UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





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





For
the quarterly period ended March 31, 2010





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
              (State
      or other jurisdiction
              of
      incorporation)
            001-15643
              (Commission
      File Number)
            95-4597370
              (IRS
      Employer
              Identification
      Number)





Flat
E, 17th Floor, EGL Tower,


83
Hung To Road


Kwun
Tong, Hong Kong


(Address
of principal executive offices)





Registrant’s
telephone number, including area code: (852) 2868-3385





Securities
registered pursuant to Section 12(b) of the Act: None


Securities
registered pursuant to Section 12(g) of the Act: Common Stock, no par
value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes o No þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes o No þ





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 þ No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).





Yes o        No
þ





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained herein, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-Q or any amendment to this Form 10-Q. o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  o
            Accelerated
      filer  oNon-accelerated
      filer  o
            Smaller
      reporting company  þ





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





Number of
shares of common stock outstanding as of March 31, 2010:
161,560,520





TABLE
OF CONTENTS


TO
QUARTERLY REPORT ON FORM 10-Q


FOR
PERIOD ENDED MARCH 31, 2010





PagePART
      I
              FINANCIAL
      INFORMATION
              3Item
      1.
              Financial
      Statements
              3Condensed
      Consolidated Statements of Operations
              F-2Condensed
      Consolidated Balance Sheets
              F-3Condensed
      Consolidated Statements of Cash Flows
              F-5Notes
      to Condensed Consolidated Financial Statements
              F-7Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              4Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              10Item
      4(T).
              Controls
      and Procedures
              10PART
      II
              OTHER
      INFORMATION
              11Item
      1.
              Legal
      Proceedings
              11Item
      1A.
              Risk
      Factors
              11Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              20Item
      3.
              Defaults
      Upon Senior Securities
              21Item
      4.
              (Removed
      and Reserved)
              21Item
      5.
              Other
      Information
              21Item
      6.
              Exhibits
              21Signatures
              23Exhibits


2


PART
I - FINANCIAL INFORMATION





ITEM
      1.
            FINANCIAL
      STATEMENTS





Infosmart
Group Inc.





Condensed
Consolidated Financial Statements


For the
three months ended March 31, 2010 and 2009


(Stated
in US Dollars)


3


INFOSMART
GROUP INC.


CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009





Index to
financial statements





PageCondensed
      Consolidated Statements of Operations
                  F-2Condensed
      Consolidated Balance Sheets
                  F-3
      – F-4Condensed
      Consolidated Statements of Cash Flows
                  F-5
      – F-6Notes
      to Condensed Consolidated Financial Statements
                  F-7


F-1


INFOSMART
GROUP INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





Three
      months ended
                          March
      31,2010
                        
                        
                        2009Net
      sales
                        
                        $
                        3,303,321
                        
                        
                        $
                        6,896,490Cost
      of sales
                        
                        
                        (2,895,448
                        )
                        
                        
                        (6,263,981
                        )Gross
      profit
                        
                        
                        407,873
                        
                        
                        
                        632,509Administrative
      expenses
                        
                        
                        (1,258,155
                        )
                        
                        
                        (898,829
                        )Selling
      and distributing costs
                        
                        
                        (1,045,922
                        )
                        
                        
                        (178,918
                        )Loss
      from operations
                        
                        
                        (1,896,204
                        )
                        
                        
                        (445,238
                        )Other
      income
                        
                        
                        1,150
                        
                        
                        
                        19,726Interest
      expenses
                        
                        
                        (620,231
                        )
                        
                        
                        (383,422
                        )Loss
      before income taxes
                        
                        
                        (2,515,285
                        )
                        
                        
                        (808,934
                        )Income
      taxes - note 5
                        
                        
                        20,789
                        
                        
                        
                        (476,484
                        )Net
      loss
                        
                        
                        (2,494,496
                        )
                        
                        
                        (1,285,418
                        )Non-controlling
      interest
                        
                        
                        25,648
                        
                        
                        
                        28,123Net
      loss applicable to common shareholders
                        
                        
                        (2,468,848
                        )
                        
                        
                        (1,257,295
                        )Loss
      per share - note 14- basic
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.01
                        )- dilutive
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.01
                        )Weighted
      average shares outstanding- basic
                        
                        
                        161,560,520
                        
                        
                        
                        161,560,520- dilutive
                        
                        
                        166,517,522
                        
                        
                        
                        166,517,522





See the
accompanying notes to condensed consolidated financial
statements


F-2


INFOSMART
GROUP INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


AS
OF MARCH 31, 2010 AND DECEMBER 31, 2009


(Unaudited)


(Stated
in US Dollars)





As ofMarch
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Audited)ASSETSCurrent
      assetsCash
      and cash equivalents
                    
                    $
                    349,130
                    
                    
                    $
                    186,086Trade
      receivables
                    
                    
                    3,569,438
                    
                    
                    
                    3,223,962Prepaid
      expenses and other receivables - note 7
                    
                    
                    6,305,505
                    
                    
                    
                    5,947,327Prepaid
      tax
                    
                    
                    -
                    
                    
                    
                    403,798Inventories
      - note 8
                    
                    
                    1,807,466
                    
                    
                    
                    1,299,802Total
      current assets
                    
                    
                    12,031,539
                    
                    
                    
                    11,060,975Deferred
      tax assets - note 5
                    
                    
                    38,856
                    
                    
                    
                    37,134Plant
      and equipment, net - note 9
                    
                    
                    30,197,868
                    
                    
                    
                    31,126,578TOTAL
      ASSETS
                    
                    $
                    42,268,263
                    
                    
                    $
                    42,224,687LIABILITIES
      AND STOCKHOLDERS’ EQUITYLIABILITIESCurrent
      liabilitiesTrade
      payables
                    
                    $
                    2,891,296
                    
                    
                    $
                    2,012,703Other
      payables and accrued liabilities - note 10
                    
                    
                    2,140,036
                    
                    
                    
                    1,408,150Income
      tax payable
                    
                    
                    160,557
                    
                    
                    
                    141,934Current
      portion of bank borrowings - note 11
                    
                    
                    890,801
                    
                    
                    
                    1,024,176Finance
      lease payable
                    
                    
                    94,223
                    
                    
                    
                    114,458Current
      portion of other loans - note 12
                    
                    
                    5,691,292
                    
                    
                    
                    5,789,228Total
      current liabilities
                    
                    
                    11,868,205
                    
                    
                    
                    10,490,649Non-current
      portion of bank borrowings - note 11
                    
                    
                    839,832
                    
                    
                    
                    -Non-current
      portion of other loans - note 12
                    
                    
                    5,241,377
                    
                    
                    
                    5,241,377Advance
      from a related party - note 13
                    
                    
                    2,058,653
                    
                    
                    
                    2,058,653Deferred
      tax liabilities - note 5
                    
                    
                    2,233,848
                    
                    
                    
                    1,781,327TOTAL
      LIABILITIES
                    
                    $
                    22,241,915
                    
                    
                    $
                    19,572,006




F-3


INFOSMART
GROUP INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS (CONT’D)


AS
OF MARCH 31, 2010 AND DECEMBER 31, 2009


(Stated
in US Dollars)





As ofMarch
      31,
                        
                        
                        December
      31,2010
                        
                        
                        2009(Unaudited)
                        
                        
                        (Audited)COMMITMENTS
      AND CONTINGENCIES – note 15STOCKHOLDERS’
      EQUITYCommon
      stock: No par value – note 16Authorized:
      300,000,000 shares; Issued and outstanding:2010
      – 161,560,520 shares and 2009 –161,560,520 shares
                        
                        
                        4,557,827
                        
                        
                        
                        4,557,827Additional
      paid-in-capital – note 16
                        
                        
                        8,118,664
                        
                        
                        
                        8,118,664Accumulated
      other comprehensive income
                        
                        
                        (553
                        )
                        
                        
                        131,282Retained
      earnings
                        
                        
                        7,700,683
                        
                        
                        
                        10,169,532TOTAL
      STOCKHOLDERS’ EQUITY
                        
                        
                        20,376,621
                        
                        
                        
                        22,977,305Non-controlling
      interest
                        
                        
                        (350,273
                        )
                        
                        
                        (324,624
                        )20,026,348
                        
                        
                        
                        22,652,681TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                        
                        $
                        42,268,263
                        
                        
                        $
                        42,224,687





See the
accompanying notes to condensed consolidated financial
statements


F-4


INFOSMART
GROUP INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





THREE MONTHS ENDED MARCH
31,2010
                      
                      
                      2009Cash
      flows from operating activitiesNet
      loss
                      
                      $
                      (2,494,496
                      )
                      
                      $
                      (1,285,418
                      )Adjustments
      to reconcile net loss to net cash flows provided by operating
      activities:Depreciation
                      
                      
                      799,494
                      
                      
                      
                      825,720Income
      taxes
                      
                      
                      (20,789
                      )
                      
                      
                      476,484Amortization
      of license usage right
                      
                      
                      -
                      
                      
                      
                      70,545Changes
      in operating assets and liabilities:Trade receivables
                      
                      
                      (345,476
                      )
                      
                      
                      1,291,183Prepaid expenses and other
      receivables
                      
                      
                      (358,178
                      )
                      
                      
                      (78,475
                      )Prepaid tax
                      
                      
                      403,798
                      
                      
                      
                      -Inventories
                      
                      
                      (507,664
                      )
                      
                      
                      (97,614
                      )Trade payables
                      
                      
                      878,593
                      
                      
                      
                      214,921Income Tax payable
                      
                      
                      18,623
                      
                      
                      
                      573,536Other payables and accrued
      liabilities
                      
                      
                      731,886
                      
                      
                      
                      215,788Net
      cash flows (used in) / provided by operating activities
                      
                      
                      (894,209
                      )
                      
                      
                      2,206,670Cash
      flows from investing activitiesPayment
      for acquisition of fixed assets
                      
                      
                      (205,128
                      )
                      
                      
                      (1,027,091
                      )Net
      cash flows used in investing activities
                      
                      
                      (205,128
                      )
                      
                      
                      (1,027,091
                      )Cash
      flows from financing activitiesProceeds
      from non-recurring bank loans
                      
                      
                      1,034,024
                      
                      
                      
                      -Repayment
      of non-recurring bank loans
                      
                      
                      -
                      
                      
                      
                      (553,472
                      )Repayment
      of recurring bank loans
                      
                      
                      -
                      
                      
                      
                      (1,619,000
                      )Proceeds
      from other loans
                      
                      
                      -
                      
                      
                      
                      856,350Repayment
      of other loans
                      
                      
                      (97,936
                      )
                      
                      
                      -Decrease
      in bank overdrafts
                      
                      
                      (319,308
                      )
                      
                      
                      (4,568
                      )Repayment
      of obligations under capital leases
                      
                      
                      (17,667
                      )
                      
                      
                      -Net
      cash flows provided by / (used in) financing activities
                      
                      
                      599,113
                      
                      
                      
                      (1,320,690
                      )Effect
      of foreign currency translation on cash and cash
    equivalents
                      
                      
                      500,667
                      
                      
                      
                      40,709Net
      increase / (decrease) in cash and cash equivalents
                      
                      
                      443
                      
                      
                      
                      (100,402
                      )Cash
      and cash equivalents, beginning of period
                      
                      
                      348,687
                      
                      
                      
                      449,089Cash
      and cash equivalents, end of period
                      
                      $
                      349,130
                      
                      
                      $
                      348,687


F-5


INFOSMART
GROUP INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





Three months ended March
      31,2010
                
                
                2009Supplemental
      disclosures for cash flow information:Cash paid for:Interest
                
                $
                620,231
                
                
                $
                374,170Income
      taxes
                
                
                -
                
                
                
                38,994





See the
accompanying notes to condensed consolidated financial
statements


F-6


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





1.
            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 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 included in the 2009 annual report filed with the Securities and Exchange
Commission.





2.
            Descriptions
      of business





The
company is in the business of developing, manufacturing, marketing and sales of
recordable digital versatile disc (“DVDR”) media ,recordable compact discs
(“CDR”) and Blu-ray DVD. The company currently manufactures DVDRs, CDRs as well
as Blu-ray DVD, and has been developing its DVD-R manufacturing basis in both
Hong Kong and Brazil to capture the worldwide market.  The company has
customers in China and South America.





3.
            Continuance
      of operations





These
financial statements have been prepared on a going concern basis. The Company
has working capital surplus of $570,326 at December 31, 2009 as compared with a
surplus of $503,250 in 2008.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization
of assets and the liquidation of liabilities in the normal course of business.
The Company has incurred significant loss for the year ended December 31, 2009
and has a capital commitment of $5,000,000 to be repayable by monthly
installment of $366,666 for the period from June 2009 till Aug 2010. The Company
is therefore suffered by a heavily liquidity pressure.





For
minimizing the cash flow shortage pressure, the Company had managed its
liquidity during this time through a serious of cost reduction initiatives,
capital markets transactions and seeking for new finance. At the same time, the
directors and shareholders of the Company agree to give full financial support
to the Company by realizing their personal assets to make all the operating
expenses and all the outstanding liabilities repayable when necessary for the
next twelve months.


F-7


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





4.      
     Summary of significant accounting
policies





Basis
of presentation and consolidation





The
accompanying consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles in the United States
of America.





The
consolidated financial statements include the accounts of Infosmart Group Inc.
(the Company) and its subsidiaries (the Group). Significant intercompany
transactions have been elimination in consolidation.





The
results of subsidiaries acquired or disposed of during the years are included in
the consolidated income statement from he effective date of acquisition or up
the effective date of disposal.





As of
March 31, 2010, the particulars of the subsidiaries are as follows:





Name
      of company
                                                                          
                                                                          Place
      of
                                                                            incorporation
                                                                          
                                                                          Date
      of
                                                                            incorporation
                                                                          
                                                                          Attributable
                                                                            equity
                                                                            interest
                                                                          
                                                                          
                                                                          Issued
      capitalInfosmart
      Group Limited
                                                                          
                                                                          British
      Virgin Islands
                                                                          
                                                                          March
      23, 2005
                                                                          
                                                                          
                                                                          100
                                                                          %
                                                                          
                                                                          US$
                                                                          1,427,794Infoscience
      Media Global Limited
                                                                          
                                                                          British
      Virgin Islands
                                                                          
                                                                          May
      17, 2007
                                                                          
                                                                          
                                                                          100
                                                                          %
                                                                          
                                                                          US$
                                                                          1Portabello
      Global Limited
                                                                          
                                                                          British
      Virgin Islands
                                                                          
                                                                          March
      21, 2007
                                                                          
                                                                          
                                                                          100
                                                                          %
                                                                          
                                                                          US$
                                                                          1Info
      Smart International
                                                                          
                                                                          Hong
      Kong
                                                                          
                                                                          September
      26,
                                                                          
                                                                          
                                                                          100
                                                                          %
                                                                          
                                                                          US$
                                                                          25.65Enterprises
      Limited
                                                                          
                                                                          
                                                                          
                                                                          2003
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          HK$
                                                                          (200
                                                                          )Info
      Smart
                                                                          
                                                                          Hong
      Kong
                                                                          
                                                                          December
      14,
                                                                          
                                                                          
                                                                          100
                                                                          %
                                                                          
                                                                          US$
                                                                          618,075Technology
      Limited
                                                                          
                                                                          
                                                                          
                                                                          2001
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          HK$
                                                                          (4,820,000
                                                                          )Infoscience
      Media
                                                                          
                                                                          Hong
      Kong
                                                                          
                                                                          September
      10,
                                                                          
                                                                          
                                                                          1000
                                                                          %
                                                                          
                                                                          US$
                                                                          1,282Limited
                                                                          
                                                                          
                                                                          
                                                                          2004
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          HK$
                                                                          (10,000
                                                                          )Manwin
      International
                                                                          
                                                                          Hong
      Kong
                                                                          
                                                                          April
      11, 2008
                                                                          
                                                                          
                                                                          50
                                                                          %
                                                                          
                                                                          US$
                                                                          0.24Limited
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          HK$
                                                                          (2
                                                                          )Discobras
      Industria E Comercio De Electro Electronica Ltda
                                                                          
                                                                          Brazil
                                                                          
                                                                          March
      2006
                                                                          
                                                                          
                                                                          99.42
                                                                          %
                                                                          
                                                                          US$
                                                                          7,977,072


F-8


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





4.           Summary
of significant accounting policies (Cont’d)





Basis
of presentation and consolidation (Cont’d)





Non-controlling
Interests





For the
development of the 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 has been subscribed by the Company. The minority interests have
been recognized in the accompanying financial statements.





For the
development of the market in Blu-ray, the Company entered into an agreement on
April 11, 2008 with independent third parties for setting up a subsidiary,
Manwin International Limited (“Manwin”) in Hong Kong. Manwin has
a  capital of $0.24 (equivalent to HK$2) and 50% or US$0.12
(equivalent to HK$1) (“Investment Cost”) of which has been subscribed by the
Company. The non-controlling interests have been recognized in the accompanying
financial statements





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.





Income
taxes





The
Company accounts for income tax using as asset and liability approach and allows
for recognition of deferred tax benefits in future years. Under the asset and
liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Group is able to realize
their benefits, or that future realization is uncertain.





Dividends





Dividends
are recorded in the Company’s financial statements in the period in which they
are declared.


F-9


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





4.           Summary
of significant accounting policies (Cont’d)





Basis
of presentation and consolidation (Cont’d)





Comprehensive
income





The
Company has adopted SFAS 130, “Reporting Comprehensive Income”, which
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances.





Accumulated
other comprehensive income represents the accumulated balance of foreign
currency translation adjustments of the Company.





Foreign
currency translation





The
functional currencies of the Company are Hong Kong dollars (“HK$”) and Brazil
dollars (Real$). The Company maintains its financial statements in the
functional currencies. Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet dates. Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchanges rates prevailing at the dates of the
transaction. Exchange gains or losses arising from foreign currency transactions
are included in the determination of net income for the respective
periods.





For
financial reporting purposes, the financial statements of the Company which are
prepared using the functional currency have been translated into United States
dollars. Assets and liabilities are translated at the exchange rates at the
balance sheet dates and revenue and expenses are translated at the average
exchange rates and stockholders’ equity is translated at historical exchange
rates. Any translation adjustments resulting are not included in determining net
income but are included in foreign currency translation adjustment to other
comprehensive income, a component of stockholders’ equity.





The
exchange rates in effect at March 31, 2010 and 2009 were HK$1 for $0.1282 and
$0.129 US dollars and Real$1 for $0.5608 and $0.4464 US dollars respectively.
The average exchange rates for 2010 and 2009 were HK$1 for $0.1282 and $0.1286
US dollars and Real$1 for $0.5488 and $0.5160 US dollars respectively. There is
no significant fluctuation in exchange rate for the conversion between Real
dollars, HK dollars and US dollars after the balance sheet
date.


F-10


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





4.           Summary
of significant accounting policies (cont’d)





Fair
value of financial instruments





The
carrying values of the Company’s financial instruments, including cash and cash
equivalents, restricted cash, trade and other receivables, deposits, trade and
other payables approximate their fair values due to the short-term maturity of
such instruments. The carrying amounts of borrowings approximate their fair
values because the applicable interest rates approximate current market
rates.





It is
management’s opinion that the Company is not exposed to significant interest,
price or credit risks arising from these financial instruments.





The
Company is exposed to certain foreign currency risk from export sales
transactions and recognized trade receivables as they will affect the future
operating results of the Company. The Company did not have any hedging
activities during the reporting period. As the functional currencies of the
Company are HK$ and Real$, the exchange difference on translation to US dollars
for reporting purpose is taken to other comprehensive income.





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.





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 March 31, 2010 include the
following:





Detachable
      common stock warrants
                    
                    
                    28,510,347Placement
      agent warrants
                    
                    
                    20,889,84849,400,195





Cash
and cash equivalents





Cash and
cash equivalents include all cash, deposits in banks and other highly liquid
investments with initial maturities of three months or less.


F-11


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





4.           Summary
of significant accounting policies (cont’d)





Trade
receivables





Trade
receivables are stated at original amount less allowance made for doubtful
receivables, if any, based on a review of all outstanding amounts at the period
end.  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 the
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/decrease due to management projected
demand requirements, market conditions and product life cycle
changes.  During the reporting periods, the Company did not make any
allowance for slow-moving or defective inventories.





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
      lines and equipment
                  
                  10%
      with 30% residual valueLeasehold
      improvements and others
                  
                  
                  20
                  %





Upon sale
or disposition, the applicable amounts of asset cost and accumulated
depreciation are removed from the accounts and the net amount less proceeds from
disposal is charged or credited to income.





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.





F-12


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





4.           Summary
of significant accounting policies (cont’d)





Recently
Issued Accounting Pronouncements





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities—Including an amendment of FASB
Statement No. 115” (“SFAS 159”). Under SFAS 159, a company may choose, at
specified election dates, to measure eligible items at fair value and report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. Effective January 1,
2008, the Company adopted SFAS 159, which is now codified as FASB ASC
825-10-50-28 “Financial Instruments – overall – disclosure – Fair value Option”,
but the Company has not elected the fair value option for any eligible financial
instruments as of December 31, 2008 and 2009.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combination” (“SFAS 141R”). SFAS 141R is relevant to all transactions or events
in which one entity obtains control over one or more other businesses. SFAS 141R
requires an acquirer to recognize any assets and noncontrolling interest
acquired and liabilities assumed to be measured at fair value as of the
acquisition date. Liabilities related to contingent consideration are recognized
and measured at fair value on the date of acquisition rather than at a later
date when the amount of the consideration may be resolved beyond a reasonable
doubt. This revised approach replaces SFAS 141’s cost allocation process in
which the cost of an acquisition was allocated to the individual assets acquired
and liabilities assumed based on their respective fair value. SFAS 141R requires
any acquisition-related costs and restructuring costs to be expensed as incurred
as opposed to allocating such costs to the assets acquired and liabilities
assumed as previously required by SFAS 141. Under SFAS 141R, an acquirer
recognizes liabilities for a restructuring plan in purchase accounting only if
the requirements of SFAS No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities”, are met. SFAS 141R allows for the recognition of
pre-acquisition contingencies at fair value only if these contingencies are
likely to materialize. If this criterion is not met at the acquisition date,
then the acquirer accounts for the non-contractual contingency in accordance
with recognition criteria set forth under SFAS No. 5, “Accounting for
Contingencies”, in which case no amount should be recognized in purchase
accounting. SFAS 141R is effective as of the beginning of an entity’s first
fiscal year that begins after December 15, 2008, which is now codified as
FASB ASC 805 “Business Combination”. The adoption of SFAS 141R did not have a
material impact on the Company’s financial position, results of operations and
cash flows.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS
160”). This Statement amends ARB No. 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity and should be
reported as equity on the financial statements. SFAS 160 requires consolidated
net income to be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest. Furthermore, disclosure of the
amounts of consolidated net income attributable to the parent and to the
noncontrolling interest is required on the face of the financial statements.
SFAS 160 is effective as of the beginning of an entity’s first fiscal year that
begins after December 15, 2008, and now is codified as FASB ASC
810-10-45-16 “Consolidation — Overall — Other Presentation Matter –
Noncontrolling Interest In a Subsidiary”. Accordingly, in 2009, minority
interests has been renamed noncontrolling interests, consolidated net income
(loss) is reported at amounts that include the amounts attributable to both
noncontrolling interests and Nam Tai’s shareholders for all periods presented.
In addition, noncontrolling interests has been reported as a component of equity
in the consolidated balance sheets and consolidated statements of changes in
equity and comprehensive income for all periods presented. The Company has
retrospectively applied the presentation to its prior year balances in the
consolidated financial statements.





In
April 2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful
Life of Intangible Assets”. This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, “Goodwill
and Other Intangible Assets”. This FSP is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The
guidance for determining the useful life of a recognized intangible asset in
this FSP shall be applied prospectively to intangible assets acquired after the
effective date. This FSP is now codified as FASB ASC 350-20, “Intangibles —
Goodwill and Other Goodwill” effective for interim and annual periods ending
after September 15, 2009. The adoption of FASB ASC 350-20 did not have a
material impact on the Company’s financial position, results of operations and
cash flows.


F-13


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





4.           Summary
of significant accounting policies (cont’d)





Recently
Issued Accounting Pronouncements





In
June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities”. This FSP gives guidance on the computation of
earnings per share and the impact of share-based instruments that contain
certain non forfeitable rights to dividends or dividend equivalents. The FSP is
effective for fiscal years beginning after December 31, 2008 and is now
codified as FASB-ASC 718 “Compensation-Stock Compensation” effective for interim
and annual periods ending after September 15, 2009. The adoption of
FASB-ASC 718 did not have a material impact on the Company’s financial position,
results of operations and cash flows.





In
November 2008, the FASB ratified the consensus reached by the Task Force in
EITF Issue 08-7, “Accounting for Defensive Intangible Assets” (“EITF 08-7”).
EITF 08-7 requires entities that will acquire a defensive intangible asset after
the effective date of SFAS 141R which is now codified as FASB ASC 805 “Business
Combination” effective for interim and annual periods ending after
September 15, 2009, to account for the acquired intangible asset as a
separate unit of accounting and amortize the acquired intangible asset over the
period during which the asset would diminish in value. EITF 08-7 is effective
for defensive intangible assets acquired in fiscal years beginning on or after
December 15, 2008. The adoption of EITF 08-7 did not have a material impact
on the Company’s financial position, results of operations and cash
flows.





In
April 2009, the FASB issued FSP SFAS 141(R)-1, “Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies “. FAS 141(R)-1 amends and clarifies FASB Statement No. 141
(revised 2007), “Business Combinations”, to address application issues raised by
preparers, auditors, and members of the legal profession on initial recognition
and measurement, subsequent measurement and accounting, and disclosure of assets
and liabilities arising from contingencies in a business combination. FAS
141(R)-1 is effective for the interim and annual periods ending after
June 15, 2009, which is now codified as FASB ASC 805 “Business
Combination”. The adoption of FASB ASC 805 did not have a material impact on the
Company’s financial position, results of operations and cash flows.





In
April 2009, the FASB issued FSP SFAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments”. FAS 115-2 and FAS 124-2
amends the other-than-temporary impairment guidance in U.S. GAAP for debt
securities to make the guidance more operational and to improve the presentation
and disclosure of other-than-temporary impairments on debt and equity securities
in the financial statements. This FSP does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. FSP SFAS 115-2 and FAS 124-2 are effective for the interim and
annual periods ending after June 15, 2009, which is now codified as FASB
ASC 320 “Investments – Debt and Equity Securities”. The adoption of FASB ASC 320
did not have a material impact on the Company’s financial position, results of
operations and cash flows.





In
April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments”. FSP amends SFAS 107,
“Disclosures about Fair Value of Financial Instruments”, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. This FSP
also amends APB Opinion No. 28, “ Interim Financial Reporting”, to require
those disclosures in summarized financial information effective for the interim
and annual periods ending after June 15, 2009. SFAS 107 is now codified as
FASB ASC 825-10-50 “Financial Instrument-Overall-Disclosure”. The adoption of
FASB ASC 825-10-50 did not have a material impact on the Company’s financial
position, results of operations and cash flows.





In
May 2009, the FASB issued FSP SFAS 165 “Subsequent Events”. The objective
of this Statement is to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 is
effective for the interim and annual periods ending after June 15, 2009,
which is now codified as FASB ASC 855 “Subsequent Events”. The adoption of FASB
ASC 855 did not have a material impact on the Company’s financial position,
results of operations and cash flows. Effective February 24, 2010, the Company
adopted Accounting Standards Update (“ASU”) No. 2010-09, “Subsequent Events
(Topic 855): Amendments to Certain Recognition and Disclosure Requirements”,
which removes the requirement to disclose the date through which subsequent
events have been evaluated. The adoption of the ASU did not have a material
impact on the Company’s financial position, results of operations and cash
flows.


F-14


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





4.
            Summary
      of significant accounting policies
(cont’d)





Recently
Issued Accounting Pronouncements





In
June 2009, the FASB issued FSP SFAS 166, “Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140”. The objective of
this Statement is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement in transferred financial assets. SFAS 166 is
effective for the interim and annual periods ending after June 15, 2009,
which is now codified as FASB ASC 860-10 “Transfers and Servicing — Overall”.
The adoption of FASB ASC 860-10 did not have a material impact on the Company’s
financial position, results of operations and cash flows.





In
June 2009, the FASB issued FSP SFAS 167 “Amendments to FASB Interpretation
No. 46” The objective of this Statement is to amend certain requirements of
FASB Interpretation No. 46 (revised December 2003), “Consolidation of
Variable Interest Entities”, to improve financial reporting by enterprises
involved with variable interest entities and to provide more relevant and
reliable information to users of financial statements. SFAS 167 is effective for
the interim and annual periods ending after June 15, 2009, which is now
codified as FASB ASC 810-10-50-2A “Consolidation – Overall – Disclosure —
Variable Interest Entities”. The adoption of FASB ASC 810-10-50-2A did not have
a material impact on the Company’s financial position, results of operations and
cash flows.





In June
2009, the FASB issued SFAS 168, “The FASB Accounting Standards CodificationTM and
the Hierarchy of Generally Accepted Accounting Principles — a replacement of
FASB Statement No 162”, which supersedes all existing non-SEC accounting and
reporting standards. The codification does not change GAAP but rather organizes
it into a new hierarchy with two levels: authoritative and non-authoritative.
All authoritative GAAP carries equal weight and is organized in a topical
structure. The adoption of SFAS 168 did not have a material impact on the
Company’s financial position, results of operations and cash flows.





In
August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements
and Disclosures (Topic 820)”. This ASU applies to all entities that measure
liabilities at fair value within the scope of Topic 820 and provides
clarification on how to measure liabilities at fair value when a quoted price in
an active market is not available and clarify that it is not required to include
a separate input or adjustment to other inputs relating to a restriction of
transfer of liabilities. The adoption of ASU No. 2009-05 did not have a
material impact on the Company’s financial position, results of operations and
cash flows.





In
September 2009, the FASB issued ASU No. 2009-06, “Income Taxes (Topic
740)—Implementation Guidance on Accounting for Uncertainty in Income Taxes and
Disclosure Amendments for Nonpublic Entities”, and it provides implementation
guidance on accounting for uncertainty in income taxes effective for interim and
annual reporting period ending on or after September 15, 2009. The adoption
of ASU No. 2009-06 did not have any impact on the Company’s financial
position, results of operations and cash flows.





In
September 2009, the FASB issued ASU No. 2009-12, “Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent)”. This update applies to
all entities that hold an investment that is required to be measured or
disclosed at fair value on a recurring or nonrecurring basis. These amendments
permit, as a practical expedient, a reporting entity to measure the fair value
of investment on the basis of the net asset value per share of the investment
and require disclosures by major category of investment within the scope of this
update. ASU No. 2009-12 is effective for interim and annual periods ending
after December 15, 2009 and the adoption is not expected to have a material
impact on the Company’s financial position, results of operations and cash
flows.








F-15





INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





4.
            Summary
      of significant accounting policies
(cont’d)





Recently
Issued Accounting Pronouncements





In
December 2009, the FASB issued ASU No. 2009-17, “Consolidations (Topic
810): Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities”. The amendments in this update are the result of FASB
Statement No. 167 “Amendments to FASB Interpretation No. 46 (R)”,
which is now codified as FASB ASC 810-10-50-2A “Consolidation – Overall –
Disclosure - Variable Interest Entities” and is effective for the interim and
annual periods ending after December 15, 2009. The adoption of ASU
No. 2009-17 is not expected to have a material impact on the Company’s
financial position, results of operations and cash flows.





In
January 2010, the FASB issued ASU No. 2010-02, “Consolidation (Topic
810)”, in which it clarifies that the scope of the decrease in ownership
provision of the Subtopic and related guidance applies to a subsidiary or group
of assets that is a business or nonprofit activity, but does not apply to sales
of substance real estate & conveyances of oil and gas mineral rights. ASU
No. 2010-02 is effective for the interim and annual periods ending after
December 15, 2009. The adoption of ASU No. 2010-02 is not expected to have
a material impact on the Company’s financial position, results of operations and
cash flows.





None of
the above new pronouncements has current application to the Company, but may be
applicable to the Company’s future financial reporting.


F-16


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





5.
            Income
      taxes





The components of the provision for
income taxes in Hong Kong are:





Three
      months ended
                        March
      31,2010
                      
                      
                      2009(Unaudited)
                      
                      
                      (Unaudited)Current
      taxes
                      
                      
                      -
                      
                      
                      
                      (4,897
                      )Deferred
      taxes
                      
                      
                      20,789
                      
                      
                      
                      (471,587
                      )20,789
                      
                      
                      
                      (476,484
                      )





The
Company is subject to income tax in the United States.  No provision
for income tax in the United States has been made as the Company had no taxable
income for the three months and THREE MONTHS ENDED MARCH 31, 2010 AND
2009.  The statutory tax rate is 34%.





The
Company’s subsidiary incorporated in the BVI is not subject to income taxes
under the current laws of BVI.





The
Company’s subsidiaries operating in Hong Kong are subject to profits tax rate of
16.5% on the estimated assessable profits during the periods.





Deferred
tax (assets) liabilities as of March 31, 2010 and December 31, 2009 are composed
of the following:




As ofMarch
      31,
                        
                        
                        December
      31,2010
                        
                        
                        2009(Unaudited)
                        
                        
                        (Audited)Hong
      KongOperating
      losses available for future periods
                        
                        
                        
                        
                        
                        -Temporary
      difference on accelerated tax depreciation on plant and
      equipment
                        
                        
                        2,194,992
                        
                        
                        
                        1,744,193The
      United StatesOperating
      losses available for future periods
                        
                        
                        (4,402,346
                        )
                        
                        
                        (3,823,377
                        )Valuation
      allowance
                        
                        
                        4,402,346
                        
                        
                        
                        3,823,377Deferred
      tax liabilities, net
                        
                        $
                        2,194,992
                        
                        
                        $
                        1,744,193Recognized
      in the balance sheet:Net
      deferred tax assets
                        
                        
                        (38,856
                        )
                        
                        
                        (37,134
                        )Net
      deferred tax liabilities
                        
                        
                        2,233,848
                        
                        
                        
                        1,781,327$
                        2,194,992
                        
                        
                        $
                        1,744,193


F-17


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





6.
            Comprehensive
      income





THREE MONTHS ENDED MARCH
31,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)Net
      loss applicable to common shareholders
                  
                  $
                  (2,468,848
                  )
                  
                  $
                  (1,257,295
                  )Foreign
      currency translation adjustments
                  
                  
                  (131,835
                  )
                  
                  
                  842,582Total
      comprehensive loss
                  
                  $
                  (2,600,683
                  )
                  
                  $
                  (414,713
                  )





7.           Prepaid
expenses and other receivables





As
      ofMarch 31,
                      
                      
                      December 31,2010
                      
                      
                      2009(Unaudited)
                      
                      
                      (Audited)Prepaid
      professional expenses
                      
                      $
                      178,572
                      
                      
                      $
                      285,714Other
      prepaid operating expenses
                      
                      
                      1,934,435
                      
                      
                      
                      1,469,916Rental
      and utility deposits
                      
                      
                      25,006
                      
                      
                      
                      23,167Reclassification
      of Current Accountwith
      Infoscience Holdings Limited on disposal
                      
                      
                      2,935,897
                      
                      
                      
                      2,936,935Blu-ray
      production facility deposit
                      
                      
                      1,231,595
                      
                      
                      
                      1,231,595$
                      6,305,505
                      
                      
                      $
                      5,947,327





8.           Inventories





As ofMarch
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Raw
      materials
                  
                  $
                  1,099,678
                  
                  
                  $
                  775,711Finished
      goods
                  
                  
                  707,788
                  
                  
                  
                  524,091$
                  1,807,466
                  
                  
                  $
                  1,299,802


F-18


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





9.           Plant
and equipment





As ofMarch
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Audited)CostsProduction lines and
      equipment
                    
                    $
                    40,102,644
                    
                    
                    $
                    40,258,099Leasehold
      improvements
                    
                    
                    1,602,238
                    
                    
                    
                    1,637,831Furniture, fixtures and office
      equipment
                    
                    
                    218,808
                    
                    
                    
                    223,527Motor vehicles
                    
                    
                    248,174
                    
                    
                    
                    252,72842,171,864
                    
                    
                    
                    42,372,185Accumulated
      depreciationProduction lines and
      equipment
                    
                    
                    10,807,105
                    
                    
                    
                    10,158,448Leasehold
      improvements
                    
                    
                    958,772
                    
                    
                    
                    898,805Furniture, fixtures and office
      equipment
                    
                    
                    129,395
                    
                    
                    
                    121,012Motor vehicles
                    
                    
                    78,724
                    
                    
                    
                    67,34211,973,996
                    
                    
                    
                    11,245,607NetProduction lines and
      equipment
                    
                    
                    29,295,539
                    
                    
                    
                    30,099,651Leasehold
      improvements
                    
                    
                    643,466
                    
                    
                    
                    739,026Furniture, fixtures and office
      equipment
                    
                    
                    89,413
                    
                    
                    
                    102,515Motor vehicles
                    
                    
                    169,450
                    
                    
                    
                    185,386$
                    30,197,868
                    
                    
                    $
                    31,126,578


F-19


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





9.           Plant
and equipment (cont’d)





An
analysis of production lines and equipment pledged to banks for banking
facilities (note 8(a)) granted to the Company is as follows:





Pledged
      for banking facilitiesAs ofMarch
      31,
                        
                        
                        December
      31,2010
                        
                        
                        2009(Unaudited)
                        
                        
                        (Audited)Costs
                        
                        $
                        -
                        
                        
                        $
                        615,384Accumulated
      depreciation
                        
                        
                        -
                        
                        
                        
                        (172,307
                        )Net
                        
                        $
                        -
                        
                        
                        $
                        443,077THREE MONTHS ENDED MARCH
31,2010
                        
                        
                        2009(Unaudited)
                        
                        
                        (Unaudited)Depreciation
      for the period
                        
                        $
                        -
                        
                        
                        $
                        257,677





The
components of depreciation charged are:





THREE
      MONTHS ENDED MARCH 31,2010
                      
                      
                      2009(Unaudited)
                      
                      
                      (Unaudited)Included
      in factory overheadsProduction
      lines and equipment
                      
                      $
                      698,128
                      
                      
                      $
                      701,892Included
      in operating expensesLeasehold
      improvements
                      
                      
                      78,452
                      
                      
                      
                      103,628Furniture,
      fixtures and office equipment
                      
                      
                      10,718
                      
                      
                      
                      8,210Motor
      vehicles
                      
                      
                      12,196
                      
                      
                      
                      11,990101,366
                      
                      
                      
                      123,828$
                      799,494
                      
                      
                      $
                      825,720


F-20


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





10.           Other
payables and accrued liabilities





As ofMarch 31,
                  
                  
                  December 31,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Customers
      deposits
                  
                  $
                  620,214
                  
                  
                  $
                  327,908Accrued
      professional fee
                  
                  
                  232,571
                  
                  
                  
                  218,532Staff
      costs payable
                  
                  
                  291,124
                  
                  
                  
                  235,753Other
      loan interest payable
                  
                  
                  644,242
                  
                  
                  
                  521,445Other
      accrued expenses for operations
                  
                  
                  351,885
                  
                  
                  
                  104,512$
                  2,140,036
                  
                  
                  $
                  1,408,150





11.           Bank
borrowings





As ofMarch
      31
                    
                    
                    December312010
                    
                    
                    2009Secured:Bank
      overdrafts repayable on demand
                    
                    $
                    -
                    
                    
                    $
                    255,987Repayable
      within one year-
                    
                    
                    
                    255,987Unsecured:Bank
      overdrafts repayable on demandRepayable
      within one year
                    
                    
                    696,608
                    
                    
                    
                    768,189Other
      non-recurring bank borrowingsRepayable
      within one year
                    
                    
                    194,193
                    
                    
                    
                    -Other
      non-recurring bank borrowingsRepayable
      over one year
                    
                    
                    839,832
                    
                    
                    
                    -1,730,633
                    
                    
                    
                    768,189$
                    1,730,633
                    
                    
                    $
                    1,024,176





The above
banking borrowings were secured by the following:-





(a)
            No
      legal charge as at March 31,2010 and first fixed legal charge over 1 DVDR
      production lines with carrying amounts of $443,077 as at December
      31,2009


(note 7);
and





(b)
            No
      guarantees as at March 31,2010 and joint and several guarantees executed
      by two beneficial shareholders of the Company, a spouse of one of the
      beneficial shareholders and a director of the Company’s subsidiary as at
      December 31,2009.


F-21


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





12.           Other
loans





The
outstanding principal of the other loans are repayable as follows:





As
      of
                      March
      31
                    
                    
                    As
      of
                      December
      312010
                    
                    
                    2009Year
      ending December 312008
                    
                    $
                    -
                    
                    
                    $
                    -2009
                    
                    
                    -
                    
                    
                    
                    5,789,2282010
                    
                    
                    5,691,292
                    
                    
                    
                    5,241,3772011
                    
                    
                    5,241,377
                    
                    
                    
                    -Total
                    
                    
                    10,932,669
                    
                    
                    
                    11,030,605Current
      portion
                    
                    
                    (5,691,292
                    )
                    
                    
                    (5,789,228
                    )Non-current
      portion
                    
                    
                    5,241,377
                    
                    
                    
                    5,241,377





All the
other loans are unsecured and have fixed repayment terms. The interest rate is
Hong Kong Prime interest rate (the average effective rate is approximately 5%
(2010) and 5% (2009) .





13.           Advance
from a related party





Advance
from a related party for working capital are as follows:





As of
                    March 31
                  
                  
                  As of
                    December 312010
                  
                  
                  2009Prime
      Corporate Developments Ltd.
                  
                  $
                  929,751
                  
                  
                  $
                  929,751Umetech
      Global Marketing Ltd.
                  
                  $
                  1,128,902
                  
                  
                  $
                  1,128,902$
                  2,058,653
                  
                  
                  $
                  2,058,653





The above
advance is interest-free, unsecured and the related party has undertaken not to
demand repayment in the next twelve months.




F-22




INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





14.           Earnings
per share





The
Company’s potentially dilutive securities at March 31, 2010 include the
following:





Detachable
      common stock warrants
                    
                    
                    28,510,347Placement
      agent warrants
                    
                    
                    20,889,84849,400,195




15.           Commitments
and contingencies





Commitments
and contingencies





Operating leases
commitments





The
Company leases office premises under various non-cancelable operating lease
agreements that expire at 24 November 2011, with an option to renew the
lease. All leases are on a fixed repayment basis. None of the leases include
contingent rentals. Minimum future commitments under these agreements payable as
of March 31, 2010 are as follows:-





Year
      ending March 312010
                  
                  
                  33,4622011
                  
                  
                  40,897





Contingencies





From time
to time, the Company is subject to legal claims and legal proceedings that arise
in the ordinary course of our business. In the opinion of management, the
ultimate outcome of claims and litigation of which management is aware will not
have a material adverse effect on our consolidated financial position or results
of operation. Management is not currently aware of any pending legal proceedings
against Infosmart Group





F-23





INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





16.           Common
stock and convertible preferred stock





Common stock
                  
                  
                  AdditionalNo.
      of
                  
                  
                  
                  
                  
                  paid-inshares
                  
                  
                  Amount
                  
                  
                  CapitalBalance,
      January 1, 2010 and March 31, 2010
                  
                  
                  161,560,520
                  
                  
                  $
                  4,557,827
                  
                  
                  $
                  8,118,664





Common
Stock





The
number of authorized shares of the Company’s common stock is 300,000,000 shares.
The shares have no par value.





Additional paid-in
capital





The
Company allocated the net proceeds ($6,885,000) between the Series B Preferred
Stock ($3,738,827) and the warrants ($3,146,173) based upon their relative fair
values as of the closing date. The Company determined the fair value of the
warrants (including Placement Agent Warrants which were valued at $644,800)
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
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 ($2,297,157) pursuant to the guidance in EITF 00-27,
Application of Issue No. 98-5 to Certain Convertible
Instruments.


F-24


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(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 $128.20 (equivalent of HK$1,000).  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 refund of $(22,524) and $19,250 for the
three months ended March 31, 2010 and 2009 respectively.


F-25


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





18.           Segment
Information





The
Company is engaged in the manufacture and distribution of DVDR 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 DVDR and CDR is disclosed under FAS 131, “Disclosures about
Segments of an Enterprise and Related Information” as below:





Three months ended March 31,
2009





DVDR and
                          
                          
                          
                          
                          
                          
                          
                          
                          2009Related Products
                          
                          
                          CDR
                          
                          
                          Blu-ray
                          
                          
                          TotalNET
      SALES
                          
                          
                          6,311,480
                          
                          
                          
                          510,844
                          
                          
                          
                          74,166
                          
                          
                          
                          6,896,490COST
      OF SALES
                          
                          
                          (5,752,750
                          )
                          
                          
                          (424,001
                          )
                          
                          
                          (87,230
                          )
                          
                          
                          (6,263,981
                          )GROSS
      PROFIT
                          
                          
                          558,730
                          
                          
                          
                          86,843
                          
                          
                          
                          (13,064
                          )
                          
                          
                          632,509ADMINISTRATIVE
      EXPENSES
                          
                          
                          (672,464
                          )
                          
                          
                          -
                          
                          
                          
                          (3,817
                          )
                          
                          
                          (676,281
                          )DEPRECIATION
                          
                          
                          (222,548
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (222,548
                          )SESELLING
      AND DISTRIBUTING COSTS
                          
                          
                          (96,496
                          )
                          
                          
                          -
                          
                          
                          
                          (82,422
                          )
                          
                          
                          (178,918
                          )INCOME
      / (LOSS) FROM OPERATIONS
                          
                          
                          (432,778
                          )
                          
                          
                          86,843
                          
                          
                          
                          (99,303
                          )
                          
                          
                          (445,238
                          )OTHER
      INCOME
                          
                          
                          19,726
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          19,726INTEREST
      EXPENSES
                          
                          
                          (383,422
                          )
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          (383,422
                          )INCOME
      BEFORE INCOME TAXES
                          
                          
                          (796,474
                          )
                          
                          
                          86,843
                          
                          
                          
                          (99,303
                          )
                          
                          
                          (808,934
                          )INCOME
      TAXES
                          
                          
                          (476,484
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (476,484
                          )NET
      INCOME
                          
                          
                          (1,272,958
                          )
                          
                          
                          86,843
                          
                          
                          
                          (99,303
                          )
                          
                          
                          (1,285,418
                          )MIMINORITY
      INTEREST
                          
                          
                          (21,528
                          )
                          
                          
                          -
                          
                          
                          
                          49,651
                          
                          
                          
                          28,123NET
      (LOSS)/INCOME APPLICABLE TO COMMON SHAREHOLDERS
                          
                          
                          (1,294,486
                          )
                          
                          
                          86,843
                          
                          
                          
                          (49,652
                          )
                          
                          
                          (1,257,295
                          )


F-26


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





18.           Segment
Information (Con’t)





Three months ended March 31,
2010





DVDR and
                  
                  
                  
                  
                  
                  
                  
                  
                  2010Related Products
                  
                  
                  CDR
                  
                  
                  Blu-ray
                  
                  
                  TotalNET
      SALES
                  
                  
                  3,188,105
                  
                  
                  
                  114,706
                  
                  
                  
                  3,510
                  
                  
                  
                  3,303,321COST
      OF SALES
                  
                  
                  (2,748,564
                  )
                  
                  
                  (114,706
                  )
                  
                  
                  (32,178
                  )
                  
                  
                  (2,895,448
                  )GROSS
      PROFIT
                  
                  
                  436,541
                  
                  
                  
                  -
                  
                  
                  
                  (28,668
                  )
                  
                  
                  407,873ADMINISTRATIVE
      EXPENSES
                  
                  
                  (1,156,463
                  )
                  
                  
                  -
                  
                  
                  
                  (326
                  )
                  
                  
                  (1,156,789
                  )DEPRECIATION
                  
                  
                  (101,366
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (101,366
                  )SELLING
      AND DISTRIBUTING COSTS
                  
                  
                  (1,039,864
                  )
                  
                  
                  -
                  
                  
                  
                  (6,058
                  )
                  
                  
                  (1,045,922
                  )INCOME
      / (LOSS) FROM OPERATIONS
                  
                  
                  (1,861,152
                  )
                  
                  
                  -
                  
                  
                  
                  (35,052
                  )
                  
                  
                  (1,896,204
                  )OTHER
      INCOME
                  
                  
                  1,150
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,150INTEREST
      EXPENSES
                  
                  
                  (618,208
                  )
                  
                  
                  
                  
                  
                  (2,023
                  )
                  
                  
                  (620,231
                  )INCOME
      BEFORE INCOME TAXES
                  
                  
                  (2,478,210
                  )
                  
                  
                  -
                  
                  
                  
                  (37,075
                  )
                  
                  
                  (2,515,285
                  )INCOME
      TAXES
                  
                  
                  17,609
                  
                  
                  
                  -
                  
                  
                  
                  3,180
                  
                  
                  
                  20,789NET
      INCOME
                  
                  
                  (2,460,601
                  )
                  
                  
                  -
                  
                  
                  
                  (33,895
                  )
                  
                  
                  (2,494,496
                  )MIMINORITY
      INTEREST
                  
                  
                  8,701
                  
                  
                  
                  -
                  
                  
                  
                  16,947
                  
                  
                  
                  25,648NET
      (LOSS)/INCOME APPLICABLE TO COMMON SHAREHOLDERS
                  
                  
                  (2,451,900
                  )
                  
                  
                  -
                  
                  
                  
                  (16,948
                  )
                  
                  
                  (2,468,848
                  )


F-27


INFOSMART
GROUP INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009


(Unaudited)


(Stated
in US Dollars)





18.           Segment
Information (Con’t)





Year ended December 31,
2009





DVDR
      and
                    
                    
                    
                    
                    
                    
                    
                    
                    2009Related Products
                    
                    
                    CDR
                    
                    
                    Blu-ray
                    
                    
                    TotalTOTAL
      ASSETS
                    
                    
                    38,111,778
                    
                    
                    
                    1,548,400
                    
                    
                    
                    2,564,509
                    
                    
                    
                    42,224,687





Year ended March 31,
2010





DVDR
      and
                    
                    
                    
                    
                    
                    
                    
                    
                    2008Related Products
                    
                    
                    CDR
                    
                    
                    Blu-ray
                    
                    
                    TotalTOTAL
      ASSETS
                    
                    
                    38,232,645
                    
                    
                    
                    1,514,100
                    
                    
                    
                    2,521,518
                    
                    
                    
                    42,268,263





Geographic
information about net sales, which are classified based on location of the
customers, is set out as follows:





Three months ended
                      March 31,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)Argentina
                    
                    
                    -
                    
                    
                    
                    -Australia
                    
                    
                    -
                    
                    
                    
                    -Brazil
                    
                    
                    3,021,753
                    
                    
                    
                    4,152,479China
      and Hong Kong
                    
                    
                    248,012
                    
                    
                    
                    2,530,206Philippine
                    
                    
                    -
                    
                    
                    
                    62,869South
      America
                    
                    
                    -
                    
                    
                    
                    -Thailand
                    
                    
                    -
                    
                    
                    
                    -United
      States
                    
                    
                    -
                    
                    
                    
                    -Other
      countries
                    
                    
                    33,556
                    
                    
                    
                    150,936Total
                    
                    
                    3,303,321
                    
                    
                    
                    6,896,490





19.  
      Comparative amounts





Certain
amounts included in prior periods’ condensed consolidated statement of
operations have been reclassified to conform to the current period’s
presentation.  These reclassifications had no effect on reported total
assets, liabilities, shareholders’ equity, or net income.


F-28


ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.





Forward
Looking Statements





Certain
statements in the Management’s Discussion and Analysis (“MD&A”), other than
purely historical information, including estimates, projections, statements
relating to our business plans, objectives and expected operating results, and
the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. These forward-looking statements generally
are identified by the words “believe,” “project,” “expect,” “anticipate,”
“estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions.
Forward-looking statements are based on current expectations and assumptions
that are subject to risks and uncertainties which may cause actual results to
differ materially from the forward-looking statements. A detailed discussion of
risks and uncertainties that could cause actual results and events to differ
materially from such forward-looking statements is included in the section under
“Risk Factors”. We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise.





As
used in this Form 10-Q, unless the context requires otherwise, “we” or “us” or
the “Company” or “Infosmart” means Infosmart Group, Inc. and its
subsidiaries.





Overview





We are in
the business of developing, manufacturing, marketing and sales of recordable
digital versatile disc (“DVDR”) media and recordable compact discs (“CDR”)
and Blu-ray DVD formats.  We have customers in China and South
America.





We
produce our products through our three main operational business subsidiaries,
Info Smart Technology Limited (“IS Technology”), Info Smart International
Enterprises Limited (“IS International”), and Infoscience Media Limited (“IS
Media”) at our state-of-the-art DVDR manufacturing facilities in Hong
Kong.





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 relocated some of our DVDR manufacturing equipment to Brazil in
November 2006 and installed them in January 2007. Trial production in
Brazil began in March 2007, and is currently producing at full capacity. In
addition, 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 currently in the process of obtaining these Patent
Licenses.





We also
have a Brazilian subsidiary, Discobras Industria E Comercio de Electro
Eletronica Limiteda (“Discobras”), which was formed in March 2006 by IS Media
and a local partner, with registered capital of US$8 million for our new
Brazilian DVDR production facility. IS Media currently holds a 99.42% ownership
interest in Discobras, and the local partner holds the remaining 0.58% ownership
interest in Discobras. In addition, we incorporated a new subsidiary, Portabello
Global Limited (“Portabello”), for distributing and reselling our recordable
digital versatile discs and media to customers in South America.





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 on consolidation.





Non-controlling
Interests.For the development of the market in Brazil, the Company
entered into an agreement on March 20, 2006 with two independent third parties
for setting up a subsidiary, Discobrás, in Brazil. Discobrás has a social
capital of $8,046,281 (equivalent to R$17,385,600),of which 99.42% or $8,000,000
(equivalent to R$17,285,600) (“Investment Cost”) has been subscribed by the
Company. As of September 30, 2007, neither one of the two independent third
parties had fully satisfied their required capital contribution by any means.
The minority interests have been recognized in the accompanying financial
statements.  For the development of the market in Blu-ray, the Company
entered into an agreement on April 11, 2008 with independent third parties for
setting up a subsidiary, Manwin International Limited (“Manwin”) in Hong Kong.
Manwin has a capital of $0.24 (equivalent to HK$2) and 50% or US$0.12
(equivalent to HK$1) (“Investment Cost”) of which has been subscribed by the
Company. The minority interests have been recognized in the accompanying
financial statements.





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.


4


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 periods
presented.





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 March 31, 2010 include the
following:




Detachable
      common stock warrants
                  
                  
                  28,510,347Placement
      agent warrants
                  
                  
                  20,889,84849,400,195





Trade
receivables.Trade receivables are
stated at original amount less allowance made for doubtful receivables, if any,
based on a review of all outstanding amounts at the period end. 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/decrease due to management projected demand
requirements, market conditions and product life cycle changes. During the
reporting periods, the Company did not make any allowance for slow-moving or
defective inventories.





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
      lines and equipment
                  
                  10%
      with 30% residual valueLeasehold
      improvements and others
                  
                  
                  20
                  %





Construction in
progress. Construction in progress represents a factory under
construction and production lines and equipment not ready for use, which are
stated at cost less any impairment losses, and are not depreciated. 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.


5


Recently
Issued Accounting Pronouncements





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities—Including an amendment of FASB
Statement No. 115” (“SFAS 159”). Under SFAS 159, a company may choose, at
specified election dates, to measure eligible items at fair value and report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. Effective January 1,
2008, the Company adopted SFAS 159, which is now codified as FASB ASC
825-10-50-28 “Financial Instruments – overall – disclosure – Fair value Option”,
but the Company has not elected the fair value option for any eligible financial
instruments as of December 31, 2008 and 2009.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combination” (“SFAS 141R”). SFAS 141R is relevant to all transactions or events
in which one entity obtains control over one or more other businesses. SFAS 141R
requires an acquirer to recognize any assets and noncontrolling interest
acquired and liabilities assumed to be measured at fair value as of the
acquisition date. Liabilities related to contingent consideration are recognized
and measured at fair value on the date of acquisition rather than at a later
date when the amount of the consideration may be resolved beyond a reasonable
doubt. This revised approach replaces SFAS 141’s cost allocation process in
which the cost of an acquisition was allocated to the individual assets acquired
and liabilities assumed based on their respective fair value. SFAS 141R requires
any acquisition-related costs and restructuring costs to be expensed as incurred
as opposed to allocating such costs to the assets acquired and liabilities
assumed as previously required by SFAS 141. Under SFAS 141R, an acquirer
recognizes liabilities for a restructuring plan in purchase accounting only if
the requirements of SFAS No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities”, are met. SFAS 141R allows for the recognition of
pre-acquisition contingencies at fair value only if these contingencies are
likely to materialize. If this criterion is not met at the acquisition date,
then the acquirer accounts for the non-contractual contingency in accordance
with recognition criteria set forth under SFAS No. 5, “Accounting for
Contingencies”, in which case no amount should be recognized in purchase
accounting. SFAS 141R is effective as of the beginning of an entity’s first
fiscal year that begins after December 15, 2008, which is now codified as
FASB ASC 805 “Business Combination”. The adoption of SFAS 141R did not have a
material impact on the Company’s financial position, results of operations and
cash flows.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS
160”). This Statement amends ARB No. 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity and should be
reported as equity on the financial statements. SFAS 160 requires consolidated
net income to be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest. Furthermore, disclosure of the
amounts of consolidated net income attributable to the parent and to the
noncontrolling interest is required on the face of the financial statements.
SFAS 160 is effective as of the beginning of an entity’s first fiscal year that
begins after December 15, 2008, and now is codified as FASB ASC
810-10-45-16 “Consolidation — Overall — Other Presentation Matter –
Noncontrolling Interest In a Subsidiary”. Accordingly, in 2009, minority
interests has been renamed noncontrolling interests, consolidated net income
(loss) is reported at amounts that include the amounts attributable to both
noncontrolling interests and Nam Tai’s shareholders for all periods presented.
In addition, noncontrolling interests has been reported as a component of equity
in the consolidated balance sheets and consolidated statements of changes in
equity and comprehensive income for all periods presented. The Company has
retrospectively applied the presentation to its prior year balances in the
consolidated financial statements.





In
April 2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful
Life of Intangible Assets”. This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, “Goodwill
and Other Intangible Assets”. This FSP is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The
guidance for determining the useful life of a recognized intangible asset in
this FSP shall be applied prospectively to intangible assets acquired after the
effective date. This FSP is now codified as FASB ASC 350-20, “Intangibles —
Goodwill and Other Goodwill” effective for interim and annual periods ending
after September 15, 2009. The adoption of FASB ASC 350-20 did not have a
material impact on the Company’s financial position, results of operations and
cash flows.





In
June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities”. This FSP gives guidance on the computation of
earnings per share and the impact of share-based instruments that contain
certain non forfeitable rights to dividends or dividend equivalents. The FSP is
effective for fiscal years beginning after December 31, 2008 and is now
codified as FASB-ASC 718 “Compensation-Stock Compensation” effective for interim
and annual periods ending after September 15, 2009. The adoption of
FASB-ASC 718 did not have a material impact on the Company’s financial position,
results of operations and cash flows.





In
November 2008, the FASB ratified the consensus reached by the Task Force in
EITF Issue 08-7, “Accounting for Defensive Intangible Assets” (“EITF 08-7”).
EITF 08-7 requires entities that will acquire a defensive intangible asset after
the effective date of SFAS 141R which is now codified as FASB ASC 805 “Business
Combination” effective for interim and annual periods ending after
September 15, 2009, to account for the acquired intangible asset as a
separate unit of accounting and amortize the acquired intangible asset over the
period during which the asset would diminish in value. EITF 08-7 is effective
for defensive intangible assets acquired in fiscal years beginning on or after
December 15, 2008. The adoption of EITF 08-7 did not have a material impact
on the Company’s financial position, results of operations and cash
flows.


6




In
April 2009, the FASB issued FSP SFAS 141(R)-1, “Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies “. FAS 141(R)-1 amends and clarifies FASB Statement No. 141
(revised 2007), “Business Combinations”, to address application issues raised by
preparers, auditors, and members of the legal profession on initial recognition
and measurement, subsequent measurement and accounting, and disclosure of assets
and liabilities arising from contingencies in a business combination. FAS
141(R)-1 is effective for the interim and annual periods ending after
June 15, 2009, which is now codified as FASB ASC 805 “Business
Combination”. The adoption of FASB ASC 805 did not have a material impact on the
Company’s financial position, results of operations and cash flows.





In
April 2009, the FASB issued FSP SFAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments”. FAS 115-2 and FAS 124-2
amends the other-than-temporary impairment guidance in U.S. GAAP for debt
securities to make the guidance more operational and to improve the presentation
and disclosure of other-than-temporary impairments on debt and equity securities
in the financial statements. This FSP does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. FSP SFAS 115-2 and FAS 124-2 are effective for the interim and
annual periods ending after June 15, 2009, which is now codified as FASB
ASC 320 “Investments – Debt and Equity Securities”. The adoption of FASB ASC 320
did not have a material impact on the Company’s financial position, results of
operations and cash flows.





In
April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments”. FSP amends SFAS 107,
“Disclosures about Fair Value of Financial Instruments”, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. This FSP
also amends APB Opinion No. 28, “ Interim Financial Reporting”, to require
those disclosures in summarized financial information effective for the interim
and annual periods ending after June 15, 2009. SFAS 107 is now codified as
FASB ASC 825-10-50 “Financial Instrument-Overall-Disclosure”. The adoption of
FASB ASC 825-10-50 did not have a material impact on the Company’s financial
position, results of operations and cash flows.





In
May 2009, the FASB issued FSP SFAS 165 “Subsequent Events”. The objective
of this Statement is to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 is
effective for the interim and annual periods ending after June 15, 2009,
which is now codified as FASB ASC 855 “Subsequent Events”. The adoption of FASB
ASC 855 did not have a material impact on the Company’s financial position,
results of operations and cash flows. Effective February 24, 2010, the Company
adopted Accounting Standards Update (“ASU”) No. 2010-09, “Subsequent Events
(Topic 855): Amendments to Certain Recognition and Disclosure Requirements”,
which removes the requirement to disclose the date through which subsequent
events have been evaluated. The adoption of the ASU did not have a material
impact on the Company’s financial position, results of operations and cash
flows.





In
June 2009, the FASB issued FSP SFAS 166, “Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140”. The objective of
this Statement is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement in transferred financial assets. SFAS 166 is
effective for the interim and annual periods ending after June 15, 2009,
which is now codified as FASB ASC 860-10 “Transfers and Servicing — Overall”.
The adoption of FASB ASC 860-10 did not have a material impact on the Company’s
financial position, results of operations and cash flows.





In
June 2009, the FASB issued FSP SFAS 167 “Amendments to FASB Interpretation
No. 46” The objective of this Statement is to amend certain requirements of
FASB Interpretation No. 46 (revised December 2003), “Consolidation of
Variable Interest Entities”, to improve financial reporting by enterprises
involved with variable interest entities and to provide more relevant and
reliable information to users of financial statements. SFAS 167 is effective for
the interim and annual periods ending after June 15, 2009, which is now
codified as FASB ASC 810-10-50-2A “Consolidation – Overall – Disclosure —
Variable Interest Entities”. The adoption of FASB ASC 810-10-50-2A did not have
a material impact on the Company’s financial position, results of operations and
cash flows.





In June
2009, the FASB issued SFAS 168, “The FASB Accounting Standards CodificationTM and
the Hierarchy of Generally Accepted Accounting Principles — a replacement of
FASB Statement No 162”, which supersedes all existing non-SEC accounting and
reporting standards. The codification does not change GAAP but rather organizes
it into a new hierarchy with two levels: authoritative and non-authoritative.
All authoritative GAAP carries equal weight and is organized in a topical
structure. The adoption of SFAS 168 did not have a material impact on the
Company’s financial position, results of operations and cash flows.





In
August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements
and Disclosures (Topic 820)”. This ASU applies to all entities that measure
liabilities at fair value within the scope of Topic 820 and provides
clarification on how to measure liabilities at fair value when a quoted price in
an active market is not available and clarify that it is not required to include
a separate input or adjustment to other inputs relating to a restriction of
transfer of liabilities. The adoption of ASU No. 2009-05 did not have a
material impact on the Company’s financial position, results of operations and
cash flows.




7


In
September 2009, the FASB issued ASU No. 2009-06, “Income Taxes (Topic
740)—Implementation Guidance on Accounting for Uncertainty in Income Taxes and
Disclosure Amendments for Nonpublic Entities”, and it provides implementation
guidance on accounting for uncertainty in income taxes effective for interim and
annual reporting period ending on or after September 15, 2009. The adoption
of ASU No. 2009-06 did not have any impact on the Company’s financial
position, results of operations and cash flows.





In
September 2009, the FASB issued ASU No. 2009-12, “Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent)”. This update applies to
all entities that hold an investment that is required to be measured or
disclosed at fair value on a recurring or nonrecurring basis. These amendments
permit, as a practical expedient, a reporting entity to measure the fair value
of investment on the basis of the net asset value per share of the investment
and require disclosures by major category of investment within the scope of this
update. ASU No. 2009-12 is effective for interim and annual periods ending
after December 15, 2009 and the adoption is not expected to have a material
impact on the Company’s financial position, results of operations and cash
flows.





In
December 2009, the FASB issued ASU No. 2009-17, “Consolidations (Topic
810): Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities”. The amendments in this update are the result of FASB
Statement No. 167 “Amendments to FASB Interpretation No. 46 (R)”,
which is now codified as FASB ASC 810-10-50-2A “Consolidation – Overall –
Disclosure - Variable Interest Entities” and is effective for the interim and
annual periods ending after December 15, 2009. The adoption of ASU
No. 2009-17 is not expected to have a material impact on the Company’s
financial position, results of operations and cash flows.





In
January 2010, the FASB issued ASU No. 2010-02, “Consolidation (Topic
810)”, in which it clarifies that the scope of the decrease in ownership
provision of the Subtopic and related guidance applies to a subsidiary or group
of assets that is a business or nonprofit activity, but does not apply to sales
of substance real estate & conveyances of oil and gas mineral rights. ASU
No. 2010-02 is effective for the interim and annual periods ending after
December 15, 2009. The adoption of ASU No. 2010-02 is not expected to have
a material impact on the Company’s financial position, results of operations and
cash flows.





None of
the above new pronouncements has current application to the Company, but may be
applicable to the Company’s future financial reporting.





Results
of Operations





Comparison
of Three Months Ended March 31, 2010 and 2009





Net
Sales.For the
three months ended March 31, 2009, net sales decreased relative to the three
months ended March 31, 2009, from $6,896,490 to $3,303,321. The decrease in net
sales is a decrease specifically in the sale of DVDRs in Hong Kong, which
resulted from our policy of geographical diversification and our shift of focus
from the lower margin Hong Kong markets to higher margin markets such as
Brazil.  Market trends show a growth slower than our expectation for the
new Blu-ray discs and a lower demand for DVDR discs.





Cost of
Sales.Cost of
sales decreased from $6,263,981, or approximately 90% of net sales for the three
months ended March 31, 2009, to $2,895,448 or approximately 87% of net sales for
the three months ended March 31, 2010. The decrease in cost of sales is
primarily due to a corresponding decrease in sales





Gross
Profit. Gross profit decreased approximately 35% from $632,509 for the
three months ended March 31, 2009 to $407,873 for the three months ended
March 31, 2010. This decrease in gross profit was primarily due to the decrease
in net sales.





Selling and
Distribution Costs. For the three months ended March 31, 2010, selling
and distribution costs increased approximately 484% from $178,918 to $1,045,922
relative to the three months ended March 31, 2009. The increase was due to our
reallocation of sales related tax from cost of sales to selling and distribution
costs.





Administrative
Expenses.Administrative expenses included depreciation and amortization
charges, and was $1,258,155 and $898,829 for the three months ended March 31,
2010 and 2009, respectively. This increase in administrative expenses was mainly
due to the full provision for doubtful debts.





Net
Loss. Net loss
increased approximately 96% from $1,257,295 for the three months ended March 31,
2009 to net loss of $2,468,848 for the three months ended March 31, 2010. This
is due to the decrease in net sales and reallocation of sales related
tax.


8


Liquidity
and Capital Resources





Three
      MonthsEnded March 31,
                            
                            2010
                            
                            2009
                            
                            ChangeNet
      cash (used in) provided by operating activities
                            
                            
                            $
                            (894,209
                            )
                            
                            $
                            2,206,670
                            
                            
                            $
                            (3,100,879
                            )Net
      cash (used in) investing activities
                            
                            
                            
                            (205,128
                            )
                            
                            
                            (1,027,091
                            )
                            
                            
                            821,963Net
      cash (used in) provided by financing activities
                            
                            
                            
                            599,113
                            
                            
                            
                            (1,320,690
                            )
                            
                            
                            1,919,803





Net cash
used in operating activities was $894,209 for the three months ended March 31,
2010 and Net cash provided by operating activities was $2,206,670 for the three
months ended March 31, 2009. The increase in our net cashflow used in operating
activities was mainly due to the decrease of our trade receivables and the
increase in trade payables.





Net cash
used in investing activities was $205,128 for the three months ended March 31,
2010 and $1,027,091 for the three months ended March 31, 2009. The increase in
net cash provided by investing activities is mainly related to a increase in
acquisitions of plant and equipment.





Net cash
provided by financing activities was $599,113 for the three months ended March
31, 2010, and net cash used in financing activities of $1,320,690 for the three
months ended March 31, 2009. The increase in our net cash provided by financing
activities was mainly due to the proceeds from bank loan.





Off-Balance
Sheet Arrangements





There is
no off-balance sheet arrangement as at 31 March 2010 and 31 December 2009.
Infosmart is not aware of any events, demands, commitments, trends, or
uncertainties that will result in, or reasonably likely to 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 condensed 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.





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.





The
following tables summarize our contractual obligations as of March 31, 2010, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.




Payments Due by
      PeriodTotal
                  
                  Less than
                    1 year
                  
                  1-3 Years
                  
                  3-5 Years
                  
                  5 Years +In
      ThousandsContractual Obligations:Bank
      Indebtedness
                  
                  $
                  1,731
                  
                  
                  $
                  891
                  
                  
                  $
                  840
                  
                  
                  $
                  —
                  
                  
                  $
                  —Other
      Indebtedness
                  
                  
                  10,932
                  
                  
                  
                  5,691
                  
                  
                  
                  5,241
                  
                  
                  
                  —
                  
                  
                  
                  —Operating
      Leases
                  
                  
                  74
                  
                  
                  
                  33
                  
                  
                  
                  41
                  
                  
                  
                  —
                  
                  
                  
                  —Total
      Contractual Obligations:
                  
                  $
                  12,737
                  
                  
                  $
                  6,615
                  
                  
                  $
                  6,122
                  
                  
                  $
                  —
                  
                  
                  $
                  —





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
leases amounts include a lease for factory premises under non-cancelable
operating lease agreement that expires in year 2012, with an option to renew the
lease. The lease is on a fixed repayment basis and does not include contingent
rentals.


9


ITEM 3.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM 4.
            CONTROLS AND
      PROCEDURES





Disclosure
Controls and Procedures





As of the
end of the period covered by this quarterly report, we carried out an
evaluation, under the supervision of, and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) as of the end of the period covered by this report. Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective to enable us to record,
process, summarize and report information required to be included in our reports
that we file or submit under the Exchange Act within the time periods
required.





Changes
in Internal Control over Financial Reporting





There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended) during the quarter ended March 31, 2010 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.


10


PART
II - OTHER INFORMATION





ITEM 1.      
  LEGAL
PROCEEDINGS





W are
currently not involved in any litigation that we believe could have a material
adverse effect on our financial condition or results of operations. There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock, any
of our subsidiaries or of our companies or our subsidiaries’ officers or
directors in their capacities as such, in which an adverse decision could have a
material adverse effect.





ITEM
1A.      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 offering 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





Our
limited operating history makes evaluation of our business
difficult.





We have a
limited operating history. Infosmart BVI was incorporated in the British Virgin
Islands on August 23, 2005, and IS Technology was founded in August 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 our 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;





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


11


·
            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.





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 our
preferred shares and the common stock into which our preferred shares are
convertible. 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.


12


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 Parker Seto, our Chief Executive Officer and President,
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 BVI currently has employment
agreements with its key personnel. Further, we expect to assume
the employment agreements our executive officers currently have
with Infosmart BVI.





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
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 IS Holdings with whom we have a
Cooperation Agreement 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 IS
Holdings does 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 IS Holdings 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 IS Holdings 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.





Further,
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 DVDR manufacturing facility in Brazil.
We are currently in the process of obtaining these Patent Licenses.





We
may be unable to retain our Hong Kong business customs license for our
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
License”) from the Customs and Excise Department of Hong Kong. We currently
manufacture our products under the Hong Kong Business License held by IS
Holdings under the Cooperation Agreement. If IS Holdings loses its Hong Kong
Business License or we lose our rights under the Cooperation Agreement, there is
no guarantee that we will be able to otherwise obtain the Hong Kong Business
Licenses necessary to operate our manufacturing facilities in Hong
Kong.





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 being suspended due to quality or other
issues, or 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.


13


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





We
operate in a highly competitive environment. We have competitors that are both
larger and smaller than we are 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 our ability to continue to develop and introduce differentiated and
innovative products and customer solutions successfully and 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 in sales.





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 our 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 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 our inventory, we may fail to enter profitable markets
or exit unprofitable markets.





We
operate in a highly competitive, quickly changing environment. The victory of
the Blu-Ray format DVD over the HD-DVD may accelerate the phase-out and
technological obsolescence of our current DVDR production machine that produces
our current production lines, which would result in impairment in value. Also,
as the market has turned to the Blu-ray DVD, we must purchase new equipment to
produce Blu-ray DVDR discs, and thus our business and operating results could be
adversely affected. Further, 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.


14


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 we 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
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.





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 competes 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 results 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 Blu-Ray format
DVDRs in Quarter 4 of 2008. 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. In early
June 2008, we successfully installed the first set of new machinery that can
produce Blu-Ray format DVDR in our Hong Kong factory. We are now proceeding with
the testing phase by producing sample orders and grasping the new techniques
gradually in order to build up high quality control and cost-effectiveness to
develop effective operations before proceeding with mass production of Blu-Ray
format DVDR discs.





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





We are
dependent on the continued viability and growth of the 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 our products. 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 emerging distribution alternatives such as
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 our business, financial condition,
and results of operations.


15


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.





A
significant portion of our revenue depends on the success of our new venture in
Brazil.





A
significant portion of our revenues depend on the success of our Brazilian
venture. Prior to commencing our Brazilian venture, we had no manufacturing and
distribution experience in Brazil. We are relying on the local knowledge of our
Brazilian joint venture partner and the general knowledge of the South American
marketplace of our regional director Sebastian Tseng. Our results could suffer
should the relationship with either of these two parties
deteriorate.





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 DVDR manufacturing facility in Brazil.
We have completed the required procedures in applying for the patent licenses
for use at the Discobras manufacturing facility and are now waiting for the
patent owners to complete their own procedures, including the submission of the
patent licenses to the Patent Office in Brazil for final approval. 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, we
may not be able to manufacture our products in Brazil, placing us at risk of
losing our 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 our share exchange transaction in August 2006, the Company
engaged in businesses unrelated to that of our current operations. Any
liabilities relating to such prior businesses 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.





A
substantial portion of our business operations is 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 a substantial portion of our operations in Hong Kong, and a
substantial amount 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.


16








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





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.





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, 1.2% in 2005, 3.8% in 2006, 3.5% in
2007 and 5.17% in 2008 (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.


17


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





As we
have business operations in Brazil, some of our revenues are 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.





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 only 2.28%, 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 Infosmart BVI. This tax exemption will last throughJune2016.
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 Ownership of Our Securities





We
are 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’s 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.





Our
common stock may have limited liquidity.





A
substantial portion of our shares of common stock are closely held by certain
institutional and insider investors. Consequently, the public float for our
shares may be highly limited. As a result, you may encounter difficulty selling
large blocks of shares of our common stock or obtaining a suitable price at
which to sell such shares.


18


Our
common share 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 on which shares of our common stock are 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 the past, following periods of volatility in the market price
of a public company’s securities, securities class action litigation has often
been initiated.





Our
Class A Warrants are quoted on the Over-the-Counter Bulletin Board, but an
active, liquid trading market has not yet developed.  Even if an
active public market for such warrants develops, we expect to experience
volatility in the price of such warrants, which may result in losses to
you.





Our Class
A Warrants are quoted on the Over-the-Counter Bulletin Board since September
2008.  An active trading market for our Class A Warrants may not
develop, though, due to a number of factors, including the fact that we are a
small company that 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 Class
A Warrants 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 such warrants 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. We cannot give you any assurance that an active public
trading market for these warrants will develop or be sustained. You may not be
able to liquidate your Class A Warrants quickly or at the market price if
trading in our Class A Warrants is not active.





Even if
an active public market for the Class A Warrants develops, we expect the market
price of such warrants to fluctuate substantially for the indefinite future due
to a number of factors, including:




·
            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.





We
have broad discretion as to the use of funds from our commercial secured loan
transaction from April 2008 and may not use the funds effectively.





Our
management team have broad discretion as to the allocation and timing of the use
of funds from our commercial secured loan transaction that closed in April 2008
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.


19


Our
officers and directors own a significant 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.





Certain
members of our board and management own a significant portion of our outstanding
shares of stock that are entitled to vote on all corporate actions. 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 common shares are issuable upon exercise of outstanding common
share warrants. 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, 2008, there are outstanding warrants entitling the holders to
purchase up to 28,510,347 common shares at an exercise price of $0.326 per
share. 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.





As
a public company, we are subject to complex legal and accounting requirements
that require us to incur substantial expense and will expose us to risk of
non-compliance.





As a
public company, we are subject to numerous legal and accounting requirements
that do not apply to private companies. The cost of compliance with many of
these requirements is substantial, not only in absolute terms but, more
importantly, in relation to the overall scope of the operations of a small
company. Our inexperience with these requirements may increase the cost of
compliance and may also increase the risk that we will fail to comply. Failure
to comply with these requirements can have numerous adverse consequences
including, but not limited to, our inability to file required periodic reports
on a timely basis, loss of market confidence, delisting of our securities, and
governmental or private actions against us. We cannot assure you that we will be
able to comply with all of these requirements or that the cost of such
compliance will not prove to be a substantial competitive disadvantage vis-à-vis
our privately held competitors as well as our larger public
competitors.





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 take
measures to address and improve our financial reporting and compliance
capabilities, and 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
be unable 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.





We
do not anticipate paying any cash dividends.





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
2. Unregistered Sales of Equity Securities and Use of Proceeds





None.


20


Item
3. Defaults Upon Senior Securities.





None.





Item
4. (Removed and Reserved).





Item
5. Other Information.





None





Item
6. Exhibits.




Exhibit Number
                          
                          Description2.1
                          
                          Exchange
      Agreement by and among Cyber, KI Equity, Hamptons Investment Group, Ltd.,
      Prime and the Prime Shareholders dated July 7, 2006 (1)2.2
                          
                          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 BVI Shareholders
      (2)2.3
                          
                          Voting
      Agreement by and among the Infosmart BVI Stockholders and KI Equity dated
      August 16, 2006 (2)3.1
                          
                          Articles
      of Incorporation (3)3.2
                          
                          Bylaws
      (3)3.3
                          
                          Amendment
      to Bylaws (4)3.4
                          
                          Certificate
      Of Determination Of Rights, Preferences, Privileges And Restrictions Of
      Series A Convertible Preferred Stock (2)3.5
                          
                          Certificate
      Of Determination Of Rights, Preferences, Privileges And Restrictions Of
      Series B Convertible Preferred Stock (2)4.1
                          
                          Lock-Up
      Agreement (5)4.2
                          
                          Specimen
      Stock Certificate for Shares of Common Stock of the Company
      (6)10.1
                          
                          Lease
      of registrant's facilities dated January 29, 2004 (7)10.2
                          
                          Lease
      of registrant's facilities dated March 22, 2006 (7)10.3
                          
                          Lease
      of registrant's facilities dated September 16, 2003 (7)10.4
                          
                          Lease
      of registrant's facilities dated July 25, 2003 (7)10.5
                          
                          Lease
      of registrant's facilities dated September 30, 2003 (7)10.6
                          
                          Placement
      Agent Agreement dated July 7, 2006 between the Registrant, Securities, LLC
      and Axiom Capital Management, Inc. (2)10.7
                          
                          Form
      of Subscription Agreement between the Registrant and the Investor to be
      identified therein (2)10.8
                          
                          Registration
      Rights Agreement (2)10.9
                          
                          Form
      of Common Stock Purchase Warrant (2)10.10
                          
                          Assignment
      and Assumption of Placement Agreement by an among Infosmart BVI, Cyber,
      Keating Securities, LLC and Axiom Capital Management, Inc. dated August
      16, 2006 (2)10.11
                          
                          Appointment
      Letter Agreement by and among Po Nei Sze and Infosmart Group Limited dated
      June 1, 2006 (2)10.12
                          
                          Appointment
      Letter Agreement by and among Andrew Chang and Infosmart Group Limited
      dated July 1, 2006
(2)


21





10.13
              
              Appointment
      Letter Agreement by and among Chung Kwok and Infosmart Group Limited dated
      July 1, 2006 (2)10.14
              
              Cooperation
      Agreement by and among Infoscience Media Ltd. and Infoscience Holdings
      Ltd. dated December 1, 2005 (2)10.15
              
              Amendment
      Agreement by and among Info smart Technology Limited, Info Smart
      International Enterprises Limited, and Mega Century Ltd. dated January 1,
      2006 (2)10.16
              
              Banking
      Facilities Letter Agreement by and between Infoscience Media Limited
      and Hang Seng Bank Limited dated September 15, 2005
    (2)10.17
              
              General
      Banking Facilities Agreement by and between Info Smart Technology Ltd. and
      Chiyu Banking Corporation Limited dated November 28, 2003
    (2)10.18
              
              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 (2)10.19
              
              Sale
      and Purchase Agreement between Infoscience Media Limited and New Passion
      Investments Limited dated December 1, 2006 (8)16.1
              
              Letter
      from PKF Hong Kong dated September 10, 2007 (9)21.1
              
              Subsidiaries
      *23.1
              
              Consent
      of Parker Randall CF (H.K.) CPA Limited *23.2
              
              Consent
      of Parker Randall CF (H.K.) CPA Limited *31.1
              
              Section 302
      Certification by the Corporation’s Chief Executive Officer
    *31.2
              
              Section 302
      Certification by the Corporation’s Chief Financial Officer
    *32.1
              
              Section 906
      Certification by the Corporation’s Chief Executive Officer
    *32.2
              
              Section 906
      Certification by the Corporation’s Chief Financial Officer
    *





* Filed
herewith.





(1)
            Filed
      on July 12, 2006 as an exhibit to the Company’s Current Report on Form 8-K
      and incorporated herein by
reference.





(2)
            Filed
      on August 24, 2006 as an exhibit to the Company’s Current Report on Form
      8-K and incorporated herein by
reference.





(3)
            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.





(4)
            Filed
      on May 15, 2007 as an exhibit to the Company’s Quarterly Report on Form
      10-QSB and incorporated herein by
reference.





(5)
            Filed
      on January 27, 2000 as an exhibit to the Company’s Form 8-A and
      incorporated herein by reference.





(6)
            Filed
      on September 29, 2000 as an exhibit to the Company's Annual Report on Form
      10-K and incorporated herein by
reference.





(7)
            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.





(8)
            Filed
      on April 2, 2007 as an exhibit to the Company’s Annual Report on Form
      10-KSB and incorporated herein by
reference.





(9)
            Filed
      on September 11, 2007 as an exhibit to the Company’s Current Report on
      Form 8-K/A and incorporated herein by
reference.


22


SIGNATURES





Pursuant
to the requirements of section 13 or 15 (d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.





INFOSMART
      GROUP, INC.Dated:
      May 14, 2010
              By:
              /s/
      Kwok Chung LitKwok
      Chung Lit, Chief Executive Officer and
  President





Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.





Name
            
            Position
            
            Date/s/ Kwok Chung Lit
            
            Chief
      Executive Officer, President
            
            May
      14, 2010Kwok
      Chung Lit/s/ Fan Chun Wang
            
            Chief
      Financial Officer, Treasurer,
            
            May
      14, 2010Fan
      Chun Wang
            
            Secretary,
      Director/s/ Andrew Chung Yuen Chang
            
            Chairman
      of the Board of Directors
            
            May
      14, 2010Andrew
      Chung Yuen Chang/s/ Simon Lee
            
            Director
            
            May
      14, 2010Simon
      Lee/s/ Joseph Chang
            
            Director
            
            May
      14, 2010Joseph
      Chang/s/ Chi-Man Lam
            
            Director
            
            May
      14, 2010Chi-Man
      Lam


23