**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 **March 31, 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 filer o
            Non-Accelerated
                Filer oAccelerated
                Filer o
            Smaller
                Reporting Company x





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: 147,774,923 issued and outstanding as of April
      15, 2008.








**INFOSMART
      GROUP, INC.**


TABLE
      OF
      CONTENTS


TO
      QUARTERLY REPORT ON FORM 10-Q


FOR
      PERIOD ENDED MARCH 31, 2008




**Page****PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                Statements
            1Condensed
                Consolidated Statements of Operations
            2Condensed
                Consolidated Balance Sheets
            3Condensed
                Consolidated Statements of Cash Flows
            5Notes
                to Condensed Consolidated Financial Statements
            7Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            27Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            33Item
                4.
            Controls
                and Procedures
            33**PART
                II**
            **OTHER
                INFORMATION**Item
                1.
            Legal
                Proceedings
            33Item
                1A.
            Risk
                Factors
            33Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            46Item
                3.
            Defaults
                Upon Senior Securities
            47Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            47Item
                5.
            Other
                Information
            47Item
                6.
            Exhibits
            47**Signatures**
            51**Exhibits**





**PART
      I - FINANCIAL INFORMATION**





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





**Infosmart
      Group, Inc.**





Condensed
      Consolidated Financial Statements


For
      the
      three months ended March 31, 2008


and
      2007


(Stated
      in US Dollars)


1


**INFOSMART
      GROUP, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 and 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





***Three months ended***
              ***March 31,******2008***
            
            ***2007***Net
                sales
            
            $
            7,560,447
            
            $
            7,698,415Cost
                of sales
            
            
            (6,498,617
            )
            
            (5,733,147
            )Gross
                profit
            
            
            1,061,830
            
            
            1,965,268Administrative
                expenses
            
            
            (780,224
            )
            
            (931,050
            )Selling
                and distributing costs
            
            
            (72,867
            )
            
            (79,516
            )Income
                from operations
            
            
            208,739
            
            
            954,702Other
                income
            
            
            813,960
            
            
            308,759Interest
                expenses
            
            
            (138,407
            )
            
            (142,540
            )Income
                before income taxes
            
            
            884,292
            
            
            1,120,921Income
                taxes - note 4
            
            
            (51,309
            )
            
            (215,637
            )Net
                income
            
            
            832,983
            
            
            905,284Minority
                interest
            
            
            (4,963
            )
            
            -Net
                income before dividend
            
            
            828,020
            
            
            905,284Series
                B preferred dividend
            
            
            (79,345
            )
            
            (125,411
            )Net
                income applicable to common shareholders
            
            
            748,675
            
            
            779,873Earning
                per share - note 9-
                basic
            
            $
            0.01
            
            $
            0.01-
                dilutive
            
            $
            0.01
            
            $
            0.01Weighted
                average shares outstanding-
                basic
            
            
            142,175,630
            
            
            136,252,633-
                dilutive
            
            
            176,116,942
            
            
            159,936,810





See
      the
      accompanying notes to condensed consolidated financial
      statements


2


**INFOSMART
      GROUP, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**AS
      OF MARCH 31, 2008 AND DECEMBER 31, 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





***As
                of******March
                31,***
            
            ***December
                31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)*****ASSETS**Current
                assetsCash
                and cash
                equivalents
            
            $
            314,695
            
            $
            1,023,440Trade
                receivables
            
            
            20,292,971
            
            
            38,725,882Prepaid
                expenses and other
                receivables
            
            
            268,070
            
            
            544,345Prepaid
                tax
            
            
            0
            
            
            13,847Inventories
                (net of allowance of $Nil for 2008 and 2006) - note 6
            
            
            3,165,556
            
            
            3,396,194Total
                current assets
            
            
            24,041,292
            
            
            43,703,708Plant
                and equipment, net - note 7
            
            
            30,730,427
            
            
            31,093,668Intangible
                assets
            
            
            1,740,110
            
            
            1,810,655**TOTAL
                ASSETS**
            
            $
            56,511,829
            
            $
            76,608,031**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****LIABILITIES**Current
                liabilitiesTrade
                payables
            
            $
            5,816,309
            
            $
            25,809,022Other
                payables and accrued liabilities
            
            
            818,082
            
            
            1,672,468Income
                tax payable
            
            
            658,276
            
            
            696,946Current
                portion of bank borrowings
                - note 8
            
            
            6,797,141
            
            
            6,762,553Finance
                lease payable
            
            
            45,684
            
            
            34,570Current
                portion of other
                loans
            
            
            5,302,097
            
            
            5,065,639Total
                current liabilities
            
            
            19,437,589
            
            
            40,041,198Non-current
                portion of bank borrowings - note 8
            
            
            1,539,796
            
            
            2,092,949Non-current
                portion of other loans
            
            
            569,194
            
            
            717,423Non-current
                portion of finance lease payable
            
            
            7,478
            
            
            0Advance
                from a related party
            
            
            929,750
            
            
            929,634Deferred
                tax liabilities - note 4
            
            
            2,732,350
            
            
            2,305,729**TOTAL
                LIABILITIES**
            
            $
            25,216,157
            
            $
            46,086,933


3


**INFOSMART
      GROUP, INC.**


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


**AS
      OF MARCH 31, 2008 AND DECEMBER 31, 2007**


**(Stated
      in US Dollars)**





**As
                of*****March
                31,***
            
            ***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
                - 514,005 shares and 2007 - 597,011
                shares
            
            $
            1,455,221
            
            $
            1,690,222**STOCKHOLDERS’
                EQUITY**Common
                stock: No par value - note
                11Authorized:
                300,000,000 shares; Issued
                and outstanding:2008 –
147,774,923
                shares and 2007
                -144,248,709 shares
            
            
            2,662,861
            
            
            2,412,605Additional
                paid-in-capital - note 11
            
            
            8,118,664
            
            
            8,118,664Accumulated
                other comprehensive income
            
            
            1,522,684
            
            
            1,517,003Retained
                earnings
            
            
            17,487,318
            
            
            16,738,643**TOTAL
                STOCKHOLDERS’ EQUITY**
            
            
            29,791,527
            
            
            28,786,915Minority
                interest
            
            
            48,924
            
            
            43,96129,840,451
            
            
            28,830,876**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            56,511,829
            
            $
            76,608,031




See
      the
      accompanying notes to condensed consolidated financial
      statements


4


**INFOSMART
      GROUP, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 and 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





***Three
                months ended March 31,******2008***
            
            ***2007*****Cash
                flows from operating activities**Net
                income
            
            $
            832,983
            
            $
            905,284Adjustments
                to reconcile net income to net cash flows(used
                in) provided by operating activities:Depreciation
            
            
            420,811
            
            
            554,819Deferred
                income taxes
            
            
            51,309
            
            
            177,590Amortization
                of license usage right
            
            
            70,545
            
            
            70,545Loss
                on disposal of property, plant and equipment
            
            
            0
            
            
            181,617Changes
                in operating assets and liabilities:Trade
                receivables
            
            
            18,424,967
            
            
            (3,414,499
            )Prepaid
                expenses and other
                receivables
            
            
            276,163
            
            
            (785,410
            )Inventories
            
            
            229,941
            
            
            (604,842
            )Trade
                payables
            
            
            (19,987,419
            )
            
            2,805,974Income
                tax payable
            
            
            (38,527
            )
            
            (13,433
            )Other
                payables and accrued
                liabilities
            
            
            (854,043
            )
            
            (189,250
            )Net
                cash flows used in provided by operating activities
            
            
            (573,270
            )
            
            (311,605
            )**Cash
                flows from investing activities**Payment
                for acquisition of fixed assets
            
            
            (57,570
            )
            
            (1,045,351
            )Proceeds
                from disposal of plant and equipment
            
            
            0
            
            
            400,926Net
                cash flows used in investing activities
            
            
            (57,570
            )
            
            (644,425
            )**Cash
                flows from financing activities**Dividend
                paid
            
            
            (79,345
            )
            
            (125,411
            )Issuance
                of common stock
            
            
            15,255
            
            
            0Net
                advancement of other bank loans
            
            
            404,423
            
            
            1,206,745Net
                repayment of non-recurring bank loans
            
            
            (689,584
            )
            
            (434,287
            )Proceeds
                from other loans
            
            
            132,917
            
            
            0Repayment
                of other loans
            
            
            (24,908
            )
            
            (80,798
            )Decrease
                (increase) in restricted cash
            
            
            0
            
            
            295,216Increase
                / (decrease) in bank overdrafts
            
            
            (88,457
            )
            
            45,733Net
                cash flows (used in) / provided by  financing
                activities
            
            
            (329,699
            )
            
            907,198Effect
                of foreign currency translation on cash and cash
                equivalents
            
            
            251,794
            
            
            (104
            )Net
                decrease in cash and cash equivalents
            
            
            (708,745
            )
            
            (48,936
            )Cash
                and cash equivalents, beginning of period
            
            
            1,023,440
            
            
            206,258Cash
                and cash equivalents, end of period
            
            $
            314,695
            
            $
            157,322


5


**INFOSMART
      GROUP, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**




***Three months ended March 31,******2008***
            
            ***2007***Supplemental
                disclosures for cash flow information:Cash
                paid for:Interest
            
            $
            136,964
            
            $
            238,004Income
                taxes
            
            
            100,040
            
            
            51,480Non-cash
                investing and financing activities:Conversion
                of Series B Shares to common stock
            
            $
            235,001
            
            $
            81,800





See
      the
      accompanying notes to condensed consolidated financial
      statements


6





**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 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, through its wholly owned subsidiary, Infosmart Group Limited
      (“Infosmart”), is engaged in the business of developing, manufacturing,
      marketing and sales of recordable digital versatile disc (“DVDR”) and recordable
      compact discs (“CDR”), optical digital discs used for storing data and
      interactive sequences as well as audio and video files, under a cooperation
      agreement signed with a wholly owned subsidiary. With the cooperation agreement,
      the Company is able to manufacture DVDR and CDR under license agreement granted
      from the intellectual property owner and the manufacturing license issued by
      the
      Customs and Excise Department of Hong Kong.





The
      key
      raw materials for the production of the Company’s products are PC resin and
      silver granule. PC resin is mainly used in the molding of DVDR and CDR. Silver
      granule is mainly used in coating the DVDR and CDR.





The
      Company’s main suppliers are located in Hong Kong while the Company’s customers
      are located in both Hong Kong and overseas including Australia, Europe, North
      America and South America. The Company’s major customers include distributors
      and retail traders. The Company currently manufactures and ships the products
      from Hong Kong where the Company operates a state of the art DVDR and CDR
      manufacturing facilities.




For
      the
      development of the market in Brazil, the Company entered into an agreement
      on
      March 20, 2006 with two independent third parties for setting up a subsidiary,
      Discobrás Indústria E Comércio De Eletro Eletrônica Ltda (“Discobrás”), in
      Brazil for the new DVDR production facility. Recently, Discobras has completed
      construction of the DVDR production facility. The subsidiary had obtained all
      required government licenses and all other documents and approvals necessary
      to
      operate a DVDR production facility in Brazil. Discobras installed DVDR
      manufacturing equipment in February 2007 and began trial production in March
      2007. Regular production was commenced gradually from April
      2007.


7


**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





**2.**
            **Descriptions
                of business****(Cont’d)**





We
      currently operate two factories in both Hong Kong and Brazil, with a combined
      production capacity of approximately 15 million 8x, 16x writable speed, single
      layer DVDRs and CDRs per month. Currently, our product mix is approximately
      60%
      of 8x DVDRs, approximately 40% of 16x DVDRs, and approximately 60% of CDRs.
      We
      have the flexibility to switch production easily between the two product types.
      After manufacturing the DVDRs and CDRs, we put our products through a rigorous
      quality assurance process.  Our Quality Management System complies with
      ISO9001:2000 requirements, and we are ISO 9000 certified.





In
      December 2007, we stopped producing CDRs in Hong Kong and began producing DVDRs
      due to higher margins from DVDRs as compared to CDRs. However, in order to
      ensure “one-stop” shopping to our customers in our distribution channels, we
      outsource the production of our CDRs and devote more resources to the
      manufacture of DVDRs. According to Techno Systems Research Co., Ltd. (Japan),
      total global production volume of CD media in 2007 was 14,024,200,000 discs.
      We
      currently outsource CDRs with a standard capacity of 700MB for data and 80MIN
      for music.





We
      have
      also distributed flash drives and memory cards through the channels of
      distributions in both Asia and South American that we have established.
      Therefore, we have started procuring flash drives and memory cards from outside
      manufacturers for distribution within our current channels which has proven
      to
      be very successful.





As
      a
      result of the Blu-ray format DVD prevailing over the HD-DVD in the battle of
      dominating the future format of DVDR, we purchased the first set of Blu-ray
      DVD
      production replication systems in the China/Hong Kong region in order to meet
      the demands in the high definition media storage market. We plan to invest
      at
      least $10 million in the upcoming year for Blu-ray replication production lines
      in the upcoming year, with the first Blu-ray replication systems being purchased
      at about $1.4 million. This move is in line with our strategy of keeping
      ourselves as the leader and forerunner of recordable media manufacturers in
      the
      world. We foresee inputting additional resources in purchasing and installing
      more production lines in 2008 and in Brazil by 2009 as the market for Blu-ray
      DVD players and writers become more mature. We are going to install the new
      production lines of Blu-ray and train up our specialists in May. The mass
      production of Blu-ray is planned to launch in June, and we are now preparing
      for
      the customer order confirmation through our existing marketing and distribution
      channels.





**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.


8





**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





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





Basis
      of
      presentation and consolidation (Cont’d)





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





As
      of
      March 31, 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
              100%
              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


*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.


9





**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





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





*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.


10


**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 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 March 31, 2008 and 2007 were HK$1 for $0.1285 and
      $0.128 and Real$1 for $0.5733 and $0.4859, respectively. The average exchange
      rates for 2008 and 2007 were HK$1 for $0.1284 and $0.1286 and Real$1 for $0.5296
      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.


11


**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 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 March 31, 2008 include the
      following:





Convertible
                redeemable preferred stock Series B
            
            
            16,011,804Detachable
                common stock warrants
            
            
            28,510,347Placement
                agent warrants
            
            
            2,931,03547,453,186





*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.


12





**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 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-live assets*





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


13


**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





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





*Recent
      accounting pronouncements*





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
      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.





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.


14


**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 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
      the
      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.




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





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


***Three months ended***
                ***March 31,******2008***
              
              ***2007******(Unaudited)***
              
              ***(Unaudited)***Current
                  taxes
              
              
              103,627
              
              
              38,047Deferred
                  taxes
              
              
              (52,318
              )
              
              177,59051,309
              
              
              215,637


15





**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





**4.**
            **Income
                taxes (cont’d)**





The
      Company is subject to income tax in the United States. No provision for income
      tax in the United States has been made as the Company had no taxable income
      for
      the three months ended March 31, 2008 and 2007. 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 March 31, 2008 and December 31, 2007 are composed
      of the following:




***As
                of******March 31,***
            
            ***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
            
            
            2,305,729The
                United StatesOperating
                losses available for future periods
            
            
            (115,773
            )
            
            (482,683
            )Valuation
                allowance
            
            
            115,773
            
            
            482,683Deferred
                tax liabilities, net
            
            $
            2,732,350
            
            $
            2,305,729Recognized
                in the balance sheet:Net
                deferred tax liabilities
            
            
            2,732,350
            
            
            2,305,729$
            2,732,350
            
            $
            2,305,729


16





**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**








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





***Three months ended March 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***Net
                income applicable to common shareholders
            
            $
            748,675
            
            $
            779,873Foreign
                currency translation adjustments
            
            
            5,681
            
            
            70,508Total
                comprehensive income
            
            
            754,356
            
            
            850,381




**6.**  **Inventories**





***As
                of******March
                31,***
            
            ***December 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)***Raw
                materials
            
            $
            1,196,573
            
            $
            1,190,330Work
                in progress
            
            
            34,132
            
            
            15,974Finished
                goods
            
            
            1,934,851
            
            
            2,189,890$
            3,165,556
            
            $
            3,396,194




17




**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





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





***As
                of******March 31,***
            
            ***December 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)***CostsProduction
                lines and equipment
            
            $
            38,091,748
            
            $
            38,034,178Leasehold
                improvements
            
            
            2,132,378
            
            
            2,132,378Furniture,
                fixtures and office equipment
            
            
            221,393
            
            
            221,393Motor
                vehicles
            
            
            260,550
            
            
            260,55040,706,069
            
            
            40,648,499Accumulated
                depreciationProduction
                lines and equipment
            
            
            9,023,803
            
            
            8,666,845Leasehold
                improvements
            
            
            856,434
            
            
            811,850Furniture,
                fixtures and office equipment
            
            
            56,886
            
            
            50,662Motor
                vehicles
            
            
            38,519
            
            
            25,4749,975,642
            
            
            9,554,831NetProduction
                lines and equipment
            
            
            29,067,945
            
            
            29,367,333Leasehold
                improvements
            
            
            1,275,944
            
            
            1,320,528Furniture,
                fixtures and office equipment
            
            
            164,507
            
            
            170,731Motor
                vehicles
            
            
            222,031
            
            
            235,076$
            30,730,427
            
            $
            31,093,668





18


**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 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 12(a)) granted to the Company is as follows:





***Pledged
                for banking facilities******As
                of******March 31,***
            
            ***December 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)***Costs
            
            $
            14,724,398
            
            $
            14,724,398Accumulated
                depreciation
            
            
            (4,350,338)
            )
            
            (4,115,101)
            )Net
            
            $
            10,374,060
            
            $
            10,609,297





***Three months ended March 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***Depreciation
                for the period
            
            $
            235,237
            
            $
            145,832




The
      components of depreciation charged are:





***Three
                months ended March 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***Included
                in factory overheadsProduction
                lines and equipment
            
            $
            356,958
            
            $
            471,716Included
                in operating expensesLeasehold
                improvements
            
            
            44,584
            
            
            76,384Furniture,
                fixtures and office equipment
            
            
            6,224
            
            
            3,983Motor
                vehicles
            
            
            13,045
            
            
            2,73663,853
            
            
            83,103$
            420,811
            
            $
            554,819





19


**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





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





***As
                of******March 31,***
            
            ***December 31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Audited)***Secured:Bank
                overdrafts repayable on demand
            
            $
            105,966
            
            $
            194,423Repayable
                within one yearNon-recurring
                bank loans
            
            
            2,622,222
            
            
            2,310,090Other
                bank borrowings
            
            
            4,068,953
            
            
            3,665,2806,797,141
            
            
            6,169,793Repayable
                after one yearNon-recurring
                bank loans
            
            
            1,539,796
            
            
            2,092,9498,336,937
            
            
            8,262,742Unsecured:Other
                bank borrowings
            
            
            0
            
            
            592,760$
            8,336,937
            
            $
            8,855,502





As
      of
      March 31, 2008, the Company’s banking facilities are composed of the following:




Facilities
                granted
            
            Granted
            
            Amount
                Utilized
            
            UnusedLetter
                of credit including:-
                Outstanding letter of credit
            
            
            
            
            $
            423,740-
                Letter of credit under trust receipt
            
            
            
            
            
            3,645,2125,128,205
            
            
            4,068,952
            
            
            1,059,253Bank
                overdrafts
            
            
            256,410
            
            
            105,966
            
            
            150,444Non-recurring
                bank loans
            
            
            4,162,018
            
            
            4,162,018
            
            
            -Bank
                guarantee for utility deposit
            
            
            153,846
            
            
            153,846
            
            
            -9,700,479
            
            
            8,490,782
            
            
            1,209,697





The
      above
      banking borrowings were secured by the following:-





(a)
            first
                fixed legal charge over 17 DVDR production lines with carrying amounts
                of
                $10,374,060; 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.





20





**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





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





The
      Company’s potentially dilutive securities at March 31, 2008 include the
      following:





Convertible
                redeemable preferred stock Series B
            
            
            16,011,804Detachable
                common stock warrants
            
            
            28,510,347Placement
                agent warrants
            
            
            2,931,03547,453,186





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





Operating
      leases commitments





The
      company leases office and factory premises under various non-cancelable
      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 March 31, 2008 are as follows:





Period
                ending March 312008
            
            $
            258,6132009
            
            
            119,2492010
            
            
            28,800





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.





21





**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 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 tocommon
                stock onvarious
                dates
            
            
            2,226,215
            
            $
            235,001
            
            
            (83,006
            )
            $
            (235,001
            )
            $
            -Balance,
                March 31, 2008
            
            
            147,774,923
            
            $
            2,662,861
            
            
            514,005
            
            $
            1,455,221
            
            $
            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.





22


**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





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





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.





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.





23


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





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





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.




**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 MPF Scheme is to make the required contributions under the
      plan.





The
      assets of the schemes are controlled by trustees and held separately from those
      of the Company. The Company fully complied the contribution requirement and
      total pension cost was $25,740 and $18,482 for the three months ended March
      31,
      2008 and 2007, respectively.




24




**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


**(Unaudited)**


**(Stated
      in US Dollars)**





**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
            
            TotalThree months ended
              March 31
            
            Three months ended
              March 31
            
            Three months ended
              March 31
            
            Three months ended
              March 312008
            
            2007
            
            2008
            
            2007
            
            2008
            
            2007
            
            2008
            
            2007(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)Revenue
                from external customers
            
            $
            182,500
            
            
            -
            
            $
            5,652,182
            
            $
            7,075,858
            
            $
            1,725,765
            
            $
            622,557
            
            $
            7,560,447
            
            $
            7,698,415Segment
                profit
            
            
            60,919
            
            
            -
            
            
            629,924
            
            
            1,030,274
            
            
            193,449
            
            
            90,647
            
            
            884,292
            
            
            1,120,921




As
                of
            
            As
                of
            
            As
                of
            
            As
                ofMarch 31,
            
            December31,
            
            March 31,
            
            December31,
            
            March 31,
            
            December31,
            
            March 31,
            
            December31,2008
            
            2007
            
            2008
            
            2007
            
            2008
            
            2007
            
            2008
            
            2007(Unaudited)
            
            (Audited)
            
            (Unaudited)
            
            (Audited)
            
            (Unaudited)
            
            (Audited)
            
            (Unaudited)
            
            (Audited)Segment
                assets
            
            $
            1,364,126
            
            $
            27,786,444
            
            $
            42,248,183
            
            $
            46,570,275
            
            $
            12,899,520
            
            $
            2,251,312
            
            $
            56,511,829
            
            $
            76,608,031




25


**INFOSMART
      GROUP, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 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 $11,722,445 respectively (December 31, 2007: production lines and
      equipment of $11,947,265), all of the Company’s long-lived assets are located in
      Hong Kong. Geographic information about net sales, which are classified based
      on
      location of the customers, is set out as follows:





***Three
                months ended***
              ***March
                31,******2008***
            
            ***2007******(Unaudited)***
            
            ***(Unaudited)***Argentina
            
            $
            149,024
            
            $
            0Australia
            
            
            129,147
            
            
            2,845,838Belize
            
            
            361,744
            
            
            0Brazil
            
            
            3,503,793
            
            
            2,521,387Czech
                Republic
            
            
            0
            
            
            20,573China
                and Hong Kong
            
            
            2,865,174
            
            
            673,373Philippine
            
            
            180,684
            
            
            0South
                America
            
            
            30,046
            
            
            0Thailand
            
            
            39,739
            
            
            427,110Turkey
            
            
            0
            
            
            147,498United
                Kingdom
            
            
            0
            
            
            142,926United
                States
            
            
            255,816
            
            
            769,767Other
                countries
            
            
            45,280
            
            
            149,943Total
            
            
            7,560,447
            
            
            7,698,415





**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.





26


**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**





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





The
      Company owns all of the capital stock of Infosmart BVI, a holding company
      incorporated in the British Virgin Islands. Infosmart BVI beneficially owns
      100%
      of the issued and outstanding capital stock of: (i) Info Smart Technology
      Limited (“IS Technology”), a company incorporated under the laws of Hong Kong;
      (ii) Info Smart International Enterprises Limited (“IS International”), a
      company incorporated under the laws of Hong Kong; and (iii) Portabello Global
      Limited (“Portabello”), a company incorporated under the laws of the British
      Virgin Islands. IS Technology owns all of the issued and outstanding capital
      stock of Infoscience Media Limited (“IS Media”), a company incorporated under
      the laws of Hong Kong. IS Media owns 99.42% of the issued and outstanding
      capital stock of Discobras Industria E Comercio de Eletro Eletronica Ltda.,
      a
      company incorporated under the laws of Brazil (“Discobras”), the remaining 0.58%
      ownership interest in Discobras is held by our local Brazilian partner. During
      the year 2006, the Company acquired all the issued and outstanding capital
      stock
      of Infoscience Holdings Limited (“IS Holdings”), a company incorporated under
      the laws of Hong Kong, through IS Media. IS Media has a Cooperation Agreement
      with IS Holdings wherein it manufactures its DVDRs using certain patent licenses
      and manufacturing licenses owned by IS Holdings. IS Media acquired IS Holdings
      to guarantee the continuation of this agreement and obtained the right to use
      the relevant patent licenses and manufacturing licenses.




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.




27




On
      April
      30, 2008, we closed a $5,000,000 commercial secured lending transaction (the
      “Loan”) with two institutional investors (the “Lenders”). We entered into a
      Securities Purchase Agreement, pursuant to which the Lenders loaned to us an
      aggregate of $4,000,000 at a 20% original issue discount from the aggregate
      $5,000,000 principal amount. The proceeds of this financing are marked for
      our
      development of Blu-Ray Disc (DB) sales and marketing efforts in local and
      international markets.





**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.





***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 to set up a subsidiary,
      Discobrás, in Brazil. Discobrás has a social capital of $8,046,281 (equivalent
      to R$17,385,600), of which 99.42% or $8,000,000 (equivalent to R$17,285,600)
      (“Investment Cost”) has been subscribed by the Company. As of March 31, 2008,
      neither one of the two independent third parties had fully satisfied their
      required capital contribution by any means. The minority interests have been
      recognized in the accompanying financial statements.





***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.





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





***Basic
      and diluted earnings per share.*** ** The
      Company reports basic earnings per share in accordance with SFAS No. 128,
“Earnings Per Share”. Basic earnings per share is computed using the weighted
      average number of shares outstanding during the periods presented. The weighted
      average number of shares of the Company represents the common stock outstanding
      during the periods presented.





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




The
      Company's common stock equivalents at March 31, 2008 include the
      following:





Convertible
                redeemable preferred stock Series B
            
            
            16,011,804Detachable
                common stock warrants
            
            
            28,510,347Placement
                agent warrants
            
            
            2,931,03547,453,186





28




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





***Inventories.*** Inventories
      are valued at the lower of cost or market with cost determined on a first-in,
      first-out basis. In assessing the ultimate realization of inventories, the
      management makes judgments as to future demand requirements compared to current
      or committed inventory levels. The Company’s reserve requirements generally
      increase/decrease due to management projected demand requirements, market
      conditions and product life cycle changes. During the reporting periods, the
      Company did not make any allowance for slow-moving or defective inventories.





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





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




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





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




***Recent
      accounting pronouncements.***





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
      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.




29




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 to 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 businesses in the business
      combination, establishes the 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(R) 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.





**Results
      of Operations**





*Comparison
      of Three Months Ended March 31, 2008 and 2007*





***Net
      Sales*** *.* For
      the
      three months ended March 31, 2008, net sales decreased relative to the three
      months ended March 31, 2007, from $7,698,415 to $7,560,447. The decrease in
      net
      sales mainly due to the greater cost fluctuation of outsourced Flash drives
      and
      memory cards for the past three months. We plan to explore other sources of
      these of Flash drives and memory cards to alleviate the costs during the coming
      few months. Also, net sales in China, which is our main customer segment base,
      dropped during the first quarter of 2008 due to decreased demand as a result
      of
      Chinese New Year and a blizzard in China that interrupted our distribution
      networks during the first quarter of 2008. Another factor in the decrease in
      net
      sales of DVDRs in Hong Kong is our policy of geographical diversification and
      our shift of focus from the lower margin Hong Kong markets to higher margin
      markets, such as Asia and Brazil. Market trends show a high expectation for
      the
      new Blu-ray discs and a lower demand for DVDR discs.




30




***Cost
      of Sales*** *.* Cost
      of
      sales increased from $5,733,147, or approximately 74.47% of net sales for the
      three months ended March 31, 2007, to $6,498,617, or approximately 85.95% of
      net
      sales for the three months ended March 31, 2008. The approximately 13% increase
      is mainly due to higher transportation costs incurred as a result of the
      operation of our Brazilian factory during the first quarter of
      2008.





***Gross
      Profit.*** Gross
      profit decreased approximately 46% from $1,965,268 for the three months
      ended  March
      31,
      2007 to $1,061,830 for the three months ended March 31, 2008. This decrease
      in
      gross profit was primarily due to the decrease in our volume of sales and the
      increase in our cost of sales.





***Selling
      and Distribution Costs*** .
      For the
      three months ended March 31, 2008, selling and distribution costs decreased
      approximately 8.36% from $79,516 to $72,867 relative to the three months ended
      March 31, 2007. The decrease is attributable to lower freight expenses for
      the
      first quarter of 2008 since our distribution network in China was interrupted
      by
      a blizzard during the first quarter of 2008.




***Administrative
      Expenses.*** Administrative
      expenses included depreciation and amortization charges, and was $780,224 and
      $931,050 for the three months ended March 31, 2008 and 2007, respectively.
      This
      substantial decrease in administrative expenses was due to effective cost
      control measures that we put in place during the first quarter of
      2008.





***Net
      Income*** **.** Net
      income decreased approximately 7.98% from $905,284 for the three months ended
      March 31, 2007 to $832,983 for the three months ended March 31, 2008. Net income
      margin was 11.01% and 11.75% in the same comparable periods in 2008 and 2007,
      respectively.





**Liquidity
      and Capital Resources**





Three
                MonthsEnded
                March 31,
            
            2008
            
            2007
            
            ChangeNet
                cash (used in) provided by operating activities
            
            $
            (573,270
            )
            $
            (311,605
            )
            $
            (261,665
            )Net
                cash (used in) Investing activities
            
            
            (57,570
            )
            
            (644,425
            )
            
            586,855Net
                cash provided by (used in) Financing activities
            
            
            (329,699
            )
            
            907,198
            
            
            (1,236,897
            )





Net
      cash
      used in operating activities was $573,270 for the three months ended March
      31,
      2008 and $311,605 for the three months ended March 31, 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 was a result of cash payments but not off-set by collection
      of receivables.





Net
      cash
      used in investing activities was $57,570 for the three months ended March 31,
      2008 and $644,425 for the three months ended March 31, 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 quarter of 2008.





Net
      cash
      used in financing activities was $329,699 for the three months ended March
      31,
      2008, and net cash provided by financing activities of $907,198 for the three
      months ended March 31, 2007. The decrease in our net cash provided by financing
      activities was mainly due to the repayment of a bank loan.




31




**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.




The
      following tables summarize our contractual obligations as of March 31, 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
            
            $
            8,337
            
            $
            6,797
            
            $
            1,540
            
            $
            —
            
            $
            —Other
                Indebtedness
            
            
            5,871
            
            
            5,302
            
            
            569
            
            
            —
            
            
            —Operating
                Leases
            
            
            406
            
            
            258
            
            
            148
            
            
            —
            
            
            —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.





32





**ITEM
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





Not
      applicable.





**ITEM
      4.**  **CONTROLS
      AND PROCEDURES.**





**Disclosure
      Controls and Procedures**





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





**Changes
      in Internal Control over Financial Reporting**





There
      were no changes in our internal control over financial reporting (as defined
      in
      Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
      amended) during the quarter ended March 31, 2008 that have materially
      affected, or are reasonably likely to materially affect our internal control
      over financial reporting.





**PART
      II - OTHER INFORMATION**





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





There
      have been no material developments during the quarter ended March 31, 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.




33




**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;





·
            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.




34




**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.





**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 that are described in more detail in the section titled
“Executive Compensation - Employment Agreements” in this annual report.





**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.




35




**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.




**We
      may be unable to retain our Hong Kong business customs license for our
      manufacturing facilities in Hong Kong**





The
      Hong
      Kong government requires companies manufacturing DVDRs to obtain a business
      license for the manufacture of optical Disc/Stampers (the “Hong Kong Business
      License”) from the Customs and Excise Department of Hong Kong. We currently
      manufacture our products under the Hong Kong Business License held by IS
      Holdings under the Cooperation Agreement. If IS Holdings loses its Hong Kong
      Business License or we lose our rights under the Cooperation Agreement, there
      is
      no guarantee that we will be able to otherwise obtain the Hong Kong Business
      Licenses necessary to operate our manufacturing facilities in Hong
      Kong.





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





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





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





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




36




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





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





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




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





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




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





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




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




37




**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 which 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
      product 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 it can procure the
      appropriate inputs at optimal costs. We must also try to reduce the levels
      of
      older product inventories to minimize inventory write-offs. If we have excess
      inventory, it may be necessary to reduce its prices and write down inventory,
      which could result in lower gross margins. Additionally, our customers may
      delay
      orders for existing 8x or 16x writable speed DVDR products in anticipation
      of
      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 result could be product recalls,
      an
      increased amount of product returns, loss of market acceptance and damage to
      our
      reputation, all of which could increase our costs and cause us to lose sales.
      We
      do not carry general commercial liability insurance covering our products.
      In
      addition, we are preparing to launch production of 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.




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





**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,
      then we may not be able to manufacture our products in Brazil, thus placing
      us
      at risk of losing its significant investment in the Brazilian
      venture.




39




**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 business against which we are not completely
      indemnified may have a material adverse effect on the Company.




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





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




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.




40




**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;





·
            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




41




·
            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.





**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.




42




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





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





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





**We
      are a public company subject to evolving corporate governance and public
      disclosure regulations that may result in additional expenses and continuing
      uncertainty regarding the application of such regulations.**




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




**Our
      shares 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 your shares or obtaining a suitable price at which to sell
      your
      shares.




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




The
      stock
      markets have experienced significant price and trading volume fluctuations,
      and
      the market prices of companies quoted on the Over-The-Counter Bulletin Board,
      the stock market 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;




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.




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




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





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




**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.**





Our
      directors and executive officers, specifically Chung Kwok, Po Nei Sze, and
      Andrew Chang, control approximately 59.7% 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 additional shares may be sold into the public market in the
      near
      future, which may cause the market price of our common stock to decline
      significantly even if our business is doing well.**





Sales
      of
      a substantial amount of common stock in the public market, or the perception
      that these sales may occur, could adversely affect the market price of our
      common stock. Assuming the full conversion of our Series B Preferred Stock,
      we
      will have approximately 176,116,942 shares of common stock outstanding as of
      March 31, 2008. As restrictions on resale of such additional shares end, the
      market price could drop significantly if the holders of these restricted shares
      sell them or are perceived by the market as intending to sell them.




**A
      large number of common shares are issuable upon exercise of outstanding common
      share warrants and upon conversion of our Series 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
      March 31, 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. The
      exercise price for all of the aforesaid warrants may be less than your cost
      to
      acquire our common shares. In the event of the exercise of these securities,
      you
      could suffer substantial dilution of your investment in terms of your percentage
      ownership in the company as well as the book value of your common shares. In
      addition, the holders of the common share purchase warrants may sell common
      shares in tandem with their exercise of those options or warrants to finance
      that exercise, or may resell the shares purchased in order to cover any income
      tax liabilities that may arise from their exercise of the warrants.




44




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





As
      a
      public company, we incur significant legal, accounting and other expenses that
      we did not incur prior to the closing of the share exchange transaction as
      a
      shell company with no business operations and nominal assets. We incur costs
      associated with our public company reporting requirements and costs associated
      with recently adopted corporate governance requirements, including certain
      requirements under the Sarbanes-Oxley Act of 2002, as well as new rules
      implemented by the SEC. These rules and regulations, in particular Section
      404
      of the Sarbanes-Oxley Act of 2002, significantly increased our legal and
      financial compliance costs and make some activities more time-consuming and
      costly. Like many smaller public companies, we face a significant impact from
      required compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Section
      404 requires management of public companies to evaluate the effectiveness of
      internal control over financial reporting and the independent auditors to attest
      to the effectiveness of such internal controls and the evaluation performed
      by
      management. The SEC has adopted rules implementing Section 404 for public
      companies as well as disclosure requirements. The Public Company Accounting
      Oversight Board, or PCAOB, has adopted documentation and attestation standards
      that the independent auditors must follow in conducting its attestation under
      Section 404.




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





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





We
      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.





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





We
      cannot
      predict the extent to which an active public market for our common stock will
      develop or be sustained. Our common shares have historically been sporadically
      or “thinly-traded” on the “Over-The-Counter Bulletin Board,” meaning that the
      number of persons interested in purchasing our common shares at or near bid
      prices at any given time may be relatively small or non-existent. This situation
      is attributable to a number of factors, including the fact that the Company
      is a
      small company 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 our shares
      is minimal or non-existent, as compared to a seasoned issuer which has a large
      and steady volume of trading activity that will generally support continuous
      sales without an adverse effect on share price. We cannot give you any assurance
      that a broader or more active public trading market for our common stock will
      develop or be sustained, or that current trading levels will be
      sustained.




45




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





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




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





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





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





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





None.




46




**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
                (5)2.2
            
            Transfer
                and Assumption Agreement dated as of May 31, 2005 (5)2.3
            
            Exchange
                Agreement by and among Cyber, KI Equity, Hamptons Investment Group,
                Ltd.,
                Prime and the Prime Shareholders dated July 7, 2006 (6)2.4
            
            Guarantee
                and Assumption Agreement by and among Cyber, Infosmart, IS International,
                IS Technology and IS Media dated July 7, 2006 (6)2.5
            
            First
                Amendment to the Exchange Agreement dated August 16, 2006 between
                Cyber,
                KI Equity Partners, LLC, Hamptons Investment Group, Ltd., Prime,
                Prime
                Shareholders, Infosmart Group Ltd. and the Infosmart Shareholders
                (7)2.6
            
            Amended
                and Restated Guarantee and Assumption Agreement by and among Cyber,
                IS
                International, IS Technology and IS Media dated August 16, 2006
                (7)2.7
            
            Voting
                Agreement by and among the Infosmart Stockholders and KI Equity dated
                August 16, 2006 (7)2.8
            
            Escrow
                Agreement by and among Cyber, KI Equity, Infosmart, the Infosmart
                Stockholders and Richardson, as escrow agent, dated August 16, 2006
                (7)2.9
            
            Financial
                Advisory Agreement by an among Keating Securities LLC and Cyber Merchants
                Exchange Inc. dated August 16, 2006 (7)3.1
            
            Articles
                of Incorporation (1)3.2
            
            Bylaws
                (1)3.3
            
            Text
                of Amendment to Bylaws (9)




47




3.4
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series A Convertible Preferred Stock (7)3.5
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series B Convertible Preferred Stock (7)4.1
            
            Lock-Up
                Agreement (2)4.2
            
            Specimen
                Stock Certificate for Shares of Common Stock of the Company
                (4)4.3
            
            Warrant
                expiring October 15, 2002 issued by the Company to Burlington Coat
                Factory
                Warehouse Corporation on October 15, 1997 (1)4.4
            
            Warrant
                expiring February 10, 2004 issued by the Company to Imperial Bank
                on
                February 10, 1999 (4)4.5
            
            Warrant
                expiring May 25, 2005 issued by the Company to Factory 2-U on May
                25, 2000
                (3)10.1
            
            Placement
                Agent Agreement dated July 7, 2006 between the Registrant, Securities,
                LLC
                and Axiom Capital Management, Inc. (7)10.2
            
            Form
                of Subscription Agreement between the Registrant and the Investor
                to be
                identified therein (7)10.3
            
            Registration
                Rights Agreement (7)10.4
            
            Form
                of Common Stock Purchase Warrant (7)10.5
            
            Assignment
                and Assumption of Placement Agreement by an among Infosmart, Cyber,
                Keatings Securities, LLC and Axiom Capital Management, Inc. dated
                August
                16, 2006 (7)10.6
            
            Appointment
                Letter Agreement by and among Po Nei Sze and Infosmart Group Limited
                dated
                June 1, 2006 (7)10.7
            
            Appointment
                Letter Agreement by and among Andrew Chang and Infosmart Group Limited
                dated July 1, 2006 (7)10.8
            
            Appointment
                Letter Agreement by and among Chung Kwok (aka Andy Kwok) and Infosmart
                Group Limited dated July 1, 2006 (7)10.9
            
            Cooperation
                Agreement by and among Infoscience Media Ltd. and Infoscience Holdings
                Ltd. dated December 1, 2005 (7)10.10
            
            Cooperation
                Agreement by and among Info Smart Technology Limited. and Mega Century
                Limited dated January 1, 2006 (7)10.11
            
            Amendment
                Agreement by and among Info smart Technology Limited, Info Smart
                International Enterprises Limited, and Mega Century Ltd. dated January
                1,
                2006 (7)10.12
            
            Banking
                Facilities Letter Agreement by and between Infoscience Media Limited
                and Hang Seng Bank Limited dated September 15, 2005
                (7)




48




10.13
            
            General
                Banking Facilities Agreement by and between Info Smart Technology
                Ltd. and
                Chiyu Banking Corporation Limited dated November 28, 2003
                (7)10.14
            
            Contract
                for two Automatic Dual Track DVDR Manufacturing Systems "Streamline
                II
                DVDR" between Infoscience Media Ltd. and ACME Cassette Manufacturing
                Limited dated September 15, 2004 (7)10.15
            
            Sale
                and Purchase Agreement between Infoscience Media Limited and New
                Passion
                Investments Limited dated December 1, 2006 (8)10.16
            
            Securities
                Purchase Agreement, dated April 30, 2008 (9)10.17
            
            Form
                of Secured Debenture (9)10.18
            
            Form
                of Warrant (9)10.19
            
            Security
                Agreement, dated April 30, 2008 (9)10.20
            
            Registration
                Rights Agreement, dated April 30, 2008 (9)10.21
            
            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
                *




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





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





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





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





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





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





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




49




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





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





50


**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:
                May 20, 2008
            By:
            /s/
                Parker SetoParker
                SetoChief
                Executive Officer and President





51