**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**


(Mark
      One)





**x** QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
      FOR THE QUARTERLY PERIOD ENDED




**June
      30, 2008**





**o** **** TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934. ****





**Commission
      File No. 00** **1-15643**





**INFOSMART
      GROUP, INC.**





(Exact
      name of registrant as specified in it charter)





**California**
            
            **95-4597370**(State
                or other jurisdiction of incorporation or
            
            (IRS
                Employer Identificationorganization)
            
            No.)





**5** **th** **Floor, Texaco Building**


**126-140
      Texaco Road,**


**Tsuen
      Wan, Hong Kong**







(Address
      of principal executive offices)





**(852)
      2944-9905**





(Registrant's
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o





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,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
                Accelerated filero
            Non-Accelerated
                FileroAccelerated
                Filero
            Smaller
                Reporting Companyx





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




APPLICABLE
      ONLY TO CORPORATE ISSUERS:





Indicate
      the number of shares outstanding of each issuer's classes of common stock,
      as of
      the latest practicable date: 148,132,777 issued and outstanding as of June
      30, 2008.





**INFOSMART
      GROUP, INC.**


TABLE
      OF
      CONTENTS


TO
      QUARTERLY REPORT ON FORM 10-Q


FOR
      PERIOD ENDED JUNE 30, 2008




**Page****PART
                I**
            **FINANCIAL
                INFORMATION**
            3Item
                1.
            Financial
                Statements
            3Condensed
                Consolidated Statements of Operations
            5Condensed
                Consolidated Balance Sheets
            6Condensed
                Consolidated Statements of Cash Flows
            8Notes
                to Condensed Consolidated Financial Statements
            10Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            28Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            33Item
                4.
            Controls
                and Procedures
            33**PART
                II**
            **OTHER
                INFORMATION**
            34Item
                1.
            Legal
                Proceedings
            34Item
                1A.
            Risk
                Factors
            34Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            45Item
                3.
            Defaults
                Upon Senior Securities
            45Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            45Item
                5.
            Other
                Information
            45Item
                6.
            Exhibits
            45**Signatures**
            48**Exhibits**


2


**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1.**  **FINANCIAL
      STATEMENTS**





**Infosmart
      Group Inc.**





Condensed
      Consolidated Financial Statements


For
      the
      six months ended June 30, 2008 and 2007


(Stated
      in US Dollars)





3


**INFOSMART
      GROUP INC.**


**CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**





Index
      to
      financial statements





PAGESCondensed
                consolidated statements of operations
            5Condensed
                consolidated balance sheets
            6
                -
                7Condensed
                consolidated statements of cash flows
            8
                -
                9Notes
                to condensed consolidated financial statements
            10
                - 27





4


**INFOSMART
      GROUP INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





***Three
                months ended***
              ***June
                30,***
            
            ***Six
                months ended***
              ***June
                30,******2008***
            
            ***2007***
            
            ***2008***
            
            ***2007***Net
                sales
            
            $
            6,768,637
            
            $
            19,608,031
            
            $
            14,329,084
            
            $
            27,306,446Cost
                of sales
            
            
            (5,025,074
            )
            
            (14,506,478
            )
            
            (11,523,691
            )
            
            (20,419,825
            )Gross
                profit
            
            
            1,743,563
            
            
            5,101,553
            
            
            2,805,393
            
            
            6,886,621Administrative
                expenses
            
            
            (1,504,181
            )
            
            (1,254,629
            )
            
            (2,284,405
            )
            
            (2,185,679
            )Selling
                and distributing costs
            
            
            (102,835
            )
            
            (161,533
            )
            
            (175,702
            )
            
            (241,049
            )Income
                from operations
            
            
            136,547
            
            
            3,685,391
            
            
            345,286
            
            
            4,459,893Other
                income
            
            
            153,578
            
            
            90,740
            
            
            967,538
            
            
            579,699Interest
                expenses
            
            
            (296,665
            )
            
            (191,900
            )
            
            (435,072
            )
            
            (334,440
            )Income
                / (Loss) before income taxes
            
            
            (6,540
            )
            
            3,584,231
            
            
            877,752
            
            
            4,705,152Income
                taxes - note 4
            
            
            -
            
            
            (287,540
            )
            
            (51,309
            )
            
            (503,177
            )Net
                income / (loss)
            
            
            (6,540
            )
            
            3,296,691
            
            
            826,443
            
            
            4,201,975Minority
                interest
            
            
            (10,821
            )
            
            5,024
            
            
            (15,784
            )
            
            5,024Net
                income / (loss) before dividend
            
            
            (17,361
            )
            
            3,301,715
            
            
            810,659
            
            
            4,206,999Series
                B preferred dividend
            
            
            (73,363
            )
            
            (124,712
            )
            
            (152,708
            )
            
            (250,123
            )Net
                income / (loss) applicable to common shareholders
            
            
            (90,724
            )
            
            3,177,003
            
            
            657,951
            
            
            3,956,876(Loss)
                / Earning per share - note 9-
                basic
            
            $
            (0.01
            )
            $
            0.02
            
            $
            0.01
            
            $
            0.03-
                dilutive
            
            $
            (0.01
            )
            $
            0.02
            
            $
            0.01
            
            $
            0.03Weighted
                average shares outstanding-
                basic
            
            
            142,354,557
            
            
            137,224,640
            
            
            142,354,557
            
            
            137,224,640-
                dilutive
            
            
            165,190,311
            
            
            138,083,549
            
            
            165,190,311
            
            
            138,083,549





See
      the
      accompanying notes to condensed consolidated financial
      statements


5


**INFOSMART
      GROUP INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**AS
      OF JUNE 30, 2008 AND DECEMBER 31, 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





***As
                of******June
                30,***
            
            ***December
                31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)*****ASSETS**Current
                assetsCash
                and cash equivalents
            
            $
            957,495
            
            $
            1,023,440Trade
                receivables
            
            
            25,757,837
            
            
            38,725,882Prepaid
                expenses and other receivables
            
            
            6,017,089
            
            
            544,345Prepaid
                tax
            
            
            83,371
            
            
            13,847Inventories
                (net of allowance for doubtful accounts of $Nil for 2008 and 2007)
                - note
                6
            
            
            4,765,916
            
            
            3,396,194Total
                current assets
            
            
            37,581,708
            
            
            43,703,708Deferred
                tax assets - note 4
            
            
            -
            
            
            -Plant
                and equipment, net - note 7
            
            
            29,180,498
            
            
            31,093,668Intangible
                assets
            
            
            1,669,565
            
            
            1,810,655**TOTAL
                ASSETS**
            
            $
            68,431,771
            
            $
            76,608,031**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****LIABILITIES**Current
                liabilitiesTrade
                payables
            
            $
            14,241,499
            
            $
            25,809,022Other
                payables and accrued liabilities
            
            
            1,324,581
            
            
            1,672,468Income
                tax payable
            
            
            482,498
            
            
            696,946Current
                portion of bank borrowings - note 8
            
            
            6,457,230
            
            
            6,762,553Finance
                lease payable
            
            
            29,474
            
            
            34,570Current
                portion of other loans
            
            
            1,382,838
            
            
            5,065,639Total
                current liabilities
            
            
            23,918,120
            
            
            40,041,198Non-current
                portion of bank borrowings - note 8
            
            
            997,541
            
            
            2,092,949Non-current
                portion of other loans
            
            
            9,348,230
            
            
            717,423Advance
                from a related party
            
            
            929,751
            
            
            929,634Deferred
                tax liabilities - note 4
            
            
            2,732,350
            
            
            2,305,729**TOTAL
                LIABILITIES**
            
            $
            37,925,992
            
            $
            46,086,933


6


**INFOSMART
      GROUP INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS (CONT’D)**


**AS
      OF JUNE 30, 2008 AND DECEMBER 31, 2007**


**(Stated
      in US Dollars)**





**As
                of*****June
                30,***
            
            ***December
                31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)*****COMMITMENTS
                AND CONTINGENCIES – note 10**Series
                B Redeemable Convertible Preferred Stock: No par value -note
                11Authorized
                1,800,000 shares; Issued and outstanding:2008 –
                500,662 shares and 2007 – 597,011 shares
            
            $
            1,417,445
            
            $
            1,690,222Minority
                interest
            
            
            59,745
            
            
            43,961**STOCKHOLDERS’
                EQUITY**Common
                stock: No par value – note 11Authorized:
                300,000,000 shares; Issued and outstanding:2008 –
                148,132,777 shares and 2007 –144,248,709 shares
            
            
            2,700,637
            
            
            2,412,605Additional
                paid-in-capital – note 11
            
            
            8,118,664
            
            
            8,118,664Accumulated
                other comprehensive income
            
            
            812,694
            
            
            1,517,003Retained
                earnings
            
            
            17,396,594
            
            
            16,738,643**TOTAL
                STOCKHOLDERS’ EQUITY**
            
            
            29,028,589
            
            
            28,786,915**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            68,431,771
            
            $
            76,608,031





See
      the
      accompanying notes to condensed consolidated financial
      statements


7


**INFOSMART
      GROUP INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 and 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





***Six
                months endedJune 30,******2008***
            
            ***2007*****Cash
                flows from operating activities**Net
                income
            
            $
            826,443
            
            $
            4,201,974Adjustments
                  to reconcile net income to net cash flowsprovided
                  by operating activities:Depreciation
            
            
            1,565,088
            
            
            1,339,944Deferred
                income taxes
            
            
            51,309
            
            
            304,566Amortization
                of license usage right
            
            
            141,090
            
            
            141,090Loss
                on disposal of property, plant and equipment
            
            
            -
            
            
            181,617Changes
                in operating assets and liabilities:Trade
                receivables
            
            
            12,968,045
            
            
            (8,684,297
            )Prepaid
                expenses and other receivables
            
            
            (5,472,744
            )
            
            (1,041,500
            )Inventories
            
            
            (1,369,722
            )
            
            (1,346,519
            )Trade
                payables
            
            
            (11,567,523
            )
            
            5,393,014Income
                tax payable
            
            
            (38,527
            )
            
            207,840Other
                payables and accrued liabilities
            
            
            347,887
            
            
            (2,389,115
            )Net
                cash flows used in operating activities
            
            
            (2,548,654
            )
            
            (1,691,386
            )**Cash
                flows from investing activities**Payment
                for acquisition of fixed assets
            
            
            (72,729
            )
            
            (1,008,557
            )Proceeds
                from disposal of plant and equipment
            
            
            -
            
            
            777,183Net
                cash flows used in investing activities
            
            
            (72,729
            )
            
            (231,374
            )**Cash
                flows from financing activities**Dividend
                paid
            
            
            (152,708
            )
            
            (250,123
            )Issuance
                of common stock
            
            
            15,255
            
            
            -Net
                advancement of other bank loans
            
            
            288,933
            
            
            2,568,430Net
                repayment of non-recurring bank loans
            
            
            (1,379,168
            )
            
            (547,856
            )Proceeds
                from other loans
            
            
            3,564,062
            
            
            -Repayment
                of other loans
            
            
            (28,713
            )
            
            (33,651
            )Decrease
                in restricted cash
            
            
            -
            
            
            347,833Decrease
                in bank overdrafts
            
            
            (164,761
            )
            
            -Advance
                from a related party
            
            
            -
            
            
            247,530Repayment
                of obligations under capital leases
            
            
            -
            
            
            (3,723
            )Net
                cash flows provided by financing activities
            
            
            2,142,900
            
            
            2,328,440Effect
                of foreign currency translation on cash and cash
                equivalents
            
            
            412,538
            
            
            (724
            )Net
                (decrease) / increase in cash and cash equivalents
            
            
            (65,945
            )
            
            404,956Cash
                and cash equivalents, beginning of period
            
            
            1,023,440
            
            
            206,258Cash
                and cash equivalents, end of period
            
            $
            957,495
            
            $
            611,214


8


**INFOSMART
      GROUP INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 and 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





***Six
                months ended June 30,******2008***
            
            ***2007***Supplemental
                disclosures for cash flow information:Cash
                paid for:Interest
            
            $
            350,933
            
            $
            261,778Income
                taxes
            
            
            100,040
            
            
            51,480Non-cash
                investing and financing activities:Conversion
                of Series B Shares to common stock
            
            $
            235,001
            
            $
            150,236





See
      the
      accompanying notes to condensed consolidated financial statements





9




**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(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 2007
      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 and recordable
        compact discs (“CDR”) and non-diskette storage media. The
        Company manufactures DVDRs with 8x and 16x writable speeds as well as CDRs
        with 52x writable speeds, and has been developing its DVD-R
        manufacturing basis in both Hong Kong and Brazil to capture the worldwide
        market. As the “war” between high density format DVDR (“HD-DVD”) and Blu-ray DVD
        formats has ended with the Blu-ray DVD format surviving in the marketplace
        to
        become the latest format of DVD recordable media, the Company has a new
        perspective in business development in the world market for the next 5 years.
        The Company has acquired the first set of Blu-ray DVD replication systems
        in the China/Hong Kong region and will devote more resources to developing
        the
        market for Blu-ray DVD replication systems. The Company has customers in
        Western Europe, Australia, China, and North and South America.
 
 The
        Company produces its products through 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 its state-of-the-art DVDR and CDR 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 the Company’s new Brazilian DVDR
        production facility. The Company relocated some of its 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 the
        Company’s products require that the Company obtain separate Patent
        Licenses for the use of intellectual property in the Company’s new DVDR
        manufacturing facility in Brazil. The Company is currently in the process
        of obtaining these Patent Licenses.
 
 In
        December 2006, IS Media acquired 100% of the issued and outstanding common
        stock
        of Infoscience Holdings Limited (“IS Holdings”). IS Media has a cooperation
        agreement with IS Holdings wherein it manufactures its DVDRs using certain
        patent licenses owned by IS Holdings. IS Media acquired IS Holdings to guarantee
        the continuation of this cooperation agreement. The Company also has 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 its 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, the Company incorporated a new subsidiary,
        Portabello Global Limited (“Portabello”), for distributing and reselling our
        recordable digital versatile discs and media to customers in South America.


10


**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**3.**
            **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
      June 30, 2008, the particulars of the subsidiaries are as follows:





*Name
                of company*
            
            *Place
                of*
              *incorporation*
            
            *Date
                of*
              *incorporation*
            
            *Attributable**equity*
              *interest*
            
            *Issued
                capital*Infosmart
                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
              Enterprises
                Limited
            
            
            Hong
                Kong
            
            
            September
                26, 2003
            
            
            100
            %
            
            US$25.65
              (HK$
                200)Info
                Smart Technology Limited
            
            
            Hong
                Kong
            
            
            December
                14, 2001
            
            
            100
            %
            
            US$618,075
              (HK$4,820,000)Infoscience
                Media Limited
            
            
            Hong
                Kong
            
            
            September
                10, 2004
            
            
            1000
            %
            
            US$1,282
              (HK$10,000)Infoscience
                Holdings Limited
            
            
            Hong
                Kong
            
            
            February
                23, 2004
            
            
            100
            %
            
            US$13
              (HK$100)Discobras
                Industria E Comercio De Electro Electronica Ltda
            
            
            Brazil
            
            
            March
                2006
            
            
            99.42
            %
            
            US$7,977,072





11




**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





**3.**
            **Summary
                of significant accounting policies
                (Cont’d)**





**Basis
      of presentation and consolidation (Cont’d)**





*Minority
      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. 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.





*Intangible
      assets*





Intangible
      assets are license usage rights and stated at cost less accumulated
      amortization. Amortization is provided using the straight-line method over
      the
      remaining term of the license obtained by one of the Company’s subsidiaries,
      Infoscience Holdings Limited (“IHL”).





*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.





The
      Series B Convertible Preferred Stock carries dividends at 8% per annum payable
      quarter in cash in US Dollars.


12


**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**3.**
            **Summary
                of significant accounting policies
                (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 June 30, 2008 and 2007 were HK$1 for $0.2045 and
      $0.2468 and Real$1 for $0.6271 and $0.5181 respectively. The average exchange
      rates for 2008 and 2007 were HK$1 for $0.2199 and $0.1286 and Real$1 for $0.5836
      and $0.4731 respectively. There is no significant fluctuation in exchange rate
      for the conversion between HK dollars, Real dollars and US dollars after the
      balance sheet date.





13




**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**3.**
            **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 June 30, 2008 include the
      following:





Convertible
                redeemable preferred stock Series B
            
            
            15,653,950Detachable
                common stock warrants
            
            
            28,510,347Placement
                agent warrants
            
            
            3,740,57747,904,874





*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.





14





**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





**3.**
            **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-lived 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.


15


**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**3.**
            **Summary
                of significant accounting policies
                (cont’d)**





*Recent
      accounting pronouncements*


In
        September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
        relates to the definition of fair value, the methods used to measure fair
        value
        and the expanded disclosures about fair value measurements. The provisions
        of
        SFAS No. 157 are effective for financial statements issued for fiscal years
        beginning after November 15, 2007. The Company has not yet completed its
        analysis of the impact of adopting SFAS No. 157 on the consolidated financial
        position, results of operations or cash flows.


On
      January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting
      for
      Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income
      taxes by prescribing a minimum probability threshold that a tax position must
      meet before a financial statement benefit is recognized. The minimum threshold
      is defined in FIN 48 as a tax position that is more likely than not to be
      sustained upon examination by the applicable taxing authority, including
      resolution of any related appeals or litigation processes, based on the
      technical merits of the position. The tax benefit to be recognized is measured
      as the largest amount of benefit that is greater than 50% likely of being
      realized upon ultimate settlement. FIN 48 must be applied to all existing tax
      positions upon initial adoption. The cumulative effect of applying FIN 48 at
      adoption, if any, is to be reported as an adjustment to opening retained
      earnings for the year of adoption. The adoption of FIN 48 did not have a
      material effect on the Company’s consolidated financial position or results of
      operations.





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, which permits entities to choose measure many financial
      instruments and certain other items at fair value that are not currently
      required to be measured at fair value. The objective is to improve financial
      reporting by providing entities with the opportunity to mitigate volatility
      in
      reported earnings caused by measuring related assets and liabilities differently
      without having to apply complex hedge accounting provisions. SFAS No. 159 is
      expected to expand the use of fair value measurement, which is consistent with
      the Board’s long-term measurement objectives for accounting for financial
      instruments. SFAS No. 159 also establishes presentation and disclosure
      requirements designed to facilitate comparisons between entities that choose
      different measurement attributes for similar types of assets and liabilities.
      SFAS No. 159 does not affect any existing accounting literature that requires
      certain assets and liabilities to be carried at fair value. SFAS No. 159 does
      not establish requirements for recognizing and measuring dividend income,
      interest income, or interest expense. SFAS No. 159 does not eliminate disclosure
      requirements included in other accounting standards, including requirements
      for
      disclosures about fair value measurements, included in SFAS No. 157, Fair Value
      Measurements, and SFAS No. 107, Disclosures about Fair Value of Financial
      Instruments. SFAS No. 159 is effective as of the beginning of an entity’s first
      fiscal year that begins after November 15, 2007. The Company has not yet
      completed its assessment of the impact upon adoption of SFAS No. 159 on the
      consolidated financial position, results of operations or cash
      flows.


16


**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





**3.**
            **Summary
                of significant accounting policies
                (cont’d)**





*Recent
      accounting pronouncements (cont’d)*





In
      December 2007, the FASB issued SFAS No. 141(R), Business Combinations. This
      statement retains the fundamental requirements of the original pronouncement
      requiring that the acquisition method of accounting, or purchase method, be
      used
      for all business combinations. SFAS No. 141(R) defines the acquirer as the
      entity that obtains control of one or more business combination, establishes
      th
      acquisition date as the date that the acquirer achieves control and requires
      the
      acquirer to recognize the assets acquired, liabilities assumed and any
      noncontrolling interest at their fair values as of the acquisition date. In
      addition, SFAS No. 141(R) requires, among other things, expensing of acquisition
      related and restructuring related costs, measurement of pre-acquisition
      contingencies at fair value, measurement of equity securities issued for
      purchase at the date of close of the transaction and capitalization of in
      process research and development, all of which represent modifications to
      current accounting for business combinations. SFAS No. 141(R) is effective
      for
      fiscal years beginning after December 15, 2008. Adoption is prospective and
      early adoption is not permitted. Adoption of SFAS No. 141(R0 will not impact
      the
      Company’s accounting for business combinations closed prior to its adoption, but
      given the nature of the changes noted above, the Company expects that its
      accounting for business combinations occurring subsequent to adoption will
      be
      significantly different than that applied following current accounting
      literature.





In
      December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
      Consolidated Financial Statements-an amendment of ARB No. 51” (SFAS 160”). SFAS
      160 establishes accounting and reporting standards for the noncontrolling
      interest in a subsidiary and for the deconsolidation of a subsidiary. The
      guidance will become effective for the fiscal year beginning after December
      15,
      2008. The Company is in the process of evaluating the impact that SFAS 160
      will
      have on its financial statements upon adoption.




17




**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**4.**
            **Income
                taxes**





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





***Three
                months ended***
              ***June
                30,***
            
            ***Six
                months ended***
              ***June
                30,******2008***
            
            ***2007***
            
            ***2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***Current
                taxes
            
            $
            -
            
            $
            213,376
            
            $
            -
            
            $
            214,976Deferred
                taxes
            
            
            -
            
            
            74,164
            
            
            -
            
            
            288,201$
            -
            
            $
            287,540
            
            $
            -
            
            $
            503,177





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 and six months ended June 30, 2008. 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
      17.5% on the estimated assessable profits during the periods.





Deferred
      tax (assets) liabilities as of June 30, 2008 and December 31, 2007 are composed
      of the following:





***As
                of******June
                30,***
            
            ***December 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)***Hong
                KongOperating
                losses available for future periods
            
            
            
            
            
            -Temporary
                  difference on accelerated taxdepreciation
                  on plant and equipment
            
            $
            2,732,350
            
            $
            2,305,728The
                United StatesOperating
                losses available for future periods
            
            
            (115,773
            )
            
            (482,683
            )Valuation
                allowance
            
            
            115,773
            
            
            482,683Deferred
                tax liabilities, net
            
            $
            2,732,350
            
            $
            2,305,728Recognized
                in the balance sheet:Net
                deferred tax assets
            
            
            -
            
            
            -Net
                deferred tax liabilities
            
            
            2,732,350
            
            
            2,305,728$
            2,732,350
            
            $
            2,305,728





18





**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**5.**
            **Comprehensive
                income**





***Six months ended June 30,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***Net
                income (loss) applicable to common shareholders
            
            $
            657,951
            
            $
            3,956,875Foreign
                currency translation adjustments
            
            
            154,743
            
            
            107,958Total
                comprehensive income
            
            $
            812,694
            
            $
            4,064,833





**6.**
            **Inventories**





***As
                of******June
                30,***
            
            ***December 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)***Raw
                materials
            
            $
            1,325,387
            
            $
            1,190,330Work
                in progress
            
            
            849,957
            
            
            15,974Finished
                goods
            
            
            2,590,572
            
            
            2,189,890$
            4,765,916
            
            $
            3,396,194





19





**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**7.**
            **Plant
                and equipment**





***As
                of******June
                30,***
            
            ***December 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)***CostsProduction
                lines and equipment
            
            $
            38,106,907
            
            $
            38,034,178Leasehold
                improvements
            
            
            2,132,378
            
            
            2,132,378Furniture,
                fixtures and office equipment
            
            
            221,393
            
            
            221,393Motor
                vehicles
            
            
            260,550
            
            
            260,55040,721,228
            
            
            40,648,499Accumulated
                depreciationProduction
                lines and equipment
            
            
            10,431,374
            
            
            8,666,845Leasehold
                improvements
            
            
            1,012,818
            
            
            811,850Furniture,
                fixtures and office equipment
            
            
            58,654
            
            
            50,662Motor
                vehicles
            
            
            37,884
            
            
            25,47411,540,730
            
            
            9,554,831NetProduction
                lines and equipment
            
            
            27,675,533
            
            
            29,367,333Leasehold
                improvements
            
            
            1,119,560
            
            
            1,320,528Furniture,
                fixtures and office equipment
            
            
            162,739
            
            
            170,731Motor
                vehicles
            
            
            222,666
            
            
            235,076$
            29,180,498
            
            $
            31,093,668




20


**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**7.**
            **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 facilities******As
                of******June
                30,***
            
            ***December 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)***Costs
            
            $
            14,724,398
            
            $
            14,724,398Accumulated
                depreciation
            
            
            (4,608,014
            )
            
            (4,115,101
            )Net
            
            $
            10,116,384
            
            $
            10,609,297





***Six months ended June 30,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***Depreciation
                for the period
            
            $
            492,913
            
            $
            143,745




The
      components of depreciation charged are:





***Six months ended June 30,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***Included
                in factory overheadsProduction
                lines and equipment
            
            $
            1,764,529
            
            $
            1,143,458Included
                in operating expensesLeasehold
                improvements
            
            
            200,968
            
            
            180,562Furniture,
                fixtures and office equipment
            
            
            7,992
            
            
            14,716Motor
                vehicles
            
            
            12,410
            
            
            8,248221,370
            
            
            203,526$
            1,985,899
            
            $
            1,346,984




21


**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**8.**
            **Bank
                borrowings**





***As
                of******June
                30,***
            
            ***December 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)***Secured:Bank
                overdrafts repayable on demand
            
            $
            29,622
            
            $
            194,423Repayable
                within one yearNon-recurring
                bank loans
            
            
            2,474,145
            
            
            2,310,090Other
                bank borrowings
            
            
            3,953,463
            
            
            3,665,2806,457,230
            
            
            6,169,793Repayable
                after one yearNon-recurring
                bank loans
            
            
            997,541
            
            
            2,092,9497,454,771
            
            
            8,262,742Unsecured:Other
                bank borrowings
            
            
            0
            
            
            592,760$
            7,454,771
            
            $
            8,855,502





The
      above
      banking borrowings were secured by the following:-





(a)
                first
                    fixed legal charge over 17 DVDR production lines with carrying
                    amounts of
                    $10,116,383(note
                    9); and





(b)
            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.





22




**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**9.**
            **Earnings
                per share**





The
      Company’s potentially dilutive securities at June 30, 2008 include the
      following:





Convertible
                redeemable preferred stock Series B
            
            
            15,653,950Detachable
                common stock warrants
            
            
            28,510,347Placement
                agent warrants
            
            
            3,740,57747,904,874




**10.**
            **Commitments
                and contingences**





Operating
      leases commitments





The
      company leases office and factory premises under various non-cancellable
      operating lease agreements that expire at various dates through 2010, 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 June 30, 2008 are as follows:





Period
                ending June 302008
            
            $
            178,0692009
            
            
            130,5702010
            
            
            32,102




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 except for the following:





Stanley
      Rosner v. World Wide Magic Net, Inc. (n/k/a Cyber) and Burlington Coat
      Factory ,
      New
      York State Supreme Court, Nassau County, Index No. 98-006524. This is a breach
      of contract, fraud and tortuous interference action seeking $5,000,000 in
      compensatory damages, unspecified punitive damages and declaratory relief.
      By
      stipulation dated May 7, 1998, Mr. Rosner agreed to transfer the action to
      the
      Supreme Court in New York County after conceding Nassau County was not the
      proper venue for the action. Since that date, Mr. Rosner has neither transferred
      the case nor pursued it further.





23





**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**10.**
            **Commitments
                and contingences (cont’d)**





In
      Re:
      Factory 2-U Stores, Inc. ,
      U.S.
      Bankruptcy Count, District of Delaware – Adv. Proc. No. 005-30480. On March
      7, 2006, a compliant was filed against the Company in a Chapter 7 bankruptcy
      proceeding in U.S. Bankruptcy Court in the District of Delaware in the matter
      captioned In Re: Factory 2-U Stores, Inc. The complaint sought to recover from
      the Company $91,572 in alleged preferential transfers made to the Company by
      the
      debtor during the ninety-day period prior to the filing of the debtor’s
      bankruptcy petition. The Company defended against the preference claim by
      asserting that such transfers were made in the ordinary course of business.
      On
      May 22, 2007, all parties entered into a settlement agreements, subject to
      the
      bankruptcy court’s approval. The settlement term is that Infosmart is required
      to pay to the complaint the sum of $15,000 on or before May 25, 2007. The
      bankruptcy court approved the settlement and dismissed the complaint with
      prejudice on June 21, 2007.





**11.**
            **Common
                stock and convertible preferred
                stock**




*Common stock*
            
            *Series
                B*
            
            *Additional**No. of*
            
            
            
            *No. of*
            
            
            
            *paid-in**Shares*
            
            *Amount*
            
            *shares*
            
            *Amount*
            
            *Capital*Balance,
                January 1, 2008
            
            
            144,248,708
            
            $
            2,412,605
            
            
            597,011
            
            $
            1,690,222
            
            $
            8,118,664Issuance
                of common stock
            
            
            1,300,000
            
            $
            15,255
            
            
            -
            
            
            -
            
            
            -Conversion
                of Series B to common stock on various dates
            
            
            2,584,069
            
            $
            272,776
            
            
            (96,349
            )
            $
            (272,777
            )
            $
            8,118,664Balance,
                June 30, 2008
            
            
            148,132,777
            
            $
            2,700,636
            
            
            500,662
            
            $
            1,417,445
            
            $
            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.





Series
      B Preferred Stock and Warrants





The
      material terms of the Company’s Series B Preferred Stock are summarized below.





Voting:
      The holders of Preferred Stock (including the Investors acquiring such shares
      as
      part of the Financing after the closing of the Exchange) are entitled to vote
      together with the holders of the common stock, as a single class, upon all
      matters submitted to holders of common stock for a vote. Each share of Preferred
      Stock will carry a number of votes equal to the number of shares of common
      stock
      issuable as if converted at the record date.





Dividends:
      The Series B Convertible Preferred Stock is cumulative, non-participating and
      carries dividends at 8% per annum payable quarterly in cash in US
      Dollars.




24




**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**11.**
            **Common
                stock and convertible preferred stock
                (cont’d)**





Conversion:
      The outstanding and unconverted Series B Convertible Preferred Stock shall
      be
      converted into shares of the Company’s common stock at the Conversion Price then
      in effect by delivering to the holders an Automatic Conversion Notice upon
      the
      happening of all of the following events: (i) for each of the twenty (20)
      consecutive Trading Days immediately preceding the date of delivery of the
      Automatic Conversion Notice, the daily Closing Price of the Common Stock shall
      be equal to at least two hundred fifty percent (250%) of the Conversion Price
      in
      effect as of the date immediately preceding the date of the Automatic Conversion
      Notice; and (ii) the daily trading volume of the Common Stock for each of the
      Trading Days during such twenty (20) Trading day period shall be at least
      500,000 shares; provided, however, no such conversion is permitted unless at
      the
      time of the delivery of the Automatic Conversion Notice and on the Automatic
      Conversion Date, (A) The Company is in compliance with all of its obligations
      under this Certificate of Determination and the Transaction Documents, (B)
      during each of the Trading Days in such twenty (20) day period, the Registration
      Statement has been effective and has not been suspended by the SEC, (C) as
      of
      the Conversion Date, the Registration Statement is effective and has not been
      suspended by the SEC and no event has occurred which will likely result in
      the
      Registration Statement being declared ineffective or suspended by the SEC,
      and
      (D) no Triggering Event (as described under “Redemption Rights” in the Company’s
      Current Report on Form 8-K filed with the Commission on August 24, 2006) has
      occurred and is continuing.





Any
      outstanding Series B Convertible Preferred Stock not yet converted will be
      converted automatically two years from the date of the issuance of such stock
      at
      the then effective Conversion Price.





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.





25





**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





**12.**
            **Pension
                plans**





The
      Company participates in a defined contribution pension scheme under the
      Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) for all its eligible
      employees in Hong Kong.





The
      MPF
      Scheme is available to all employees aged 18 to 64 with at least 60 days of
      service in employment in Hong Kong. Contributions are made by the Company
      operating in Hong Kong at 5% of the participants’ relevant income with a ceiling
      of $2,580 (equivalent of HK$20,000). The participants are entitled to 100%
      of
      the Company’s contributions together with accrued returns irrespective of their
      length of service with the Company, but the benefits are required by law to
      be
      preserved until the retirement age of 65. The only obligation of the Company
      with respect to the 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 with the contribution requirement
      and
      total pension cost was $29,331 and
      $25,316 for the three months ended June 30, 2008 and 2007,
      respectively.





**13.**
            **Segment
                Information**





The
      Company is engaged in the manufacture and distribution of DVDR, CDR and
      non-diskette storage media (Flash card and Micro SD). The nature of the
      products, their production processes, the type of their customers and their
      distribution methods are substantially similar. Information for the DVDR, CDR
      products, flash drive and memory card are disclosed under FAS 131, “Disclosures
      about Segments of an Enterprise and Related Information” as below:-





***Flash drive and memory card***
            
            ***DVDR and Related Products***
            
            ***CDR***
            
            ***Total******Six months ended***
              ***June 30***
            
            ***Six months ended***
              ***June 30***
            
            ***Six months ended***
              ***June 30***
            
            ***Six months ended***
              ***June 30******2008***
            
            ***2007***
            
            ***2008***
            
            ***2007***
            
            ***2008***
            
            ***2007***
            
            ***2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***Revenue
                from external customers
            
            $
            182,500
            
            $
            4,980,000
            
            $
            11,657,414
            
            $
            21,148,701
            
            $
            2,489,170
            
            $
            1,177,745
            
            $
            14,329,084
            
            $
            27,306,446Segment
                profit
            
            $
            60,919
            
            $
            858,100
            
            $
            572,812
            
            $
            3,644,115
            
            $
            192,712
            
            $
            202,936
            
            $
            826,443
            
            $
            4,705,151





***Three months ended***
              ***June 30***
            
            ***Three months ended***
              ***June 30***
            
            ***Three months ended***
              ***June 30***
            
            ***Three months ended***
              ***June 30******2008***
            
            ***2007***
            
            ***2008***
            
            ***2007***
            
            ***2008***
            
            ***2007***
            
            ***2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***Revenue
                from external customers
            
            $
            -
            
            $
            4,980,000
            
            $
            6,005,232
            
            $
            14,072,844
            
            $
            763,405
            
            $
            555,187
            
            $
            6,768,637
            
            $
            19,608,031Segment
                profit
            
            $
            -
            
            $
            910,314
            
            
            ($5,803
            )
            
            2,572,432
            
            
            ($737
            )
            
            101,485
            
            
            ($6,540
            )
            $
            3,584,231




***As
                  of***
              
              ***As
                  of***
              
              ***As
                  of***
              
              ***As
                  of******June 30,***
              
              ***December 31,***
              
              ***June 30,***
              
              ***December 31,***
              
              ***June 30,***
              
              ***December 31,***
              
              ***June 30,***
              
              ***December 31,******2008***
              
              ***2007***
              
              ***2008***
              
              ***2007***
              
              ***2008***
              
              ***2007***
              
              ***2008***
              
              ***2007******(Unaudited)***
              
              ***(Audited)***
              
              ***(Unaudited)***
              
              ***(Audited)***
              
              ***(Unaudited)***
              
              ***(Audited)***
              
              ***(Unaudited)***
              
              ***(Audited)***Segment
                  assets
              
              $
              1,364,126
              
              $
              28,179,194
              
              $
              54,168,125
              
              $
              47,228,524
              
              $
              12,899,520
              
              $
              2,283,134
              
              $
              68,431,771
              
              $
              77,690,852


26


**INFOSMART
      GROUP INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




**13.**
            **Segment
                Information (cont’d)**





Other
      than the production lines and equipment located in Brazil, which have carrying
      amounts of $10,116,383, all of the Company’s long-lived assets are located in
      Hong Kong. Geographic information about net sales, which are classified based
      on
      the location of our customers, is set out as follows:





***Three months ended***
              ***June 30,***
            
            ***Six months ended***
              ***June 30,******2008***
            
            ***2007***
            
            ***2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***
            
            ***(Unaudited)***Argentina
            
            $
            -
            
            $
            -
            
            $
            149,024
            
            $
            -Australia
            
            
            -
            
            
            3,001,495
            
            
            129,147
            
            
            5,847,333Belize
            
            
            -
            
            
            -
            
            
            361,744
            
            
            -Brazil
            
            
            3,136,838
            
            
            6,787,341
            
            
            6,640,631
            
            
            9,308,728China
                and Hong Kong
            
            
            2,565,102
            
            
            8.968,899
            
            
            5,430,276
            
            
            9,642,272Philippine
            
            
            -
            
            
            -
            
            
            180,684
            
            
            -South
                America
            
            
            -
            
            
            -
            
            
            30,046
            
            
            -Thailand
            
            
            -
            
            
            -
            
            
            39,739
            
            
            427,110Turkey
            
            
            -
            
            
            -
            
            
            -
            
            
            147,498United
                Kingdom
            
            
            -
            
            
            22,284
            
            
            -
            
            
            165,210United
                States
            
            
            229,024
            
            
            716,285
            
            
            484,840
            
            
            1,486,052Other
                countries
            
            
            837,673
            
            
            111,727
            
            
            882,953
            
            
            282,243Total
            
            $
            6,768,637
            
            $
            19,608,031
            
            $
            14,329,084
            
            $
            27,306,446




**14.**
            **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.


**15.**
              **Subsequent
                  Events**
 
 Although
        there is no current definitive sales agreement, the Company received a test
        order during the second quarter of 2008 from a leading recorded media supplier
        of live concerts and films in Asia for the installation of Blu-ray® DVD for a
        film using the Company’s newly installed Anwell Blu-ray® equipment line
        purchased in March 2008 and installed in May and June 2008. A test order
        is done
        to confirm Blu-ray®’s high reproduction standards are achieved prior to
        initiating production runs. As the only Blu-ray® producer in Hong Kong and the
        first in China, we expect to see several future orders as Blu-ray® begins to
        dominate the visual media market.




27


**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 non-diskette storage media. We manufacture DVDRs with 8x and 16x writable
      speeds as well as CDRs with 52x writable speeds, and have been developing our
      DVD-R manufacturing basis in both Hong Kong and Brazil to capture the worldwide
      market. As the “war” between high density format DVDR (“HD-DVD”) and Blu-ray DVD
      formats has ended with the Blu-ray DVD format surviving in the marketplace
      to
      become the latest format of DVD recordable media, we have a new perspective
      in
      business development in the world market for the next 5 years. We have acquired
      the first set of Blu-ray DVD replication systems in the China/Hong Kong region
      and will devote more resources to developing the market for Blu-ray DVD
      replication systems. We have customers in Western Europe, Australia, China,
      and
      North 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 and CDR 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.





In
      December 2006, IS Media acquired 100% of the issued and outstanding common
      stock
      of Infoscience Holdings Limited (“IS Holdings”). IS Media has a cooperation
      agreement with IS Holdings wherein it manufactures its DVDRs using certain
      patent licenses owned by IS Holdings. IS Media acquired IS Holdings to guarantee
      the continuation of this cooperation agreement. 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.


**Recent
        Developments**
 
 Although
        there is no current definitive sales agreement, we received a test order
        during the second quarter of 2008 from a leading recorded media supplier
        of live
        concerts and films in Asia for the installation of Blu-ray® DVD for a film
        using our newly installed Anwell Blu-ray® equipment line purchased in March
        2008 and installed in May and June 2008. A test order is done to confirm
        Blu-ray®’s high reproduction standards are achieved prior to initiating
        production runs. As the only Blu-ray® producer in Hong Kong and the first in
        China, we expect to see several future orders as Blu-ray® begins to dominate the
        visual media market.




**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.




28




***Minority
      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. 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.





***Intangible
      assets.*** Intangible
      assets are ****** license
      usage rights and stated at cost less accumulated amortization. Amortization
      is
      provided using the straight-line method over the remaining term of the license
      obtained by one of the Company’s subsidiaries, Infoscience Holdings Limited
      (“IHL”).





***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.





***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 June 30, 2008 include the
      following:




Convertible
                redeemable preferred stock Series B
            
            
            15,653,950Detachable
                common stock warrants
            
            
            28,510,347Placement
                agent warrants
            
            
            3,740,57747,904,874





***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.




29




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




***Recent
      accounting pronouncements.*** In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
      relates to the definition of fair value, the methods used to measure fair value
      and the expanded disclosures about fair value measurements. The provisions
      of
      SFAS No. 157 are effective for financial statements issued for fiscal years
      beginning after November 15, 2007. The Company has not yet completed its
      analysis of the impact of adopting SFAS No. 157 on the consolidated financial
      position, results of operations or cash flows.


On
        January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting
        for
        Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for
        income
        taxes by prescribing a minimum probability threshold that a tax position
        must
        meet before a financial statement benefit is recognized. The minimum threshold
        is defined in FIN 48 as a tax position that is more likely than not to be
        sustained upon examination by the applicable taxing authority, including
        resolution of any related appeals or litigation processes, based on the
        technical merits of the position. The tax benefit to be recognized is measured
        as the largest amount of benefit that is greater than 50% likely of being
        realized upon ultimate settlement. FIN 48 must be applied to all existing
        tax
        positions upon initial adoption. The cumulative effect of applying FIN 48
        at
        adoption, if any, is to be reported as an adjustment to opening retained
        earnings for the year of adoption. The adoption of FIN 48 did not have a
        material effect on the Company’s consolidated financial position or results of
        operations.
 
 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, which permits entities to choose measure many financial
        instruments and certain other items at fair value that are not currently
        required to be measured at fair value. The objective is to improve financial
        reporting by providing entities with the opportunity to mitigate volatility
        in
        reported earnings caused by measuring related assets and liabilities differently
        without having to apply complex hedge accounting provisions. SFAS No. 159
        is
        expected to expand the use of fair value measurement, which is consistent
        with
        the Board’s long-term measurement objectives for accounting for financial
        instruments. SFAS No. 159 also establishes presentation and disclosure
        requirements designed to facilitate comparisons between entities that choose
        different measurement attributes for similar types of assets and liabilities.
        SFAS No. 159 does not affect any existing accounting literature that requires
        certain assets and liabilities to be carried at fair value. SFAS No. 159
        does
        not establish requirements for recognizing and measuring dividend income,
        interest income, or interest expense. SFAS No. 159 does not eliminate disclosure
        requirements included in other accounting standards, including requirements
        for
        disclosures about fair value measurements, included in SFAS No. 157, Fair
        Value
        Measurements, and SFAS No. 107, Disclosures about Fair Value of Financial
        Instruments. SFAS No. 159 is effective as of the beginning of an entity’s first
        fiscal year that begins after November 15, 2007. The Company has not yet
        completed its assessment of the impact upon adoption of SFAS No. 159 on the
        consolidated financial position, results of operations or cash
        flows.
 
 In
        December 2007, the FASB issued SFAS No. 141(R), Business Combinations. This
        statement retains the fundamental requirements of the original pronouncement
        requiring that the acquisition method of accounting, or purchase method,
        be used
        for all business combinations. SFAS No. 141(R) defines the acquirer as the
        entity that obtains control of one or more business combination, establishes
        th
        acquisition date as the date that the acquirer achieves control and requires
the
        acquirer to recognize the assets acquired, liabilities assumed and any
        noncontrolling interest at their fair values as of the acquisition date.
        In
        addition, SFAS No. 141(R) requires, among other things, expensing of acquisition
        related and restructuring related costs, measurement of pre-acquisition
        contingencies at fair value, measurement of equity securities issued for
        purchase at the date of close of the transaction and capitalization of in
        process research and development, all of which represent modifications to
        current accounting for business combinations. SFAS No. 141(R) is effective
        for
        fiscal years beginning after December 15, 2008. Adoption is prospective and
        early adoption is not permitted. Adoption of SFAS No. 141(R0 will not impact
        the
        Company’s accounting for business combinations closed prior to its adoption, but
        given the nature of the changes noted above, the Company expects that its
        accounting for business combinations occurring subsequent to adoption will
        be
        significantly different than that applied following current accounting
        literature.
 
 In
        December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
        Consolidated Financial Statements-an amendment of ARB No. 51” (SFAS 160”). SFAS
        160 establishes accounting and reporting standards for the noncontrolling
        interest in a subsidiary and for the deconsolidation of a subsidiary. The
        guidance will become effective for the fiscal year beginning after December
        15,
        2008. The Company is in the process of evaluating the impact that SFAS 160
        will
        have on its financial statements upon adoption.




30




**Results
      of Operations**





*Comparison
      of Three Months Ended June 30, 2008 and 2007*





***Net
      Sales*** *.* For
      the
      three months ended June 30, 2008, net sales decreased relative to the three
      months ended June 30, 2007, from $19,608,031 to $6,768,637. The decrease in
      net
      sales is mainly due to the greater cost fluctuation of outsourced Flash drives
      and memory cards for the past half year. We plan to explore other sources of
      these of Flash drives and memory cards to alleviate the costs during the coming
      few months. Also, there was a decrease in net sales in China, which is our
      main customer segment base, as a result of a blizzard in China that interrupted
      our distribution networks during the first quarter of 2008, which networks
      have not completely recovered, yet. Another factor in the decrease in net
      sales of DVDRs in Hong Kong was our policy of geographical diversification
      and
      our shift in focus from the lower margin Hong Kong markets to higher margin
      markets, such as Asia and Brazil.





***Cost
      of Sales*** *.* Cost
      of
      sales decreased from $14,506,478, or approximately 73.98% of net sales for
      the
      three months ended June 30, 2007, to $5,025,074, or approximately 74.24% of
      net
      sales for the three months ended June 30, 2008. We were able to effectively
      control our cost of sales from the three months ended June 30, 2007 to the
      three
      months ended June 30, 2008.





***Gross
      Profit.*** Gross
      profit decreased approximately 65% from $5,101,553 for the three months
      ended June 30, 2007 to $1,743,563 for the three months ended June 30, 2008.
      This decrease in gross profit was primarily due to the decrease in net
      sales.





***Selling
      and Distribution Costs*** .
      For the
      three months ended June 30, 2008, selling and distribution costs decreased
      approximately 36% from $161,533 to $102,835 relative to the three months ended
      June 30, 2007. The decrease is attributable to lower freight expenses.




***Administrative
      Expenses.*** Administrative
      expenses included depreciation and amortization charges, and was $1,504,181
      and
      $1,254,629 for the three months ended June 30, 2008 and 2007, respectively.
      This
      increase in administrative expenses was due to an expansion in our
      administrative operations for our Blu-ray production.





***Net
      Income*** **.** Net
      income decreased from $3,296,691 for the three months ended June 30, 2007 to
      a
      net loss of $6,540 for the three months ended June 30, 2008. This is due to
      the
      decrease in net sales and increased administrative expenses.





*Comparison
      of Six Months Ended June 30, 2008 and 2007*





***Net
      Sales*** *.* For
      the
      six months ended June 30, 2008, net sales decreased relative to the six months
      ended June 30, 2007, from $27,306,446 to $14,329,084. The decrease in net sales
      is mainly due to the greater cost fluctuation of outsourced Flash drives and
      memory cards for the past half year. We plan to explore other sources of these
      of Flash drives and memory cards to alleviate the costs during the coming few
      months. Also, there was a decrease in net sales in China, which is our main
      customer segment base, as a result of a blizzard in China that interrupted
      our
      distribution networks during the first quarter of 2008, which networks
      have not completely recovered, yet. Another factor in the decrease in net
      sales of DVDRs in Hong Kong was our policy of geographical diversification
      and
      our shift in focus from the lower margin Hong Kong markets to higher margin
      markets, such as Asia and Brazil.





***Cost
      of Sales*** *.* Cost
      of
      sales decreased from $20,419,825, or approximately 74.78% of net sales for
      the
      six months ended June 30, 2007, to $11,523,691, or approximately 80.42% of
      net
      sales for the six months ended June 30, 2008. The decrease is mainly due to
      a
      corresponding decrease in net sales during the first half of 2008.





***Gross
      Profit.*** Gross
      profit decreased approximately 59% from $6,886,621 for the six months
      ended June 30, 2007 to $2,805,393 for the six months ended June 30, 2008.
      This decrease in gross profit was primarily due to the decrease in our net
      sales.





***Selling
      and Distribution Costs*** .
      For the
      six months ended June 30, 2008, selling and distribution costs decreased from
      $241,049 to $175,702 relative to the six months ended June 30, 2007. The
      decrease is attributable to lower freight expenses.




31




***Administrative
      Expenses.*** Administrative
      expenses included depreciation and amortization charges, and was $2,284,405
      and
      $2,185,679 for the six months ended June 30, 2008 and 2007, respectively. This
      slight increase in administrative expenses was due to an expansion
      in our administrative operations for our Blu-ray
      production.





***Net
      Income*** **.** Net
      income decreased from $4,201,975 for the six months ended June 30, 2007 to
      $826,443 for the six months ended June 30, 2008. This is primarily due to the
      decrease in net sales.




**Liquidity
      and Capital Resources**





Six
                MonthsEnded
                June 30,
            
            2008
            
            2007
            
            ChangeNet
                cash (used in) provided by operating activities
            
            $
            (2,548,654
            )
            $
            (1,691,386
            )
            $
            (857,268
            )Net
                cash (used in) investing activities
            
            
            (72,729
            )
            
            (231,374
            )
            
            158,645Net
                cash provided by financing activities
            
            
            2,142,900
            
            
            2,328,440
            
            
            (185,540
            )





Net
      cash
      used in operating activities was $2,548,654 for the six months ended June 30,
      2008 and $1,691,386 for the six months ended June 30, 2007. The increase in
      our
      net cash used in operating activities was mainly due to the decrease of our
      trade payables with a corresponding decrease in sales volume. The decrease
      in
      our trade payable wasa result of cash payments, which was off-set by
      collection of receivables.





Net
      cash
      used in investing activities was $72,729 for the six months ended June 30,
      2008
      and $231,374 for the six months ended June 30, 2007. The decrease in net cash
      used in investing activities is mainly related to a decrease in acquisitions
      of
      plant and equipment during the first half of 2008.





Net
      cash provided by financing activities was $2,142,900 and
      $2,328,440 for the six months ended June 30, 2008 and 2007, respectively. The
      decrease in our net cash provided by financing activities was mainly due to
      the
      repayment of a bank loan.




**Off-Balance
      Sheet Arrangements**





A
      bank
      guarantee was given by a bank to an electric utility company on Infosmart’s
      behalf. This guarantee exempted Infosmart from the obligation of paying a
      deposit required by the electric utility company. This off-balance sheet
      arrangement has no effect on the Infosmart’s liquidity, capital resources,
      market risk support or credit risk support, other than allowing Infosmart to
      retain a $153,846 deposit that would have been required by the utility company.
      Infosmart is not aware of any events, demands, commitments, trends or
      uncertainties that will result in of reasonably likely result in the termination
      of this arrangement.





Other
      than the arrangement described above, we have not entered into any other
      financial guarantees or other commitments to guarantee the payment obligations
      of any third parties. We have not entered into any derivative contracts that
      are
      indexed to our shares and classified as shareholder’s equity or that are not
      reflected in our 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.




32




The
      following tables summarize our contractual obligations as of June 30, 2008,
      and
      the effect these obligations are expected to have on our liquidity and cash
      flows in future periods.




**Payments
                Due by Period****Total**
            
            **Less than**
              **1 year**
            
            **1-3 Years**
            
            **3-5 Years**
            
            **5 Years +****In
                Thousands**Contractual
                Obligations:Bank
                Indebtedness
            
            $
            7,454
            
            $
            6,457
            
            $
            997
            
            $
            —
            
            $
            —Other
                Indebtedness
            
            
            10,731
            
            
            1,383
            
            
            9,348
            
            
            —
            
            
            —Operating
                Leases
            
            
            340
            
            
            178
            
            
            162
            
            
            —
            
            
            —Total
                Contractual Obligations:
            
            $
            14,614
            
            $
            12,357
            
            $
            2,257
            
            $
            —
            
            $
            —





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 2010, with an option to renew
      the
      lease. The lease is on a fixed repayment basis. The lease does not include
      contingent rentals.





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





**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 June 30, 2008 that have materially affected,
      or are reasonably likely to materially affect our internal control over
      financial reporting.




33


**PART
      II - OTHER INFORMATION**





**ITEM
      1.**   **LEGAL
      PROCEEDINGS**





There
      have been no material developments during the quarter ended June 30, 2008 in
      any
      material pending legal proceedings to which the Company is a party or of which
      any of our property is the subject.





**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 of 2002.
      These limited operating histories and the unpredictability of our industry
      make
      it difficult for investors to evaluate our business and future operating
      results. An investor in 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;




34




·
            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.




35




**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.




36




**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 inbalance arises in the
      supply-demand equation, there could be a spike in the price of raw materials.
      In
      the event of these or other similar occurrences, there could be a material
      adverse effect on our business results and financial condition.




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




37




**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.




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
      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. We have successfully finished
      installing the first set of new machinery that can produce Blu-Ray format DVDR
      in our Hong Kong factory in early June 2008. 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.




38




**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.





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




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





**A
      significant portion of our revenue will depend on the success of our new venture
      in Brazil.**





A
      significant portion of our revenues will depend on the success of our new
      Brazilian venture. We have no prior manufacturing and distribution experience
      in
      Brazil, and will rely on the local knowledge of 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 in the early months
      of
      the Brazilian venture.





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




39




***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, our management or the experts
      named in the prospectus.**




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.





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




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




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





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





·
            Level
                of government involvement in the
                economy;




40




·
            Control
                of foreign exchange;·
            Methods
                of allocating resources;·
            Balance
                of payments position;·
            International
                trade restrictions; and·
            International
                conflict.




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





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




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





·
            Currency
                volatility;·
            Inflation
                acceleration;·
            Monetary
                policy and interest rate increases;·
            Fiscal
                policy and tax changes;·
            International
                trade policy including tariff and non-tariff trade
                barriers;·
            Foreign
                exchange controls;·
            Energy
                shortages; and·
            Other
                political, social and economic developments in or affecting
                Brazil.





In
      2005
      and 2006, government figures, legislators and political party officials,
      especially those of the President’s party, have been the subject of a variety of
      allegations of unethical or illegal conduct. These accusations, which are being
      investigated by the Brazilian Congress, involve campaign financing and election
      law violations, and influencing of government officials and Congressmen in
      exchange for political support. Several members of the President’s party and of
      the federal government, including the President’s chief of staff, have resigned.
      We cannot predict what effect these accusations and investigations may have
      on
      the Brazilian economy.





**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,
      and **** 3.5%
      in
      2007 (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.




41




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





Since
      we
      have established our business operations in Brazil, some of our revenues will
      be
      settled in the Brazilian Real. Any future restrictions on currency exchanges
      may
      limit our ability to use revenue generated in Reals to fund any future business
      activities outside Brazil or to make dividend or other payments in U.S.
      dollars.




**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 through ****** June ****** 2016.
      In
      the event that the VAT reduction program is no longer available to us or we
      are
      unable to extend the ICMS tax-exemption, our after-tax earnings would decline
      by
      the amount of the tax benefits, which may be substantial.




***Risks
      Relating to 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.




42




**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.




**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. ****




**If,
      and when, the Class A Warrants are quoted on the Over-the-Counter Bulletin
      Board, an active, liquid trading market may not develop. 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.**





There
      is
      currently no public market for our Class A Warrants. We intend, however, to
      apply for the Class A Warrants to be quoted on the Over-the-Counter Bulletin
      Board. An active trading market for our common stock 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 shares until such time as we became
      more seasoned and viable. As a consequence, there may be periods of several
      days
      or more when trading activity in 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 common stock 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;




43




·
            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 recent Commercial Secured
      Loan Transaction and may not use the funds effectively.**





Our
      management team will retain broad discretion as to the allocation and timing
      of
      the use of funds from our recent Commercial Secured Loan Transaction 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.




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





As
      of
      June 11, 2008, our directors and executive officers, specifically Chung Kwok,
      Po
      Nei Sze, and Andrew Chang, control approximately 59.9% 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 and upon conversion of our Series B Preferred Stock. The exercise
      or conversion of these securities could result in the substantial dilution
      of
      your investment in terms of your percentage ownership in the Company as well
      as
      the book value of your common shares. The sale of a large amount of common
      shares received upon exercise of these warrants on the public market to finance
      the exercise price or to pay associated income taxes, or the perception that
      such sales could occur, could substantially depress the prevailing market prices
      for our shares.**





As
      of
      June 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.




44




**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
      not be able to provide accurate financial statements on a timely basis or comply
      with the Sarbanes-Oxley Act of 2002 as it applies to us. Any failure of our
      internal controls or our ability to provide accurate financial statements could
      cause the trading price of our common stock to decrease
      substantially.




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





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





**ITEM
      2.**   **UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**





None.




**ITEM
      3.**   **DEFAULTS
      UPON SENIOR SECURITIES**





None.





**ITEM
      4.**   **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.





**ITEM
      5.**   **OTHER
      INFORMATION**




(a)
            None.(b)
            There
                were no changes to the procedures by which security holders may recommend
                nominees to our board of directors.





**ITEM
      6.**   **EXHIBITS**


**EXHIBIT
      INDEX**





**Exhibit**
              **Number**
            
            **Description**2.1
            
            Amended
                and Restated Securities Purchase Agreement, dated August 25, 2005
                (1)2.2
            
            Transfer
                and Assumption Agreement dated as of May 31, 2005 (1)2.3
            
            Exchange
                Agreement by and among Cyber, KI Equity, Hamptons Investment Group,
                Ltd.,
                Prime and the Prime Shareholders dated July 7, 2006 (2)2.4
            
            Guarantee
                and Assumption Agreement by and among Cyber, Infosmart, IS International,
                IS Technology and IS Media dated July 7, 2006 (2)2.5
            
            First
                Amendment to the Exchange Agreement dated August 16, 2006 between
                Cyber,
                KI Equity Partners, LLC, Hamptons Investment Group, Ltd., Prime,
                Prime
                Shareholders, Infosmart Group Ltd. and the Infosmart Shareholders
                (3)




45




2.6
            
            Amended
                and Restated Guarantee and Assumption Agreement by and among Cyber,
                IS
                International, IS Technology and IS Media dated August 16, 2006
                (3)2.7
            
            Voting
                Agreement by and among the Infosmart Stockholders and KI Equity dated
                August 16, 2006 (3)2.8
            
            Escrow
                Agreement by and among Cyber, KI Equity, Infosmart, the Infosmart
                Stockholders and Richardson, as escrow agent, dated August 16, 2006
                (3)2.9
            
            Financial
                Advisory Agreement by an among Keating Securities LLC and Cyber Merchants
                Exchange Inc. dated August 16, 2006 (3)3.1
            
            Articles
                of Incorporation (4)3.2
            
            Bylaws
                (4)3.3
            
            Text
                of Amendment to Bylaws (5)




3.4
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series A Convertible Preferred Stock (3)3.5
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series B Convertible Preferred Stock (3)4.1
            
            Lock-Up
                Agreement (6)4.2
            
            Specimen
                Stock Certificate for Shares of Common Stock of the Company
                (7)4.3
            
            Warrant
                expiring October 15, 2002 issued by the Company to Burlington Coat
                Factory
                Warehouse Corporation on October 15, 1997 (4)4.4
            
            Warrant
                expiring February 10, 2004 issued by the Company to Imperial Bank
                on
                February 10, 1999 (7)4.5
            
            Warrant
                expiring May 25, 2005 issued by the Company to Factory 2-U on May
                25, 2000
                (8)10.1
            
            Securities
                Purchase Agreement, dated April 30, 2008 (9)10.2
            
            Form
                of Secured Debenture (9)10.3
            
            Form
                of Warrant (9)10.4
            
            Security
                Agreement, dated April 30, 2008 (9)10.5
            
            Registration
                Rights Agreement, dated April 30, 2008 (9)10.6
            
            Form
                of Secured Convertible Debenture (9)31.1
            
            Section 302
                Certification by the Corporation’s Chief Executive Officer
                *31.2
            
            Section 302
                Certification by the Corporation’s Chief Financial Officer
                *




46





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





(2)
            Filed
                on July 12, 2006 as an exhibit to a report by the Company on a Form
                8-K
                dated July 7, 2006 and incorporated herein by
                reference.





(3)
            Filed
                on August 24, 2006 as an exhibit to the Company 's first Current
                Report on Form 8-K and incorporated herein by
                reference.




(4)
            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.





(5)
            Filed
                on May 15, 2007 as an exhibit to the Company 's Quarterly Report on
                Form 10-QSB and incorporated herein by
                reference.





(6)
            Filed
                on January 27, 2000 as an exhibit to a report by the Company on a
                Form 8-A
                and incorporated herein by
                reference.





(7)
            Filed
                on September 29, 2000 as an exhibit to the Company 's report on Form
                10-KSB for the fiscal year ended June 30, 2000 and incorporated herein
                by
                reference.





(8)
            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.





(9)
            Filed
                on May 5, 2008 as an exhibit to the Company 's Current Report on Form
                8-K and incorporated herein by
                reference.




47


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      as
      amended, the registrant caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.




**INFOSMART
                GROUP, INC.**(Registrant)Date:
                August 19, 2008
            By:
            /s/
                Parker SetoParker
                SetoChief
                Executive Officer and President





48