferred Stock shall
        be
        converted into shares of the Company’s common stock at the Conversion Price then
        in effect by delivering to the holders an Automatic Conversion Notice upon
        the
        happening of all of the following events: (i) for each of the twenty (20)
        consecutive Trading Days immediately preceding the date of delivery of the
        Automatic Conversion Notice, the daily Closing Price of the Common Stock
        shall
        be equal to at least two hundred fifty percent (250%) of the Conversion Price
        in
        effect as of the date immediately preceding the date of the Automatic Conversion
        Notice; and (ii) the daily trading volume of the Common Stock for each of
        the
        Trading Days during such twenty (20) Trading day period shall be at least
        500,000 shares; provided, however, no such conversion is permitted unless
        at the
        time of the delivery of the Automatic Conversion Notice and on the Automatic
        Conversion Date, (A) The Company is in compliance with all of its obligations
        under this Certificate of Determination and the Transaction Documents, (B)
        during each of the Trading Days in such twenty (20) day period, the Registration
        Statement has been effective and has not been suspended by the SEC, (C) as
        of
        the Conversion Date, the Registration Statement is effective and has not
        been
        suspended by the SEC and no event has occurred which will likely result in
        the
        Registration Statement being declared ineffective or suspended by the SEC,
        and
        (D) no Triggering Event (as described under “Redemption Rights” in this Form
        8-K) has occurred and is continuing.
 
 Any
        outstanding Series B Convertible Preferred Stock not yet converted will be
        converted automatically two years from the date of the issuance of such stock
        at
        the then effective conversion price.
 
 **16.**
              **Additional
                  paid-in capital**
 ****
 The
        Company allocated the proceeds between the Series B Preferred Stock and the
        warrants based upon their relative fair values as of the closing date. The
        Company determined the fair value of the warrants (including Placement Agent
        Warrants) using the Black-Scholes option pricing model with the following
        assumptions: no dividend yield; weighted average risk free rate of 5.05%;
        volatility of 368% and a contractual life of 5 years. The Company recorded
        the
        portion of the proceeds attributable to the stock as mezzanine equity pursuant
        to EITF Topic D-98, Classification and Measurement of Redeemable Securities
        after determining the guidance in FAS 150, Accounting for Certain Financial
        Instruments with Characteristics of both Liabilities and Equity did not apply.
        The Company determined that the warrants meet the definition of a derivative
        instrument as defined in SFAS 133, Accounting for Derivative Instruments
        and
        Hedging Activities, but do not require derivative treatment pursuant to the
        scope exception in paragraph 11(a) of SFAS 133.
 
 The
        Company evaluated whether the embedded conversion feature in the stock required
        bifurcation and determined that the economic characteristics and risks of
        the
        embedded conversion feature in the stock were clearly and closely related
        to the
        stock and concluded that bifurcation was not required under SFAS 133. The
        Company calculated the intrinsic value of the beneficial conversion feature
        embedded in the stock pursuant to the guidance in EITF 00-27, Application
        of
        Issue No. 98-5 to Certain Convertible Instruments.
 
  F-20
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **17.**
              **Pension
                  plans**
 
 The
        Company participates in a defined contribution pension scheme under the
        Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) for all its eligible
        employees in Hong Kong.
 
 The
        MPF
        Scheme is available to all employees aged 18 to 64 with at least 60 days
        of
        service in employment in Hong Kong. Contributions are made by the Company
        operating in Hong Kong at 5% of the participants’ relevant income with a ceiling
        of $2,580 (equivalent of HK$20,000). The participants are entitled to 100%
        of
        the Company’s contributions together with accrued returns irrespective of their
        length of service with the Company, but the benefits are required by law
        to be
        preserved until the retirement age of 65. The only obligation of the Company
        with respect to MPF Scheme is to make the required contributions under the
        plan.
 
 The
        assets of the schemes are controlled by trustees and held separately from
        those
        of the Company. The Company fully complied the contribution requirement and
        total pension cost was $65,533 and $59,949 for the nine months ended September
        30, 2006 and 2005 respectively.
 
  F-21
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **18.**
              **Segment
                  Information**
 
 The
        Company is engaged in the manufacture and distribution of DVD discs and CDR.
        The
        nature of the products, their production processes, the type of their customers
        and their distribution methods are substantially similar. Information for
        the
        products of DVD and CDR is disclosed under FAS 131, “Disclosures about Segments
        of an Enterprise and Related Information” as below:
 
 ***DVD
                  and Related Products***
              
              ***CDR***
              
              ***Total******Nine
                  months ended September 30,***
              
              ***Nine
                  months ended September 30,***
              
              ***Nine
                  months ended September 30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005***
              
              ***2006***
              
              ***2005******(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***Revenue
                  from external customers
              
              $
              19,233,494
              
              $
              18,220,095
              
              $
              889,062
              
              $
              259,582
              
              
              20,122,556
              
              $
              18,479,677Segment
                  profit
              
              $
              3,889,063
              
              $
              4,718,900
              
              $
              138,640
              
              $
              30,867
              
              $
              4,027,703
              
              $
              4,749,767
 
 ***DVD
                  and Related Products***
              
              ***CDR***
              
              ***Total******Three
                  months ended September 30,***
              
              ***Three
                  months ended September 30,,***
              
              ***Three
                  months ended September 30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005***
              
              ***2006***
              
              ***2005******(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***Revenue
                  from external customers
              
              $
              6,734,576
              
              $
              3,934,454
              
              $
              825,976
              
              $
              55,864
              
              
              7,560,552
              
              $
              3,990,318Segment
                  profit
              
              $
              1,509,407
              
              $
              567,720
              
              $
              67,788
              
              $
              13,217
              
              $
              1,577,195
              
              $
              580,937
 
 ***DVD
                  and Related Products***
              
              ***CDR***
              
              ***Total******As
                  of***
              
              ***As
                  of***
              
              ***As
                  of******September
                  30,***
              
              ***December
                  31,***
              
              ***September
                  30,***
              
              ***December
                  31,***
              
              ***September
                  30,***
              
              ***December
                  31,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005***
              
              ***2006***
              
              ***2005******(Unaudited)***
              
              ***(Audited)***
              
              ***(Unaudited)***
              
              ***(Audited)***
              
              ***(Unaudited)***
              
              ***(Audited)***Segment
                  assets
              
              $
              23,289,631
              
              $
              23,693,003
              
              $
              5,714,274
              
              $
              -
              
              $
              29,003,905
              
              $
              23,693,003
 
 Revenues
        from two customers, of which contributed 10% or more of the Company’s net sales,
        represents $7,304,442 (2005: one customer of $14,158,348) of the Company’s
        consolidated revenues for the nine months ended September 30, 2006.
 
  F-22
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
   **18.**
              **Segment
                  Information (Cont’d)**
 
 A
        reconciliation is provided for unallocated amounts relating to corporate
        operations which is not included in the segment information.
 ***As
                    of******September
                    30,***
                
                ***December
                    31,******2006***
                
                ***2005******(Unaudited)***
                
                ***(Audited)***AssetsTotal
                    assets for reportable segments
                
                $
                29,003,905
                
                $
                23,693,003Advance
                    to the Third Party
                
                
                2,645,157
                
                
                1,227,738$
                31,649,062
                
                $
                24,920,741
 
 Other
        than the construction in progress (note 12) located in Brazil, all of the
        Company’s long-lived assets are located in Hong Kong. Geographic information
        about the revenues, which are classified based on location of the customers,
        is
        set out as follows:
 
 ***Three
                  months ended***
              
              ***Nine*****months ended*****September
                  30,***
              
              ***September
                  30,******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005******(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***
              
              ***(Unaudited)***Australia
              
              $
              1,862,129
              
              $
              969,774
              
              $
              3,763,946
              
              $
              1,849,068Brazil
              
              
              2,284,339
              
              
              -
              
              
              4,353,961
              
              
              -Chile
              
              
              197,480
              
              
              -
              
              
              522,153
              
              
              -Czech
                  Republic
              
              
              -
              
              
              -
              
              
              413,558
              
              
              98,284China
                  and Hong Kong
              
              
              1,362,973
              
              
              83,621
              
              
              3,765,744
              
              
              1,598,156United
                  Kingdom
              
              
              469,555
              
              
              2,772,926
              
              
              4,265,169
              
              
              14,610,220United
                  States
              
              
              620,723
              
              
              10,544
              
              
              1,582,927
              
              
              23,293Singapore
              
              
              433,254
              
              
              -
              
              
              467,760
              
              
              -Other
                  countries
              
              
              330,099
              
              
              153,453
              
              
              987,338
              
              
              300,656Total
              
              $
              7,560,552
              
              $
              3,990,318
              
              $
              20,122,556
              
              $
              18,479,677
 
 **19.**
              **Commitments****and contingences**
 
 For
        the
        development of market in Brazil, the Company entered into an agreement on
        March
        20, 2006 with two independent third parties for setting up a subsidiary,
        Discobrás Indústria E Comércio De Eletro Eletrônica Ltda (“Discobrás”), in
        Brazil. Discobrás has a social capital of $8,046,281 (equivalent to
        R$17,385,600) and 99.42% or $8,000,000 (equivalent to R$17,285,600) (“Investment
        Cost”) of which will be subscribed by the Company. The capital contribution to
        Discobrás is satisfied by certain production lines of $6,000,000 (equivalent to
        R$12,964,200) and cash consideration of $2,000,000 (equivalent to
        R$4,321,400).
 
 The
        Investment Cost is required to be contributed by the Company within one
        year.
 
 In
        conjunction with the Investment Cost, on March 26, 2006 the Company had
        contracted an engineer in Hong Kong to set up the foundation for the factory
        in
        Brazil with contract sum of approximately $2,721,000. As of September 30,
        2006,
        $950,160 was paid.
  F-23
 **INFOSMART
            GROUP INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
            2005**
 **(Unaudited)**
 **(Stated
            in US Dollars)**
  **19.**
              **Commitments
                  and contingences (cont’d)**
 
 Stanley
        Rosner (“Rosner”) v. World Wide Magic Net, Inc. (n/k/a Cyber) and Burlington
        Coat Factory, New York State Supreme Court, Nassau County, Index No. 98-006524.
        Breach of contract, fraud and tortuous interference action seeking $5,000,000
        in
        compensatory damages, unspecified punitive damages and declaratory relief.
        By
        stipulation parties dated May 7, 1998, Rosner agreed to transfer the action
        to
        Supreme Court, New York County, after conceding Nassau County was not the
        proper
        venue for the action. Since that date, Rosner has neither transferred the
        case
        nor pursued it further.
 
 **20.**
              **Events
                  after balance sheet date**
 
 After
        the
        balance date, 1,000,000 shares of Series A Convertible Preferred Stock were
        immediately and automatically converted into 116,721,360 shares of the Company's
        common stock without any notice or action required on the part of the Company
        or
        the holders after the Company filed an amendment to its Articles of
        Incorporation (“Amendment”) with the Secretary of State of California increasing
        the authorised number of shares of the Company’s common stock from 40,000,000 to
        300,000,000.
 
 On
        October 31, 2006, 800,000 shares of the Company’s common stock were issued for
        the exercise of the warrants.
 
 Up
        to
        November 2, 2006, 3,476,129 shares of the Company’s common stock were issued for
        the conversion of 129,610.0015 shares of Series B Redeemable Convertible
        Preferred Stock.


F-24





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





*FORWARD
      LOOKING STATEMENTS*





*The
      following discussion and analysis of our results of operations and financial
      condition for the three and nine months ended September 30, 2006 and 2005 should
      be read in conjunction with our financial statements and the notes to those
      financial statements that are included elsewhere in this Quarterly Report on
      Form 10-QSB. Our discussion includes forward-looking statements based upon
      current expectations that involve risks and uncertainties, such as our plans,
      objectives, expectations and intentions. Actual results and the timing of events
      could differ materially from those anticipated in these forward-looking
      statements as a result of a number of factors, including those set forth under
      the “Risk Factors”, “Cautionary Notice Regarding Forward-Looking Statements”,
      and elsewhere in this report. We use words such as “anticipate,” “estimate,”
“plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions to identify
      forward-looking statements. Readers are cautioned not to place undue reliance
      on
      these forward-looking statements, which speak only as of the date hereof.* *Except
      as required by law, we do not undertake any obligation to update or keep current
      either (i) any forward-looking statement to reflect events or circumstances
      arising after the date of such statement, or (ii) the important factors that
      could cause our future results to differ materially from historical results
      or
      trends, results anticipated or planned by us, or which are reflected from time
      to time in any forward-looking statement.*





**OVERVIEW**





Infosmart
      Group, Inc. (the “Company”), through our wholly owned subsidiary Infosmart Group
      Limited (“Infosmart”), is mainly in the business of developing, manufacturing,
      marketing and sales of recordable digital versatile disc (“DVDR”) optical
      media. However, due to customer demand, in the third quarter of 2006, the
      Company also started to manufacture recordable compact discs (“CDR”). We
      currently manufacture DVDRs with 8x and 16x writable speeds as well as CDRs
      with
      52x writable speed. We are also preparing for the manufacturing of high density
      format DVDR (“HD DVDR”) or Blu-Ray format DVDR discs. We have customers in
      Western Europe, Australia, China and South America. We currently manufacture
      and
      ship our products from Hong Kong where we operate state of the art DVDR and
      CDR
      manufacturing facilities.





The
      Company owns all of the capital stock of Infosmart, a holding company
      incorporated in the British Virgin Islands. Infosmart beneficially owns 100%
      of
      the issued and outstanding capital stock of both: (i) Info Smart Technology
      Limited (“IS Technology”), a company incorporated under the laws of Hong Kong;
      and (ii) Info Smart International Enterprises Limited (“IS International”), a
      company incorporated under the laws of Hong Kong. IS Technology owns all of
      the
      issued and outstanding capital stock of Infoscience Media Limited (“IS Media”),
      a company incorporated under the laws of Hong Kong. IS Media owns 99.42% of
      the
      issued and outstanding capital stock of Discobras Industria E Comercio de Eletro
      Eletronica Ltda., a company incorporated under the laws of Brazil (“Discobras”),
      the remaining 0.58% ownership interest in Discobras is held by our local
      Brazilian partner.





We
      are
      constructing a DVDR production facility in Brazil.  In March 2006, IS Media
      formed Discobras, a Brazilian company, with a local partner, with registered
      capital of US$8 million for our new Brazilian DVDR production facility. We
      intend to relocate some of our DVDR manufacturing equipment to Brazil in
      November 2006.  We have obtained all required government licenses and all
      other documents and approvals necessary to operate a DVDR production facility
      in
      Brazil. The facility has been leased since April 2006 and is already prepared
      for DVDR manufacturing equipment to be installed in late December 2006.
      Production in Brazil is expected to start in January 2007.




**Share
      Exchange Transaction**





The
      Company did not become engaged in the DVDR manufacturing business until August
      of 2006. Before the closing of the recent share exchange transaction in August
      2006, we were a shell company with nominal assets and operations, whose sole
      business was to identify, evaluate and investigate various companies with the
      intent that, if such investigation warrants, a business combination be
      negotiated and completed pursuant to which the Company would acquire a target
      company with an operating business with the intent of continuing the acquired
      company’s business as a publicly held entity. We entered in an Exchange
      Agreement (the “Exchange Agreement”) dated July 7, 2006 and amended on August
      14, 2006 with KI Equity Partners II, LLC (“KI Equity”), Infosmart, the owners of
      100% of the capital shares of Infosmart, namely Chung Kwok, Po Nei Sze, Prime
      Corporate Developments Limited (“Prime Corporate”) and Hamptons Investment Group
      Limited (“Hamptons”) (collectively the “Infosmart Shareholders”), and Worldwide
      Gateway Co., Ltd. The closing of the Exchange Agreement occurred on August
      16,
      2006. At the closing of the Exchange Agreement, the Company acquired all of
      Infosmart’s capital shares (the “Infosmart Shares”) from the Infosmart
      Shareholders, and the Infosmart Shareholders transferred and contributed all
      of
      their Infosmart Shares to the Company. In exchange, the Company issued 1,000,000
      shares of its Series A Convertible Preferred Stock to the Infosmart
      Shareholders. Each share of the Company’s Series A Convertible Preferred Stock
      (“Series A Preferred Stock”) is convertible into 116.721360 shares of the
      Company's common stock, subject to adjustments. The Series A Preferred Stock
      were to be immediately and automatically converted into shares of the Company's
      common stock upon the approval by a majority of the Company's stockholders
      (voting together on an as-converted-to-common-stock basis) and the filing of
      a
      Certificate of Amendment to the Company’s Articles of Incorporation, following
      the closing of the Exchange Agreement, to increase in the number of authorized
      shares of the Company's common stock from 40,000,000 shares to 300,000,000
      shares and to change of the Company's corporate name to Infosmart Group, Inc.


4





As
      a
      result of the closing of the Exchange Agreement, Infosmart became the wholly
      owned subsidiary of the Company and became the Company’s main operational
      business. The Exchange transaction, for accounting and financial reporting
      purposes, is deemed to be a reverse acquisition, where the Company (the legal
      acquirer) is considered the accounting acquiree and Infosmart (the legal
      acquiree) is considered the accounting acquirer, and thus the historical
      financial statements of the Company are the financial statements of Infosmart.
      On August 16, 2006, pursuant to the authority granted by the Company’s bylaws,
      the Board of Directors of the Company changed its fiscal year end from May
      31 to
      December 31 of each year.





**Name
      Change and Increase in Authorized Shares of Common Stock**





On
      October 12, 2006, the Company effected an increase in the number of authorized
      shares of the Company's common stock from 40,000,000 shares to 300,000,000
      shares and also effected a change of the Company's corporate name (the “Name
      Change”) to “Infosmart Group, Inc.” (the “Amendments”) through the filing of a
      Certificate of Amendment to the Company’s Articles of Incorporation with the
      State of California’s Secretary of State. Per the conversion rights set forth in
      the Certificate of Determination for the Series A Preferred Stock, upon filing
      and acceptance of the Amendments to the Company’s Articles of Incorporation, all
      of the Series A Preferred Stock were automatically converted into approximately
      116,721,360 shares of the Company’s Common Stock. The Company’s Name Change and
      its trading symbol (OTCBB: IFSG) became effective on the OTC Bulletin Board
      on
      October 18, 2006.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





**Principles
      of consolidation**





The
      condensed consolidated financial statements include the accounts of the Company
      and its subsidiaries. All significant inter-company balances and transactions
      are eliminated in consolidation.





**Use
      of estimates**





In
      preparing financial statements in conformity with accounting principles
      generally accepted in the United States of America, management makes estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosures of contingent assets and liabilities at the dates of the financial
      statements, as well as the reported amounts of revenues and expenses during
      the
      reporting periods. These accounts and estimates include, but are not limited
      to,
      the valuation of accounts receivable, inventories, deferred income taxes and
      the
      estimation on useful lives of property, plant and equipment. Actual results
      could differ from those estimates.





**Revenue
      recognition**





Revenue
      from sales of the Company’s products is recognized when the significant risks
      and rewards of ownership have been transferred to the buyer at the time of
      delivery and the sales price is fixed or determinable and collection is
      reasonably assured.





**Stock-based
      payment**





The
      Company adopted the SFAS No. 123R, "Share-Based Payment" ("SFAS 123R") using
      the
      modified prospective method. Under SFAS 123R, equity instruments issued to
      service providers for their services are measured at the grant-date fair value
      and recognized in the statement of operations over the vesting
      period.





**Basic
      and diluted earnings per share**





The
      Company reports basic earnings per share in accordance with SFAS No. 128,
“Earnings Per Share”. Basic earnings per share is computed using the weighted
      average number of shares outstanding during the periods presented. The weighted
      average number of shares of the Company represents the common stock outstanding
      during the period. The calculation of the weighted average number of
      shares also includes the number of common stock equivalent of Series A
      Convertible Preferred Stock (110,236,846) issued to the Original Infosmart
      Shareholders for the Exchange transaction as they were mandatory converted
      to
      common stock after the balance sheet date.


5





Diluted
      earning per share is based on the assumption that all dilutive convertible
      shares and stock options were converted or exercised. Dilution is computed
      by
      applying the treasury stock method. Under this method, options and warrants
      are
      assumed to be exercised at the beginning of the period (or at the time of
      issuance, if later), and as if funds obtained thereby were used to purchase
      common stock at the average market price during the period. The Company’s common
      stock equivalents at September 30, 2006 include the following:





Convertible
                preferred stock Series A
            
            
            116,721,360Convertible
                redeemable preferred stock Series B
            
            
            29,310,345Detachable
                common stock warrants
            
            
            29,310,345Placement
                agent warrants
            
            
            2,931,035178,273,085





**Accounts
      receivables**





The
      Company extends unsecured credit to customers in the normal course of business
      and believes all trade receivables in excess of the allowances for doubtful
      receivables to be fully collectible. Full allowances for doubtful receivables
      are made when the receivables are overdue for one (1) year and an allowance
      is
      also made when there is objective evidence that the Company will not be able
      to
      collect all amounts due according to original terms of receivables. Bad debts
      are written off when identified. The Company does not accrue interest on trade
      accounts receivable.





**Inventories**





Inventories
      are valued at the lower of cost or market with cost determined on a first-in,
      first-out basis. In assessing the ultimate realization of inventories, the
      management makes judgments as to future demand requirements compared to current
      or committed inventory levels. The Company’s reserve requirements generally
      increase as the management projected demand requirements; decrease due to market
      conditions, product life cycle changes.





**Plant
      and equipment**





Plant
      and
      equipment are stated at cost less accumulated depreciation. Cost represents
      the
      purchase price of the asset and other costs incurred to bring the asset into
      its
      existing use. Maintenance, repairs and betterments, including replacement of
      minor items, are charged to expense; major additions to physical properties
      are
      capitalized.





Depreciation
      of plant and equipment is provided using the straight-line method over their
      estimated useful lives. The principal annual rates are as follows:





Production
                line and equipment
            10%
                with 30% residual valueLeasehold
                improvement and others
            20%





Construction
      in progress represents factory under construction, which is stated at cost
      less
      any impairment losses, and is not depreciated. Cost comprises the direct costs
      of construction. Construction in progress is reclassified to the appropriate
      category of fixed assets when completed and ready for use.





**Impairment
      of long-live assets**





Long-lived
      assets are reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of the assets may not be recoverable. The
      Company recognizes impairment of long-lived assets in the event that the net
      book values of such assets exceed the future undiscounted cashflows attributable
      to such assets. No impairment of long-lived assets was recognized for any of
      the
      periods presented.





**Recent
      accounting pronouncements**





In
      February 2006, the Financial Accounting Standards Board issued SFAS No. 155,
      Accounting for Certain Hybrid Financial Instruments, which amends SFAS No.
      133,
      Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 155”),
      and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
      and
      Extinguishments of Liabilities. SFAS No. 155 simplifies the accounting for
      certain derivatives embedded in other financial instruments by allowing them
      to
      be accounted for as a whole if the holder elects to account for the whole
      instrument on a fair value basis. SFAS No. 155 also clarifies and amends certain
      other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective
      for
      all financial instruments acquired, issued or subject to a remeasurement event
      occurring in fiscal years beginning after September 15, 2006. Earlier adoption
      is permitted, provided the company has not yet issued financial statements,
      including for interim periods, for that fiscal year. We do not believe the
      adoption of SFAS No. 155 will have a material impact on the Company's condensed
      consolidated financial position or results of operations.


6





The
      Financial Accounting Standards Board (“FASB”) released SFAS No. 156, “Accounting
      for Servicing of Financial Assets,” to simplify accounting for separately
      recognized servicing assets and servicing liabilities. SFAS No. 156 amends
      SFAS
      No. 140, “Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities.” SFAS No. 156 permits an entity to choose either
      the amortization method or the fair value measurement method for measuring
      each
      class of separately recognized servicing assets and servicing liabilities after
      they have been initially measured at fair value. SFAS No. 156 applies to all
      separately recognized servicing assets and liabilities acquired or issued after
      the beginning of an entity’s fiscal year that begins after September 15, 2006.
      SFAS No. 156 will be effective for the Company as of December 31, 2006, the
      beginning of the Company’s 2007 fiscal year. We do not believe the adoption of
      SFAS No. 156 will have a material impact on our condensed consolidated financial
      position or results of operations.





In
      July
      2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes.” This
      interpretation requires that we recognize in our financial statements, the
      impact of a tax position, if that position is more likely than not of being
      sustained on audit, based on the technical merits of the position. The
      provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year,
      with the cumulative effect of the change in accounting principle recorded as
      an
      adjustment to opening retained earnings. We are currently evaluating the effect
      of FIN 48 on its financial statements.





In
      September 2006, the FASB issued SFAS No. 157 “Fair Value Measurement” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value, and expands disclosures about fair value measurements. This Statement
      shall be effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years. Earlier
      application is encouraged, provided that the reporting entity has not yet issued
      financial statements for that fiscal year, including any financial statements
      for an interim period within that fiscal year. The provisions of this statement
      should be applied prospectively as of the beginning of the fiscal year in which
      this Statement is initially applied, except in some circumstances where the
      statement shall be applied retrospectively. We are currently evaluating the
      effect, if any, of SFAS 157 on its financial statements.





The
      FASB
      released SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
      Other Postretirement Plans: an amendment of FASB Statements No. 87, 88, 106,
      and
      132(R),” which requires an employer to recognize the over funded or under funded
      status of defined benefit and other postretirement plans as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through an adjustment
      to comprehensive income. This statement also requires an employer to measure
      the
      funded status of a plan as of the date of its year-end statement of financial
      position, with limited exceptions. The Company is required to initially
      recognize the funded status of its defined benefit and other postretirement
      plans as of December 31, 2006, and to provide the required disclosures in the
      Company’s 2006 Annual Report on Form 10-KSB. We are assessing the impact
      on the adoption of SFAS No. 158 will have on our condensed consolidated
      financial position.





**RESULTS
      OF OPERATIONS**





**Comparison
      of Three Month and Nine Month Periods Ended September 30, 2006 and
      September 30, 2005.**





The
      following table sets forth the results of our operations for the periods
      indicated as a percentage of net sales:





Three
                months ended September 30
            
            Nine
                months ended  September 302006
            
            %
                of
            
            2005
            
            %
                of
            
            2006
            
            %
                of
            
            2005
            
            %
                ofUnaudited
            
            Revenue
            
            Unaudited
            
            Revenue
            
            Unaudited
            
            Revenue
            
            Unaudited
            
            RevenueSALES
            
            $
            7,560,552
            
            
            100.00
            %
            $
            3,990,318
            
            
            100.00
            %
            $
            20,122,556
            
            
            100.00
            %
            $
            18,479,677
            
            
            100.00
            %COST
                OF SALES
            
            
            5,405,277
            
            
            71.49
            %
            
            2,902,758
            
            
            72.75
            %
            
            14,487,445
            
            
            72.00
            %
            
            13,078,141
            
            
            70.77
            %GROSS
                PROFIT
            
            
            2,155,275
            
            
            28.51
            %
            
            1,087,560
            
            
            27.25
            %
            
            5,635,111
            
            
            28.00
            %
            
            5,401,536
            
            
            29.23
            %ADMINISTRATIVE
                EXPENSES
            
            
            384,635
            
            
            5.09
            %
            
            227,394
            
            
            5.70
            %
            
            950,529
            
            
            4.72
            %
            
            583,764
            
            
            3.16
            %DEPRECIATION
            
            
            62,852
            
            
            0.83
            %
            
            54,889
            
            
            1.38
            %
            
            183,936
            
            
            0.91
            %
            
            155,543
            
            
            0.84
            %SELLING
                AND DISTRIBUTING COSTS
            
            
            158,081
            
            
            2.09
            %
            
            130,406
            
            
            3.27
            %
            
            396,195
            
            
            1.97
            %
            
            505,590
            
            
            2.74
            %INCOME
                FROM OPERATIONS
            
            
            1,549,707
            
            
            20.50
            %
            
            674,871
            
            
            16.90
            %
            
            4,104,451
            
            
            20.40
            %
            
            4,156,639
            
            
            22.49
            %PROFESSIONAL
                EXPENSES RELATED TO RESTRUCTURING AND SHARE EXCHANGE
            
            
            2,753,390
            
            
            36.42
            %
            
            165,765
            
            
            4.15
            %
            
            2,753,390
            
            
            13.68
            %
            
            165,765
            
            
            0.90
            %REVERSAL
                OF COMMISSION PAYABLE
            
            
            -
            
            
            0.00
            %
            
            -
            
            
            0.00
            %
            
            -
            
            
            0.00
            %
            
            717,692
            
            
            3.88
            %OTHER
                INCOME
            
            
            159,767
            
            
            2.11
            %
            
            39,930
            
            
            1.00
            %
            
            331,017
            
            
            1.65
            %
            
            239,375
            
            
            1.30
            %INTEREST
                EXPENSES
            
            
            132,279
            
            
            1.75
            %
            
            133,864
            
            
            3.35
            %
            
            407,765
            
            
            2.03
            %
            
            363,939
            
            
            1.97
            %INCOME/(LOSS)
                BEFORE INCOME TAXES
            
            
            (1,176,195
            )
            
            (15.56
            )%
            
            415,172
            
            
            10.40
            %
            
            1,274,313
            
            
            6.33
            %
            
            4,584,002
            
            
            24.80
            %INCOME
                TAXES
            
            
            261,176
            
            
            3.45
            %
            
            72,656
            
            
            1.82
            %
            
            698,271
            
            
            3.47
            %
            
            802,201
            
            
            4.34
            %NET
                INCOME/(LOSS)
            
            
            (1,437,371
            )
            
            (19.01
            )%
            
            342,516
            
            
            8.58
            %
            
            576,042
            
            
            2.86
            %
            
            3,781,801
            
            
            20.46
            %SERIES
                B PREFERRED DIVIDENDS
            
            
            66,978
            
            
            0.89
            %
            
            -
            
            
            0.00
            %
            
            66,978
            
            
            0.33
            %
            
            -
            
            
            0.00
            %SERIES
                B PREFERRED DEEMED DIVIDEND
            
            
            2,297,157
            
            
            30.38
            %
            
            -
            
            
            0.00
            %
            
            2,297,157
            
            
            11.42
            %
            
            -
            
            
            0.00
            %NET
                INCOME/(LOSS) APPLICABLE TO COMMON SHAREHOLDERS
            
            $
            (3,801,506
            )
            
            (50.28
            )%
            $
            342,516
            
            
            8.58
            %
            $
            (1,788,093
            )
            
            (8.89
            )%
            $
            3,781,801
            
            
            20.46
            %




7


**Comparison
      of Three Months Ended September 30, 2006 and 2005**





***Net
      Sales*** *.* For
      the
      three months ended September 30, 2006, net sales increased 89.5% from $3,990,318
      to $7,560,552 relative to the three months ended September 30, 2005. The
      increase in revenues was mainly due to net sales of approximately $2.3 million
      that were generated from new markets in Brazil with higher margins, together
      with an increase in net sales of approximately $0.9 million in Australia. The
      increase in sales from Asia and other places offset the decrease in net sales
      in
      Europe. The decrease of net sales in Europe was driven by our policy of
      geographical diversification as well as a shift in focus by the Company from
      the
      lower margin market in Europe to other higher margin markets. The production
      of
      CDRs, which commenced in the third quarter of 2006, contributed net sales of
      approximately $0.8 million for the three months ended September 30,
      2006.





***Cost
      of Sales*** *.* Cost
      of
      sales increased from $2,902,758, or approximately 72.8% of net sales for the
      three months ended September 30, 2005, to $5,405,277, or approximately 71.5%
      of
      net sales for the three months ended September 30, 2006, an increase of 86.2%
      over these same comparable quarters in 2005 and 2006. The increase in the cost
      of sales was in line with the increase in our sales for the three months ended
      September 30, 2006.


8





***Gross
      Profit*** .
      Gross
      profit increased approximately 98.2% from $1,087,560 for the three months ended
      September 30, 2005 to $2,155,275 for the three months ended September 30, 2006.
      This increase in gross profit was primarily due to the increase of our net
      sales
      and the contribution from higher margin sales in Brazil for the period.





***Selling
      and Distribution Costs*** .
      For the
      three months ended September 30, 2006, selling and distribution costs increased
      approximately 21.2% from $130,406 to $158,081 relative to the three months
      ended
      September 30, 2005. This increase in selling and distribution costs was due
      to
      an increase of sales for the three months ended September 30, 2006. In addition,
      the change to a more competitive freight forwarder led to a reduction of the
      freight expenses, which partly offset the effect from the substantial increase
      of our net sales during the three months ended September 30, 2006.





***Administrative
      Expenses.*** Administrative
      expenses increased approximately 69.1% from $227,394 for the three months ended
      September 30, 2005 to $384,635 for the three months ended September 30, 2006.
      This increase in administrative expenses was mainly due to increased costs
      related to the hiring and employment of new administrative personnel, additional
      professional fees incurred in relation to our financial reporting, and overseas
      traveling expenses that were incurred for the share exchange transaction and
      financing activities during the period.





***Professional
      Expenses Related To Restructuring and Share Exchange.*** Professional
      expenses increased substantially from $165,765 for the three months ended
      September 30, 2005 to $2,753,390 for the three months ended September 30, 2006.
      The increase was mainly due to the completion of our restructuring and the
      share
      exchange transaction in August 2006. These one-off payments were made to
      different professional parties who provided services in connection with the
      restructuring and share exchange transaction during the period. The professional
      expenses were comprised of the following major items:





Financial
                Advisory Fees
            
            $
            1,426,794Reverse
                Merger Fees
            
            
            450,000Other
                Professional Parties’ Fees
            
            
            747,000




***Net
      Loss*** .
      The
      Company incurred a net loss of $1,437,371 incurred for the three months ended
      September 30, 2006 compared to net income of $342,516 for the three month period
      ended September 30, 2005. The net loss incurred was mainly due to the
      professional expenses related to our restructuring and share exchange
      transaction of approximately $2.8 million incurred during the three months
      ended
      September 30, 2006. Excluding the effect of the professional fees incurred
      for
      the share exchange and financing activities, there would have been an increase
      in adjusted net income of approximately 158.9% from $508,281 for the three
      months ended September 30, 2005 to $1,316,019 for the three months ended
      September 30, 2006. The increase of this adjusted net income was mainly due
      to
      the increase in net sales for the three months ended September 30,
      2006.




**Comparison
      of Nine Months Ended September 30, 2006 and 2005**





***Net
      Sales*** *.* For
      the
      nine months ended September 30, 2006, net sales increased 8.9% from $18,479,677
      to $20,122,556 relative to the nine months ended September 30, 2005. The
      increase in revenue was mainly due to the effect of new market sales generated
      in Brazil and a substantial increase in sales in Australia, Asia and North
      America, but this was offset by a substantial decrease in our net sales in
      Europe. The decrease of net sales in Europe was driven by our policy of
      geographical diversification and a shift in our Company’s focus from the lower
      margin market in Europe to other higher margin markets.





***Cost
      of Sales*** *.* Cost
      of
      sales increased from $13,078,141, or approximately 70.8% of net sales for the
      nine months ended September 30, 2005, to $14,487,445, or approximately 72.0%
      of
      net sales for the nine months ended September 30, 2006, an increase of 10.8%
      over the same comparable quarters in 2005 and 2006. The increase in the cost
      of
      sales was in line with the increase in our net sales for the nine months ended
      September 30, 2006.





***Gross
      Profit.*** Gross
      profit increased approximately 4.3% from $5,401,536 for the nine months ended
      September 30, 2005 to $5,635,111 for the nine months ended September 30, 2006.
      This increase in gross profit was due to the increase in sales for the period.
      In addition, the slight decrease of our gross profit percentage from 29.2%
      for
      the nine months ended September 30, 2005 to 28.0% for the nine months ended
      September 30, 2006 was mainly due to a slight decrease of our sales prices
      in
      2006.





***Selling
      and Distribution Costs*** .
      For the
      nine months ended September 30, 2006, selling and distribution costs decreased
      approximately 21.6% from $505,590 to $396,195 relative to the nine month ended
      September 30, 2005. This decrease in selling and distribution costs was mainly
      due to the change to a more competitive freight forwarder which led to a
      reduction of our freight expenses for the nine month period ended September
      30,
      2006. In addition, fewer overseas exhibitions were held as we focused on more
      effective local exhibitions, and which, in turn, lowered the exhibition expenses
      we incurred for the nine month period ended September 30, 2006.


9





***Administrative
      Expenses.*** Administrative
      expenses increased approximately 62.8% from $583,764 for the nine months ended
      September 30, 2005 to $950,529 for the nine months ended September 30, 2006.
      This increase in administrative expenses was mainly due to increased costs
      related to the employment of new administrative personnel, additional
      professional fees that were incurred for our financial reporting, overseas
      traveling expenses associated with our share exchange transaction and financing
      activities during the nine month period ended September 30, 2006.





***Professional
      Expenses Related To Restructuring and Share Exchange.*** Such
      professional expenses increased substantially from $165,765 for the nine months
      ended September 30, 2005 to $2,753,390 for the nine months ended September
      30,
      2006. The increase was mainly due to the completion of the restructuring and
      share exchange transaction in August 2006. These one-off payments were made
      to
      different professional parties who provided services in connection with the
      restructuring and share exchange transaction during the period. The professional
      expenses comprised the following major items:





Financial
                Advisory Fees
            
            $
            1,426,794Reverse
                Merger Fees
            
            
            450,000Other
                Professional Parties’ Fees
            
            
            747,000





***Net****Income*** **.**
      Net income decreased approximately 84.8% from $3,781,801 for the nine months
      ended September 30, 2005 to $576,042 for the nine months ended September 30,
      2006. Further, the net income margin was 2.9% and 20.5% in the same comparable
      periods in 2006 and 2005, respectively. This decrease in net income was due
      primarily to the professional expenses related to our restructuring and the
      share exchange transaction of approximately $2.8 million for the nine months
      ended September 30, 2006. Excluding the effect of the professional expenses
      related to the restructuring and share exchange transaction, the decrease of
      adjusted net income from $3,947,566 for the nine months ended September 30,
      2005
      to $3,329,432 for the nine months ended September 30, 2006 would represent
      a
      decrease of only approximately 15.7%. This decrease was mainly due to the
      reversal of commission payable of $717,692 that occurred during the nine month
      period ended September 30, 2005. Our Company and our customers agreed to cancel
      potential sales rebates worth $717,692, which had been accrued but not paid
      in
      prior years. Excluding the reversal of the commission payable of $717,692 in
      2005, the final adjusted net income for the nine months ended September 30,
      2005
      would have been $3,229,874. In this regard, the adjusted net income for the
      nine
      months ended September 30, 2006 would increase by 3.1%.




**GROWTH
      STRATEGIES**





Our
      growth strategy is to continue to focus on the production of DVDRs for developed
      and, increasingly, developing economies while preparing some of our production
      lines for the next generation HD format DVDRs and/or Blu-Ray format DVDRs for
      sale to developed countries. By the end of 2007, we plan to have at least two
      production lines converted to HD format DVDR output and another 32 lines ready
      for conversion. The timing of product and territory market entry and exit is
      a
      critical determinant of success in the optical media market. Flexibility in
      our
      technology base and manufacturing locations will enable us to time the switch
      of
      emphasis to HD format or Blu-Ray format DVDR production and regional markets
      according to local information and actual, rather than projected, market
      developments.





We
      started production of CDRs during the third quarter of 2006 because of the
      demand from our customers. Since we have executed our geographical
      diversification policy, our customer base has become more diverse and we do
      not
      expect that we will have to rely solely on one or two large customers in the
      future. Further, a number of customers have adopted the concept of “one-stop
      shop” and they prefer to order both DVDRs as well as CDRs from one single
      supplier, like us.





**New
      Markets** **:**





**South
      America and Brazil**





As
      expected, sales in South America grew dramatically in the third quarter of
      the
      2006 and we anticipate that sales will continue to grow in this region in the
      near future.





Our
      Company’s latest developments in connection with Brazil are discussed in the
      section above entitled “Overview.” For other South American countries, we will
      select strong distribution partners, conduct more marketing activities and
      exhibitions, and pre-position inventory in bonded warehouses in the region
      to
      ensure prompt delivery of our products.





Brazil
      will remain our main focus in 2006 and 2007. In addition to attending certain
      IT
      exhibition in Brazil for the year 2006, we will attend local computer games
      exhibitions and the main tradeshow for supermarket and chain store buyers in
      2007. Our sales team will continue to locate distributors and strategic channel
      partners for specific territorial submarkets in Brazil.


10





We
      plan
      to launch our own brand “Hontek”, “Laser Line” as well as “TOP COMP” recordable
      optical media products in the Brazilian retail market from 2007, with sales
      to
      supermarkets and chain stores such as Bompreco (a Wal-Mart subsidiary).
      Management expects that sales directly to retailers will generate higher profit
      margins than sales to local wholesalers, and has earmarked a $650,000 budget
      for
      this marketing effort over the next 18 months.





**Other
      Developing Markets - The Middle East, Africa, Eastern European
      Region/Russia**





Some
      of
      our Western European distributors sell our products to retailers in the Middle
      East and Eastern Europe. We plan to exploit opportunities in major developing
      markets in the Middle East, Africa, Russia and Eastern European countries
      directly by attending tradeshows and advertising in trade websites.





**Online
      Marketing Exposure**





The
      Internet is increasingly being used for product sourcing. We currently invest
      approximately $20,000 per year on online exposure in industry portals such
      as
      globalsources.com, alibaba.com and the Hong Kong Trade Development Council
      website. We plan to increase our online promotional activities in
      2007.





**Next
      Generation HD DVDR**





We
      are
      investing approximately $1,250,000 over the next 18 months on pre-production
      activities for HD DVDR production, including dye and stamper testing, mould
      modification and process fine-tuning. In order to position the Company to
      be one of the first companies to have the capabilities to mass-produce HD DVDRs
      to coincide with the early growth phase of the product life cycle, we have
      worked closely with dye and stamper developers in Taiwan and will be conducting
      pre-production testing to prepare for HD DVDR production. However, if Blu-Ray
      format DVDRs become the dominant format, we would need to purchase totally
      new
      equipment for Blu-Ray DVDR production. Although we are getting ready to produce
      HD DVDRs, we will still work closely with distributors to monitor the market
      demand and we will continue to keep in touch with Blu-Ray technology providers
      for more technical information, so that we would be ready to move straight
      into
      Blu-Ray DVDR production in the event that such market needs arise.




**LIQUIDITY
      AND CAPITAL RESOURCES**





**Nine
      Months Ended September 30, 2006**





Net
      cash
      flow provided by operating activities was $311,510 for the nine months ended
      September 30, 2006 and $448,794 for the nine months ended September 30, 2005.
      The decrease in our net cash flow provided by operating activities for the
      nine
      months ended September 30, 2006 was mainly due to the repayment of a significant
      amount of advances from a related party and to advance a significant amount
      to a
      party to our Cooperation Agreement during the nine months ended September 30,
      2006. Another factor leading to the decrease in our net cash flow provided
      by
      operating activities was the increase in our trade receivables.





Net
      cash
      flow used in investing activities was $1,911,221 and $348,601 for the nine
      months ended September 30, 2006 and 2005, respectively. Uses of cash flow for
      investing activities mainly related to the capital expenditures for the
      acquisition of plant and equipment as well as for the construction of our
      production facilities in Brazil.





Net
      cash
      flow provided by financing activities was $3,630,577 for the nine months ended
      September 30, 2006. Compared with net cash flow used in financing activities
      of
      $216,543 for the nine months ended September 30, 2005, the substantial increase
      in our net cash flow was mainly due to the inflow of net proceeds of
      approximately $6.4 million from the financing that we completed in August 2006,
      with $400,000 being retained with the Escrow Account. During the nine months
      ended September 30, 2006, significant amounts were used to repay bank borrowings
      and other loans under normal repayment schedules.




**Contractual
      Obligations and Off-Balance Sheet Arrangements**




*Contractual
      Obligations*




We
      have
      certain fixed contractual obligations and commitments that include future
      estimated payments. Changes in our business needs, cancellation provisions,
      changing interest rates, and other factors may result in actual payments
      differing from the estimates. We cannot provide certainty regarding the timing
      and amounts of payments. We have presented below a summary of the most
      significant assumptions used in our determination of amounts presented in the
      tables, in order to assist in the review of this information within the context
      of our consolidated financial position, results of operations, and cash flows.


11





The
      following tables summarize our contractual obligations as of September 30,
      2006,
      and the effect these obligations are expected to have on our liquidity and
      cash
      flows in future periods.




**Payments
                Due by Period****Total**
            
            **Less
                than 1 year**
            
            **1-3
                Years**
            
            **3-5
                Years**
            
            **5
                Years +****In
                Thousands**Contractual
                Obligations:Bank
                Indebtedness
            
            $
            2,525
            
            $
            2,525
            
            $
            —
            
            $
            —
            
            $
            —Other
                Indebtedness
            
            
            3,227
            
            
            3,227
            
            
            —
            
            
            —
            
            
            —Operating
                Leases
            
            
            6
            
            
            6
            
            
            —
            
            
            —
            
            
            —Purchase
                Obligations
            
            
            1,771
            
            
            1,771
            
            
            —
            
            
            —
            
            
            —Total
                Contractual Obligations:
            
            $
            7,529
            
            $
            7,529
            
            $
            —
            
            $
            —
            
            $
            —




Bank
      indebtedness consists of secured and unsecured borrowings from our banking
      facilities arrangements including letters of credit, bank overdrafts, and
      non-recurring bank loans.





Other
      indebtedness consists of loans and debt financing from independent third parties
      for working capital and the acquisition of DVDR production lines and
      equipment.





Operating
      lease amounts include a lease for factory premises under non-cancelable
      operating lease agreement that expires in year 2007, with an option to renew
      the
      lease. The lease is on a fixed repayment basis. The lease does not include
      contingent rentals.





Purchase
      obligations consist of a contract with an engineer in Hong Kong to set up the
      foundation for the factory in Brazil.





*Off-balance
      Sheet Arrangements*





A
      bank
      guarantee was given by a bank to an electric utility company on Infosmart’s
      behalf. This guarantee exempted Infosmart from the obligation of paying a
      deposit required by the electric utility company. This off-balance sheet
      arrangement has no effect on the Infosmart’s liquidity, capital resources,
      market risk support or credit risk support, other than allowing Infosmart to
      retain approximately HK$2.3 million deposit that would have been required by
      the
      utility company. Infosmart is not aware of any events, demands, commitments,
      trends or uncertainties that will result in of reasonably likely result in
      the
      termination of this arrangement.





Other
      than the arrangement described above, we have not entered into any other
      financial guarantees or other commitments to guarantee the payment obligations
      of any third parties. We have not entered into any derivative contracts that
      are
      indexed to our shares and classified as shareholder’s equity or that are not
      reflected in our consolidated financial statements. Furthermore, we do not
      have
      any retained or contingent interest in assets transferred to an unconsolidated
      entity that serves as credit, liquidity or market risk support to such entity.
      We do not have any variable interest in any unconsolidated entity that provides
      financing, liquidity, market risk or credit support to us or engages in leasing,
      hedging or research and development services with us.





**Quantitative
      and Qualitative Disclosures about Market Risk**





We
      currently do not use derivative financial instruments in its investment
      portfolio and have no foreign exchange contracts. Our financial instruments
      consist of cash and cash equivalents, trade accounts receivable, accounts
      payable and long-term obligations. We consider investments in highly liquid
      instruments purchased with a remaining maturity of 90 days or less at the date
      of purchase to be cash equivalents. However, in order to manage the foreign
      exchange risks, we will engage in hedging activities to manage our financial
      exposure related to currency exchange fluctuation. In these hedging activities,
      we might use fixed-price, forward, futures, financial swaps and option contracts
      traded in the over-the-counter markets or on exchanges, as well as long-term
      structured transactions when feasible.





*Interest
      Rates* .
      Our
      exposure to market risk for changes in interest rates relates primarily to
      our
      short-term investments and short-term obligations; thus, fluctuations in
      interest rates would not have a material impact on the fair value of these
      securities. At September 30, 2006, we had approximately $2,178,209 in cash
      and
      cash equivalents. A hypothetical 10% increase or decrease in interest rates
      would not have a material impact on our earnings or loss, or the fair market
      value or cash flows of these instruments.


12





*Foreign
      Exchange Rates* .
      The
      majority of our revenues derived and expenses and liabilities incurred are
      in
      Hong Kong dollars. Thus, our revenues and operating results may be impacted
      by
      exchange rate fluctuations in the currencies of Hong Kong. We have not tried
      to
      reduce our exposure to exchange rate fluctuations by using hedging transactions.
      However, we may choose to do so in the future. We may not be able to do this
      successfully. Accordingly, we may experience economic losses and negative
      impacts on earnings and equity as a result of foreign exchange rate
      fluctuations. The effect of foreign exchange rate fluctuation during the nine
      months ended September 30, 2006 was not material to us.





*Inflation* *.* We
      believe that inflation has not had a material effect on our operations to
      date.





**RISK
      FACTORS**





*You
      should carefully consider the risks described below together with all of the
      other information included in this report before making an investment decision
      with regard to our securities. The statements contained in or incorporated
      into
      this report that are not historic facts are forward-looking statements that
      are
      subject to risks and uncertainties that could cause actual results to differ
      materially from those set forth in or implied by forward-looking statements.
      If
      any of the following risks actually occurs, our business, financial condition
      or
      results of operations could be harmed. In that case, the trading price of our
      common stock could decline, and you may lose all or part of your
      investment.*





**Risks
      Relating to Our Business**





**The
      limited operating history of Infosmart makes evaluation of our business
      difficult.**





We
      have
      limited operating histories. Infosmart was incorporated in the British Virgin
      Islands on August 23, 2005, and IS Technology was founded in August of 2002.
      These limited operating histories and the unpredictability of our industry
      make
      it difficult for investors to evaluate our business and future operating
      results. An investor in the Company's securities must consider the risks,
      uncertainties and difficulties frequently encountered by companies in new and
      rapidly evolving markets. The risks and difficulties we face include challenges
      in accurate financial planning as a result of limited historical data and the
      uncertainties resulting from having had a relatively limited time period in
      which to implement and evaluate our business strategies as compared to older
      companies with longer operating histories.





**We
      continually seek to develop new products and standards, which may not be widely
      adopted by consumers or, if adopted, may reduce demand by consumers for our
      older products.**





We
      continually seek to develop new products and standards and enhance existing
      products and standards with higher memory capacities and other enhanced
      features. We cannot assure you that our new products and standards will gain
      market acceptance or that we will be successful in penetrating the new markets
      that we target. As we introduce new products and standards, it will take time
      for these new products and standards to be adopted, for consumers to accept
      and
      transition to these new products and standards and for significant sales to
      be
      generated from them, if this happens at all. Moreover, broad acceptance of
      new
      products and standards by consumers may reduce demand for our older products
      and
      standards. If this decreased demand is not offset by increased demand for our
      new products and standards, our results of operations could be harmed. We cannot
      assure you that any new products or standards we develop will be commercially
      successful.





**Our
      future operating results may fluctuate and cause the price of our common stock
      to decline.**





We
      expect
      that our revenues and operating results will continue to fluctuate significantly
      from quarter to quarter due to various factors, many of which are beyond our
      control. The factors that could cause our operating results to fluctuate
      include, but are not limited to:





·
            price
                competition;




·
            general
                price increases by suppliers and
                manufacturers;





·
            our
                ability to maintain and expand our customer
                relationships;




·
            the
                introduction of new or enhanced products and strategic alliances
                by us and
                our competitors;




13





·
            the
                success of our brand-building and marketing
                campaigns;




·
            consumer
                acceptance of our products and general shifts in consumer behavior
                with
                respect to our industry;·
            our
                ability to maintain, upgrade and develop our production facilities
                and
                infrastructure;·
            technical
                difficulties and system downtime;·
            the
                amount and timing of operating costs and capital expenditures relating
                to
                expansion of our business, operations and
                infrastructure;·
            general
                economic conditions as well as economic conditions specific to our
                industry; and·
            our
                ability to attract and retain qualified management and employees.





If
      our
      revenues or operating results fall below the expectations of investors or
      securities analysts, the price of our common stock could significantly
      decline.





**Our
      ability to manage our future growth is uncertain.**





We
      are
      currently anticipating a period of growth as a result of our corporate growth
      strategy, which aims to, among other things, further develop our manufacturing
      capabilities, expand our product offerings, and reach new customers. In pursuing
      these objectives, the resulting strain on our managerial, operational, financial
      and other resources could be significant. Success in managing such expansion
      and
      growth will depend, in part, upon the ability of senior management to manage
      effectively. Any failure to manage the anticipated growth and expansion could
      have a material adverse effect on our business.





**Increased
      product returns will decrease our revenues and impact
      profitability.**





We
      do not
      make allowances for product returns in our financial statements based on the
      fact that we have not had a material historical return rate. In order to keep
      product returns low, we continuously monitor product purchases and returns
      and
      may change our product offerings based on the rates of returns. If our actual
      product returns significantly increase, especially as we expand into new product
      categories, our revenues and profitability could decrease. Any changes in our
      policies related to product returns may result in customer dissatisfaction
      and
      fewer repeat customers.





**Our
      growth and operating results could be impaired if we are unable to meet our
      future capital needs.**





We
      may
      need to raise additional capital in the future to:





·
            fund
                more rapid expansion;·
            acquire
                or expand into new facilities;·
            maintain,
                enhance and further develop our manufacturing systems;·
            develop
                new product categories or enhanced services;·
            fund
                acquisitions; or·
            respond
                to competitive pressures.




14





If
      we
      raise additional funds by issuing equity or convertible debt securities, the
      percentage ownership of our stockholders will be diluted. Furthermore, any
      new
      securities could have rights, preferences and privileges senior to those of
      the
      Company's preferred shares and the common stock into which the Company's
      preferred shares are convertible. We currently do not have any commitments
      for
      additional financing. We cannot be certain that additional financing will be
      available when and to the extent required or that, if available, it will be
      on
      acceptable terms. If adequate funds are not available on acceptable terms,
      we
      may not be able to fund our expansion, develop or enhance our products or
      services or respond to competitive pressures.





**The
      loss of key senior management personnel could negatively affect our
      business.**




We
      depend
      on the continued services and performance of our senior management and other
      key
      personnel, particularly Chung Kwok, our Chief Executive Officer and President,
      Gavin Wong, our V.P. of Sales and Marketing and Sebastian Tseng, our Regional
      Director for South America and V.P. of Production and R&D. The loss of any
      of our executive officers or other key employees could harm our business.
      Infosmart currently has employment agreements with its key personnel. Further,
      the Company expects to assume the employment agreements our
      executive officers currently have with Infosmart. Infosmart has a “key
      person” life insurance policy for Chung Kwok.





**Rapid
      changes in technology could adversely affect our business and hurt our
      competitive position.**





We
      believe that our ability to increase sales by developing appealing, innovative
      products has an important role to play in our growth. However, it is extremely
      difficult to predict future demand in the rapidly changing storage media
      industry and develop new technologies to meet that demand. We may fail to
      develop and supply in a timely manner attractive, new products with innovative
      technologies for this industry and its markets. In the event that our management
      misreads the industry and market and/or is slow in developing innovative
      technologies on a cost competitive basis, actual earnings could differ
      significantly from our forecasts. At the same time, we may cease to be able
      to
      compete in markets, resulting in a significant adverse effect on our business
      results and growth prospects.





**The
      use of technologies and intellectual properties for the production of all of
      our
      products are derived from two cooperation agreements and the failure to maintain
      the effectiveness of such agreements could substantially and adversely affect
      our business.**





Our
      ability to produce our products depends on two cooperation agreements (the
      “Cooperation Agreements”) with two parties (“Cooperative Partners”) that have
      been granted licenses (the “Patent Licenses”) for the use of technologies and
      intellectual properties necessary for the production of all of our products.
      Such Cooperation Agreements currently expire on December 31, 2006, but we can
      renew both agreements. A failure to extend and otherwise maintain effectiveness
      of such agreements could prevent us from conducting our business of
      manufacturing our products and could substantially and adversely affect our
      business.





**The
      patents required for manufacturing our DVDR products are owned by multiple
      companies. Our failure to obtain all of the required patents to manufacture
      our
      products may interfere with our current or future product development and
      sales.**





We
      have
      never conducted a comprehensive patent search relating to the technology we
      use
      in our products. The Patent Licenses held by the parties with whom we have
      Cooperation Agreements were obtained through a joint patent licensing program
      (the “DVDR Patent License Program”) that is administered by Koninklijke Philips
      Electronics, N.V. (“Philips”). Parties acquiring the patent licenses through
      this DVDR Patent License Program are allowed to use patents owned by companies
      including Philips, Sony, Pioneer and/or Hewlett Packard (or for which such
      companies have patent applications pending) that are essential for manufacturing
      DVDR products. However, there may be other issued or pending patents owned
      by
      third parties that are required for manufacturing our products for which our
      Cooperative Partners do not have a patent license. If so, we could incur
      substantial costs defending against patent infringement claims or we could
      even
      be blocked from selling our products. We cannot determine with certainty whether
      any other existing third party patents or the issuance of any new third party
      patents would require us or our Cooperative Partners to alter, or obtain
      licenses relating to, our processes or products, or implement alternative
      non-infringing approaches, all at a significant additional cost to the Company.
      There is no assurance that we or our Cooperative Partners will be able to obtain
      any such licenses on terms favorable to us, if at all, and obtaining and paying
      royalties on new licenses might materially increase our costs. Additionally,
      the
      fees in respect of existing licenses could increase materially in the future
      when these licenses are renewed, and such increase may have a significantly
      and
      adversely impact our business.


15





**Our
      inability to obtain its own Patent Licenses through the DVD Patent License
      Program prior to the expiration of the Cooperation Agreements could adversely
      affect its operations.**





We
      are in
      the process of obtaining our own Patent Licenses and expect to complete the
      process before the expiration of the two Cooperation Agreements. In the event
      we
      are unable to obtain its own Patent Licenses, then it plans to exercise its
      option to renew Cooperation Agreements. However, if we are unable to obtain
      our
      own Patent Licenses then we may not be able to manufacture our products and
      this
      could significantly and adversely affect our business results and financial
      condition. Our inability to either obtain its own Patent Licenses or to renew
      and maintain the effectiveness of the Cooperation Agreements could result in
      delays in product development or prevent us from selling our products until
      equivalent substitute technology can be identified, licensed and/or integrated
      or until we are able to substantially engineer our products to avoid infringing
      the rights of third parties. We might not be able to renegotiate agreements,
      be
      able to obtain necessary licenses in a timely manner, on acceptable terms,
      or at
      all, or be able to re-engineer our products successfully. Moreover, the loss
      of
      or inability to extend any of these Patent Licenses would increase the risk
      of
      infringement claims being made against us, which claims could have a material
      adverse effect on our business.





**We
      may be unable to obtain its own new Hong Kong business customs license for
      its
      manufacturing facilities in Hong Kong**





The
      Hong
      Kong government requires companies manufacturing DVDRs to obtain a business
      license for the manufacture of optical Disc/Stampers (the “Hong Kong Business
      Licenses”) from the Customs and Excise Department of Hong Kong. We currently
      manufacturer our products under HK Business Licenses held by its Cooperative
      Partners under the Cooperation Agreement. In addition, we are in the process
      of
      obtaining our own Hong Kong Business Licenses for our Hong Kong factories and
      expect to complete the process before the expiration of the Cooperation
      Agreement. However, if we are unable to obtain such business licenses and we
      are
      also unable to extend the Cooperation Agreements beyond December 31, 2006,
      then
      production of our products at our Hong Kong factories may be halted, causing
      substantial losses to the Company.





**Our
      business may suffer if we are sued for infringing upon the intellectual property
      rights of third parties.**





There
      may
      be cases where it is alleged that our products infringe on the intellectual
      property rights of third parties. As a result, we may suffer damages or may
      be
      sued for damages. In either case, settlement negotiations and legal procedures
      would be inevitable and could be expected to be lengthy and expensive. If our
      assertions are not accepted in such disputes, we may have to pay damages and
      royalties and suffer losses such as the loss of our market share. The failure
      to
      prevent infringement on the rights of others could have a materially adverse
      effect on our business development, business results and financial
      condition.





**We
      are dependent on certain raw materials and other products, and our business
      will
      suffer if we are unable to procure such materials and
      products.**





Our
      manufacturing systems are premised on deliveries of raw materials and other
      supplies in adequate quality and quantity in a timely manner from many external
      suppliers. In new product development, we may rely on certain irreplaceable
      suppliers for materials. Because of this, there may be cases where supplies
      of
      raw materials and other products to us are interrupted by: an accident or some
      other event at a supplier; supply is suspended due to quality or other issues;
      or there is a shortage of or instability in supply due to a rapid increase
      in
      demand for finished products that use certain materials and products. If any
      of
      these situations becomes protracted, we may have difficulty finding substitutes
      in a timely manner from other suppliers, which could have a significant, adverse
      effect on our production and prevent us from fulfilling our responsibilities
      to
      supply products to our customers. Furthermore, if an imbalance arises in the
      supply-demand equation, there could be a spike in the price of raw materials.
      In
      the event of these or other similar occurrences, there could be a material
      adverse effect on our business results and financial condition.





**We
      compete in a highly competitive industry where some of our competitors are
      larger and have more resources than us.**





We
      operate in a highly competitive environment. Our competitors are both larger
      and
      smaller than us in terms of resources and market share. The marketplaces in
      which we operate are generally characterized by rapid technological change,
      frequent new product introductions and declining prices. In these highly
      competitive markets, our success will depend to a significant extent on its
      ability to continue to develop and introduce differentiated and innovative
      products and customer solutions successfully on a timely basis. The success
      of
      our product offerings is dependent on several factors including understanding
      customer needs, strong digital technology, differentiation from competitive
      offerings, market acceptance and lower costs. Although we believe that we can
      take the necessary steps to meet the competitive challenges of these
      marketplaces, no assurance can be given with regard to our ability to take
      these
      steps, the actions of competitors, some of which will have greater resources
      than us, or the pace of technological changes.





**Technology
      in our industry evolves rapidly, potentially causing our products to become
      obsolete, and we must continue to enhance existing systems and develop new
      systems or we will lose sales.**




Rapid
      technological advances, rapidly changing customer requirements and fluctuations
      in demand characterize the current market for our products. Further, there
      are
      alternative data storage media and additional media is under development,
      including high capacity hard drives, new CD-R/DVDR technologies, file servers
      accessible through computer networks and the Internet. Our existing and
      development-stage products may become obsolete if our competitors introduce
      newer or more appealing technologies. If these technologies are patented by
      or
      are proprietary to our competitors, then we may not be able to access these
      technologies. We believe that we must continue to innovate and anticipate
      advances in the storage media industry in order to remain competitive. If we
      fail to anticipate or respond to technological developments or customer
      requirements, or if we are significantly delayed in developing and introducing
      products, our business will suffer lost sales.


16





**Our
      market is becoming more competitive. Competition may result in price reductions,
      lower gross profits and loss of market share.**




The
      storage media industry is becoming more competitive and we face the potential
      for increased competition in developing and selling our products. Our
      competitors may have or could develop or acquire significant marketing,
      financial, development and personnel resources. We cannot assure you that we
      will be able to compete successfully against our current or future competitors.
      The storage media industry has increased visibility, which may lead to large,
      well-known, well-financed companies entering into this market. Increased
      competition from manufacturers of systems or consumable supplies may result
      in
      price reductions, lower gross profit margins, increased discounts to
      distribution and loss of market share and could require increased spending
      by us
      on research and development, sales and marketing and customer
      support.





**If
      we are unable to compete effectively with existing or new competitors, the
      loss
      of its competitive position could result in price reductions, fewer customer
      orders, reduced revenues, reduced margins, reduced levels of profitability
      and
      loss of market share.**




We
      have
      several competitors, which include the largest DVDR manufacturers in the world.
      Certain of these competitors compete aggressively on price and seek to maintain
      very low cost structures. Some of these competitors are seeking to increase
      their market share, which creates increased pressure, including pricing
      pressure, within the market. In addition, certain of the competitors, including
      CMC and Ritek, have financial and human resources that are substantially greater
      than ours, which increases the competitive pressures we face. Customers make
      buying decisions based on many factors, including among other things, new
      product and service offerings and features; product performance and quality;
      ease of doing business; a vendor’s ability to adapt to customers’ changing
      requirements; responsiveness to shifts in the marketplace; business model;
      contractual terms and conditions; vendor reputation and vendor viability. As
      competition increases, each factor on which we compete becomes more important
      and the lack of competitive advantage with respect to one or more of these
      factors could lead to a loss of competitive position, resulting in fewer
      customer orders, reduced revenues, reduced margins, reduced levels of
      profitability and loss of market share. We expect competitive pressure to remain
      intense.





**The
      products we make have a life cycle. If we are unable to successfully time market
      entry and exit and manage its inventory, it may fail to enter profitable markets
      or exit unprofitable markets.**




We
      operate in a highly competitive, quickly changing environment. We are preparing
      for high density format DVDR (“HD DVDR”) or Blu-Ray format DVDR production.
      Thirty two (32) of Infosmart’s forty four (44) production lines can be upgraded
      to HD DVDR production at a time of management’s choosing. However, if the market
      turns in favor of Blu-Ray, the Company will have to purchase new equipment
      to
      produce Blu-Ray DVRD discs, and thus the Company’s business and operating
      results could be adversely affected. If strong competitors challenge us in
      Brazil and other key markets, we will need to quickly develop an adequate
      competitive response. If we fail to accurately anticipate market and
      technological trends, then our business and operating results could be
      materially and adversely affected.




We
      must
      also be able to manufacture the products at acceptable costs. This requires
      us
      to be able to accurately forecast customer demand so that it can procure the
      appropriate inputs at optimal costs. We must also try to reduce the levels
      of
      older product inventories to minimize inventory write-offs. If we have excess
      inventory, it may be necessary to reduce its prices and write down inventory,
      which could result in lower gross margins. Additionally, our customers may
      delay
      orders for existing 8x or 16x writable speed DVDR products in anticipation
      of
      new HD DVDR or Blu-Ray product introductions. As a result, we may decide to
      adjust prices of existing products during this process to try to increase
      customer demand for these products. Our future operating results would be
      materially and adversely affected if such pricing adjustments were to occur
      and
      we are unable to mitigate the resulting margin pressure by maintaining a
      favorable mix of products, or if we are unsuccessful in achieving input cost
      reductions, operating efficiencies and increasing sales volumes.




If
      we are
      unable to timely develop, manufacture, and introduce new products in sufficient
      quantity to meet customer demand at acceptable costs, or if we are unable to
      correctly anticipate customer demand for our new and existing products, then
      our
      business and operating results could be materially adversely
      affected.


17





**If
      our products fail to compete successfully with other existing or newly-developed
      products for the storage media industry, our business will
      suffer.**





The
      success of our products depends upon end users choosing our DVDR technology
      for
      their storage media needs. However, alternative data storage media exist, such
      as high capacity hard drives, new CD-R/DVDR technologies, file servers
      accessible through computer networks and the Internet, and additional media
      is
      under development. If end users perceive any technology that is competing with
      ours as more reliable, higher performing, less expensive or having other
      advantages over our technology, the demand for our DVDR products could decrease.
      Further, some of our competitors may make strategic acquisitions or establish
      cooperative relationships with suppliers or companies that produce complementary
      products such as cameras, computer equipment, software or biometric
      applications. Competition from other storage media is likely to increase. If
      our
      products do not compete successfully with existing or new competitive products,
      our business will suffer.





**Our
      products may have manufacturing or design defects that we discover after
      shipment, which could negatively affect our revenues, increase our costs and
      harm our reputation.**




Our
      products may contain undetected and unexpected defects, errors or failures.
      If
      these product defects are substantial, the result could be product recalls,
      an
      increased amount of product returns, loss of market acceptance and damage to
      our
      reputation, all of which could increase our costs and cause us to lose sales.
      We
      do not carry general commercial liability insurance covering our products.
      In
      addition, we are preparing to launch production of HD format or Blu-Ray format
      DVDRs in 2007. HD and Blu-Ray format DVDR production will require us to master
      new production techniques and modify existing or purchase new machinery and
      equipment. It is possible that we may fail to achieve mastery of these new
      techniques and production yields could suffer as a result.





**The
      development of digital distribution alternatives, including the copying and
      distribution of music and video and other electronic data files could lessen
      the
      demand for our products.**





We
      are
      dependent on the continued viability and growth of physical distribution of
      music, video and other electronic data through recordable media. Alternative
      distribution channels and methods, both authorized and unauthorized, for
      delivering music, video and other electronic data may erode our volume of sales
      and the pricing of its products and services. The growth of these alternatives
      is driven by advances in technology that allow for the transfer and downloading
      of music, video and other electronic data files from the Internet. The
      proliferation of this copying, use and distribution of such files is supported
      by the increasing availability and decreasing price of new technologies, such
      as
      personal video recorders, DVD burners, portable MP3 music and video players,
      widespread access to the Internet, and the increasing number of peer-to-peer
      digital distribution services that facilitate file transfers and downloading.
      We
      expect that file sharing and downloading, both legal and illegal, will continue
      to exert downward pressure on the demand for traditional DVDRs. As current
      technologies and delivery systems improve, the digital transfer and downloading
      of music, video and other electronic data files will likely become more
      widespread. As the speed and quality with which music, video and other
      electronic data files can be transferred and downloaded improves, file sharing
      and downloading may in the future exert significant downward pressure on the
      demand for DVDRs. In addition, our business faces pressure from the emerging
      distribution alternatives, like video on demand (“VOD”) and personal digital
      video recorders. As substantially all of our revenues are derived from the
      sale
      of DVDRs, increased file sharing, downloading and piracy or the growth of other
      alternative distribution channels and methods, could materially adversely affect
      its business, financial condition and results of operations.





**Our
      revenues, cash flows and operating results may fluctuate for a number of
      reasons.**




Future
      operating results and cash flows will continue to be subject to quarterly
      fluctuations based on a wide variety of factors, including seasonality. Although
      our sales and other operating results can be influenced by a number of factors
      and historical results are not necessarily indicative of future results, our
      sequential quarterly operating results generally fluctuate downward in the
      fourth quarter of each fiscal year when compared with the immediately preceding
      quarter. For example, our first calendar quarter is modestly affected by the
      Chinese New Year.





**A
      significant portion of the revenues will depend on the success of the Company’s
      new venture in Brazil.**





A
      significant portion of the Company’s revenues will depend on the success of our
      new Brazilian venture. We have no prior manufacturing and distribution
      experience in Brazil, and will rely on the local knowledge of its Brazilian
      joint venture partner and the general knowledge of the South American
      marketplace of its regional director Sebastian Tseng. Our results could suffer
      should its relationships with either of these two parties deteriorate in the
      early months of the Brazilian venture.


18





**We
      are at risk of losing our significant investment in Brazil if we are unable
      to
      obtain the intellectual property licenses required for our Discobras
      manufacturing facility.**





The
      owners of the technologies and intellectual property necessary for the
      production of our products require that we obtain separate Patent Licenses
      for
      the use of intellectual property in our new DVDR manufacturing facility in
      Brazil. We are in the process of obtaining the Patent Licenses for use at the
      Discobras manufacturing facility in 2006. However, if there is a substantial
      delay in obtaining approval for our use of the Patent Licenses, then we may
      be
      unable to manufacture a sufficient amount of our products to fill our sales
      orders, and this could cause us to lose substantial revenues. Further, in the
      event we are unable to obtain the Patent Licenses, then we may not be able
      to
      manufacture our products in Brazil, thus placing us at risk of losing its
      significant investment in the Brazilian venture.





**Past
      activities of the Company and its affiliates may lead to future liability for
      the combined companies.**





Prior
      to
      the closing of the share exchange transaction in August 2006, the Company was
      engaged in businesses unrelated to that of our current business operations.
      Any
      liabilities relating to such prior business against which we are not completely
      indemnified may have a material adverse effect on the Company.




**Risks
      Relating To Doing Business in Hong Kong and Brazil**





**Adverse
      changes in economic and political policies of the People’s Republic of China
      government could have a material adverse effect on the overall economic growth
      of Hong Kong, which could adversely affect our business.**




Although,
      as described above, we are planning a new venture in Brazil, substantially
      all
      of our business operations are currently conducted in Hong Kong, a special
      administrative region in the People’s Republic of China (“PRC”). Accordingly,
      our results of operations, financial condition and prospects are subject to
      a
      significant degree to economic, political and legal developments in Hong Kong
      and the PRC. The PRC’s economy differs from the economies of most developed
      countries in many respects, including with respect to the amount of government
      involvement, level of development, growth rate, control of foreign exchange
      and
      allocation of resources. While the PRC economy has experienced significant
      growth in the past 20 years, growth has been uneven across different regions
      and
      among various economic sectors of China. The PRC government has implemented
      various measures to encourage economic development and guide the allocation
      of
      resources. Some of these measures benefit the overall PRC economy, but may
      also
      have a negative effect on us.





**You
      may experience difficulties in effecting service of legal process, enforcing
      foreign judgments or bringing original actions in Hong Kong or China based
      on
      United States or other foreign laws against us or our
      management.**




We
      currently conduct substantially all of our operations in Hong Kong and
      substantially all of our assets are located in Hong Kong. In addition, all
      of
      our senior executive officers reside within Hong Kong. As a result, it may
      not
      be possible to effect service of process within the United States or elsewhere
      outside Hong Kong upon our senior executive officers, including with respect
      to
      matters arising under U.S. federal securities laws or applicable state
      securities laws. Moreover, neither the PRC nor Hong Kong have treaties with
      the
      United States or many other countries providing for the reciprocal recognition
      and enforcement of judgment of courts.





**Fluctuation
      in the value of the Hong Kong Dollar may have a material adverse effect on
      your
      investment.**




The
      value
      of the Hong Kong dollar against the U.S. dollar and other currencies may
      fluctuate and is affected by, among other things, changes in political and
      economic conditions. Although the exchange rate between the Hong Kong dollar
      and
      the U.S. dollar has been effectively pegged, there can be no assurance that
      the
      Hong Kong dollar will remain pegged, to the U.S. dollar, especially in light
      of
      the significant international pressure on the Chinese government to permit
      the
      free floatation of the RMB and the Hong Kong dollar, which could result in
      an
      appreciation of RMB or the Hong Kong dollar against the U.S. dollar. Our
      revenues and costs are mostly denominated in Hong Kong dollars, while a
      significant portion of our financial assets are also denominated in Hong Kong
      dollars. Any significant revaluation of the Hong Kong dollar may materially
      and
      adversely affect our cash flows, revenues, earnings and financial position,
      and
      the value of, and any dividends payable on, our stock in U.S. dollars. For
      example, an appreciation of the Hong Kong dollar against the U.S. dollar would
      make any new Hong Kong dollar denominated investments or expenditures more
      costly to us, to the extent that we need to convert U.S. dollars into Hong
      Kong
      dollars for such purposes. An appreciation of the Hong Kong dollar against
      the
      U.S. dollar would also result in foreign currency translation losses for
      financial reporting purposes when we translate our U.S. dollar denominated
      financial assets into the Hong Kong dollar, as the Hong Kong dollar is our
      reporting currency.




**We
      face risks related to health epidemics and other
      outbreaks.**




Our
      business could be adversely affected by the effects of SARS or another epidemic
      or outbreak. China and Hong Kong reported a number of cases of SARS in April
      2004. Any prolonged recurrence of SARS or other adverse public health
      developments in China or in Hong Kong may have a material adverse effect on
      our
      business operations. For instance, health or other government regulations
      adopted in response may require temporary closure of our production facilities
      or of our offices. Such closures would severely disrupt our business operations
      and adversely affect our results of operations. We have not adopted any written
      preventive measures or contingency plans to combat any future outbreak of SARS
      or any other epidemic.


19





**Changes
      in Hong Kong or Brazil’s political or economic situation could harm our
      operational results.**





In
      addition to our operations in Hong Kong, we are currently establishing a
      production facility and a sales base in Brazil. Economic reforms adopted by
      the
      Chinese or Brazilian governments have had positive effects on the economic
      development of these countries, but the governments could change these economic
      reforms or any of the legal systems at any time. This could either benefit
      or
      damage the Company’s operations and profitability. Some of the things that could
      have this effect are:





·
            Level
                of government involvement in the
                economy;





·
            Control
                of foreign exchange;





·
            Methods
                of allocating resources;





·
            Balance
                of payments position;





·
            International
                trade restrictions; and





·
            International
                conflict.




Any
      of
      the foregoing events or other unforeseen consequences of public health problems
      could damage the Company’s operations.





**The
      Brazilian government has historically exercised, and continues to exercise,
      significant influence over the Brazilian economy. Brazilian political and
      economic conditions will have a direct impact on our business and the market
      price of our securities.**




The
      Brazilian government frequently intervenes in the Brazilian economy and
      occasionally makes substantial changes in policy, as often occurs in other
      emerging economies. The Brazilian government’s actions to control inflation and
      carry out other policies have in the past involved wage and price controls,
      currency devaluations, capital controls and limits on imports, among other
      things. Our business, financial condition and results of operations may be
      adversely affected by factors in Brazil including:





·
            Currency
                volatility;





·
            Inflation
                acceleration;





·
            Monetary
                policy and interest rate increases;





·
            Fiscal
                policy and tax changes;





·
            International
                trade policy including tariff and non-tariff trade
                barriers;





·
            Foreign
                exchange controls;





·
            Energy
                shortages; and





·
            Other
                political, social and economic developments in or affecting
                Brazil.





In
      2005,
      government figures, legislators and political party officials, especially those
      of the President’s party, have been the subject of a variety of allegations of
      unethical or illegal conduct. These accusations, which are currently being
      investigated by the Brazilian Congress, involve campaign financing and election
      law violations, and influencing of government officials and Congressmen in
      exchange for political support. Several members of the President’s party and of
      the federal government, including the President’s chief of staff, have resigned.
      We cannot predict what effect these accusations and investigations may have
      on
      the Brazilian economy.


20





**Inflation
      and government measures to curb inflation may contribute significantly to
      economic uncertainty in Brazil and to heightened volatility in the Brazilian
      securities markets and, consequently, may adversely affect our business in
      Brazil.**




Brazil
      has in the past experienced extremely high rates of inflation, with annual
      rates
      of inflation reaching as high as 2,567% in 1993 (as measured by the *Índice
      Geral de Preços do Mercado* published by *Fundação
      Getúlio Vargas* , or
      IGP-M Index). More recently, Brazil’s rates of inflation were 10.4% in 2001,
      25.3% in 2002, 8.7% in 2003, 12.4% in 2004 and 0.2% in the nine months ended
      September 30, 2005 (as measured by the IGP-M Index). Inflation,
      governmental measures to combat inflation and public speculation about possible
      future actions have in the past had significant negative effects on the
      Brazilian economy and have contributed to economic uncertainty in Brazil. If
      Brazil experiences substantial inflation in the future, our costs may increase
      and our operating and net margins may decrease. Inflationary pressures may
      also
      lead to further government intervention in the economy, which could involve
      the
      introduction of government policies that may adversely affect the overall
      performance of the Brazilian economy.





**Restrictions
      on currency exchange may limit our ability to receive and use our revenues
      effectively** .





If
      we
      successfully establish our business operations in Brazil, some of our revenues
      will be settled in the Brazilian Real. Any future restrictions on currency
      exchanges may limit our ability to use revenue generated in Reals to fund any
      future business activities outside Brazil or to make dividend or other payments
      in U.S. dollars. Currently, we can legally exchange and transfer out of Brazil
      after-tax profits of up to the Company’s total investment in its Brazilian
      subsidiary Discobras, which we expect to be approximately $8 million for 2006
      and an additional $6 million for 2007.




**The
      value of our securities will be affected by the foreign exchange rate between
      the U.S. dollar, the Hong Kong dollar and the Real.**





The
      value
      of our common stock will be affected by the foreign exchange rate between U.S.
      and Hong Kong dollars and Real, and between those currencies and other
      currencies in which our sales may be denominated. For example, to the extent
      that we need to convert U.S. or Hong Kong dollars into Real for our operational
      needs and should the Real appreciate against the U.S. dollar at that time,
      our
      financial position, our business, and the price of our common stock may be
      harmed. Conversely, if we decide to convert our Reals into U.S. or Hong Kong
      dollars for the purpose of declaring dividends on our common stock or for other
      business purposes and the U.S. Dollar appreciates against the Real, the U.S.
      or
      Hong Kong dollar equivalent of our earnings from our subsidiaries in Hong Kong
      and Brazil would be reduced. We will engage in hedging activities to manage
      our
      financial exposure related to currency exchange fluctuation. In these hedging
      activities, we might use fixed-price, forward, futures, financial swaps and
      option contracts traded in the over-the-counter markets or on exchanges, as
      well
      as long-term structured transactions when feasible.





**We
      will depend on Brazil’s foreign investment incentive programs, which provide
      reductions in taxation or exemptions from taxation for our operations in Brazil.
      The loss of the tax benefits from these incentive programs may substantially
      affect our earnings.**





Under
      the
      State of Bahia’s investment incentive program, our Brazilian subsidiary,
      Discobras, has been granted a reduction in the Value Added Tax (“VAT”) it is
      required to pay for products. Discobras pays 2.28% only, as compared to VAT
      of
      12% in Salvador, or 18% in São Paulo. This VAT reduction will be available to us
      until June 2016. We will also avail ourselves of an incentive program for
      foreign investment which exempts Discobras from paying Brazil’s ICMS taxes on
      raw materials it imports for production in Brazil and create substantial tax
      savings for the Company. This tax exemption will last through June 2016.
      In
      the event that the VAT reduction program is no longer available to us or we
      are
      unable to extend the ICMS tax-exemption, our after-tax earnings would decline
      by
      the amount of the tax benefits, which may be substantial.





**Risks
      Relating to this Offering and Ownership of Our Securities**





**Your
      rights with respect to ownership of the Company's Series B Preferred
      Shares are set forth in the Certificate of Determination of Rights,
      Preferences, Privileges and Restrictions for the Series B Preferred Stock and
      form of Warrants and such documents should be reviewed carefully with your
      legal
      counsel.**




Your
      rights with respect to ownership of our Series B Preferred Shares and the
      Warrants are set forth in the Certificate of Determination of Rights,
      Preferences, Privileges and Restrictions for the Series B Preferred Stock
      that was attached as Exhibit 3.4 and in the form of Warrant attached
      as Exhibit 10.17 to our Current Report on Form 8-K filed with SEC on August
      24,
      2006. These documents contain important provisions that provide you with rights,
      limitations and obligations and should be reviewed carefully with your legal
      counsel. We will also provide copies of these documents upon
      request.


21





**After
      the closing of the share exchange transaction and the Financing, we
      will operate as a public company subject to evolving corporate governance and
      public disclosure regulations that may result in additional expenses and
      continuing uncertainty regarding the application of such
      regulations.**




Changing
      laws, regulations and standards relating to corporate governance and public
      disclosure, including the Sarbanes-Oxley Act of 2002 and related rules and
      regulations, are creating uncertainty for public companies. We are presently
      evaluating and monitoring developments with respect to new and proposed rules
      and cannot predict or estimate the amount of the additional compliance costs
      we
      may incur or the timing of such costs. These new or changed laws, regulations
      and standards are subject to varying interpretations, in many cases due to
      their
      lack of specificity, and as a result, their application in practice may evolve
      over time as new guidance is provided by courts and regulatory and governing
      bodies. This could result in continuing uncertainty regarding compliance matters
      and higher costs necessitated by ongoing revisions to disclosure and governance
      practices. Maintaining appropriate standards of corporate governance and public
      disclosure may result in increased general and administrative expenses and
      a
      diversion of management time and attention from revenue-generating activities
      to
      compliance activities. In addition, if we fail to comply with new or changed
      laws, regulations and standards, regulatory authorities may initiate legal
      proceedings against us and our business and our reputation may be
      harmed.




**Following
      the closing of the share exchange transaction and the Financing, our shares
      may have limited liquidity.**




Following
      the closing of the share exchange transaction and the Financing in August
      2006, a substantial portion of our shares of common stock became subject to
      registration, and will be closely held by certain institutional and insider
      investors. Consequently, the public float for the shares may be highly limited.
      As a result, should you wish to convert the Series B Preferred Stock and sell
      your shares into the open market you may encounter difficulty selling large
      blocks of your shares or obtaining a suitable price at which to sell your
      shares.




**Our
      stock price may be volatile, which may result in losses to our
      shareholders.**




The
      stock
      markets have experienced significant price and trading volume fluctuations,
      and
      the market prices of companies quoted on the Over-The-Counter Bulletin Board,
      the stock market in which shares of our common stock will be quoted, generally
      have been very volatile and have experienced sharp share price and trading
      volume changes. The trading price of our common stock is likely to be volatile
      and could fluctuate widely in response to many of the following factors, some
      of
      which are beyond our control:




·
            variations
                in our operating results;




·
            announcements
                of technological innovations, new services or product lines by us
                or our
                competitors;




·
            changes
                in expectations of our future financial performance, including financial
                estimates by securities analysts and investors;




·
            changes
                in operating and stock price performance of other companies in our
                industry;




·
            additions
                or departures of key personnel; and




·
            future
                sales of our common stock.





Domestic
      and international stock markets often experience significant price and volume
      fluctuations. These fluctuations, as well as general economic and political
      conditions unrelated to our performance, may adversely affect the price of
      our
      common stock. In particular, following initial public offerings, the market
      prices for stocks of companies often reach levels that bear no established
      relationship to the operating performance of these companies. These market
      prices are generally not sustainable and could vary widely. In the past,
      following periods of volatility in the market price of a public company’s
      securities, securities class action litigation has often been initiated. ****




**We
      have broad discretion as to the use of proceeds from this Financing and may
      not use the proceeds effectively.**





Our
      management team will retain broad discretion as to the allocation and timing
      of
      the use of proceeds from the Financing and may spend these proceeds in ways
      with which our shareholders may not agree. The failure of our management to
      apply these funds effectively could result in unfavorable returns and
      uncertainty about our prospects, each of which could cause the price of our
      common stock to decline.


22





**Our
      officers and directors own a substantial portion of our outstanding common
      stock, which will enable them to influence many significant corporate actions
      and in certain circumstances may prevent a change in control that would
      otherwise be beneficial to our shareholders.**





As
      of the
      closing of the Financing and share exchange transaction in August 2006, our
      directors and executive officers controlled approximately 56% of our outstanding
      shares of stock that are entitled to vote on all corporate actions.
      Specifically, Chung Kwok, our Chief Executive Officer, President and Director,
      Po Nei Sze, our Chief Financial Officer, Secretary, Treasurer and Director,
      and
      Andrew Chang, our Director, controlled approximately 56% of the outstanding
      voting shares as of the completion of the Financing and the share exchange
      transaction. These stockholders, acting together, could have a substantial
      impact on matters requiring the vote of the shareholders, including the election
      of our directors and most of our corporate actions. This control could delay,
      defer or prevent others from initiating a potential merger, takeover or other
      change in our control, even if these actions would benefit our shareholders
      and
      us. This control could adversely affect the voting and other rights of our
      other
      shareholders and could depress the market price of our common
      stock.





**A
      large number of additional shares may be sold into the public market in the
      near
      future, which may cause the market price of our common stock to decline
      significantly, even if our business is doing well.**





Sales
      of
      a substantial amount of common stock in the public market, or the perception
      that these sales may occur, could adversely affect the market price of our
      common stock. After the Financing and assuming the full conversion of our Series
      A Preferred Stock and our Series B Preferred Stock, we will have approximately
      159,460,515 shares of common stock outstanding. This includes 116,721,360 shares
      to be received by the shareholders of Infosmart in the Exchange transaction
      after the conversion of the Series A Preferred Stock. As restrictions on resale
      of such additional shares end, the market price could drop significantly if
      the
      holders of these restricted shares sell them or are perceived by the market
      as
      intending to sell them.




**A
      large number of common shares are issuable upon exercise of outstanding common
      share warrants and upon conversion of our Series A and Series B Preferred Stock.
      The exercise or conversion of these securities could result in the substantial
      dilution of your investment in terms of your percentage ownership in the Company
      as well as the book value of your common shares. The sale of a large amount
      of
      common shares received upon exercise of these warrants on the public market
      to
      finance the exercise price or to pay associated income taxes, or the perception
      that such sales could occur, could substantially depress the prevailing market
      prices for our shares.**





As
      of
      September 30, 2006, there are outstanding warrants entitling the holders to
      purchase up to 32,241,380 common shares at an exercise price of $0.326 per
      share. As of September 30, 2006, there were 116,721,360 shares underlying our
      convertible Series A Preferred Stock and there were 29,310,345 shares underlying
      our convertible Series B Preferred Stock at a conversion price per common share
      of $0.261 per common share. The exercise price for all of the aforesaid warrants
      may be less than your cost to acquire our common shares. In the event of the
      exercise of these securities, you could suffer substantial dilution of your
      investment in terms of your percentage ownership in the company as well as
      the
      book value of your common shares. In addition, the holders of the common share
      purchase warrants may sell common shares in tandem with their exercise of those
      options or warrants to finance that exercise, or may resell the shares purchased
      in order to cover any income tax liabilities that may arise from their exercise
      of the warrants.




**We
      will incur increased costs and compliance risks as a result of becoming a public
      company with substantial business operations.**





As
      a
      public company, we will incur significant legal, accounting and other expenses
      that we did not incur prior to the closing of the share exchange transaction
      as
      a shell company with no business operations and nominal assets. We will incur
      costs associated with our public company reporting requirements. We also
      anticipate that we will incur costs associated with recently adopted corporate
      governance requirements, including certain requirements under the Sarbanes-Oxley
      Act of 2002, as well as new rules implemented by the SEC and the National
      Association of Securities Dealers (“NASD”). We expect these rules and
      regulations, in particular Section 404 of the Sarbanes-Oxley Act of 2002, to
      significantly increase our legal and financial compliance costs and to make
      some
      activities more time-consuming and costly. Like many smaller public companies,
      we face a significant impact from required compliance with Section 404 of the
      Sarbanes-Oxley Act of 2002. Section 404 requires management of public companies
      to evaluate the effectiveness of internal control over financial reporting
      and
      the independent auditors to attest to the effectiveness of such internal
      controls and the evaluation performed by management. The SEC has adopted rules
      implementing Section 404 for public companies as well as disclosure
      requirements. The Public Company Accounting Oversight Board, or PCAOB, has
      adopted documentation and attestation standards that the independent auditors
      must follow in conducting its attestation under Section 404. We are currently
      preparing for compliance with Section 404; however, there can be no assurance
      that we will be able to effectively meet all of the requirements of Section
      404
      as currently known to us in the currently mandated timeframe. Any failure to
      implement effectively new or improved internal controls, or to resolve
      difficulties encountered in their implementation, could harm our operating
      results, cause us to fail to meet reporting obligations or result in management
      being required to give a qualified assessment of our internal controls over
      financial reporting or our independent auditors providing an adverse opinion
      regarding management’s assessment. Any such result could cause investors to lose
      confidence in our reported financial information, which could have a material
      adverse effect on our stock price.


23





We
      also
      expect these new rules and regulations may make it more difficult and more
      expensive for us to obtain director and officer liability insurance and we
      may
      be required to accept reduced policy limits and coverage or incur substantially
      higher costs to obtain the same or similar coverage. As a result, it may be
      more
      difficult for us to attract and retain qualified individuals to serve on our
      Board of Directors or as executive officers. We are currently evaluating and
      monitoring developments with respect to these new rules, and we cannot predict
      or estimate the amount of additional costs we may incur or the timing of such
      costs.





**If
      we fail to maintain the adequacy of our internal controls, our ability to
      provide accurate financial statements and comply with the requirements of the
      Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price
      to decrease substantially.**





We
      have
      recently taken measures to address and improve our financial reporting and
      compliance capabilities and we are in the process of instituting changes to
      satisfy our obligations in connection with Infosmart’s becoming a public
      company. We plan to obtain additional financial and accounting resources to
      support and enhance our ability to meet the requirements of being a public
      company. We will need to continue to improve our financial and managerial
      controls, reporting systems and procedures, and documentation thereof. If our
      financial and managerial controls, reporting systems or procedures fail, we
      may
      not be able to provide accurate financial statements on a timely basis or comply
      with the Sarbanes-Oxley Act of 2002 as it applies to us. Any failure of our
      internal controls or our ability to provide accurate financial statements could
      cause the trading price of our common stock to decrease
      substantially.





**Our
      common shares are thinly traded and, you may be unable to sell at or near ask
      prices or at all if you need to convert your Series B Preferred Stock and sell
      your shares to raise money or otherwise desire to liquidate such
      shares.**





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





The
      market price for the Company’s common stock is particularly volatile given our
      status as a relatively small company with a small and thinly traded “float” and
      lack of current revenues that could lead to wide fluctuations in our share
      price. The price at which you convert your Series B Preferred Stock into our
      common stock many be indicative of the price that will prevail in the trading
      market. You may be unable to sell your common stock at or above your purchase
      price if at all, which may result in substantial losses to you.





The
      market for the Company’s common shares is characterized by significant price
      volatility when compared to seasoned issuers, and we expect that our share
      price
      will continue to be more volatile than a seasoned issuer for the indefinite
      future. The volatility in our share price is attributable to a number of
      factors. First, as noted above, our common shares are sporadically and/or thinly
      traded. As a consequence of this lack of liquidity, the trading of relatively
      small quantities of shares by its shareholders may disproportionately influence
      the price of those shares in either direction. The price for its shares could,
      for example, decline precipitously in the event that a large number of our
      common shares are sold on the market without commensurate demand, as compared
      to
      a seasoned issuer which could better absorb those sales without adverse impact
      on its share price. Secondly, an investment in us is a speculative or “risky”
investment due to our lack of revenues or profits to date and uncertainty of
      future market acceptance for current and potential products. As a consequence
      of
      this enhanced risk, more risk-adverse investors may, under the fear of losing
      all or most of their investment in the event of negative news or lack of
      progress, be more inclined to sell their shares on the market more quickly
      and
      at greater discounts than would be the case with the stock of a seasoned
      issuer.




24





Shareholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (1) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. Our management is aware of the abuses that have
      occurred historically in the penny stock market. Although we do not expect
      to be
      in a position to dictate the behavior of the market or of broker-dealers who
      participate in the market, management will strive within the confines of
      practical limitations to prevent the described patterns from being established
      with respect to our securities. The occurrence of these patterns or practices
      could increase the volatility of our share price.





**Other
      than the dividend payments that will be due for the Series B Preferred Stock,
      we
      do not anticipate paying any cash dividends.**





Other
      than the dividend payments that will be due for the Series B Preferred Stock,
      we
      presently do not anticipate that we will pay any dividends on any of our capital
      stock in the foreseeable future. The payment of dividends, if any, would be
      contingent upon our revenues and earnings, if any, capital requirements, and
      general financial condition. The payment of any dividends will be within the
      discretion of our Board of Directors. We presently intend to retain all
      earnings, if any, to implement our business plan; accordingly, we do not
      anticipate the declaration of any dividends in the foreseeable
      future.





**Item
                3.**
            **Controls
                And Procedures**





(a) *Evaluation
      of disclosure controls and procedures* .
      As of
      the end of the period covered by this report, we carried out an evaluation,
      under the supervision and with the participation of our management, including
      our Chief Executive Officer and Chief Financial Officer, of the effectiveness
      of
      the design and operation 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
      amended. Based upon that evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      effective as of the end of the applicable period to ensure that the information
      required to be disclosed by the Company in reports that it files or submits
      under the Exchange Act (i) is recorded, processed, summarized and reported
      within the time periods specified in Securities and Exchange Commission rules
      and forms and (ii) is accumulated and communicated to our management, including
      our Chief Executive Officer and Chief Financial Officer, as appropriate to
      allow
      timely decisions regarding required disclosures.





(b) *Changes
      in internal controls over financial reporting* .
      There
      was no change in our internal control over financial reporting during our most
      recent fiscal quarter that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial
      reporting.


25


**PART
      II - OTHER INFORMATION**





**Item 1.
      Legal Proceedings.**





Reference
      is made to Item 2.01 of the Form 8-K Current Report filed on August 26, 2006
      under the section “Legal Proceedings” which disclosures are incorporated herein
      by reference.





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





On
      September 14, 2006, we issued 459,770 shares of common stock at a price per
      share of $0.261 to Richardson & Patel LLP, an unaffiliated entity, as
      payment for legal services rendered in connection with the share exchange
      transaction as of August 16, 2006. This transaction was made in reliance upon
      the exemption from registration set forth in Section 4(2) of the Act. The shares
      were issued to an entity qualified as an "accredited investor," as that term
      is
      defined in the Act. The following conditions were all met with respect to this
      transaction: (1) the registrant did not advertise this issuance in any public
      medium or forum, (2) the registrant did not solicit any investors with respect
      to this issuance, (3) the registrant did not publicize any portion of the
      purchase or sale of the shares issued, (4) none of the shares issued were
      offered in conjunction with any public offering, and (5) neither the registrant
      nor the investor paid any fees to any finder or broker-dealer in conjunction
      with this issuance.





**Item 3.
      Defaults upon Senior Securities.**





None.





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





On
      September 5, 2006, the Board and the holders of a majority of the Company’s
      voting shares consented in writing to amendments to our Articles of
      Incorporation, including: (1) an increase in the authorized common stock of
      the
      Company from 40,000,000 to 300,000,000 shares (the “Authorized Share
      Amendment”); and (2) a change of our corporate name (“Name Change”) to our
      current name, Infosmart Group, Inc. We announced the approval of these
      amendments and its details in a Definitive Information Statement on Schedule
      14C
      (the “Information Statement”) filed with the Securities and Exchange Commission
      on September 18, 2006, which is incorporated herein by reference. The
      Certificate of Amendment to our Articles of Incorporation to effect the Name
      Change and the Authorized Share Amendment was filed with the State of
      California’s Secretary of State on October 12, 2006 and our Name Change became
      effective on the OTC Bulletin Board on October 18, 2006.





**Item 5.
      Other Information** .





(a)
            None.





(b)
            There
                were no changes to the procedures by which security holders may recommend
                nominees to our board of directors.





**Item
      6. Exhibits**





**EXHIBIT
      INDEX**


**Exhibit****Number**
            
            **Description**2.1
            
            Amended
                and Restated Securities Purchase Agreement, dated August 25, 2005
                (5)2.2
            
            Transfer
                and Assumption Agreement dated as of May 31, 2005 (5)2.3
            
            Exchange
                Agreement by and among Cyber, KI Equity, Hamptons Investment Group,
                Ltd.,
                Prime and the Prime Shareholders dated July 7, 2006
                *(6)2.4
            
            Guarantee
                and Assumption Agreement by and among Cyber, Infosmart, IS International,
                IS Technology and IS Media dated July 7, 2006 (6)2.5
            
            First
                Amendment to the Exchange Agreement dated August 16, 2006 between
                Cyber,
                KI Equity Partners, LLC, Hamptons Investment Group, Ltd., Prime,
                Prime
                Shareholders, Infosmart Group Ltd. and the Infosmart Shareholders
                *
                (7)2.6
            
            Amended
                and Restated Guarantee and Assumption Agreement by and among Cyber,
                IS
                International, IS Technology and IS Media dated August 16, 2006
                (7)





26





2.7
            
            Voting
                Agreement by and among the Infosmart Stockholders and KI Equity dated
                August 16, 2006 (7)2.8
            
            Escrow
                Agreement by and among Cyber, KI Equity, Infosmart, the Infosmart
                Stockholders and Richardson, as escrow agent, dated August 16, 2006
                (7)2.9
            
            Financial
                Advisory Agreement by an among Keating Securities LLC and Cyber Merchants
                Exchange Inc. dated August 16, 2006 (7)3.1
            
            Articles
                of Incorporation (1)3.2
            
            Bylaws
                (1)3.3
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series A Convertible Preferred Stock3.4
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series B Convertible Preferred Stock4.1
            
            Lock-Up
                Agreement (2)4.2
            
            Specimen
                Stock Certificate for Shares of Common Stock of the Company
                (4)10.1
            
            Lease
                of registrant's facilities dated January 29, 2004 (3)10.2
            
            Lease
                of registrant's facilities dated March 22, 2006 (3)10.3
            
            Lease
                of registrant's facilities dated September 16, 2003 (3)10.4
            
            Lease
                of registrant's facilities dated July 25, 2003 (3)10.5
            
            Lease of registrant's facilities dated September 30, 2003
                (3)10.6
            
            Placement
                Agent Agreement dated July 7, 2006 between the Registrant, Securities,
                LLC
                and Axiom Capital Management, Inc. * (7)10.7
            
            Form
                of Subscription Agreement between the Registrant and the Investor
                to be
                identified therein (7)10.8
            
            Registration
                Rights Agreement (7)10.9
            
            Form
                of Common Stock Purchase Warrant (7)10.10
            
            Assignment
                and Assumption of Placement Agreement by an among Infosmart, Cyber,
                Keating Securities, LLC and Axiom Capital Management, Inc. dated
                August
                16, 2006 (7)10.11
            
            Appointment
                Letter Agreement by and among Po Nei Sze and Infosmart Group Limited
                dated
                June 1, 2006 (7)10.12
            
            Appointment
                Letter Agreement by and among Andrew Chang and Infosmart Group Limited
                dated July 1, 2006 (7)10.13
            
            Appointment
                Letter Agreement by and among Chung Kwok (aka Andy Kwok) and Infosmart
                Group Limited dated July 1, 2006 (7)10.14
            
            Cooperation
                Agreement by and among Infoscience Media Ltd. and Infoscience Holdings
                Ltd. dated December 1, 2005 (7)10.15
            
            Cooperation
                Agreement by and among Info Smart Technology Limited. and Mega Century
                Limited dated January 1, 2006 (7)





27





10.16
            
            Amendment
                Agreement by and among Info smart Technology Limited, Info Smart
                International Enterprises Limited, and Mega Century Ltd. dated January
                1,
                2006 (7)10.17
            
            Banking
                Facilities Letter Agreement by and between Infoscience Media Limited
                and Hang Seng Bank Limited dated September 15, 2005
                (7)10.18
            
            General
                Banking Facilities Agreement by and between Info Smart Technology
                Ltd. and
                Chiyu Banking Corporation Limited dated November 28, 2003
                (7)10.19
            
            Contract
                for two Automatic Dual Track DVDR Manufacturing Systems "Streamline
                II
                DVDR" between Infoscience Media Ltd. and ACME Cassette Manufacturing
                Limited dated September 15, 2004 (7)24.1
            
            Power
                of Attorney (3)31.1
            
            Section 302
                Certification by the Corporation’s Chief Executive Officer
                (9)31.2
            
            Section 302
                Certification by the Corporation’s Chief Financial Officer
                (9)32.1
            
            Section 906
                Certification by the Corporation’s Chief Executive Officer
                (9)32.2
            
            Section 906
                Certification by the Corporation’s Chief Financial Officer
                (9)







* 
      The schedules to this document are not being filed herewith.  The Company
      agrees to furnish supplementally a copy of any such schedule to the Securities
      and Exchange Commission upon request.




(1)
            Filed
                on May 6, 1999 as an exhibit to the Company's Registration Statement
                on
                Form SB-2 (File No. 333-60487), as amended, and incorporated herein
                by
                reference.





(2)
            Filed
                on January 27, 2000 as an exhibit to a report by the Company on a
                Form 8-A
                and incorporated herein by
                reference.





(3)
            Filed
                on September 15, 2006 as an exhibit to the Company 's Registration
                Statement on Form SB-2 (File No. 333-137362) and incorporated herein
                by
                reference.





(4)
            Filed
                on September 29, 2000 as an exhibit to the Company 's report on Form
                10-KSB for the fiscal year ended June 30, 2000 and incorporated herein
                by
                reference.





(5)
            Filed
                on August 26, 2005 as an exhibit to a report by the Company on a
                Form 8-K
                dated August 25, 2005 and incorporated herein by
                reference.





(6)
            Filed
                on July 12, 2006 as an exhibit to a report by the Company on a Form
                8-K
                dated July 7, 2006 and incorporated herein by
                reference.





(7)
            Filed
                as an exhibit to the Company 's first Current Report on Form 8-K
                filed on August 24, 2006.





(8)
            Filed
                as an exhibit to the Company 's second Current Report on Form 8-K
                filed on August 24, 2006.





(9)
            Filed
                herewith.




**[SIGNATURES
      PAGE FOLLOWS]**




28


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


**INFOSMART
                GROUP, INC.**
              (Registrant)Dated:
              November 20, 2006
            By:
            /s/ Chung KwokChung
                Kwok
              Chief
                Executive Officer


29