**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-K**


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




**For
      the fiscal year ended December 31, 2007**




**OR**


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




**For
      the transition period from**  ****  **to**  ****




**Commission
      file number: 001-15643**





**INFOSMART
      GROUP, INC.**


(Exact
      name of registrant as specified in its charter)


California
            
            95-4597370(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)5thFloor, QPL Industrial Building, 126-140 Texaco Road,
              Tsuen
                Wan, Hong Kong
            
            N/A(Address
                of principal executive offices)
            
            (Zip
                Code)




Registrant’s
      telephone number: (852) 2944-9905





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


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




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes o No þ





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes o No þ




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




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




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





Large
      accelerated filer o     Accelerated
      filer o




Non-accelerated
      filer o     Smaller
      reporting company þ





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





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold, or the average bid and asked price of such common equity, as of
      the
      last business day of the registrant’s most recently completed second fiscal
      quarter: $11,548,078 computed by reference to $0.26 as of June 29,
      2007.





Number
      of
      shares of common stock outstanding as of March 14, 2008:
      147,593,836









**TABLE
      OF CONTENTS**


**TO
      ANNUAL REPORT ON FORM 10-K**


**FOR
      YEAR ENDED DECEMBER 31, 2007**





PagePART
                IItem
                1.
            
            Business
            
            3Item
                1A.
            
            Risk
                Factors
            
            11Item
                2.
            
            Properties
            
            22Item
                3.
            
            Legal
                Proceedings
            
            22Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            23PART
                IIItem
                5.
            
            Market
                for Registrant's Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            23Item
                6.
            
            Selected
                Financial Data
            
            24Item
                7.
            
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operation
            
            24Item
                7A.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            32Item
                8.
            
            Financial
                Statements and Supplementary Data
            
            32Item
                9.
            
            Disagreements
                With Accountants on Accounting and Financial Disclosure
            
            34Item
                9A(T).
            
            Controls
                and Procedures
            
            34Item
                9B.
            
            Other
                Information
            
            34PART
                IIIItem
                10.
            
            Directors,
                Executive Officers and Corporate Governance
            
            35Item
                11.
            
            Executive
                Compensation
            
            37Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            40Item
                13.
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            41Item
                14.
            
            Principal
                Accounting Fees and Services
            
            44PART
                IVItem
                15.
            
            Exhibits,
                Financial Statement Schedules
            
            44Signatures
            
            
            
            47




2





**PART
      I**





**ITEM
      1. BUSINESS**




This
      Report contains forward-looking statements. All forward-looking statements
      are
      inherently uncertain as they are based on current expectations and assumptions
      concerning future events or future performance of the Company. Readers are
      cautioned not to place undue reliance on these forward-looking statements,
      which
      are only predictions and speak only as of the date hereof. Forward-looking
      statements usually contain the words “estimate,” “anticipate,” “believe,”
“expect,” or similar expressions, and are subject to numerous known and unknown
      risks and uncertainties. In evaluating such statements, prospective investors
      should carefully review various risks and uncertainties identified in this
      Report, including the matters set forth under the captions “Risk Factors” and in
      the Company’s other SEC filings. These risks and uncertainties could cause the
      Company’s actual results to differ materially from those indicated in the
      forward-looking statements. The Company undertakes no obligation to update
      or
      publicly announce revisions to any forward-looking statements to reflect future
      events or developments.




Although
      forward-looking statements in this Annual Report on Form 10-K reflect the good
      faith judgment of our management, such statements can only be based on facts
      and
      factors currently known by us. Consequently, forward-looking statements are
      inherently subject to risks and uncertainties, and actual results and outcomes
      may differ materially from the results and outcomes discussed in or anticipated
      by the forward-looking statements. Factors that could cause or contribute to
      such differences in results and outcomes include, without limitation, those
      specifically addressed under the heading “Risks Relating to Our Business” below,
      as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers
      are urged not to place undue reliance on these forward-looking statements,
      which
      speak only as of the date of this Annual Report on Form 10-K. We file reports
      with the Securities and Exchange Commission (“SEC”). You can read and copy any
      materials we file with the SEC at the SEC’s Public Reference Room, 100 F.
      Street, NE, Washington, D.C. 20549 on official business days during the hours
      of
      10 a.m. to 3 p.m. You can obtain additional information about the operation
      of
      the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition,
      the
      SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and
      information statements, and other information regarding issuers that file
      electronically with the SEC, including the Company.




*We
      undertake no obligation to revise or update any forward-looking statements
      in
      order to reflect any event or circumstance that may arise after the date of
      this
      Annual Report on Form 10-K. Readers are urged to carefully review and consider
      the various disclosures made throughout the entirety of this annual report,
      which attempt to advise interested parties of the risks and factors that may
      affect our business, financial condition, results of operations and
      prospects.*





**Overview**





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





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





In
      December 2006, IS Media acquired 100% of the issued and outstanding common
      stock
      of Infoscience Holdings Limited (“IS Holdings”). IS Media has a cooperation
      agreement with IS Holdings wherein it manufactures its DVDRs using certain
      patent licenses owned by IS Holdings. IS Media acquired IS Holdings to guarantee
      the continuation of this cooperation agreement. We also have a Brazilian
      subsidiary, Discobras Industria E Comercio de Electro Eletronica Limiteda
      (“Discobras”), which was formed in March 2006 by IS Media and a local partner,
      with registered capital of US$8 million for our new Brazilian DVDR production
      facility. IS Media currently holds a 99.42% ownership interest in Discobras,
      and
      the local partner holds the remaining 0.58% ownership interest in Discobras.
      In
      addition, we incorporated a new subsidiary, Portabello Global Limited
      (“Portabello”), for distributing and reselling our recordable digital versatile
      discs and media to customers in South America.





**History
      and Development of the Company**





History





We
      were
      incorporated on July 16, 1996 in the State of California under the name Cyber
      Merchants Exchange, Inc. (“Cyber”). In July 1999, we raised approximately $3.2
      million through an initial public offering. On June 30, 2000, we raised an
      additional $6.3 million in a private placement offering subscribed by 30 high
      net-worth Chinese investors. Prior to our reorganization, as described below,
      we
      were an intermediary to global suppliers and buyers in the manufacturing,
      wholesaling and retailing apparel business. Effective October 12, 2006, we
      changed our name from Cyber Merchants Exchange, Inc. to Infosmart Group, Inc.
      (the “Company”).




3




Company
      Reorganization





On
      May
      16, 2004, our shareholders of record on March 25, 2005 approved a reorganization
      of the Company (the "Company Reorganization"). The Company Reorganization is
      summarized as follows:




·
            We
                transferred of all of our assets and liabilities (the "Transfer")
                to ASAP
                Show Inc., a then wholly owned subsidiary ("ASAP"), effective May
                31, 2005
                pursuant to a Transfer and Assumption Agreement (“Transfer Agreement”),
                with ASAP continuing to operate the trade show business previously
                carried
                on by us;




·
            We
                issued a stock bonus to certain directors and key employees of 120,862
                shares of our common stock, on a post-reverse split basis, effective
                May
                31, 2005 (the “Stock Bonus”);




·
            We
                effected a one for eight and one-half (1-for-8.5) reverse stock split
                of
                our common stock (the "Reverse Split") with special treatment to
                preserve
                round lot stockholders, effective July 18,
                2005;




·
            On
                or about August 25, 2005, we distributed 8,626,480 shares of common
                stock
                of ASAP, representing all of the outstanding shares of ASAP, to our
                shareholders of record on August 18, 2005 on a pro rata basis (the
                "Distribution"), with such distributed shares being held by our transfer
                agent as depository agent until such time as the Form 10-SB filed
                by ASAP
                became effective with all comments from the SEC cleared (certificates
                representing such shares were issued by the transfer agent to the
                shareholders on or about March 27,
                2006);




·
            We
                entered into an amended and restated Securities Purchase Agreement
                (“SPA”)
                with KI Equity effective as of August 25, 2005;
                and




·
            On
                September 30, 2005, we completed the sale of 7,104,160 shares of
                our
                common stock to KI Equity for $415,000 (the "Investment"), with the
                net
                proceeds of the Investment being paid to ASAP pursuant to the terms
                of the
                Transfer Agreement.




In
      connection with the closing of the Investment, our then current directors and
      officers resigned, and Kevin Keating was appointed the sole director and officer
      of the Company. We accounted for the Company Reorganization as a reverse spinoff
      in accordance with the Emerging Issues Task Force Issue No. (“EITF”) 02-11,
“ *Accounting
      for Reverse Spinoffs.* ”
In
      a
      reverse spinoff, the legal spinnee (ASAP) is treated as though it were the
      spinnor for accounting purposes. Reverse spinoff accounting is appropriate
      as
      the treatment of the legal spinnee as the accounting spinnor results in the
      most
      accurate depiction of the substance of the transaction for shareholders and
      other users of the consolidated financials statements. Under this treatment,
      the
      historical financial statements of the Company became the historical financial
      statements of ASAP. In making its determination, the Company considered the
      following indicators, among others: (i) the accounting spinnor (legal spinnee,
      ASAP) is larger than the accounting spinnee (legal spinnor, the Company); (ii)
      the fair value of the accounting spinnor (legal spinnee) is greater than that
      of
      the accounting spinnee (legal spinnor); (iii) the accounting spinnor (legal
      spinnee) retains the senior management of the formerly combined entity; and
      (iv)
      the accounting spinnor (legal spinnee) retains senior management. As a result
      of
      the Company Reorganization, the Company became a shell company with nominal
      assets and operations, with a business purpose being to identify, evaluate
      and
      complete a business combination with an operating company.




Change
      in Control Transaction




On
      July 7, 2006, the Company entered into an Exchange Agreement with KI Equity
      Partners LLC, Prime Fortune Enterprises Ltd. (“Prime”), the equity owners of
      Prime, namely, Mr. Chung Kwok, Ms. Po Nei Sze and Prime Corporate Developments
      Limited (the “Prime Shareholders”), and Hamptons Investment Group Ltd.
      (“Hamptons”) (collectively the “Infosmart BVI Shareholders”) to acquire all of
      the equity ownership of Infosmart Group Limited, a British Virgin Islands
      company (“Infosmart BVI”) through the acquisition of Prime, the former 100%
      direct equity owner and holding company of Infosmart BVI. Under the terms of
      the
      Exchange Agreement, immediately prior to the closing of the share exchange
      transaction, Hamptons was to receive 58.82352 shares of Prime’s capital stock as
      payment for its services as a finder in connection with the exchange
      transaction.




However,
      on August 11, 2006 and prior to the closing of the share exchange transaction,
      Prime’s and Infosmart BVI’s board of directors and their respective shareholders
      agreed to restructure the ownership of Infosmart BVI’s issued capital stock,
      resulting in the transfer of the entire equity ownership of Infosmart BVI
      directly to Mr. Chung Kwok, Ms. Po Nei Sze and Prime Corporate Developments
      Limited. On August 14, 2006, the Company entered into a First Amendment to
      the
      Exchange Agreement with KI Equity, Prime, the equity owners of Prime, Infosmart
      BVI, the equity owners of Infosmart BVI (which also consisted of Mr. Chung
      Kwok,
      Ms. Lui Sau Wan and Prime Corporate Developments Limited), and Hamptons, whereby
      Infosmart BVI and the Infosmart BVI Shareholders replaced Prime and the Prime
      Shareholders as a parties to the Exchange Agreement, and they assumed all of
      Prime’s and the Prime Shareholders’ obligations, representations, warranties,
      liabilities and responsibilities under the Exchange Agreement, including Prime’s
      obligation to issue the shares of stock to compensate Hamptons for its services
      immediately prior to the closing of the share exchange transaction. Pursuant
      to
      the Exchange Agreement, as amended by the First Amendment, the Company acquired
      all of the outstanding shares of Infosmart BVI’s capital stock from the equity
      owners of Infosmart BVI and Hamptons, and the Infosmart BVI Shareholders
      transferred and contributed all of their Infosmart BVI shares to the Company.
      In
      exchange, the Company issued to the Infosmart BVI Shareholders 1,000,000 shares
      of the Company’s Series A Preferred Stock, which were convertible into
      116,721,360 shares of the Company’s common stock.




4





The
      closing of the Exchange Agreement was contingent on a minimum of $7,000,000
      being subscribed for, and funded into escrow, by certain accredited and
      institutional investors (“Investors”) for the purchase of shares of the
      Company’s Series B Preferred Stock promptly after the closing of the Exchange
      Agreement under terms and conditions approved by the Company’s board of
      directors immediately following the Exchange Agreement (the “Financing”). The
      closing of the Financing was contingent on the closing of the Exchange
      Agreement, and the Exchange Agreement was contingent on the closing of the
      Financing.




Recent
      Financing




Immediately
      following the closing of the Exchange Agreement, we received gross proceeds
      of
      approximately $7.65 million in connection with the Financing from the Investors.
      Pursuant to Subscription Agreements entered into with these Investors, we sold
      1,092,857.143 shares of our Series B Preferred Stock at a price per share of
      $7.00. Each share of Series B Preferred Stock is convertible into shares of
      our
      common stock. The Company registered the common stock underlying the Series
      B
      Preferred Stock issued in the Financing with the Securities and Exchange
      Commission for resale by the Investors. After commissions and expenses, we
      received net proceeds of approximately $6.89 million in the
      Financing.





In
      connection with the issuance of the Series B Preferred Stock to the Investors,
      the Company issued warrants to the Investors to purchase an aggregate of
      29,310,345 shares of common stock, on as-converted basis, of the Company. The
      warrants have an exercise price of $0.326 per share, subject to
      adjustments.





Keating
      Securities, LLC and Axiom Capital Management, Inc. (“Placement Agents”) acted as
      placement agent in connection with the Financing. For their services, the
      Placement Agents received a commission equal to 8% of the gross proceeds from
      the Financing and a non-accountable expense allowance equal to 2% of the gross
      proceeds. In addition, the Placement Agents received, for nominal consideration,
      five-year warrants to purchase 10% of the number of shares of common stock
      into
      which the Series B Preferred Stock issued in the Financing may be converted
      (“Placement Agent Warrants”).  The Placement Agent Warrants are exercisable
      at any time at a price equal 125% of the conversion price, on a net-issuance
      or
      cashless basis. The Placement Agent Warrants have registration rights similar
      to
      the registration rights afforded to the holders of Series B Preferred Stock
      and
      Warrants. The Company also paid for the out-of-pocket expenses incurred by
      the
      Placement Agent and all purchasers in the amount of $25,000.





Upon
      completion of the exchange transaction, and after giving effect to the
      Financing, the Infosmart BVI Shareholders owned 1,000,000 shares of the
      Company’s Series A Preferred Stock, and the Investors in the aggregate received
      1,092,857.143 shares of our Series B Preferred Stock. The Series A Preferred
      Stock automatically converted into 116,721,360 shares of common stock upon
      the
      filing and approval of a Certificate of Amendment to the Company’s Articles of
      Incorporation with the Secretary of State of the State of California on October
      12, 2006. Immediately after the exchange transaction, the Infosmart BVI
      Shareholders and the Investors owned, in the aggregate, 91.84% of our issued
      and
      outstanding shares of common stock after giving effect to the conversion of
      the
      Series A and Series B Preferred Stock into common stock, and the Company’s
      stockholders immediately prior to the exchange transaction owned 8.16% of the
      outstanding common stock (or, 12,969,040 shares of our common stock) after
      giving effect to the conversion of the Series A and Series B Preferred Stock
      into common stock.





The
      issuance of the Series A Preferred Shares to the Infosmart BVI Shareholders
      and,
      upon conversion, the shares of the Company’s common stock underlying the Series
      A Preferred Shares, was intended to be exempt from registration under the
      Securities Act of 1933, as amended (the “Securities Act”), pursuant to
      Regulation S promulgated thereunder. The issuance of the Series B Preferred
      Shares to Investors was intended to be exempt from registration under the
      Securities Act pursuant to Section 4(2) thereof and such other available
      exemptions. As such, the Series A Preferred Shares and the Series B Preferred
      Shares, and upon conversion thereof, the Company’s common stock, may not be
      offered or sold in the United States unless they are registered under the
      Securities Act, or an exemption from the registration requirements of the
      Securities Act is available.




Name
      Change and Increase in Authorized Shares of Common Stock




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




5





**Infosmart
      BVI**





History




Infosmart
      Group Limited (“Infosmart BVI”) was incorporated in the British Virgin Islands
      on August 23, 2005 under the International Business Companies Act of the British
      Virgin Islands. Prior to the Restructuring (as described above), Prime Fortune
      Enterprises Limited, a British Virgin Islands company (“Prime”), was the sole
      equity owner and shareholder of 100% of Infosmart BVI’s issued capital shares.
      In August 2006, the board of directors of both Prime and Infosmart BVI decided
      to restructure certain shareholdings in Infosmart BVI so that after the
      Restructuring, Prime would no longer own 100% of Infosmart BVI’s issued capital
      shares and so that Prime Corporate Developments Ltd. (“Prime Corporate”), Mr.
      Chung Kwok and Ms. Sau Wan Lui would replace Prime as the direct owners of
      100%
      of the issued capital shares and equity ownership of Infosmart BVI.





Prior
      to
      the Restructuring, Prime owned 100% of the issued capital shares of Infosmart
      BVI, which consisted of one (1) issued capital share, and Prime’s issued capital
      shares were owned as follows: 713 shares held by Prime Corporate, 212 shares
      held by Mr. Chung Kwok, and 75 shares held by Lui Sau Wan. On August 11, 2006,
      in connection with the Restructuring, Prime’s board of directors approved
      resolutions for Prime to transfer the one (1) issued capital share of Infosmart
      BVI owned by Prime to Prime shareholder Chung Kwok in exchange for a cash
      payment of $1.00 (the “Prime Transfer”), and that pursuant to such resolutions,
      Prime transferred the one Infosmart BVI share to Chung Kwok on August 11, 2006
      in exchange for the $1.00 cash payment.





Further,
      on August 11, 2006 and concurrent with the Prime Transfer, Infosmart BVI’s Board
      approved resolutions for the issuance of 999 new shares in Infosmart BVI to
      Prime Corporate Developments Limited (“Prime Corporate”), Chung Kwok and Lui Sau
      Wan, as follows: 713 shares to Prime Corporate, 211 shares to Chung Kwok, and
      75
      shares to Lui Sau Wan, in exchange for a cash payment by Prime Corporate, Chung
      Kwok and Lui Sau Wan of $1.00 per Infosmart BVI share that each receives (the
      “Infosmart BVI Share Issuance”) or an aggregate total payment of $999 for such
      shares. On August 11, 2006, Infosmart BVI issued the 999 Infosmart BVI shares,
      in amounts as described above, to Prime Corporate, Chung Kwok and Lui Sau Wan
      and, in exchange, received the $999 cash payment, pursuant to such
      resolutions.





As
      a
      result of and immediately after the Prime Transfer and the Infosmart BVI Share
      Issuance, Prime Corporate, Mr. Chung Kwok and Ms. Sau Wan Lui became the owners
      of 100% of the issued capital shares of Infosmart BVI, with each of them owning
      the same number of Infosmart BVI shares as the number of Prime shares that
      each
      currently owns. Pursuant to a group reorganization completed in October 2005
      (the “Infosmart BVI Reorganization”), Infosmart BVI is the holding company
      (directly and indirectly) of IS Technology, IS International, IS Media, and
      Discobras.





Infosmart
      BVI started in the DVDR manufacturing business with the establishment of IS
      Technology. Founded in Hong Kong in August of 2002, IS Technology was the first
      company in Hong Kong to manufacture recordable digital versatile discs. With
      the
      continual growth in DVDR demand, the initial shareholders of IS Technology
      took
      in other shareholders to form two other companies, IS International and IS
      Media
      Limited, to produce DVDRs. , In December 2006, IS Media acquired 100% of the
      issued and outstanding common stock of Infoscience Holdings Limited (“IS
      Holdings”). IS Media has a Cooperation Agreement with IS Holdings wherein it
      manufactures its DVDRs using certain patent licenses owned by IS Holdings.
      IS
      Media acquired IS Holdings to guarantee the continuation of this agreement.
      These four companies and Discobras now form the Company’s main operational
      business in Hong Kong and Brazil respectively.




6




Current
      Organizational Structure





As
      a
      result of the share exchange transaction, the Company Reorganization, the
      Infosmart BVI Reorganization, the Restructuring, and subsequent acquisitions
      of
      new subsidiaries, the Company’s current organizational structure is as follows
      (the percentages depict the current equity interests):










7




**Our
      Business**





We
      develop, manufacture, market and sell 8x and 16x writable speed DVDRs and 52x
      writable speed CDRs, and we are preparing for manufacturing of Blu-Ray format
      DVDR discs. In order to act as a one-stop-shop for the optical storage media
      needs for our customers, we also outsource orders for products we do not produce
      ourselves, such as DVD±RW discs and DVD-RAM discs and other low margin DVDR
      items. We have customers in Western Europe, China, South America and Australia.
      To capture the South American market, we have established a sales and
      distribution network in Brazil and set up a DVDR production facility in Brazil,
      and we have a subsidiary, Portabello, that distributes and resells our
      recordable digital versatile discs and media to customers in South
      America.





**Current
      Products**





We
      currently develop, manufacture, market and sell recordable digital versatile
      discs (“DVDRs”). A DVDR is an optical disc storage media format that can be used
      for data storage, including movies with high video and sound quality. DVDRs
      are
      manufactured with different writable speed ratings. The writable speed ratings
      of blank DVDRs match the speed at which the recording lasers in digital
      versatile disc (“DVD”) drives (such as those found in DVD players or the DVD
      disc drives in computers) can write or “burn” data onto the DVDRs. Currently,
      most DVD drives are able to write or “burn” data onto DVDRs at 8 times (“8x”) or
      16 times (“16x”) the industry set standard speed for writing or “burning” data
      onto a DVDR disc. We manufacture discs with 8x and 16x writable speed ratings.
      We estimate that our sales of our 8x writable speed DVDRs account for
      approximately 60% of our output, while 16x writable speed DVDRs make up
      approximately 40% of our output.





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.





The
      following is a segment analysis of our products:




Flash
                    drive
                  and
                    memory card
                  Twelve
                    months ended
                  December
                    31,
            
            
            DVDR
                  and
                Related
                  Products
                Twelve
                  months ended December 31,
            
            
            CDR
                Twelve
                  months ended December 31,
            
            
            Total
                Twelve
                  months ended
                December
                  31,2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Revenue
                from external customers
            
            $
            52,345,020
            
            
            -
            
            $
            49,540,084
            
            
            25,622,351
            
            $
            3,084,795
            
            
            1,480,090
            
            $
            104,969,899
            
            
            27,102,441Segment
                profit
            
            
            3,281,250
            
            
            -
            
            
            6,891,841
            
            
            4,512,839
            
            
            67,895
            
            
            260,687
            
            
            10,240,986
            
            
            4,773,526





**Research
      and Development**





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.





**Manufacturing**





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.
      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




8




**Intellectual
      Properties and Licenses**





Our
      subsidiary Infoscience Media Limited (“IS Media”) entered into a cooperation
      agreement (“Cooperation Agreement”) with Infoscience Holdings Limited, a then
      independent third party and currently a subsidiary of IS Media (“IS Holdings”),
      on December 1, 2005. Under the Cooperation Agreement, the parties agreed to
      operationally combine their production facilities so that both IS Media and
      IS
      Holdings could both produce DVDRs at their combined facilities using certain
      intellectual properties for the production of DVDRs for which IS Holdings holds
      patent licenses (the “Patent License”) for use from the DVDR developer (the
“License Agreement”) and also a right to manufacture DVDRs under a government
      manufacturing license (the ”Manufacturing License”) held by IS Holdings. IS
      Holdings also agreed that IS Media shall have full legal and beneficial
      ownership of the first 5,000,000 DVDR discs (the “Second Minimum Quantity”)
      produced in both IS Media’s and IS Holding’s production facilities (the
“Combined Facilities”) for each whole month during the one year term of the
      Cooperation Agreement.





In
      exchange, IS Media agreed: (1) IS Holdings shall receive full legal and
      beneficial ownership of all DVDRs produced in the Combined Facilities that
      are
      in excess of the Second Minimum Quantity; and (2) to provide IS Holdings with
      stand-by credit of not more than HK$30,000,000 from IS Media’s own sources or
      indirectly from any third party including any licensed Hong Kong bank. Under
      the
      Cooperation Agreement, IS Holdings is responsible for paying all the relevant
      licensee fees, and IS Media is responsible for all the recurrent costs and
      expenses (except for rent and public utilities, for which each party is
      responsible for the costs they incur in their own production facility) incurred
      for the production of all DVDR products manufactured in the Combined Facilities
      during the one year term of the Cooperation Agreement.





IS
      Media
      purchased 100% of the outstanding stock of IS Holdings on December 1, 2006
      by
      entering into a Sale and Purchase Agreement with New Passion Investments
      Limited. Thus, the Company now indirectly owns the Manufacturing License and
      Patent License. The Cooperation Agreement was extended for a further 2 years
      until December 31, 2008.




The
      patent license held by IS Holdings was 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 (or
      for which these companies have patent applications pending) by participating
      companies including Philips, Sony, Hewlett Packard and/or Pioneer that are
      essential in the DVDR manufacturing process. The patent license offered through
      Philips’ DVDR Patent Licensing Program is offered under non-discriminatory terms
      and conditions and, in principle, is available to all
      manufacturers.





In
      connection with the completion of the Discobras DVDR production facility in
      Brazil, we started the process of obtaining the required patent license for
      use
      of intellectual property. Discobras has satisfied the relevant governmental
      requirements in Brazil to produce DVDRs in its production facility. The patent
      license, however, is currently being negotiated with the relevant owners of
      the
      patent which are overseas companies located outside of Brazil, and the Brazilian
      government must approve the patent license.




**Sources
      and Availability of Raw Materials and Principal Suppliers**





Raw
      material costs constitute approximately 60% of the production costs for DVDR
      and
      CDR discs. Key materials used in DVDR production are polycarbonate, silver
      target, organic dye, printing oil and bonding glue. The most important cost
      item
      is polycarbonate, which accounts for about half of cost of goods
      sold.





The
      supply market for polycarbonate is competitive. Major polycarbonate suppliers
      include Teijin Chemicals, Dow Chemical, General Electric, Bayer, and Mitsubishi.
      We order polycarbonate from a variety of sources depending on price and
      availability. Since polycarbonate is a petroleum byproduct, its price is
      affected by crude oil prices and can be volatile. We place three (3) month
      supply contracts with polycarbonate vendors. These supply contracts guarantee
      quantity but leave pricing to be determined by the market.





Polycarbonate
      prices increased from $1.90 - 2.50/kg in 2004 to around $2.80/kg - $3.50/kg
      in
      2005 because of surging oil prices and supply constraints, thereby seriously
      cutting the profit margins of disc manufacturers worldwide. Capacity was hit
      in
      2004 by the explosion of GE’s PCB factory in Spain. At the end of 2005,
      worldwide polycarbonate capacity expanded as a major new factory came online
      in
      Shanghai, and two other large factories in Japan and the U.S. expanded output
      in
      response to higher market prices. Polycarbonate prices were approximately
      $3.00/kg - $3.10/kg at the beginning of 2006 and dropped into the $2.80-$3.10
      range at the end of 2006. We have worked closely with polycarbonate suppliers
      as
      we are a bulk volume purchaser for production in Hong Kong and Brazil, and
      we
      were able to negotiate prices to about $2.618/kg at the end of 2007 and about
      $2.6/kg for early 2008 .





**Marketing
      and Distribution**





More
      than
      90% of our sales are to wholesalers and distributors who resell to retailers.
      We
      have increased our exposure in Europe, USA, South America, the Middle East,
      Asia
      and China through  our
      marketing efforts and attendance at trade shows such as:





·
            CeBIT
                (Hannover, Germany) 2003, 2004,
                2005





·
            Comdex
                (Las Vegas, USA) 2003




·
            Computex
                (Taipei, Taiwan) 2004




9


·
            Gitex
                (Dubai, UAE) 2004 and 2005





·
            China
                Sourcing Fairs 2004





·
            IT
                Brazil 2005, 2006





·
            Hong
                Kong Electronics Show 2004, 2005,
                2006





During
      2007, and as a result of our operations in Brazil, we established our brands
      “LASERLINE” and “HONGTEK” in the Brazilian and South American markets. We will
      continue direct sales efforts into these markets in 2008 as such efforts have
      proven effective even though we outsource products from other
      suppliers.





We
      also
      anticipate the increased use of Portabello and Infoscience Media Global Limited
      in marketing to small-scale distributors in South America and the China/Hong
      Kong region, respectively.





**Current
      Customers**





We
      have
      established a wide client base and distribution network covering Europe/United
      Kingdom, the Middle East, Australia, South America and Asia.





Our
      top
      three customers by value, who accounted for 23.07% of our revenue in 2007,
      are
      as follows:





·
            Laser
                Corporation markets our DVDR blank media in Australia. Laser Corporation
                obtains almost 100% of its DVDR blank media supplies from us. Sales
                to
                Laser Corporation account for approximately 8.76% of our
                revenue.




·
            China
                Trade Group Limited markets our SD card in China and obtains about
                80% of
                its SD card supplies from us. Sales to China Trade Group account
                for
                approximately 8.07% of our revenue.





·
            Yesgee
                Trading Limited markets our SD card in China. Yesgee obtains about
                80% of
                its SD card supplies from us. Sales to Yesgee account for approximately
                6.24% of our revenue.




Management
      expects that the proportion of revenue accounted for by these customers will
      decrease as its markets develop in South America. We will be careful to maintain
      relationships with existing customers in developed countries because they are
      expected to be volume buyers of our Blu-ray discs in the future. During 2007,
      we
      considered the products competing with DVDRs such as flash cards and took a
      pro-active approach in marketing our own brand of flash cards with core
      technology patented by a Taiwan company.





Our
      pricing and payment terms are flexible. Our objective is to build a strong
      base
      of loyal customers, and management will offer competitive prices to capture
      market share in specific markets that have strong growth prospects. Our payment
      terms are more stringent for new customers and more flexible for long-term
      customers and established businesses.





In
      the
      Brazilian market, our DVDR facilities have already been running at full capacity
      but are not, yet, able to satisfy customer demands. We have been transporting
      some of our DVDR output to Brazil from Hong Kong, which takes about 60-75 days
      for shipment and customs clearance. We have granted about 6o-90 days credit
      with
      a certain amount of deposits from wholesaling customers and distributors. We
      have exercised tight credit control in the South American market and, due to
      the
      strong market demand, we have recently reduced our credit
      period.





**Competition**





Products





We
      currently produce Single Layer (“SL”) DVDR discs of two writable speeds (8x and
      16x) and CDR discs of 52x writable speed, but we are preparing to launch
      production of DVDR discs in either High Density or Blu-Ray formats. The table
      and discussion below describe some competitor products:





Computer
      storage media comparison




Product
            
            Media
                Type
            
            Storage
                Capacity
            
            Unit
                Price ($)
            
            Approximate
                Price
              per
                MB (¢/MB)Floppy
                Disc
            
            
            Non-
                optical
            
            
            1.44
                MB
            
            
            0.22
            
            
            23.75USB
                Drive
            
            
            Non-
                optical
            
            
            2
                GB
            
            
            70
                - 140
            
            
            7-12Flash
                Memory
            
            
            Non-
                optical
            
            
            1
                GB
            
            
            76
                - 120
            
            
            7.4-11.7Hard
                Disc
            
            
            Non-
                optical
            
            
            200
                GB
            
            
            130
            
            
            0.06CD-R
            
            
            Optical
            
            
            700
                MB
            
            
            0.18-0.30
            
            
            0.026-0.043DVD±R*
            
            
            Optical
            
            
            4.7
                GB
            
            
            0.6-0.8
            
            
            0.012-0.017HD
                DVD**
            
            
            Optical
            
            
            15-30
                GB
            
            
            10-15
            
            
            0.05-0.07Blu-Ray
            
            
            Optical
            
            
            25-50
                GB
            
            
            25-30
            
            
            0.06-0.10




Note:
      1GB
      = 1024 MB





10




Optical
      storage media, hard discs, USB drives and flash memory are the most commonly
      used computer storage media. Hard discs have up to 500GB of capacity, cost
      around $0.75/GB and are the most economical choice for large storage needs.
      The
      hard disc, however, is less versatile, more fragile and harder to install than
      optical storage media; it is also bulky and has poor portability.





Both
      USB
      drives and flash memory are compact in size, provide great portability and
      reusability, but are relatively expensive and have limited storage capacity
      (maximum only 1-2 GB). These devices are mainly used to store computer and
      music/home video files where portability is required. Floppy disc capacity
      is
      too small for multimedia or today’s software files.





For
      full
      movies or computer file backups recordable compact discs and DVDRs offer large
      (from 750MB to 9.4GB) and economical (from $0.18 to $0.80 per disc) storage
      solutions. Rewritable DVDR discs (“DVD±RW”) are reusable but are more expensive,
      and therefore less popular, than write-once DVDR discs that we
      produce.




The
      victory of the Blu-ray DVD over the HD-DVD means that the market is looking
      for
      highly-compact data storage media and higher resolutions for entertainment
      content. This means that consumers are willing to pay higher prices for a better
      entertainment experience. We are exploring this opportunity in order to
      establish a product with higher margins for the Company. We do, however, foresee
      that the DVDR market will continue to contribute significantly to our revenue
      and profits, particularly in the South American markets. The strategy of having
      a whole array of storage media products distributed in our channels enables
      our
      own distribution network to have a “one-stop” product source with the Company as
      a way to mitigate competition in the same channels.





Competitor
      Companies





Our
      competitors are numerous and include companies such as CMC Magnetics, Ritek,
      NBI
      and UME Disc Group. Some of our competitors have significantly larger
      manufacturing market share, but that is not necessarily indicative of greater
      profitability. We believe that we have achieved optimal capacity and can match
      the lowest single layer DVDR production costs anywhere in the
      industry.





**Government
      Regulation and Probability of Affecting Business**





The
      development of our products is generally not subject to government regulation.
      However, because we market and sell our products in other countries, importation
      and exportation regulations may impact our activities. A breach of these laws
      or
      regulations may result in the imposition of penalties or fines, suspension
      or
      revocation of licenses. We are not currently involved in any such judicial
      or
      administrative proceedings and believe that we are in compliance with all
      applicable regulations.





Although
      it is impossible to predict with certainty the effect that additional
      importation and exportation requirements and other regulations may have on
      future earnings and operations, we are presently unaware of any future
      regulations that may have a material effect on our financial position, but
      cannot rule out the possibility.





**Employees**




As
      of
      March 14, 2008, we had 180 full-time employees, including management. None
      of
      these employees are represented by any collective bargaining agreements. Neither
      we nor any of the subsidiaries have experienced a work stoppage. Management
      believes that our relations with our employees are good.





**Bankruptcy,
      Receivership, or Similar Proceedings**





On
      March
      7, 2006, a complaint 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 agreement, subject to
      the
      bankruptcy court’s approval. The bankruptcy court approved the settlement and
      dismissed the complaint with prejudice on June 21, 2007.





**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.*




11





***Risks
      Relating to Our Business***





**Our
      limited operating history makes evaluation of our business
      difficult.**





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





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





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





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





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


·
              price
                  competition;·
              general
                  price increases by suppliers and manufacturers;·
              our
                  ability to maintain and expand our customer
                  relationships;·
              the
                  introduction of new or enhanced products and strategic alliances
                  by us and
                  our competitors;·
              the
                  success of our brand-building and marketing
                  campaigns;


·
              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.




12





**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.





**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.




13





**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.





**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.




14





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




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





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




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





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




We
      operate in a highly competitive, quickly changing environment. The victory
      of
      the Blu-Ray format DVD over the HD-DVD may accelerate the phase-out and
      technological obsolescence of our current DVDR production machine 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.




15





**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.





**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.




16





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




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





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




The
      value
      of the Hong Kong dollar against the U.S. dollar and other currencies may
      fluctuate and is affected by, among other things, changes in political and
      economic conditions. Although the exchange rate between the Hong Kong dollar
      and
      the U.S. dollar has been effectively pegged, there can be no assurance that
      the
      Hong Kong dollar will remain pegged to the U.S. dollar, especially in light
      of
      the significant international pressure on the Chinese government to permit
      the
      free floatation of the RMB and the Hong Kong dollar, which could result in
      an
      appreciation of RMB or the Hong Kong dollar against the U.S. dollar. Our
      revenues and costs are mostly denominated in Hong Kong dollars, while a
      significant portion of our financial assets are also denominated in Hong Kong
      dollars. Any significant revaluation of the Hong Kong dollar may materially
      and
      adversely affect our cash flows, revenues, earnings and financial position,
      and
      the value of, and any dividends payable on, our stock in U.S.
      dollars.





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




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





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





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





·
            Level
                of government involvement in the
                economy;





·
            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;





17


·
            Inflation
                acceleration;





·
            Monetary
                policy and interest rate increases;





·
            Fiscal
                policy and tax changes;·
            International
                trade policy including tariff and non-tariff trade
                barriers;





·
            Foreign
                exchange controls;





·
            Energy
                shortages; and





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





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





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




Brazil
      has in the past experienced extremely high rates of inflation, with annual
      rates
      of inflation reaching as high as 2,567% in 1993 (as measured by the *Índice
      Geral de Preços do Mercado* published by *Fundação
      Getúlio Vargas* ,
      or
      IGP-M Index). More recently, Brazil’s rates of inflation were 10.4% in 2001,
      25.3% in 2002, 8.7% in 2003, 12.4% in 2004, 1.2% in 2005, 3.8% in 2006,
      and **** 3.5%
      in
      2007 (as measured by the IGP-M Index). Inflation, governmental measures to
      combat inflation and public speculation about possible future actions have
      in
      the past had significant negative effects on the Brazilian economy and have
      contributed to economic uncertainty in Brazil. If Brazil experiences substantial
      inflation in the future, our costs may increase and our operating and net
      margins may decrease. Inflationary pressures may also lead to further government
      intervention in the economy, which could involve the introduction of government
      policies that may adversely affect the overall performance of the Brazilian
      economy.





**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.




18





***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;




·
            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.




19







**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 161,379,426 shares of common stock outstanding as of
      March 14, 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 14, 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.




**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.




20





**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.




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.





21





**ITEM
      2. DESCRIPTION OF PROPERTY**





**Hong
      Kong offices and facilities**





Our
      main
      offices and manufacturing facilities are located in Hong Kong. We currently
      store and deliver products from our manufacturing facilities located in Chai
      Wan
      and Tsuen Wan, New Territories, Hong Kong. We have placed a high priority on
      operating a safe, clean, and well-maintained distribution facility, which is
      a
      key selling point for many of our customers. Our prime location provides
      excellent proximity for shipping products to a diverse customer base located
      in
      all regions of the world.




A
      summary
      description of our facilities, including the total approximate square footage
      of
      our facilities, is provided in the table below:





**Location**
            
            **Principal
                Activities**
            
            **Area
                (sq. feet)**
            
            **Lease
                Expiration Date**Workshops
                9 & 10 on 3rdFloor
              QPL
                Building, 126-140 Texaco Road,
              Tsuen
                Wan, New Territories, Hong Kong
            
            Warehouse
            
            5,400
                sq. ft.
            
            Expires
                on January 31, 20094
                -
                5/F., QPL Industrial Building,
              126-140
                Texaco Road,
              Tsuen
                Wan, New Territories, Hong Kong
            
            Administrative
                offices, Manufacturing facility
            
            42,000
                sq. ft.
            
            Originally
                expired on January 31, 2007 and March 14, 2007 for 4thand 5thfloors, respectively, and subsequently renewed for 2 years to January
                31,
                2009 for both floors (entered into by Infoscience Media
                Limited)





We
      lease
      office and factory premises under various non-cancelable operating lease
      agreements that expire at various dates through years 2008 to 2009. All leases
      are on a fixed repayment basis. None of the leases includes contingent rentals.
      Minimum future commitments under these agreements payable as of December 31,
      2007 are as follows:





Year
                ending December 312008
            
            $
            246,1242009
            
            
            20,5102010
            
            
            -




Rental
      expense was $214,899, $169,221, and $518,967 during 2007, 2006, and 2005,
      respectively. We believe that our existing facilities are well maintained and
      in
      good operating condition. The tenancy agreement for our office and factory
      premises in Hong Kong will expire in 2009.





**Brazil
      production facility**





In
      the
      first quarter of 2006, we started the construction of the production facility
      in
      Brazil, which was completed in February 2007. In February 2007, we relocated
      twelve of our existing production lines from Factory 1 to our production
      facility in Brazil, and we also installed eight new production lines in that
      facility. Our Brazilian production facility is located in Camaçari, State of
      Bahia, close to Salvador. The factory is approximately 1,800 sq. meters and
      can
      accommodate 26 production lines. All licenses required for the facility have
      been obtained, an incentive program from the State of Bahia had been approved,
      and the factory and the warehouse have been leased.





A
      summary
      description of our facilities in Brazil, including the total approximate square
      footage of our facilities, is provided in the table below:





**Location**
            
            **Principal
                Activities**
            
            **Area
                (sq. feet)**
            
            **Lease
                Expiration Date**Loteamento
                Poloplast Quadra D lote 5, galpoes C, D, and E, Camacari, State of
                Bahia,
                Brazil - BA, CEP 41230-090
            
            Manufacturing
                facility
            
            20,000
                sq. ft.
            
            April
                14, 2010, with options for renewal.





Our
      Brazilian operations are fully operating since March 2007 and have been
      producing to full capacity since December 2007.





**ITEM
      3. LEGAL PROCEEDINGS**




(a)  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 BVI 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.




22





(b)  In
      Re:
      Factory 2-U Stores, Inc. ,
      U.S.
      Bankruptcy Court, District of Delaware - Adv. Proc. No. 005-30480. On March
      7,
      2006, a complaint 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 agreement, subject to
      the
      bankruptcy court’s approval. The bankruptcy court approved the settlement and
      dismissed the complaint with prejudice on June 21, 2007.





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




The
      Company did not submit any matters to a vote of security holders during the
      fourth quarter of the fiscal year covered by this report.




**PART
      II**




**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**




**Market
      Information**





The
      Company’s common stock, having no par value per share, is traded on the
      Over-The-Counter Bulletin Board ("OTCBB") under the symbol "IFSG." The following
      table sets forth, for each quarter within the last two fiscal years, the
      reported high and low bid quotations for the Company’s common stock as reported
      on the OTCBB. The bid prices reflect inter-dealer quotations, do not include
      retail markups, markdowns or commissions and do not necessarily reflect actual
      transactions.





Common
      Stock





Quarter
                Ended
            
            High
                Bid
            
            Low
                BidDecember
                31, 2007
            
            $
            0.455
            
            $
            0.33September
                30, 2007
            
            
            0.41
            
            
            0.21June
                30, 2007
            
            
            0.42
            
            
            0.25March
                31, 2007
            
            
            0.33
            
            
            0.25December
                31, 2006
            
            $
            0.52
            
            $
            0.25September
                30, 2006
            
            
            0.67
            
            
            0.22June
                30, 2006
            
            
            1.25
            
            
            0.30March
                31, 2006
            
            
            0.50
            
            
            0.25





As
      of
      March 14, 2008, we have approximately 147,593,836 shares of common stock issued
      and outstanding, no shares of Series A preferred stock issued and outstanding,
      and approximately 514,006 shares of Series B preferred stock issued and
      outstanding. We also have outstanding warrants that were issued in conjunction
      the private placement of our Series B Preferred Stock on August 16, 2006. These
      warrants, if exercised, would permit stockholders to purchase approximately
      28,510,347 shares of our common stock. Assuming conversion of all the preferred
      stock and exercise of all warrants as of March 14, 2008, we have approximately
      170,633,810 shares of common stock outstanding.





**Holders**




As
      of
      March 14, 2008, we have 72 record holders of our common stock and 16 record
      holders of our Series B preferred stock.




**Dividends**




We
      have
      never paid any dividends on the common stock. We anticipate that any future
      earnings will be retained for the development of our business and do not
      anticipate paying any dividends on the common stock or the preferred stock,
      other than for our Series B Preferred Stock, in the foreseeable
      future.





**Sales
      of Unregistered Securities**





None.




**Securities
      Authorized for Issuance under Equity Compensation Plans**





We
      do not
      currently have any equity compensation plans or arrangements.




23





**ITEM
      6. SELECTED FINANCIAL DATA**





Not
      applicable.





**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**




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





*FORWARD
      LOOKING STATEMENTS*





*The
      following discussion and analysis of our results of operations and financial
      condition for the years ended December 31, 2007 and 2006 should be read in
      conjunction with our financial statements and the notes to those financial
      statements that are included elsewhere in this Annual Report on Form 10-K.
      Our
      discussion includes forward-looking statements based upon current expectations
      that involve risks and uncertainties, such as our plans, objectives,
      expectations and intentions. Actual results and the timing of events could
      differ materially from those anticipated in these forward-looking statements
      as
      a result of a number of factors, including those set forth under the “Risk
      Factors” and elsewhere in this report. We use words such as “anticipate,”
“estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,”
“intend,” “may,” “will,” “should,” “could,” and similar expressions to identify
      forward-looking statements. Readers are cautioned not to place undue reliance
      on
      these forward-looking statements, which speak only as of the date hereof. Except
      as required by law, we do not undertake any obligation to update or keep current
      either (i) any forward-looking statement to reflect events or circumstances
      arising after the date of such statement, or (ii) the important factors that
      could cause our future results to differ materially from historical results
      or
      trends, results anticipated or planned by us, or which are reflected from time
      to time in any forward-looking statement.*





**OVERVIEW**





Infosmart
      Group, Inc. (the “Company”), through our wholly owned subsidiary Infosmart Group
      Limited (“Infosmart 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.




24




**Share
      Exchange Transaction**





The
      Company became engaged in the DVDR manufacturing business in August 2006 in
      connection with a share exchange. Prior to the share exchange transaction,
      we
      were a shell company with nominal assets and operations, whose sole business
      was
      to identify, evaluate and investigate various companies with the intent that,
      if
      such investigation warrants, a business combination be negotiated and completed
      pursuant to which the Company would acquire a target company with an operating
      business with the intent of continuing the acquired company’s business as a
      publicly held entity. We entered in an Exchange Agreement (the “Exchange
      Agreement”) dated July 7, 2006 and amended on August 14, 2006 with KI Equity
      Partners II, LLC (“KI Equity”), Infosmart BVI, the owners of 100% of the capital
      shares of Infosmart BVI, namely Chung Kwok, Po Nei Sze, Prime Corporate
      Developments Limited (“Prime Corporate”) and Hamptons Investment Group Limited
      (“Hamptons”) (collectively the “Infosmart BVI Shareholders”), and Worldwide
      Gateway Co., Ltd. The closing of the Exchange Agreement occurred on August
      16,
      2006. At closing, the Company acquired all of Infosmart BVI’s capital shares
      (the “Infosmart BVI Shares”) from the Infosmart BVI Shareholders, and the
      Infosmart BVI Shareholders transferred and contributed all of their Infosmart
      BVI Shares to the Company. In exchange, the Company issued 1,000,000 shares
      of
      its Series A Convertible Preferred Stock to the Infosmart BVI Shareholders.
      Each
      share of the Company’s Series A Convertible Preferred Stock (“Series A Preferred
      Stock”) was convertible into 116.721360 shares of the Company's common stock,
      subject to adjustments. The Series A Preferred Stock were to be immediately
      and
      automatically converted into shares of the Company's common stock upon the
      approval by a majority of the Company's stockholders (voting together on an
      as-converted-to-common-stock basis) and the filing of a Certificate of Amendment
      to the Company’s Articles of Incorporation, following the closing of the
      Exchange Agreement, to increase the number of authorized shares of the Company's
      common stock from 40,000,000 shares to 300,000,000 shares and to change the
      Company's corporate name to “Infosmart Group, Inc.”




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





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





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




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




**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 the Company and its
      subsidiaries. Significant intercompany transactions have been eliminated in
      consolidation.





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
      to the effective date of disposal.





**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 Indústria E Comércio De Eletro Eletrônica Ltda (“Discobrás”), in
      Brazil. Discobrás has a social capital of $8,046,281 (equivalent to
      R$17,385,600) and 99.42% or $8,000,000 (equivalent to R$17,285,600) (“Investment
      Cost”) of which has been subscribed by the Company. The minority interests have
      been recognized in the accompanying financial statements.





**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 of useful lives of property, plant and equipment. Actual results
      could differ from those estimates.





**License
      usage rights**





License
      usage rights are stated at cost less accumulated amortization. Amortization
      is
      provided using the straight-line method over the remaining term of the license
      obtained by Infosmart Holdings.




25




**Concentrations
      of credit risk**





Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk consist principally of trade receivables. The Company extends
      credit based on an evaluation of the customer’s financial condition, generally
      without requiring collateral or other security. The Company conducts periodic
      reviews of the client’s financial conditions and payment practices. Further, the
      Company will maintain an allowance for doubtful accounts based on the
      management’s expectations on actual losses possibly incurred.




**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.





**Advertising
      and transportation expenses**





Advertising,
      transportation and other product-related costs are charged to expenses as
      incurred.





Advertising
      expenses amounted to $10,737, $45,463 and $101,590 during 2007, 2006 and 2005
      respectively and are included in selling and distributing costs.





Transportation
      expenses amounted to $64,163, $352,203 and $447,894 during 2007, 2006 and 2005
      respectively and are included in selling and distributing costs.





**Income
      taxes**





The
      Company uses the asset and liability method of accounting for income taxes
      pursuant to SFAS No. 109 “Accounting for Income Taxes”. Under the asset and
      liability method of SFAS 109, deferred tax assets and liabilities are recognized
      for the future tax consequences attributable to temporary differences between
      the financial statements carrying amounts of existing assets and liabilities
      and
      loss carryforwards and their respective tax bases. Deferred tax assets and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled.





**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.





**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 currency of the Company are Hong Kong dollars (“HK$”) and Brazil
      dollars (Real$). The Company maintains its financial statements in the
      functional currency. 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 exchange adjustment to other comprehensive
      income, a component of stockholders’ equity.





The
      exchange rates in effect at December 31, 2007 and 2006 were HK$1 for $0.1282
      and
      $0.1286 and Real $1 for $0.562 and $ 0.4689 respectively. The average exchange
      rates for 2007, 2006 and 2005 were HK$1 for $0.1282, $0.1287 and $0.1290 and
      Real $1 for 0.5163 and 0.46 respectively. There is no significant fluctuation
      in
      exchange rate for the conversion of HK$ to US dollars after the balance sheet
      date.




26





**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.





**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 (loss) per share**





The
      Company reports basic earnings (loss) per share in accordance with SFAS No.
      128,
“Earnings Per Share”. Basic earnings (loss) 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 year.





Diluted
      earning (loss) 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 year (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 year.





The
      weighted average number of shares outstanding for 2007 represents the number
      of
      common stock equivalent of Series A Convertible Preferred Stock 110,236,841
      issued to the Original Infosmart Shareholders for the Exchange transaction
      as
      they were mandatory converted to common stock.





The
      Company’s common stock equivalents at December 31, 2007 include the
      following:





Convertible
                redeemable preferred stock Series B
            
            
            16,011,864Detachable
                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.





**Restricted
      cash**





Deposits
      in an escrow accounts and deposits in banks for securities of bank overdrafts
      facilities that are restricted in use are classified as restricted cash under
      current assets.





**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 year
      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.




27





**Inventories**





Inventories
      are valued at the lower of cost or market value 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 managements projected demand requirements,
      market conditions and product life cycle changes. During the reporting years,
      the Company did not make any allowance for slow-moving or defective
      inventories.





**Plant
      and equipment**





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





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





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





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





**Impairment
      of long-live assets**





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





**Off-balance
      sheet arrangements**





Other
      than the bank guarantee given by a bank to a utility company which exempted
      the
      Company’s obligation to pay the required utility deposit, the Company does not
      have any off-balance sheet arrangements.





**Recently
      Issued 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 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.




28





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**




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




Year
                ended December 312007
            
            
            %
                of
            
            
            2006
            
            
            %
                of
            
            
            2005
            
            
            %
                ofAudited
            
            
            Revenue
            
            
            Audited
            
            
            Revenue
            
            
            Audited
            
            
            RevenueNET
                SALES
            
            $
            104,969,899
            
            
            100.00
            %
            $
            27,102,441
            
            
            100.00
            %
            $
            24,577,206
            
            
            100.00
            %COST
                OF SALES
            
            
            (90,186,253
            )
            
            85.92
            %
            
            (19,570,525
            )
            
            72.21
            %
            
            (17,911,674
            )
            
            72.88
            %GROSS
                PROFIT
            
            
            14,783,646
            
            
            14.08
            %
            
            7,531,916
            
            
            27.79
            %
            
            6,665,532
            
            
            27.12
            %A
                ADMINISTRATIVE EXPENSES
            
            
            (4,416,087
            )
            
            4.21
            %
            
            (1,997,379
            )
            
            7.37
            %
            
            (816,553
            )
            
            3.32
            %DEPRECIATION
            
            
            (743,743
            )
            
            0.71
            %
            
            (223,893
            )
            
            0.83
            %
            
            (214,534
            )
            
            0.87
            %SELLING
                AND DISTRIBUTING COSTS
            
            
            (499,716
            )
            
            0.47
            %
            
            (475,781
            )
            
            1.76
            %
            
            (641,096
            )
            
            2.61
            %INCOME
                FROM OPERATIONS
            
            
            9,124,100
            
            
            8.69
            %
            
            4,834,863
            
            
            17.84
            %
            
            4,993,349
            
            
            20.32
            %PROFESSIONAL
                EXPENSES RELATEDTO
                RESTRUCTURING AND SHARE EXCHANGE
            
            
            0
            
            
            0
            %
            
            (2,753,390
            )
            
            10.16
            %
            
            (320,892
            )
            
            1.31
            %REVERSAL
                OF COMMISSION PAYABLE
            
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %
            
            718,250
            
            
            2.92
            %OTHER
                INCOME
            
            
            1,710,408
            
            
            1.63
            %
            
            449,985
            
            
            1.66
            %
            
            320,903
            
            
            1.23
            %INTEREST
                EXPENSES
            
            
            (662,059
            )
            
            0.63
            %
            
            (511,322
            )
            
            1.89
            %
            
            (520,827
            )
            
            2.12
            %INCI
                INCOME BEFORE INCOME TAXES
            
            
            10,172,449
            
            
            9.69
            %
            
            2,020,136
            
            
            7.45
            %
            
            5,172,783
            
            
            21.05
            %INCOME
                TAXES
            
            
            52,506
            
            
            0.05
            %
            
            (955,592
            )
            
            (3.53
            )%
            
            (958,022
            )
            
            (3.90
            )%NET
                INCOME
            
            
            10,224,955
            
            
            9.74
            %
            
            1,064,544
            
            
            3.93
            %
            
            4,214,761
            
            
            17.15
            %MIMINORITY
                INTEREST
            
            
            (12,250
            )
            
            (0.02
            )%
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %SESERIES
                B PREFERRED DIVIDENDS
            
            
            453,764
            
            
            0.43
            %
            
            (202,069
            )
            
            (0.75
            )%
            
            0
            
            
            0
            %SESERIES
                B PREFERRED DEEMED DIVIDEND
            
            
            0
            
            
            0
            %
            
            (2,297,157
            )
            
            (8.48
            )%
            
            0
            
            
            0
            %NET
                (LOSS)/INCOME APPLICABLE TO COMMON SHAREHOLDERS
            
            $
            9,783,441
            
            
            9.33
            %
            $
            1,434,682
            
            
            (5.29
            )%
            $
            4,214,761
            
            
            17.15
            %




29




**Comparison
      of Two Years Ended December 31, 2007 and 2006**





***Net
      Sales*** *.* For the
      year ended December 31, 2007, net sales increased approximately 287% from
      $27,102,441 to $104,969,899 relative to the year ended December 31, 2006. The
      increase in revenue was mainly due to the effect of new market sales generated
      in Brazil and a substantial increase in sales in Australia, Asia and North
      America. Also the trading of Compact Flash and SD-RAM penetrated through our
      distribution channel in Asia.





***Cost
      of Sales*** *.* Cost of
      sales increased from $19,570,525, or approximately 72.2% of net sales for the
      year ended December 31, 2006, to $90,186,253, or approximately 85.9% of net
      sales for the year ended December 31, 2007. The approximately 360% increase
      was
      primarily attributable to the increase in our volume of sales. The increase
      in
      the cost of sales was in line with the increase in our net sales.





***Gross
      Profit.*** Gross
      profit increased approximately 96% from $7,531,916 for the year ended December
      31, 2006 to $14,783,646 for the year ended December 31, 2007. This increase
      in
      gross profit was primarily due to the increase in our volume of sales as well
      as
      the substantial increase in sales in the higher margin markets, like Brazil
      and
      Asia. Also the rapid development of Compact Flash and SD-RAM market in Asia
      contributed to this increase in gross profit. In addition, the increase of
      our
      gross profit percentage from approximately 27.8% for the year ended December
      31,
      2006 to approximately 14.1% for the year ended December 31, 2007 was due to
      the
      increase in sales in higher margin markets, which was offset by a slight
      decrease of our sales prices in other markets in 2007.





***Selling
      and Distribution Costs*** **.** For the
      year ended December 31, 2007, selling and distribution costs slightly increased
      approximately 5% from $475,781 to $499,716 relative to the year ended December
      31, 2006. This slightly increase in selling and distribution costs was not
      in
      line with the steep increase in our net sales mainly due to the change to a
      more
      competitive freight forwarder which led to a reduction of our freight expenses
      for the year ended December 31, 2007.




***Administrative
      Expenses.*** Administrative expenses increased approximately 121% from $1,997,379 for the
      year ended December 31, 2006 to $4,416,087 for the year ended December 31,
      2007.
      This substantial increase in administrative expenses during the year ended
      December 31, 2007 was mainly because the charges of top management’s
      remunerations as well as the employment of new administrative personnel, and
      also the operation of administrative function in Brazil factory.




***Professional
      Expenses Related To Restructuring and Share Exchange.*** Such
      professional expenses increased substantially from $320,892 for the year ended
      December 31, 2005 to $2,753,390 for the year ended December 31, 2006 but none
      of
      these expenses incurred in 2007. The increase was mainly due to the completion
      of the restructuring and share exchange transaction in August 2006. These
      one-off payments were made to different professional parties who provided
      services in connection with the restructuring and share exchange transaction
      during the period. The professional expenses comprised the following
      items:





Financial
                Advisory Fees
            
            $
            1,431,993Reverse
                Merger Fees
            
            
            450,000Other
                Professional Parties’ Fees
            
            
            747,000Others
            
            
            124,397Total
            
            $
            2,753,390





***Net
      Income*** **.** Net
      income increased approximately 582% from $(1,434,682) for the year ended
      December 31, 2006 to $9,783,441 for the year ended December 31, 2007. Further,
      the net income (loss) margin was 9.7% and (5.29)% in the same comparable periods
      in 2007 and 2006, respectively. The increase in net income was in line with
      the
      increase in gross profit, which was offset by a slightly increase of our selling
      and distribution cost and corresponding increase in administrative
      cost.





**GROWTH
      STRATEGIES**





Our
      growth strategy is to diversity our product range and geographical markets
      with
      a well-balanced approach as below:





·
            We
                will mitigate the risk of being overconcentrated in the DVDR product
                market by starting the trading of different kinds of storage media
                products which we are pro-active in providing choices of competitive
                products and even substitutes to our current customers to ensure
                the
                distribution channels have a great coverage of products from
                Infosmart.





·
            Given
                the mature operation of Brazilian plant, we would explore to further
                leverage the tax advantages on exemption and rate reduction on import
                duty
                and value-added tax on raw material and semi-finished goods in three
                different categorizes of products such as other recordable media
                (e.g.:
                Flash card and SD Ram), consumer electronic products and telecommunication
                products. The Company intends to make use of the current distribution
                channels for products fall within these three categorizes by
                sub-assembling them in our Brazilian plant which can serve as a platform
                for channeling these goods to South American
                market.





·
            The
                emergence of ‘Blu-ray’ products with a higher margin than the current DVDR
                provides us with opportunity for the entertainment-context replication
                business, which we have already purchased the first set of Blu-ray
                production facilities in China/Hong Kong in parallel with the thorough
                marketing work with various films and records distributors in Asia
                and
                also training our technical staff in operating the machine. We foresee
                the
                Blu-ray facilities would come into production in
                June.




30




**New
      Markets**





*South
      America and Brazil*




As
      expected, sales in South America grew significantly in the year 2007 and we
      anticipate that sales will continue to grow in this region in the near
      future.





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





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





We
      have
      launched our own brand “Hontek”, “Laser Line” as well as “TOP COMP” recordable
      optical media products in the Brazilian retail market in 2007, with sales to
      supermarkets and chain stores such as Bompreco (a Wal-Mart subsidiary).
      Management expects that sales directly to retailers will generate higher profit
      margins than sales to local wholesalers, the result is very encouraging which
      we
      have achieved a very widespread distribution network in South America with
      less
      than a year that would be beneficial for our distribution of different products
      in future





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





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





**Online
      Marketing Exposure**





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





**LIQUIDITY
      AND CAPITAL RESOURCES**





**Year
      Ended December 31, 2007**





Net
      cash
      flow used in operating activities was $5,427,346 for the year ended December
      31,
      2007 and net cash flow provided by operating activities was $4,679,397 for
      the
      year ended December 31, 2006. The substantial increase in our net cash outflow
      used in operating activities for the year ended December 31, 2007 was mainly
      due
      to the increase of our trade payables with corresponding increase in sales
      volume with days sales outstanding of 78.1days in 2007 and days payable
      outstanding of 58.2 days in 2007 used more cash flow.





Net
      cash
      flow used in investing activities was $478,493 and $8,654,722 for the years
      ended December 31, 2007 and 2006, respectively. Uses of cash flow for investing
      activities mainly related to the capital expenditures for the acquisition of
      plant and equipment.





Net
      cash
      flow provided by financing activities was $5,048,240 for the year ended December
      31, 2007. Compared with net cash flow provided by financing activities of
      $4,027,732 for the year ended December 31, 2006, the increase in our net cash
      flow was mainly due to the inflow of proceeds from other loans.




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





*Contractual
      Obligations*




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




31





The
      following tables summarize our contractual obligations as of December 31, 2007,
      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
            
            $
            8,856
            
            $
            6,763
            
            $
            2,093
            
            $
            —
            
            $
            —Other
                Indebtedness
            
            
            5,783
            
            
            5,066
            
            
            717
            
            
            —
            
            
            —Operating
                Leases
            
            
            489
            
            
            343
            
            
            146
            
            
            —
            
            
            —Total
                Contractual Obligations:
            
            $
            14,982
            
            $
            12,172
            
            $
            2,956
            
            $
            —
            
            $
            —




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.





*Off-balance
      Sheet Arrangements*





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




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




**ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





Not
      applicable.








32


ITEM
      8. FINANCIAL
      STATEMENTS




**Infosmart
      Group Inc.**





Consolidated
      Financial Statements


For
      the
      years ended December 31, 2007, 2006 and 2005


(Stated
      in US Dollars)




33


**INDEX
      TO CONSOLIDATED FINANCIAL INFORMATION**


Report
                  of Independent Registered Public Accounting Firm,
                  dated March 31, 2008
              
              
              F-2Report
                  of Independent Registered Public Accounting Firm,
                  dated March 23, 2007
              
              
              F-3Consolidated
                  Statement of Income and Comprehensive Income for the Years Ended
                  December 31, 2007, 2006,
                  and 2005
              
              
              F-4Consolidated
                  Balance Sheets as of December 31, 2007 and 2006
              
              
              F-5Consolidated
                  Statements of Cash Flows for the Years Ended December 31, 2007 and
                  2006
              
              
              F-7Consolidated
                  Statements of Stockholders’ Equity for the Years Ended December 31,
                  2007, 2006,
                  and 2005
              
              
              F-9Notes
                  to Consolidated Financial Statements
              
              
              F-10




F-1


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Stockholders of


Infosmart
      Group Inc.




We
      have
      audited the accompanying consolidated balance sheet of Infosmart Group Inc.
      (the
“Company”) and its subsidiaries as of December 31, 2007 and the related
      consolidated statement of income, stockholders’ equity and cash flows for year
      ended December 31, 2007. These financial statements are the responsibility
      of
      the Company’s management. Our responsibility is to express an opinion on these
      financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statements presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of the Company and its
      subsidiaries as of December 31, 2007, and the consolidated results of their
      operations and their cash flows for the year ended December 31, 2007 in
      conformity with accounting principles generally accepted in the United States
      of
      America.





**Parker
      Randall CF (H.K.) CPA Limited**


**Certified
      Public Accountants**


**Hong
      Kong**


**March
      31, 2008**




F-2









F-3





INFOSMART
      GROUP INC.


CONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005


(Stated
      in US Dollars)





***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005***Net
                sales
            
            
            104,969,899
            
            
            27,102,441
            
            
            24,577,206Cost
                of sales
            
            
            (90,186,253
            )
            
            (19,570,525
            )
            
            (17,911,674
            )Gross
                profit
            
            
            14,783,646
            
            
            7,531,916
            
            
            6,665,532Administrative
                expenses
            
            
            (4,416,087
            )
            
            (1,997,379
            )
            
            (816,553
            )Depreciation
                - note 11
            
            
            (743,743
            )
            
            (223,893
            )
            
            (214,534
            )Selling
                and distributing costs
            
            
            (499,716
            )
            
            (475,781
            )
            
            (641,096
            )Income
                from operations
            
            
            9,124,100
            
            
            4,834,863
            
            
            4,993,349Professional
                expenses related to Restructuringand
                Share Exchange - note 5
            
            
            -
            
            
            (2,753,390
            )
            
            (320,892
            )Reversal
                of commission payable
            
            
            -
            
            
            -
            
            
            718,250Other
                income - note 6
            
            
            1,710,408
            
            
            449,985
            
            
            302,903Interest
                expenses
            
            
            (662,059
            )
            
            (511,322
            )
            
            (520,827
            )Income
                before income taxes
            
            
            10,172,449
            
            
            2,020,136
            
            
            5,172,783Income
                taxes - note 7
            
            
            52,506
            
            
            (955,592
            )
            
            (958,022
            )Minority
                Interests - PL
            
            
            12,250
            
            
            -
            
            
            -Net
                income
            
            
            10,237,205
            
            
            1,064,544
            
            
            4,214,761Series
                B preferred dividends
            
            
            (453,764
            )
            
            (202,069
            )
            
            -Series
                B preferred deemed dividend - note 17
            
            
            -
            
            
            (2,297,157
            )
            
            -Net
                income (loss) applicable to commonshareholders
            
            
            9,783,441
            
            
            (1,434,682
            )
            
            4,214,761Other
                comprehensive incomeForeign
                currency translation adjustments
            
            
            1,497,766
            
            
            (12,421
            )
            
            28,028Total
                comprehensive income
            
            
            11,281,207
            
            
            (1,447,103
            )
            
            4,242,789Earning
                / (loss) per share-
                basic and dilutive - note 8
            
            
            0.07
            
            
            (0.01
            )
            
            0.04Weighted
                average shares outstanding-
                basic - note 8
            
            
            140,025,108
            
            
            119,188,957
            
            
            110,236,841-
                dilutive - note 8
            
            
            140,622,119
            
            
            119,188,957
            
            
            110,236,841


See
      the
      accompanying notes to consolidated financial statements


F-4


INFOSMART
      GROUP INC.


CONSOLIDATED
      BALANCE SHEETS


AS
      OF
      DECEMBER 31, 2007 AND 2006


(Stated
      in US Dollars)





***As
                of December 31******2007***
            
            ***2006*****ASSETS**Current
                assetsCash
                and cash equivalents
            
            $
            1,023,440
            
            $
            206,258Restricted
                cash - notes 4
            
            
            -
            
            
            552,193Trade
                receivables (net of allowance for doubtful accountsof
                $Nil for 2007 and 2006)
            
            
            38,725,882
            
            
            6,171,366Prepaid
                expenses and other receivables - note 9
            
            
            544,345
            
            
            269,477Provision
                for tax
            
            
            13,847
            
            
            -Inventories
                - note 10
            
            
            3,396,194
            
            
            1,058,039Total
                current assets
            
            
            43,703,708
            
            
            8,257,333Deferred
                tax assets - note 7
            
            
            -
            
            
            459,823Plant
                and equipment, net - note 11
            
            
            31,093,668
            
            
            33,911,540Intangible
                assets
            
            
            1,810,655
            
            
            2,092,809**TOTAL
                ASSETS**
            
            
            76,608,031
            
            $
            44,721,505**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****LIABILITIES**Current
                liabilitiesTrade
                payables
            
            $
            25,809,022
            
            $
            2,926,078Other
                payables and accrued liabilities - note 12
            
            
            1,672,468
            
            
            8,756,675Income
                tax payable
            
            
            696,946
            
            
            363,645Current
                portion of bank borrowings - note 13
            
            
            6,762,553
            
            
            3,503,654Finance
                lease payable
            
            
            34,570
            
            
            -Current
                portion of other loans - note 14
            
            
            5,065,639
            
            
            1,268,044Total
                current liabilities
            
            
            40,041,198
            
            
            16,818,096Non-current
                portion of bank borrowings - note 13
            
            
            2,092,949
            
            
            2,893,927Non-current
                portion of other loans - note 14
            
            
            717,423
            
            
            1,884,202Advance
                from a related party - note 15
            
            
            929,634
            
            
            927,991Deferred
                tax liabilities - note 7
            
            
            2,305,729
            
            
            3,001,360**TOTAL
                LIABILITIES**
            
            
            46,086,933
            
            $
            25,525,576**COMMITMENTS
                AND CONTINGENCIES - note 17**




See
      the
      accompanying notes to consolidated financial statements




F-5




INFOSMART
      GROUP INC.


CONSOLIDATED
      BALANCE SHEETS (CONT’D)


AS
      OF
      DECEMBER 31, 2007 AND 2006


(Stated
      in US Dollars)





**As
                of December 31*****2007***
            
            ***2006***Series
                B Redeemable Convertible Preferred Stock: No par value -note
                18Authorized
                1,800,000 shares; Issued and outstanding2007
                - 597,011 shares and 2006**-**911,974.54
                shares
            
            
            1,690,222
            
            
            2,581,926**STOCKHOLDERS’
                EQUITY**Common
                stock: No par valueAuthorized:
                300,000,000 shares; Issued and outstanding:2007
                - 144,248,709 shares and 2006 -135,801,426.44
                shares - note 18
            
            
            2,412,605
            
            
            1,520,901Preferred
                stock: No par valueAuthorized
                7,000,000 shares; Issued and outstanding:2007
                and 2006 - Nil share
            
            
            -
            
            
            -Series
                A Convertible Preferred Stock: No par valueAuthorized
                1,200,000 shares; Issued and outstanding2007
                and 2006 - Nil share
            
            
            -
            
            
            -Additional
                paid-in-capital - note 18
            
            
            8,118,664
            
            
            8,118,664Accumulated
                other comprehensive income
            
            
            1,517,003
            
            
            19,237Retained
                earnings
            
            
            16,738,643
            
            
            6,955,201**TOTAL
                STOCKHOLDERS’ EQUITY**
            
            
            28,786,915
            
            
            16,614,003Minority
                interest
            
            
            43,961
            
            
            ***-***28,830,876
            
            
            16,614,003**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            76,608,031
            
            $
            44,721,505




See
      the
      accompanying notes to consolidated financial statements




F-6


INFOSMART
      GROUP INC.


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005


(Stated
      in US Dollars)





***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005*****Cash
                flows from operating activities**Net
                income
            
            $
            9,783,442
            
            $
            1,064,544
            
            $
            4,214,761Adjustments
                to reconcile net income to net cash flowsprovided
                by operating activities:Depreciation
            
            
            2,960,677
            
            
            1,820,529
            
            
            1,695,697Amortization
                of license usage right
            
            
            289,552
            
            
            -
            
            
            -Deferred
                income taxes
            
            
            350,568
            
            
            577,767
            
            
            958,022Loss
                on disposal of property, plant and equipment
            
            
            245,934
            
            
            381,498
            
            
            -Professional
                expenses related to Restructuring and ShareExchange
            
            
            -
            
            
            2,628,993
            
            
            -Changes
                in operating assets and liabilities:Trade
                receivables
            
            
            (32,536,829
            )
            
            (2,882,093
            )
            
            (1,378,159
            )Prepaid
                expenses and other receivables
            
            
            (274,132
            )
            
            167,669
            
            
            (1,684,202
            )Inventories
            
            
            (2,335,122
            )
            
            365,608
            
            
            289,229Tax
                Prepaid
            
            
            (13,847
            )
            
            -
            
            
            -Trade
                payables
            
            
            22,874,577
            
            
            1,071,828
            
            
            (2,163,581
            )Income
                tax payable
            
            
            332,258
            
            
            363,928
            
            
            -Advance
                from a related party
            
            
            3,285
            
            
            (1,287,409
            )
            
            (32,846
            )Other
                payables and accrued liabilities
            
            
            (7,107,709
            )
            
            406,535
            
            
            370,407Net
                cash flows (used in)/ provided by operating activities
            
            
            (5,427,346
            )
            
            4,679,397
            
            
            2,269,328**Cash
                flows from investing activities**Acquisition
                of plant and equipment
            
            
            (531,331
            )
            
            (8,686,331
            )
            
            (1,454,531
            )Proceeds
                from disposal of plant and machinery
            
            
            52,838
            
            
            -
            
            
            -Cash
                acquired on the acquisition of subsidiaries
            
            
            -
            
            
            31,609
            
            
            -Net
                cash flows used in investing activities
            
            
            (478,493
            )
            
            (8,654,722
            )
            
            (1,454,531
            )**Cash
                flows from financing activities**Dividend
                paid
            
            
            (453,763
            )
            
            (202,069
            )
            
            (1,501,167
            )Proceeds
                from new bank loans
            
            
            -
            
            
            618,240
            
            
            3,475,726Proceeds
                from other loans
            
            
            4,764,760
            
            
            128,600
            
            
            1,286,000Repayment
                of non-recurring bank loans
            
            
            (8,294
            )
            
            (3,705,482
            )
            
            (2,939,563
            )Net
                advancement of other bank borrowings
            
            
            221,126
            
            
            1,766,999
            
            
            623,956New
                obligations under capital leases
            
            
            112,810
            
            
            -
            
            
            -Repayment
                of other loans
            
            
            (298,109
            )
            
            (674,436
            )
            
            (111,770
            )Decrease/(increase)
                in restricted cash
            
            
            552,973
            
            
            (289,930
            )
            
            (129,097
            )Increase/(decrease)
                in bank overdrafts
            
            
            194,423
            
            
            (258,420
            )
            
            232,822Proceeds
                from issuance of Infosmart common stock
            
            
            -
            
            
            999
            
            
            -Proceeds
                from the exercise of detachable common stock warrants
            
            
            -
            
            
            260,800
            
            
            -Proceeds
                from the issuance of Series B preferred stockand
                detachable common stock warrants
            
            
            -
            
            
            7,650,000
            
            
            -Preferred
                stock issuance costs and recapitalization costs
            
            
            -
            
            
            (1,215,000
            )
            
            -Repayment
                of obligations under capital leases
            
            
            (37,686
            )
            
            (52,569
            )
            
            (1,693,041
            )Net
                cash flows provided by/(used in) financing activities
            
            
            5,048,240
            
            
            4,027,732
            
            
            (756,134
            )Effect
                of foreign currency translation on cash and cash
                equivalents
            
            
            1,674,781
            
            
            (517
            )
            
            479Net
                increase in cash and cash equivalents
            
            
            817,182
            
            
            51,890
            
            
            59,142Cash
                and cash equivalents, beginning of year
            
            
            206,258
            
            
            154,368
            
            
            95,226Cash
                and cash equivalents, end of year
            
            $
            1,023,440
            
            $
            206,258
            
            $
            154,368




See
      the
      accompanying notes to consolidated financial statements


F-7


INFOSMART
      GROUP INC.


CONSOLIDATED
      STATEMENTS OF CASH FLOWS (CONT’D)


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005


(Stated
      in US Dollars)





*******Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005***Supplemental
                disclosures for cash flow information:Cash
                paid for:Interest
            
            $
            457,662
            
            $
            511,309
            
            $
            454,901Income
                taxes
            
            
            509,108
            
            
            13,897
            
            
            -Noncash
                investing and financing activities:Current
                account with IHL offsetting for the acquisition of
                property,plant
                and equipment
            
            
            -
            
            $
            5,611,063
            
            $
            -Other
                payables for the acquisition of property, plant and
                equipment
            
            
            -
            
            
            2,871,667
            
            
            -Capitalization
                of advances from spouse of Ms. Sze
            
            
            -
            
            
            -
            
            
            617,287Conversion
                of Series B shares to common stock
            
            
            891,704
            
            
            512,101
            
            
            -Issuance
                of Placement Agent warrants
            
            
            -
            
            
            644,800
            
            
            -Series
                B Preferred deemed dividend
            
            
            -
            
            
            2,297,157
            
            
            -Value
                of exchange transaction and financing services rendered inexchange
                for shares of common stock
            
            
            -
            
            
            747,000
            
            
            -Value
                of exchange transaction and financing services rendered inexchange
                of Series A shares
            
            
            -
            
            
            1,431,993
            
            
            -





See
      the
      accompanying notes to consolidated financial statements





F-8


INFOSMART
      GROUP INC.


CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005


(Stated
      in US Dollars)




**Common
                stock**
            
            **Series
                  A Preferred**
                  **stock**
            
            **Additional**
            
            **Accumulated**
                    **other**
                    **comprehensive****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Paid-incapital**
            
            **Income/**
              **(loss)**
            
            **Retained**
                **earnings**
            
            **Total**Balance,
                January 1, 2005
            
            
            10,119,040
            
            $
            1
            
            
            -
            
            $
            -
            
            $
            619,877
            
            $
            3,630
            
            $
            5,676,289
            
            **$**
            **6,299,797**Comprehensive
                incomeNet
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,214,761
            
            
            **4,214,761**Foreign
                currency translationadjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            28,028
            
            
            -
            
            
            **28,028**Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **4,242,789**Dividend
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,501,167
            )
            
            **(1,501,167**
            **)**Balance,
                December 31, 2005
            
            
            10,119,040
            
            $
            1
            
            
            -
            
            $
            -
            
            $
            619,877
            
            $
            31,658
            
            $
            8,389,883
            
            **$**
            **9,041,419**Issuance
                of common stock - note 17
            
            
            -
            
            
            999
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **999**Issuance
                of Series A shares - note 17
            
            
            -
            
            
            -
            
            
            944,445
            
            
            -
            
            
            (21,336
            )
            
            -
            
            
            -
            
            
            **(21,336**
            **)**Issuance
                of common stock - note 17
            
            
            3,309,770
            
            
            747,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **747,000**Issuance
                of Series A shares - notes 8 and 17
            
            
            -
            
            
            -
            
            
            55,555
            
            
            -
            
            
            1,431,993
            
            
            -
            
            
            -
            
            
            **1,431,993**Conversion
                of Series A shares - note 17
            
            
            116,721,360
            
            
            -
            
            
            (1,000,000
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **-**Issuance
                of Series B shares with detachable warrants - note 17
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,443,330
            
            
            -
            
            
            -
            
            
            ******5,443,330**Series
                B preferred deemed-
                dividend - note 17
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,297,157
            )
            
            **(2,297,157**
            **)**Conversion
                of Series B shares - note 17
            
            
            4,851,256
            
            
            512,101
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            ******512,101**Exercise
                of warrants - note 17
            
            
            800,000
            
            
            260,800
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **260,800**Issuance
                of Placement Agent Warrants - note 17
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            644,800
            
            
            -
            
            
            -
            
            
            ******644,800**Comprehensive
                incomeNet
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,064,544
            
            
            **1,064,544**Foreign
                currency translation adjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (12,421
            )
            
            -
            
            
            **(12,421**
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **1,052,123**Series
                B preferred dividend
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (202,069
            )
            
            **(202,069**
            )Balance,
                December 31, 2006
            
            
            135,801,426
            
            $
            1,520,901
            
            
            -
            
            $
            -
            
            $
            8,118,664
            
            $
            19,237
            
            $
            6,955,201
            
            **$**
            **16,614,003**Series
                B preferred dividend
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (453,763
            )
            
            **(453,763**
            )Conversion
                of Series B shares - note 18
            
            
            8,447,282
            
            
            891,704
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **891,704**Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,237,205
            
            
            **10,237,205**Foreign
                currency translation adjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,497,766
            
            
            -
            
            
            **1,497,766******Balance,
                December 31, 2007
            
            
            144,248,708
            
            $
            2,412,605
            
            
            -
            
            $
            -
            
            $
            8,118,664
            
            $
            1,517,003
            
            $
            16,738,643
            
            **$**
            **28,786,915**





See
      notes
      to consolidated financial statements


F-9


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**1.**
            **Corporation
                information**





The
      Company was incorporated in the State of California and the Company’s shares are
      quoted for trading on the Over-The-Counter Bulletin Board in the United States
      of America.





**2.**
            **Description
                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 and Brazil 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.





**3.**
            **Continuance
                of operations**





These
      financial statements have been prepared on a going concern basis. The Company’s
      has working capital surplus of $3,662,510 at December 31, 2007 compare with
      a
      deficit of ($8,560,763) in 2006.




F-10


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**4.**
            **Summary
                of significant accounting
                policies**





*Basis
      of presentation and consolidation*





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





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





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
      to the effective date of disposal.





As
      of
      December 31, 2007, 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 Indústria E Comércio De Eletro Eletrônica Ltda (“Discobrás”), in
      Brazil. Discobrás has a social capital of $8,046,281 (equivalent to
      R$17,385,600) and 99.42% or $8,000,000 (equivalent to R$17,285,600) (“Investment
      Cost”) of which has been subscribed by the Company. The minority interests have
      been recognized in the accompanying financial statements.





*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 of useful lives of property, plant and equipment. Actual results
      could differ from those estimates.


F-11


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





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





*License
      usage rights*





License
      usage rights are stated at cost less accumulated amortization. Amortization
      is
      provided using the straight-line method over the remaining term of the license
      obtained by IHL.





*Concentrations
      of credit risk*





Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk consist principally of trade receivables. The Company extends
      credit based on an evaluation of the customer’s financial condition, generally
      without requiring collateral or other security. The Company conducts periodic
      reviews of the client’s financial conditions and payment practices. Further, the
      Company will maintain an allowance for doubtful accounts based on the
      management’s expectations on actual losses possibly incurred. Other than set
      forth below, no customers represented 10% or more of the Company’s net
      sales.





At
      December 31, 2007, 2006 and 2005, customers representing 10% or more of the
      Company’s net sales and their related trade receivables are:





***Year
                ended December 31******Net
                sales***
            
            ***2007***
            
            ***2006***
            
            ***2005***Optimost
                Investments Limited
            
            $
            26,507,301
            
            $
            -
            
            $
            -Laser
                Corporation
            
            
            -
            
            
            5,539,155
            
            
            1,841,053AgroDigital
            
            
            -
            
            
            3,443,350
            
            
            -ENet
            
            
            -
            
            
            3,763,194
            
            
            17,164,213$
            26,507,301
            
            $
            12,745,699
            
            
            19,005,266





***As
                of December 31******Trade
                receivables***
            
            ***2007***
            
            ***2006***
            
            ***2005***Optimost
                Investments Limited
            
            $
            -
            
            $
            -
            
            $
            -Laser
                Corporation
            
            
            -
            
            
            1,450,249
            
            
            -AgroDigital
            
            
            -
            
            
            3,312,563
            
            
            -ENet
            
            
            -
            
            
            -
            
            
            1,610,075$
            -
            
            $
            4,762,812
            
            $
            1,610,075





*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.





*Advertising
      and transportation expenses*





Advertising,
      transportation and other product-related costs are charged to expenses as
      incurred.





Advertising
      expenses amounted to $10,737, $45,463 and $101,590 during 2007, 2006 and 2005
      respectively and are included in selling and distributing costs.





Transportation
      expenses amounted to $64,163, $352,203 and $447,894 during 2007, 2006 and 2005
      respectively and are included in selling and distributing costs.




F-12


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





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





*Income
      taxes*





The
      Company uses the asset and liability method of accounting for income taxes
      pursuant to SFAS No. 109 “Accounting for Income Taxes”. Under the asset and
      liability method of SFAS 109, deferred tax assets and liabilities are recognized
      for the future tax consequences attributable to temporary differences between
      the financial statements carrying amounts of existing assets and liabilities
      and
      loss carryforwards and their respective tax bases. Deferred tax assets and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled.





*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.





*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 currency of the Company are Hong Kong dollars (“HK$”) and Brazil
      dollars (Real$). The Company maintains its financial statements in the
      functional currency. 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 exchange adjustment to other comprehensive
      income, a component of stockholders’ equity.





The
      exchange rates in effect at December 31, 2007 and 2006 were HK$1 for $0.1282
      and
      $0.1286 and Real $1 for $0.562 and $ 0.4689 respectively. The average exchange
      rates for 2007, 2006 and 2005 were HK$1 for $0.1282, $0.1287 and $0.1290 and
      Real $1 for 0.5163 and 0.46 respectively. There is no significant fluctuation
      in
      exchange rate for the conversion of HK$ to US dollars after the balance sheet
      date.




F-13


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





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





*Fair
      value of financial instruments*





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





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





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





*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 (loss) per share*





The
      Company reports basic earnings (loss) per share in accordance with SFAS No.
      128,
“Earnings Per Share”. Basic earnings (loss) 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 year.





Diluted
      earning (loss) 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 year (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 year.





The
      weighted average number of shares outstanding for 2007 represents the number
      of
      common stock equivalent of Series A Convertible Preferred Stock 110,236,841
      issued to the Original Infosmart Shareholders for the Exchange transaction
      as
      they were mandatory converted to common stock.





The
      Company’s common stock equivalents at December 31, 2007 include the
      following:





Convertible
                redeemable preferred stock Series B
            
            
            16,011,864Detachable
                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.





F-14


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





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





*Restricted
      cash*





Deposits
      in an Escrow accounts and deposits in banks for securities of bank overdrafts
      facilities that are restricted in use are classified as restricted cash under
      current assets.





*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 year
      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 value 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 managements projected demand requirements,
      market conditions and product life cycle changes. During the reporting years,
      the Company did not make any allowance for slow-moving or defective
      inventories.





*Plant
      and equipment*





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





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




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





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





*Impairment
      of long-live assets*





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





*Off-balance
      sheet arrangements*





Other
      than the bank guarantee given by a bank to a utility company which exempted
      the
      Company’s obligation to pay the required utility deposit (note 13), the Company
      does not have any off-balance sheet arrangements.


F-15


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





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





*Recently
      Issued 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 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.


F-16


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





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





*Recently
      Issued Accounting Pronouncements*





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.





**5.**
            **Professional
                expenses related to Restructuring and Share
                Exchange**





***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005***Issuance
                of shares of Infosmart’s common stock to HIG Note 5(a)
            
            $
            -
            
            $
            1,431,993
            
            $
            -Reverse
                Merger fees Note 5(b)
            
            
            -
            
            
            450,000
            
            
            -Issuance
                of the Company’s common stock to professional parties Note
                5c
            
            
            -
            
            
            747,000
            
            
            -Others
            
            
            -
            
            
            124,397
            
            
            320,892$
            -
            
            $
            2,753,390
            
            $
            320,892





Notes:





5(a).
            Under
                the terms of the Exchange Agreement, immediately prior to the closing
                of
                the Exchange Agreement, HIG received 58.82352 shares (exchanged for
                55,555.55 shares of the Company’s Series A Convertible Preferred Stock) of
                Infosmart’s common stock as payment for its services as a finder in
                connection with the exchange transaction.5(b).
            Keating
                Securities, LLC. was paid an advisory fee of
                $450,000.





5(c).
            Fees
                for services rendered by Worldwide Gateway Company Ltd. and Richardson
                and
                Patel were settled by issuance of 2,850,000 shares and 459,770 shares
                of
                the Company’s common stock.5(d).
            The
                above professional expenses relate to the Restructuring and Share
                Exchange
                which occurred during the year and are
                non-recurring.





**6.**
            **Other
                Income**





***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005***Insurance
                compensation
            
            $
            641,157
            
            $
            -
            
            $
            -Interest
                income
            
            
            5,473
            
            
            23,821
            
            
            7,307Scrap
                sales
            
            
            160,455
            
            
            322,006
            
            
            211,754Other
                income
            
            
            903,323
            
            
            104,158
            
            
            83,842$
            1,710,488
            
            $
            499,985
            
            $
            302,903







F-17




INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**7.**
            **Income
                taxes**





**The
      components of income before income taxes are:-**





***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005***Brazil
            
            $
            (2,360,083
            )
            $
            -
            
            $
            -Hong
                Kong
            
            
            (1,148,746
            )
            
            5,247,207
            
            
            5,172,783The
                British Virgin Islands
            
            
            14,336,412
            
            
            (1,720,880
            )
            
            -The
                United States
            
            
            (482,683
            )
            
            (1,506,191
            )
            
            -Elimination
                of the inter-group transaction
            
            
            (172,451
            )
            
            -
            
            
            -$
            10,172,449
            
            $
            2,020,136
            
            $
            5,172,783





**The
      components of the provision for income taxes are:-**





***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005***Current
                taxesHong
                Kong
            
            $
            155,011
            
            $
            377,825
            
            $
            -Deferred
                taxesHong
                Kong
            
            
            (207,517
            )
            
            577,767
            
            
            958,022(52,506
            )
            $
            955,592
            
            $
            958,022





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 years ended December 31, 2007, 2006 and 2005. 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 profit tax rate of
      17.5% on the estimated assessable profits during the years.





The
      Company’s subsidiaries operating in Brazil is subject to profit tax rate of 34%.
      No provision for income tax in Brazil has been made as the Company had no
      taxable income for the years ended December 31, 2007.





The
      effective income tax expenses differ from the statutory rate of 34% in the
      United States as follows:




***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005***Provision
                for income tax at 34%
            
            $
            3,458,632
            
            $
            686,846
            
            $
            1,758,746Foreign
                tax rate differential
            
            
            304,207
            
            
            (280,690
            )
            
            (853,509
            )Increase
                in valuation allowance
            
            
            966,540
            
            
            512,105
            
            
            -Exemption
                in taxation
            
            
            (4,874,381
            )
            
            -
            
            
            -Others
            
            
            92,496
            
            
            37,331
            
            
            52,785Effective
                income tax expenses
            
            $
            (52,506
            )
            $
            955,592
            
            $
            958,022




F-18


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**7.**
            **Income
                taxes (cont’d)**





Deferred
      tax (assets) liabilities as of December 31, 2007 and 2006 are composed of the
      following:





***As
                of December 31******2007***
            
            ***2006***Hong
                KongOperating
                losses available for future periods
            
            $
            -
            
            $
            (475,504
            )Temporary
                difference on accelerated tax depreciation on plant and
                equipment
            
            
            2,305,728
            
            
            3,017,241The
                United SatesOperating
                losses available for future periods
            
            
            (482,683
            )
            
            (512,105
            )Valuation
                allowance
            
            
            482,683
            
            
            512,105Deferred
                tax liabilities, net
            
            $
            2,305,728
            
            $
            2
                541 537Recognized
                in the balance sheet:Net
                deferred tax assets
            
            $
            -
            
            $
            (459,823
            )Net
                deferred tax liabilities
            
            
            2,305,728
            
            
            3,001,360$
            2,305,728
            
            $
            2,541,537





The
      Company has a federal net operating loss carry forward of $482,683 *(2006:
      $1,506,191)* available to offset taxable income through to the year 2027. The Company
      recorded a deferred income tax asset for the tax effect of net operating loss
      carryforwards aggregating $482,683 *(2006:
      $1,506,191)* ,
      against
      which the Company has recorded a full valuation allowance in recognition of
      the
      uncertainty regarding the ultimate amount of income tax benefits to be derived.
      Under the Tax Reform Act of 1986, the amounts of and benefits from net operating
      losses carried forward may be impaired or limited in certain circumstances.
      Events which may cause limitations in the amount of net operating losses that
      the Company may utilize in any one year include, but are not limited to, a
      cumulative ownership change of more than 50 percent over a three-year period.
      At
      December 31, 2007, the effect of such limitation, if imposed, has not been
      determined.





At
      December 31, 2007, the Company also had a net operating loss carried forward
      of
      $3,088,795 *(2006:
      $2,718,311)* in Hong
      Kong that is available for offset against future profits for an unlimited period
      of time.




F-19




INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**8.**
            **Earning
                per share**





The
      weighted average number of shares outstanding for 2005 represents the number
      of
      common stock equivalent of Series A Convertible Preferred Stock (110,236,841)
      issued to the Original Infosmart Shareholders for the Exchange transaction
      as
      they were mandatory converted to common stock.





The
      Company’s common stock equivalents at December 31, 2007 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




The
      Company stock equivalents on issue during the period were
      anti-dilutive.





**9.**
            **Prepaid
                expenses and other
                receivables**





***As
                of December 31******2007***
            
            ***2006***Prepaid
                professional expenses
            
            $
            28,724
            
            $
            -Other
                prepaid operating expenses
            
            
            427,372
            
            
            41,409Rental
                and utility deposits
            
            
            80,312
            
            
            96,260Other
                receivables for advancement
            
            
            7,937
            
            
            131,808$
            544,345
            
            $
            269,477





**10.**
            **Inventories**





As
                of December 312007
            
            2006Raw
                materials
            
            $
            1,190,330
            
            $
            205,481Work
                in progress
            
            
            15,974
            
            
            -Finished
                goods
            
            
            2,189,890
            
            
            852,558$
            3,396,194
            
            $
            1,058,039




F-20


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**11.**
            **Plant
                and equipment**





***As
                of December******2007***
            
            ***2006****Costs**Production
                lines and equipment*
            
            $
            38,034,178
            
            $
            36,689,884*Leasehold
                improvements*
            
            
            2,132,378
            
            
            1,144,540*Furniture,
                fixtures and office equipment*
            
            
            221,393
            
            
            70,247*Motor
                vehicles*
            
            
            260,550
            
            
            54,75340,648,499
            
            
            37,959,424*Accumulated
                depreciation**Production
                lines and equipment*
            
            
            8,666,845
            
            
            6,151,290*Leasehold
                improvements*
            
            
            811,850
            
            
            637,856*Furniture,
                fixtures and office equipment*
            
            
            50,662
            
            
            32,020*Motor
                vehicles*
            
            
            25,474
            
            
            29,2029,554,831
            
            
            6,850,368*Net**Production
                lines and equipment*
            
            
            29,367,333
            
            
            30,538,594*Leasehold
                improvements*
            
            
            1,320,528
            
            
            506,684*Furniture,
                fixtures and office equipment*
            
            
            170,731
            
            
            38,227*Motor
                vehicles*
            
            
            235,076
            
            
            25,55131,093,668
            
            
            31,109,056*Construction
                in progress, at cost*
            
            
            -
            
            
            2,802,484*Plant
                and equipment, net*
            
            $
            31,093,668
            
            $
            33,911,540





An
      analysis of production lines and equipment pledged to banks for banking
      facilities (note 13) granted to the Company is as follows:





***Pledge
                for***
              ***banking
                facilities******As
                of December 31******2007***
            
            ***2006***Costs
            
            $
            14,724,398
            
            $
            8,333,280Accumulated
                depreciation
            
            
            (4,115,101
            )
            
            (133,230
            )Net
            
            $
            10,609,297
            
            $
            8,200,050








***Pledge
                for***
              ***banking
                facilities******As
                of December 31******2007***
            
            ***2006***Depreciation
                for the year
            
            $
            1,569,309
            
            $
            133,230





F-21


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**11.**
            **Plant
                and equipment (cont’d)**





**The
      components of depreciation charged are:**





***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005*****Included
                in factory overheads**
            
            $
            2,500,452
            
            $
            1,596,636
            
            $
            1,481,163Production
                lines and equipmentIncluded
                in operating expensesLeasehold
                improvements
            
            
            395,835
            
            
            191,634
            
            
            181,721Furniture,
                fixtures and office equipment
            
            
            29,900
            
            
            21,300
            
            
            21,862Motor
                vehicles
            
            
            34,490
            
            
            10,959
            
            
            10,951460,225
            
            
            223,893
            
            
            214,534$
            2,960,677
            
            $
            1,820,529
            
            $
            1,695,697




**12.**
            **Other
                payables and accrued
                liabilities**





***As
                of December 31******2007***
            
            ***2006***Customers
                deposits
            
            $
            -
            
            $
            117,306Accrued
                professional fee
            
            
            233,231
            
            
            264,327Staff
                costs payable
            
            
            193,083
            
            
            210,920Other
                loan interest payable
            
            
            165,057
            
            
            127,632Due
                to the ex-shareholder of IHL
            
            
            -
            
            
            4,277,656Due
                to a related company, Eternal Scene
            
            
            -
            
            
            514,401Payables
                for acquisition costs of plant and equipment
            
            
            -
            
            
            2,871,667Other
                accrued expenses for operations
            
            
            1,081,097
            
            
            372,766$
            1,672,468
            
            $
            8,756,675





As
      of
      December 31, 2006, the balance due to the ex-shareholder of IHL is
      interest-free, unsecured and has no fixed terms of repayment. $384,560 of the
      balance due to Eternal Scene, which is controlled by one of the directors of
      the
      Company, is interest-bearing at a monthly rate of 2% and the remaining balance
      is interest-free. For the year ended December 31, 2006, the Company incurred
      interest of $4,156 on the interest-bearing portion. The entire amount due to
      Eternal Scene is unsecured and repayable on demand.




F-22


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**13.**
            **Bank
                borrowings**





***As
                of December 31******2007***
            
            ***2006*****Secured:****Bank
                overdrafts repayable on demand**
            
            $
            194,423
            
            $
            -Repayable
                within one yearNon-recurring
                bank loans
            
            
            2,310,090
            
            
            1,738,029Other
                bank borrowings
            
            
            3,665,280
            
            
            1,765,6256,169,793
            
            
            3,503,654Repayable
                after one yearNon-recurring
                bank loans
            
            
            2,092,949
            
            
            2,893,9278,262,742
            
            
            6,397,581Unsecured:Bank
                overdrafts repayable on demandRepayable
                within one yearOther
                bank borrowings
            
            
            592,760
            
            
            -592,760
            
            
            -$
            8,855,502
            
            $
            6,397,581





As
      of
      December 31, 2007, the Company’s banking facilities are composed of the
      following:




AmountFacilities
                granted
            
            Granted
            
            Utilized
            
            UnusedLetter
                of credit including:-
                Outstanding letter of credit
            
            
            
            
            $
            754,775-
                Letter of credit under trust receipt
            
            
            
            
            
            647,1165,128,205
            
            
            1,401,891
            
            
            3,726,314Bank
                overdrafts
            
            
            256,410
            
            
            194,423
            
            
            61,987Non-recurring
                bank loans
            
            
            4,851,849
            
            
            4,851,849
            
            
            -Bank
                guarantee for utility deposit
            
            
            153,846
            
            
            153,846
            
            
            -10,390,310
            
            
            6,602,009
            
            
            3,788,301





As
      of
      December 31, 2007, the above banking borrowings were secured by the
      following:





(a)
            first
                fixed legal charge over 17 DVDR discs production lines with carrying
                amounts of $10,609,298 (note 11);





(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.





The
      interest rates of bank loans in ISTL and IML were at 1.75% and 1.5% over one
      month Hong Kong Interbank Offered Rate per annum respectively





F-23


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**14.**
            **Other
                loans**





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





***As
                of December 31******2007***
            
            ***2006***Year
                ending December 312007
            
            $
            -
            
            $
            1,268,0442008
            
            
            5,065,639
            
            
            1,175,4332009
            
            
            572,099
            
            
            563,0272010
            
            
            145,324
            
            
            145,742Total
            
            
            5,783,062
            
            
            3,152,246Current
                portion
            
            
            (5,065,639
            )
            
            (1,268,044
            )Non-current
                portion
            
            
            717,423
            
            $
            1,884,202





All
      the
      other loans are unsecured and have fixed repayment terms. The interest rate
      is
      Hong Kong Prime interest rate (2006: the average effective rate is approximately
      5.7%).





**15.**
            **Advance
                from a related party**





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




***As
                of December 31******2007***
            
            ***2006***Prime
                Corporate Developments Ltd.
            
            $
            929,634
            
            
            927,991





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




F-24


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**16.**
            **License
                usage rights**





2007
            
            2006Cost
                of license usage rights
            
            $
            2,092,809
            
            $
            2,092,809Less:
                Accumulated amortization
            
            
            (282,154
            )
            
            -Land
                use rights, net
            
            $
            1,810,655
            
            $
            2,092,809





The
      Company obtained the Infoscience Holdings Limited during 2006. In the process
      of
      acquisition, 2 license were obtained for the production of DVDR discs (“the
      Products”)





1.
            License
                agreement granted from DVDR developer (intellectual property owner)
                to
                produce the Products


2.
            The
                license for the manufacture of optical discs issued by the Customs
                and
                Excise Department of Hong Kong





Estimate
      usage right totally is 89 months. At December 2007, the license will be expired
      in 77 months





Amortization
      expense for the years ended 2007 was $282,154 (2006: Nil).





The
      estimated aggregate amortization expenses for license usage right for the five
      succeeding years is as follows :-





Year2008
            
            $
            282,1542009
            
            
            282,1542010
            
            
            282,1542011
            
            
            282,1542012
            
            
            282,154$
            1,410,770





**17.**
            **Commitments
                and contingencies**





Operating
      leases commitments





The
      Company leases office and factory premises under various non-cancelable
      operating lease agreements that expire at various dates through years 2008
      to
      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 December 31, 2007 are as
      follows:-





**Year
                ending December 31****2008**
            
            $
            343,258**2009**
            
            
            117,644**2010**
            
            
            28,331




Rental
      expense was $315,349, $169,221 and $518,967 during 2007, 2006 and 2005
      respectively.




F-25


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**17.**
            **Commitments
                and contingencies**





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 BVI 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.





In
      Re:
      Factory 2-U Stores, Inc .,
      U.S.
      Bankruptcy Court, District of Delaware - Adv. Proc. No. 005-30480. On March
      7,
      2006, a complaint 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 agreement, 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.




F-26


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)


**18.**
            **Common
                Stock and Convertible Preferred
                Stock**




*Common
                  stock*
              
              *Series
                  A*
              
              *Series
                  B*
              
              *Additional**No.
                  of*
              
              
              
              *No.
                  of*
              
              
              
              *No.
                  of*
              
              
              
              *paid-in**Shares*
              
              *Amount*
              
              *Shares*
              
              *Amount*
              
              *Shares*
              
              *Amount*
              
              *capital*Balance,
                  January 1, 2006
              
              
              10,119,040
              
              $
              1
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              619,877Issuance
                  of Infosmart’s common stock prior to exchange transaction on August 11,
                  2006
              
              
              -
              
              
              999
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of Series A shares on August 16, 2006 for the exchange of:-
                  1,000 shares of Infosmart’s common stock held by Original Infosmart
                  Shareholders
              
              
              -
              
              
              -
              
              
              944,445
              
              
              -
              
              
              -
              
              
              -
              
              
              (21,336
              )-
                  58.82352 shares of Infosmart’s common stock held by HIG
              
              
              -
              
              
              -
              
              
              55,555
              
              
              -
              
              
              -
              
              
              -
              
              
              1,431,993Issuance
                  of common stock for the completion of the Restructuring and Share
                  Exchange:on
                  August 16, 2006-
                  finders fee
              
              
              2,850,000
              
              
              627,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              --
                  legal advise fee
              
              
              459,770
              
              
              120,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of Series B shares with detachable warrants on August 16,
                  2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,092,857
              
              
              3,738,827
              
              
              5,443,330Issuance
                  of Placement Agent warrants on various dates
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (644,800
              )
              
              644,800Conversion
                  of Series A to common stock on October 12, 2006
              
              
              116,721,360
              
              
              -
              
              
              (1,000,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Conversion
                  of Series B to common stock on various date
              
              
              4,851,256
              
              
              512,101
              
              
              -
              
              
              -
              
              
              (180,883
              )
              
              (512,101
              )
              
              -Issuance
                  of common stock for the exercise of warrants
              
              
              800,000
              
              
              260,800
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  December 31, 2006
              
              
              135,801,426
              
              $
              1,520,901
              
              
              -
              
              $
              -
              
              
              911,974
              
              $
              2,581,926
              
              $
              8,118,664Conversion
                  of Series B to common stock on various date
              
              
              8,447,282
              
              $
              891,704
              
              
              -
              
              
              -
              
              
              (314,963
              )
              
              (891,704
              )
              
              -Balance,
                  December 31, 2007
              
              
              144,248,708
              
              $
              2,412,605
              
              
              -
              
              $
              -
              
              
              597,011
              
              $
              1,690,222
              
              $
              8,118,664




F-27




INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**18.**
            **Common
                Stock and Convertible Preferred Stock
                (cont’d)**





Common
      Stock





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





Preferred
      Stock





The
      Company is authorized under its Articles of Incorporation to issue 10,000,000
      shares of preferred stock, no par value per share. Of the 10,000,000 shares
      of
      preferred stock authorized, 1,200,000 shares were designated as Series A
      Convertible Preferred Stock and 1,800,000 shares were designated as Series
      B
      Redeemable Convertible Preferred Stock pursuant to Certificates of Determination
      that were approved by the Company's Board of Directors, and filed with and
      accepted by, the Secretary of State of the State of California prior to the
      closing of the exchange transaction.





Series
      A Preferred Stock





Under
      the
      terms of the Exchange Agreement, the Infosmart Shares held by the Infosmart
      Shareholders were exchanged for 1,000,000 shares of the Company’s Series A
      Preferred Stock (the “Exchange”).





Series
      B Preferred Stock and Warrants





The
      consummation of the Exchange was contingent on a minimum of $7 million (or
      such
      lesser amount as mutually agreed by Infosmart and the placement agent) being
      subscribed for, and funded into escrow, by certain accredited and institutional
      investors (“Investors”) for the purchase of shares of Series B Redeemable
      Convertible Preferred Stock of the Company promptly after the closing the
      Exchange under terms and conditions approved by the Company’s board of directors
      immediately following the Exchange (the “Financing”). The closing of the
      Financing was contingent on the closing of the Exchange, and the Exchange was
      contingent on the closing of the Financing.





Immediately
      following the closing of the Exchange, the Company received gross proceeds
      of
      approximately $7.65 million in connection with the Financing from the Investors.
      Pursuant to Subscription Agreements entered into with these Investors, the
      Company sold 1,092,857.143 shares of the Company’s Series B Preferred Stock with
      detachable warrants at a price per share of $7.00. Each share of Series B
      Preferred Stock will be convertible into shares of the Company’s common stock.
      It will be convertible into shares of the Company’s common stock at the election
      of the holder at a conversion price equal to $0.261 per share (“Conversion
      Price”). The Company was required to register the common stock underlying the
      Series B Preferred Stock and warrants issued in the Financing with the
      Securities and Exchange Commission for resale by the Investors. After deducting
      placement agents’ commissions and expenses as detailed below, the Company
      received net proceeds of approximately $6.89 million in the
      Financing.





In
      connection with the issuance of the Series B Preferred Stock to the Investors,
      the Company issued warrants to the Investors to purchase an aggregate of
      29,310,345 shares of common stock, on as-converted basis, of the Company. The
      warrants have an exercise price of $0.326 per share, subject to
      adjustments.





Keating
      Securities, LLC and Axiom Capital Management, Inc. (“Placement Agents”) acted as
      Placement Agents in connection with the Financing. For their services, the
      Placement Agents received a commission equal to 8% of the gross proceeds or
      approximately $587,000 from the offering and a non-accountable expense allowance
      equal to 2% of the gross proceeds or approximately $153,000.




F-28





INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**18.**
            **Common
                Stock and Convertible Preferred Stock
                (cont’d)**





Series
      B Preferred Stock and Warrants (cont’d)





In
      addition, the Placement Agents received, for nominal consideration, five-year
      warrants to purchase 10% of the number of shares of common stock into which
      the
      Series B Preferred Stock issued in the Financing are converted to (“Placement
      Agent Warrants”). The Placement Agent Warrants will be exercisable at any time
      at a price equal 125% of the conversion price, on a net-issuance or cashless
      basis. The Placement Agent Warrants have registration rights similar to the
      registration rights afforded to the holders of Series B Preferred Stock and
      warrants. The Company also paid for the out-of-pocket expenses incurred by
      the
      Placement Agents and all purchasers in the amount of $25,000. Further, the
      Company issued to the Placement Agent, warrants to purchase an aggregate of
      2,931,035 shares of our common stock on an as-converted basis at an exercise
      price of $0.326 per share.





The
      warrants are fully vested at the time of grant and have a term of five years.
      The material terms of the Company’s Series B Preferred Stock are summarized
      below.





Voting:
      The holders of Preferred Stock (including the Investors acquiring such shares
      as
      part of the Financing after the closing of the Exchange) are entitled to vote
      together with the holders of the common stock, as a single class, upon all
      matters submitted to holders of common stock for a vote. Each share of Preferred
      Stock will carry a number of votes equal to the number of shares of common
      stock
      issue 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 this Form
      8-K) has occurred and is continuing.





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




F-29




INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





**18.**
            **Common
                Stock and Convertible Preferred Stock
                (cont’d)**





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
      a contractual life of 5 years. The Company recorded the portion of the proceeds
      attributable to the stock as mezzanine equity pursuant to EITF Topic D-98,
      Classification and Measurement of Redeemable Securities after determining the
      guidance in FAS 150, Accounting for Certain Financial Instruments with
      Characteristics of both Liabilities and Equity did not apply. The Company
      determined that the warrants meet the definition of a derivative instrument
      as
      defined in SFAS 133, Accounting for Derivative Instruments and Hedging
      Activities, but do not require derivative treatment pursuant to the scope
      exception in paragraph 11(a) of SFAS 133.





The
      Company evaluated whether the embedded conversion feature in the stock required
      bifurcation and determined that the economic characteristics and risks of the
      embedded conversion feature in the stock were clearly and closely related to
      the
      stock and concluded that bifurcation was not required under SFAS 133. The
      Company calculated the intrinsic value of the beneficial conversion feature
      embedded in the stock ($2,297,157) pursuant to the guidance in EITF 00-27,
      Application of Issue No. 98-5 to Certain Convertible Instruments.





**19.**
            **Pension
                plans**




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





The
      MPF
      Scheme is available to all employees aged 18 to 64 with at least 60 days of
      service in employment in Hong Kong. Contributions are made by the Company
      operating in Hong Kong at 5% of the participants’ relevant income with a ceiling
      of $2,580 (equivalent of HK$20,000). The participants are entitled to 100%
      of
      the Company’s contributions together with accrued returns irrespective of their
      length of service with the Company, but the benefits are required by law to
      be
      preserved until the retirement age of 65. The only obligation of the Company
      with respect to MPF Scheme is to make the required contributions under the
      plan.





The
      assets of the schemes are controlled by trustees and held separately from those
      of the Company. The Company fully complied the contribution requirement and
      total pension cost was $65,959, $77,885 and $66,107 for the years ended December
      31, 2007, 2006 and 2005 respectively.




F-30


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)




**20.**
            **Segment
                Information**





The
      Company is engaged in the manufacture and distribution of DVDR discs and CDR.
      The nature of the products, their production processes, the type of their
      customers and their distribution methods are substantially similar. Information
      for the products of DVDR and CDR is disclosed under FAS 131, “Disclosures about
      Segments of an Enterprise and Related Information” as below:




***Flash
                drive and memory card***
            
            ***DVDR
                and Related Products***
            
            ***CDR***
            
            ***Total******Year
                ended***
              ***December
                31***
            
            ***Year
                ended***
              ***December
                31***
            
            ***Year
                ended***
              ***December
                31***
            
            ***Year
                ended***
              ***December
                31****2007*
            
            *2006*
            
            *2005*
            
            ***2007***
            
            ***2006***
            
            ***2005***
            
            ***2007***
            
            ***2006***
            
            ***2005***
            
            ***2007***
            
            ***2006***
            
            ***2005***Revenue
                from external customers
            
            $
            38,073,558
            
            $
            -
            
            $
            -
            
            $
            63,811,547
            
            $
            25,622,351
            
            $$
            24,251,654
            
            $
            3,084,795
            
            $
            1,480,090
            
            $
            325,552
            
            $
            104,969,900
            
            $
            27,102,441
            
            $
            24,577,206Interest
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            22,520
            
            
            7,210
            
            
            -
            
            
            1,301
            
            
            97
            
            
            -
            
            
            23,821
            
            
            7,307Interest
                expenses
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            492,542
            
            
            515,440
            
            
            -
            
            
            18,780
            
            
            5,387
            
            
            -
            
            
            511,322
            
            
            520,827Segment
                profit
            
            
            (7,661,647
            )
            
            -
            
            
            -
            
            
            17,919,622
            
            
            4,512,839
            
            
            5,420,905
            
            
            (16,988
            )
            
            260,687
            
            
            72,770
            
            
            10,240,987
            
            
            4,773,526
            
            
            5,493,675Depreciation
            
            
            ***-***
            
            
            ***-***
            
            
            ***-***
            
            
            ***-***
            
            
            ***1,721,108***
            
            
            ***1,673,235***
            
            
            -
            
            
            99,421
            
            
            22,462
            
            
            -
            
            
            1,820,529
            
            
            1,695,697Segment
                assets
            
            
            28,179,194
            
            
            -
            
            
            -
            
            
            47,228,524
            
            
            42,584,004
            
            
            23,657,987
            
            
            2,283,134
            
            
            2,137,501
            
            
            35,016
            
            
            76,608,031
            
            
            44,721,505
            
            
            23,693,003Expenditure
                for segment assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            14,953,289
            
            
            1,452,035
            
            
            -
            
            
            2,215,772
            
            
            2,496
            
            
            -
            
            
            17,169,061
            
            
            1,454,531





A
      reconciliation is provided for unallocated amounts relating to corporate
      operations which is not included in the segment information.




***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005***Total
                consolidated revenue
            
            $
            104,969,900
            
            $
            27,102,441
            
            $
            24,577,206Total
                profit for reportable segments
            
            $
            10,240,986
            
            $
            4,773,526
            
            $
            5,493,675Unallocated
                amounts relating to operations:Professional
                expenses related to Restructuring andShare
                Exchange
            
            
            -
            
            
            (2,753,390
            )
            
            (320,892
            )Income
                before taxes
            
            $
            10,240,986
            
            $
            2,020,136
            
            $
            5,172,783





Assets
            
            ***As
                of December 31******2007***
            
            ***2006***Total
                assets for reportable segments
            
            $
            76,608,031
            
            $
            44,721,505




F-31


INFOSMART
      GROUP INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, 2006, and 2005


(Stated
      in US Dollars)





Other
        than the production lines and equipment with carrying amount of $11,947,265
        (2006: $12,900,406) and the construction in progress located in Brazil, all
        of
        the Company’s long-lived assets are located in Hong Kong. Geographic information
        about the revenues, which are classified based on location of the customers,
        is
        set out as follows:


**20.**
                **Segment
                    Information
                    (cont’d)**





***Year
                ended December 31******2007***
            
            ***2006***
            
            ***2005***Argentina
            
            $
            204,637
            
            $
            74,039
            
            $
            -Australia
            
            
            15,848,368
            
            
            5,841,997
            
            
            2,130,973Brazil
            
            
            33,090,824
            
            
            6,870,908
            
            
            106,344Chile
            
            
            2,145
            
            
            521,747
            
            
            206,672Czech
                Republic
            
            
            20,573
            
            
            413,237
            
            
            -China
            
            
            51,399,473
            
            
            4,264,994
            
            
            2,970,216South
                Africa
            
            
            156,060
            
            
            -
            
            
            -Taiwan
            
            
            177,786
            
            
            19,954
            
            
            -Thailand
            
            
            491,417
            
            
            398,691
            
            
            120,198Turkey
            
            
            216,380
            
            
            -
            
            
            -United
                Kingdom
            
            
            165,210
            
            
            4,770,317
            
            
            18,553,687United
                States
            
            
            2,000,064
            
            
            1,583,684
            
            
            17,588Singapore
            
            
            17,814
            
            
            1,213,742
            
            
            -Other
                countries
            
            
            1,179,149
            
            
            1,129,131
            
            
            471,528Total
            
            $
            104,969,900
            
            $
            27,102,441
            
            $
            24,577,206





**21.**
            **Comparative
                amounts**





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




F-32





**ITEM
      9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES**





None.





**ITEM
      9A(T). CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





Based
      on
      their evaluation of our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of
      December 31, 2007, our chief executive officer and chief financial officer
      have
      concluded that our disclosure controls and procedures are designed to ensure
      that information required to be disclosed by us in the reports that we file
      or
      submit under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the SEC’s rules and forms and are operating
      in an effective manner.





**Management’s
      Annual Report on Internal Control over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting. Internal control over financial reporting
      is
      defined in Rule 13a-15(f) and 15d-15(f) promulgated under the
      Exchange Act as a process designed by, or under the supervision of, the
      Company’s principal executive and principal financial officers and effected by
      the Company’s board of directors, management and other personnel, to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles and includes those policies and
      procedures that:





·
            Pertain
                to the maintenance of records that in reasonable detail accurately
                and
                fairly reflect the transactions and dispositions of the assets of
                the
                Company;





·
            Provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that receipts and expenditures of the
                Company
                are being made only in accordance with authorizations of management
                and
                directors of the Company; and





·
            Provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of the Company’s assets that
                could have a material effect on the financial
                statements.





Because
      of its inherent limitations, the Company’s internal control over financial
      reporting may not prevent or detect misstatements. Therefore, even those systems
      determined to be effective can provide only reasonable assurance with respect
      to
      financial statement preparation and presentation. Projections of any evaluation
      of effectiveness to future periods are subject to the risk that controls may
      become inadequate because of changes in conditions, or that the degree of
      compliance with the policies or procedures may deteriorate.





Our
      management assessed the effectiveness of our internal control over financial
      reporting as of December 31, 2007. In making this assessment, management
      used the criteria set forth by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO) in *Internal
      Control—Integrated Framework* .





Based
      on
      our assessment, management believes that, as of December 31, 2007, our
      internal control over financial reporting is effective based on those
      criteria.





This
      annual report does not include an attestation report of the Company's registered
      public accounting firm regarding internal control over financial reporting.
      Management's report was not subject to attestation by the Company's registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management's report
      in this annual report.





**Changes
      in Internal Controls**





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 December 31, 2007 that have materially
      affected, or are reasonably likely to materially affect, our international
      control over financial reporting.





**ITEM
      9B. OTHER INFORMATION**





None.




34





**PART
      III**




**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
      GOVERNANCE**




Our
      directors and executive officers, their ages, their respective offices and
      positions, and their respective dates of election or appointment are as
      follows:




**Name**
            
            **Age**
            
            **Position
                Held**
            
            **Officer/Director
                since**Parker
                Seto
            
            40
            
            Chief
                Executive Officer and President
            
            8/21/07Po
                Nei Sze
            
            35
            
            Chief
                Financial Officer, Treasurer, Secretary and Director
            
            8/16/06Andrew
                Chung Yuen Chang
            
            38
            
            Chairman
                of the Board of Directors
            
            8/16/06Chung
                Kwok
            
            40
            
            Director
            
            8/16/06Simon
                Lee
            
            39
            
            Director
            
            3/16/07Wai
                Chuen Leung
            
            42
            
            Director
            
            7/4/07Joseph
                Chang
            
            44
            
            Director
            
            6/4/07Chi-Man
                Lam
            
            42
            
            Director
            
            8/9/07





**Business
      Experience Descriptions - 5 years bus exp and other directorships of
      directors**




Parker
      Seto - Chief Executive Officer and President. Mr. Seto
      has served as our Chief Executive Officer and President since August 21, 2007.
      Mr. Seto served as a director of the Company from March 16, 2007 until his
      resignation on August 9, 2007. He has extensive experience in initial public
      offerings and auditing public companies and provides financial advisory
      services. Concurrent to his position with the Company and since 2002, Mr. Seto
      is an advisor to several mid-sized businesses in Hong Kong and mainland China
      for general business management consultation. From 2005 to June 2007, Mr. Seto
      was Managing Director of WestPark Capital, Inc. Mr. Seto currently serves as
      a
      director of New Fiber Technology Cloth Inc. since March 2008. He graduated
      from
      the Chinese University of Hong Kong in Professional Accountancy stream with
      a
      Bachelor of Business Administration (Honour) in 1990. Mr. Seto is a Member
      of
      the American Institute of Certified Public Accountants, Fellow Member of the
      Association of Chartered Certified Accountants in United Kingdom, and member
      of
      the Hong Kong Institute of Certified Public Accountants.





Po
      Nei
      Sze - Chief Financial Officer, Treasurer, Secretary and Director .
      Ms. Sze
      has served as our director, Chief Financial Officer, Treasurer, and Secretary
      since August 16, 2006. Ms. Sze co-founded Infosmart Group Limited, a company
      incorporated in the British Virgin Islands (“Infosmart BVI”), in 2002 and
      oversaw its finance, human resources, accounting, purchasing, and shipping
      departments. The Company effected a reverse merger with Infosmart BVI on August
      16, 2006. Ms. Sze received her degree in Business Administration from the
      British Columbian Institute of Technology in Canada. Ms. Sze is also a director
      of Eternal Scene International Limited since December 2002 and Prime Corporate
      Developments Limited since January 2004.





Andrew
      Chung Yuen Chang - Chairman of the Board. Mr.
      Chang has served as our Chairman of the Board since August 16, 2006. In
      1995, he founded Hung Tat International (HK) Ltd. (“Hung Tat”), a
      telecommunications devices manufacturing business, which today employs 1,400
      workers and has revenues of $15 million. Hung Tat exports most of its output
      to
      the U.S., and its major customers include Family Dollar, Best Buy, Circuit
      City,
      Southern Telecom, and jWIN Electronics. Mr. Chang holds a Master of Economics
      degree from the University of Macquaire, Australia and a Bachelor of Commerce
      degree from the University of New South Wales, Australia where he majored in
      accounting. Mr. Chang is also a director of Honor Lustre Ltd. since September
      2005, Hung Tat Far East since April 2002, Hung Tat since January 1998, and
      Health Genius International Ltd. since May 1996.





Chung
      Kwok - Director. Mr. Kwok
      has served as our director since August 16, 2006. Mr. Kwok also served as our
      Chief Executive Officer and President from August 16, 2006 until his resignation
      on August 21, 2007. Mr. Kwok co-founded Infosmart Group Limited, a company
      incorporated in the British Virgin Islands (“Infosmart BVI”), in 2002, with
      which the Company effected a reverse merger on August 16, 2006. He has over
      twelve years’ experience in the optical storage media industry. Mr. Kwok
      received his Bachelor of Mathematics degree from the Chinese University of
      Hong
      Kong.





Simon
      Lee - Director. Mr. Lee
      has served as our director since March 16, 2007. Mr. Lee graduated from the
      Chinese University of Hong Kong in 1990 majoring in physics. He obtained his
      Masters in Business Administration from the Chinese University of Hong Kong
      where he specialized in accounting and finance stream. He is a Fellow Member
      of
      the Association of Chartered Association Accountants of the United Kingdom
      and a
      member of the Hong Kong Institute of Certified Public Accountants. Mr. Lee
      has
      been an instructor in the School of Accountancy at the Chinese University of
      Hong Kong and is currently a Lecturer in the School of Accountancy and Law
      at
      the Faculty of Business of the Hong Kong Baptist University. He is also a
      Research Fellow of the Corporate Governance and Financial Policy Centre of
      Hong
      Kong Baptist University. Mr. Lee is regularly invited by multinational companies
      to provide training to professionals in the banking and personal financial
      management sector.





Wai
      Chuen Leung - Director. Mr.
      Leung has served as our director since July 4, 2007. Mr. Leung has extensive
      experience in auditing and accounting. Concurrent to his directorship with
      the
      Company, he is the Chief Financial Officer of Sinobest Technology Holdings
      Ltd.,
      a position he has held since May 2005. From August 2004 to September 2005,
      Mr.
      Leung was the Independent Non-Executive Director for Maxx Bioscience Holdings
      Ltd. From December 2004 to March 2005, he was the Financial Controller for
      Pro-Health International Group Ltd. From December 2001 to December 2004, he
      was
      the Financial Controller for WLS Holdings Ltd. Mr. Leung graduated from the
      University of Hong Kong with a Bachelor’s degree in Social Sciences. He also
      received a Master’s degree in Business Administration from the University of
      Manchester and the University of Wales. In addition, Mr. Leung will soon receive
      his Master’s degree in Business with a concentration in Logistics Management
      from the RMIT University.




35




Joseph
      Chang - Director. Mr.
      Chang has served as our director since June 4, 2007. Mr. Chang has extensive
      experience in corporate finance, investment consulting, and business management.
      Concurrent to his directorship with the Company, he is the Chief Executive
      Officer of Active Asia Investments (HK) Limited, a position he has held since
      January 2007. From 2003 to 2006, Mr. Chang was the Chief Executive Officer
      of
      Global Trend Investment Consulting Limited. From March 2000 to April 2003,
      Mr.
      Chang was the Chief Financial Officer and Chief Operating Officer for HWACOM
      Systems, a systems integration company in the telecommunications/networking
      industry. Mr. Chang graduated from the National Taiwan Institution of Technology
      with a major in Industrial Management and a sub-major in MIS. He also graduated
      from the Banking and Insurance Department from the National Business College
      of
      Taipei.





Chi-Man
      Lam - Director. Mr. Lam
      has served as our director since August 9, 2007. Mr. Lam has extensive
      experience in business management. Concurrent to his directorship with the
      Company, he runs and is a director of Vision Products Limited, a trader in
      toys
      and gift products, which he founded in 1997. Mr. Lam is a graduate of the
      Chinese University of Hong Kong with both a Bachelor’s degree and a Master’s
      degree in Business Administration.





**Family
      Relationships**





There are no family
      relationships among our directors and executive officers.





**Involvement
      in Certain Legal Proceedings**




None
      of
      our directors or executive officers has, during the past five
      years:





(a)
            Has
                had a petition under the federal bankruptcy laws or any state insolvency
                law filed by or against, or a receiver, fiscal agent or similar officer
                was appointed by a court for the business or property of such person,
                or
                any partnership in which he was a general partner at or within two
                years
                before the time of such filing, or any corporation or business association
                of which he was an executive officer at or within two years before
                the
                time of such filing;





(b)
            Been
                convicted in a criminal proceeding or is a named subject of a pending
                criminal proceeding (excluding traffic violations and other minor
                offenses);





(c)
            Been
                the subject of any order, judgment, or decree, not subsequently reversed,
                suspended or vacated, of any court of competent jurisdiction, permanently
                or temporarily enjoining him from, or otherwise limiting, the following
                activities:
              
              (i)Acting
                as a futures commission merchant, introducing broker, commodity trading
                advisor, commodity pool operator, floor broker, leverage transaction
                merchant, any other person regulated by the Commodity Futures Trading
                Commission, or an associated person of any of the foregoing, or as
                an
                investment adviser, underwriter, broker or dealer in securities,
                or as an
                affiliated person, director or employee of any investment company,
                bank,
                savings and loan association or insurance company, or engaging in
                or
                continuing any conduct or practice in connection with such
                activity;
              
              (ii)Engaging
                in any type of business practice; or
              
              (iii)Engaging
                in any activity in connection with the purchase or sale of any security
                or
                commodity or in connection with any violation of federal or state
                securities laws or federal commodities laws;(d)
            Been
                the subject of any order, judgment or decree, not subsequently reversed,
                suspended or vacated, of any federal or state authority barring,
                suspending or otherwise limiting for more than 60 days the right
                of such
                person to engage in any activity described in paragraph (c)(i) above,
                or
                to be associated with persons engaged in any such activity;(e)
            Been
                found by a court of competent jurisdiction in a civil action or by
                the
                Commission to have violated any federal or state securities law,
                and the
                judgment in such civil action or finding by the Commission has not
                been
                subsequently reversed, suspended, or vacated; and(f)
            Been
                found by a court of competent jurisdiction in a civil action or by
                the
                Commodity Futures Trading Commission to have violated any federal
                commodities law, and the judgment in such civil action or finding
                by the
                Commodity Futures Trading Commission has not been subsequently reversed,
                suspended or vacated.




Chung
      Kwok, director of the Company, is a twenty-five percent (25%) shareholder and
      director of Mega Winner, a corporation incorporated under the laws of the Hong
      Kong Special Administrative Region of the People’s Republic of China, which was
      subject to a bankruptcy lawsuit filed against it by Media Lab Ltd., an
      Australian company, in Hong Kong’s High Court on February 11, 2004. The court
      ruled for Mega Winner to be wound-up (Companies Winding-up No. 1360 of
      2003). A Liquidator was appointed on March 1, 2004, and the liquidation is
      currently in progress.




36





**Compliance
      with Section 16(a) of the Exchange Act**





Based
      solely upon a review of the copies of such forms furnished to the Company,
      or
      written representations that no reports were required, we believe that for
      the
      fiscal year ended December 31, 2007, beneficial owners complied with
      Section 16(a) filing requirements applicable to them.




**Code
      of Ethics**





We
      have
      adopted a code of ethics that applies to all directors, officers, and employees,
      including our Chief Executive Officer and Chief Financial Officer, and members
      of the board of directors. We will provide to any person, without charge and
      upon request, a copy of the code of ethics. Any such request must be made in
      writing to the Company, c/o Investor Relations, 5 th Floor,
      QPL Industrial Building, 126-140 Texaco Road, Tsuen Wan, Hong Kong.




**Material
      Changes to the Procedures by which Security Holders May Recommend Nominees
      to
      the Board of Directors**




There
      have been no material changes to the procedures by which security holders may
      recommend nominees to the Board of Directors.




**Audit
      Committee**





We
      are
      not a “listed company” under SEC rules and are therefore not required to have an
      audit committee comprised of independent directors. We established an Audit
      Committee, however, in November 2007. Our Audit Committee was established in
      accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
      The
      Audit Committee assists Board oversight of (i) the integrity of our financial
      statements, (ii) our compliance with legal and regulatory requirements, (iii)
      the independent auditor’s qualifications and independence, and (iv) the
      performance of our internal audit function and independent auditor, and prepares
      the report that the Securities and Exchange Commission requires to be included
      in our annual proxy statement. The current members of the Audit Committee are
      Simon Lee (Chairman), Joseph Chang, and Chi-Man Lam. The Board has determined
      that Mr. Lee is an “audit committee financial expert” within the meaning of Item
      407(d)(5)(ii) of SEC Regulation S-B, and is “independent” within the meaning of
      AMEX Company Guide Section 121A.




**ITEM
      11. EXECUTIVE COMPENSATION**





**Summary
      of Compensation**





The
      following executive compensation disclosure reflects all compensation awarded
      to, earned by or paid to the executive officers below for the fiscal years
      ended
      December 31, 2007 and December 31, 2006. The following table summarizes all
      compensation for fiscal year 2007 received by our Chief Executive Officer,
      Chief
      Financial Officer, our three most highly compensated executive officers who
      earned more than $100,000 in fiscal year 2007, and up to two additional
      individuals for whom disclosure would have been provided but for the fact that
      the individual was not serving as an executive officer at the end of fiscal
      year
      2007.




**SUMMARY
                COMPENSATION TABLE**Name
                and principal position
            
            Year
            
            Salary
              ($)
            
            Bonus
                ($)
            
            Stock
                Awards
              ($)
            
            Option
                Awards
              ($)
            
            Non-Equity
                Incentive Plan Compensation
              ($)
            
            Nonqualified
                Deferred Compensation Earnings
              ($)
            
            All
                Other Comp-ensation
              ($)
            
            Total
              ($)Parker
                Seto,
              CEO
                and President
            
            
            2007
            
            $
            66,200
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            66,2002006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Po
                Nei Sze,
              CFO,
                Treasurer, Secretary, and Director
            
            
            2007
            
            
            137,987
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,000
            
            
            139,9872006
            
            
            77,856
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            77,856Chung
                Kwok,
              Former
                CEO, Former President, Current Director
            
            
            2007
            
            
            35,128
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            35,1282006
            
            
            122,564
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            122,564




37




**Outstanding
      Equity Awards at Fiscal Year-End**




There
      are
      no outstanding equity awards for any of our named executive officers outstanding
      as of December 31, 2007.





**Grants
      of Plan-Based Awards to Executive Officers in 2007**





No
      plan-based awards were granted to our named executive officers in fiscal year
      2007.





**Option
      Exercises and Stock Vesting**





There
      were no exercises of stock options, SARS, or similar instruments, or vesting
      of
      stock during fiscal year 2007 for each of our named executive
      officers.





**Pension
      Benefits**





None
      of
      our named executive officers participates in any pension benefit plan adopted
      by
      the Company.





**Nonqualified
      Deferred Compensation Plans**





None
      of
      our named executive officers participates in any nonqualified deferred
      compensation plan adopted by the Company.





**Compensation
      of Directors**





The
      following director compensation disclosure reflects all compensation awarded
      to,
      earned by or paid to the directors below for the fiscal year ended December
      31,
      2007.




**DIRECTOR
                COMPENSATION**Name
            
            Fees
                Earned or Paid in Cash
              ($)
            
            Stock
                Awards
              ($)
            
            Option
                Awards
              ($)
            
            Non-Equity
                Incentive Plan Compensation
              ($)
            
            Change
                in Pension Value and Nonqualified Deferred Compensation
                Earnings
              ($)
            
            All
                Other Compen-sation
              ($)
            
            Total
                ($)Andrew
                Chang
            
            $
            76,923
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            76,923Po
                Nei Sze (1)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Chung
                Kwok (2)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Simon
                Lee
            
            
            100,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            100,000Wai
                Chuen Leung
            
            
            5,128
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,128Joseph
                Chang
            
            
            10,256
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,256Chi-Man
                Lam
            
            
            4,108
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,108





(1)  Ms.
      Sze’s
      director compensation is fully reflected in the disclosures provided in the
      Summary Compensation Table above.




(2)  Mr.
      Kwok’s director compensation is fully reflected in the disclosures provided in
      the Summary Compensation Table above.





**Employment
      and Director Agreements**





In
      August
      2007, our predecessor entity, Infosmart Group, Limited, a company incorporated
      in the British Virgin Islands (“Infosmart BVI”), entered into an employment
      agreement with Parker Seto that provided for a starting monthly salary of
      HK$83,000. Such salary is subject to an annual review by Infosmart BVI’s Board
      of Directors (“Infosmart BVI Board”) at a time determined by the Infosmart BVI
      Board. Under the terms of the agreement, Mr. Seto is also entitled to receive
      reimbursements for all reasonable business, office personnel, company-related
      entertainment, and travel expenses that he incurs or he pays for on behalf
      of
      Infosmart BVI.




38




In
      June
      2006, Infosmart BVI entered into an employment agreement with Po Nei Sze that
      provided a starting monthly salary of HK$50,000 or approximately US$6,435.
      Such
      salary is subject to an annual review by the Infosmart BVI Board at a time
      determined by the Infosmart BVI Board. Under the terms of the agreement, Ms.
      Sze
      is also entitled to receive reimbursements for all reasonable business, office
      personnel, company-related entertainment, and travel expenses that she incurs
      or
      she pays for on behalf of Infosmart BVI.





In
      June
      2006, Infosmart BVI entered into an employment agreement with Chung Kwok for
      his
      services as Chief Executive Officer and a director that provided for a base
      monthly salary is HK$60,000. Such salary is subject to an annual review by
      the
      Infosmart BVI Board at a time determined by the Infosmart BVI Board. Under
      the
      terms of the agreement, Mr. Kwok is also entitled to receive reimbursements
      for
      all reasonable business, office personnel, company-related entertainment and
      travel expenses that he incurs or he pays for on behalf of Infosmart BVI.





In
      July
      2006, Infosmart BVI entered into an employment agreement with Andrew Chang
      that
      provided a starting monthly salary of HK$50,000 or approximately US$6,435.
      Such
      salary is subject to an annual review by the Infosmart BVI Board at a time
      determined by the Infosmart BVI Board. Under the terms of the agreement, Mr.
      Chang is also entitled to receive reimbursements for all reasonable business,
      office personnel, company-related entertainment, and travel expenses that he
      incurs or he pays for on behalf of Infosmart BVI.





Each
      of
      the above-described employments agreements state the officer and/or directors
      employment may be terminated immediately, without Infosmart BVI’s prior notice
      or payment in lieu of notice if at any time the officer and or director (1)
      becomes physically or mentally disabled whether totally or partially so that
      he
      is substantially unable to perform his duties for a period of or for 30 days
      in
      the aggregate in any period of six consecutive months, (2) is convicted of
      a
      criminal offense, except one which in the reasonable of Infosmart BVI’s Board
      does not affect his position with Infosmart BVI at the time of such conviction,
      (3) commits repeated or continued (after warning) any persistent or material
      breach of the employment agreement; (4) is guilty of willful neglect in
      discharging his duties or commits any grave misconduct which in the absolute
      opinion of the Infosmart BVI Board tends to bring himself or Infosmart BVI
      into
      disrepute; or (5) commits an act of bankruptcy or compounded with his creditors
      generally or is guilty of conduct which would make his continued appointment
      prejudicial to the interests of Infosmart BVI. Further, the agreements provide
      for employee insurance, mandatory provident fund benefits, and, after completion
      of the three-month probation period, medical insurance. These agreements also
      contain restrictive covenants preventing competition with Infosmart BVI during
      their employment and for a period of 12 months after termination, and also
      covenants preventing the use of confidential business information, except in
      connection with the performance of their duties for Infosmart BVI, during or
      at
      any time after termination of their employment.




We
      expect
      to assume the above-described employment agreements our officers and directors
      currently have with Infosmart BVI.




There
      are
      no other employment agreements or arrangements with any of our directors or
      named executive officers. We do not have a long term incentive plan or
      arrangement of compensation with any individual in the group of officers and
      directors.




**Compensation
      Committee Interlocks and Insider Participation**





During
      the fiscal year ended December 31, 2007, the members of our Compensation
      Committee were Simon Lee, Joseph Chang, and Chi-Man Lam (Chairman). None of
      the
      members of our Compensation Committee are executive officers of the
      Company.




39





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**




**Securities
      Authorized for Issuance under Equity Compensation Plans**




We
      do not
      currently have any equity compensation plans or arrangements.




**Security
      Ownership of Certain Beneficial Owners and Management**




The
      following table sets forth certain information regarding beneficial ownership
      of
      our common stock as of March 14, 2008 by (i) each person who is known by us
      to own beneficially more than five percent (5%) of the outstanding shares of
      our
      voting securities, (ii) each of our directors and executive officers, and
      (iii) all of our directors and executive officers as a group. Unless
      otherwise indicated below, to our knowledge, all persons listed below have
      sole
      voting and investing power with respect to their shares of common stock, except
      to the extent authority is shared by spouses under applicable community property
      laws.




**Name
                and Address of Beneficial Owner (1)**
            
            **Amount
                and Nature**
              **of
                Beneficial**
              **Ownership
                (2)**
            
            **Percent**
              **of
                Class (2)**Parker
                Seto
            
            
            0
            
            
            *Po
                Nei Sze (3)
            
            
            62,230,292
            
            
            42.3
            %Andrew
                Chung Yuen Chang
            
            
            9,483,727
            
            
            6.4
            %Chung
                Kwok
            
            
            16,189,400
            
            
            11.0
            %Simon
                Lee
            
            
            0
            
            
            *Wai
                Chuen Leung
            
            
            0
            
            
            *Joseph
                Chang
            
            
            0
            
            
            *Chi-Man
                Lam
            
            
            0
            
            
            *Prime
                Corporate Developments Limited (3)
            
            
            62,230,292
            
            
            42.3
            %Giovanni
                Brambilla (4)
            
            
            8,356,484
            
            
            5.7
            %Lui
                Sau Wan (5)
            
            
            20,757,376
            
            
            14.1
            %CIM
                Dividend Income Fund Limited (6)
            
            
            12,671,045
            
            
            7.9
            %**All
                Officers and Directors as a group (8 persons)**
            
            
            88,043,419
            
            
            59.7
            %





*
      Less
      than 1%.




40




(1)
            
            Unless
                otherwise indicated, the address of the beneficial owner will be
                c/o
                Infosmart Group Limited, 5thFloor, QPL Industrial Building, 126-140 Texaco Road, Tsuen Wan, Hong
                Kong.





(2)
            
            Applicable
                percentages are based on 147,593,836 shares of common stock
                outstanding on March 14, 208, adjusted as required by rules promulgated
                by
                the SEC.Under
                Rule 13d-3, a beneficial owner of a security includes any person
                who,
                directly or indirectly, through any contract, arrangement, understanding,
                relationship, or otherwise has or shares: (i) voting power, which
                includes
                the power to vote, or to direct the voting of shares; and (ii) investment
                power, which includes the power to dispose or direct the disposition
                of
                shares. Certain shares may be deemed to be beneficially owned by
                more than
                one person (if, for example, persons share the power to vote or the
                power
                to dispose of the shares). In addition, shares are deemed to be
                beneficially owned by a person if the person has the right to acquire
                the
                shares (for example, upon exercise of an option) within 60 days of
                the
                date as of which the information is provided. In computing the percentage
                ownership of any person, the amount of shares outstanding is deemed
                to
                include the amount of shares beneficially owned by such person (and
                only
                such person) by reason of these acquisition rights. As a result,
                the
                percentage of outstanding shares of any person as shown in this table
                does
                not necessarily reflect the person's actual ownership or voting power
                with
                respect to the number of shares of common stock actually
                outstanding.(3)
            
            Ms.
                Po Nei Sze is the sole owner of Prime Corporate and exercises sole
                voting
                and investment control over such shares.(4)
            
            Giovanni
                Brambilla is the natural control person with voting and dispositive
                control over shares held by Anima SGRpA - Anima Trading, Anima SGRpA
                -
                Anima Emerging Markets, and Anima SGRpA - Anima Asia, and may be
                deemed to
                beneficialy own the securities held by such entities. These include
                (i)
                1,226,215 shares of common stock held by Anima Trading; (ii) 2,149,425
                shares of common stock held by Anima Emerging Markets; (iii) 1,149,426
                shares of common stock issuable upon exercise of warrants held by
                Anima
                Emerging Markets, (iv) 1,915,709 shares of common stock held by Anima
                Asia; and (v) 1,915,709 shares of common stock issuable upon exercise
                of
                warrants held by Anima Asia. Mr. Brambilla’s address is Via Brera 18,
                Milano, MI, 20121, Italy.(5)
            
            The
                address for this shareholder is No. 188, Victoria Road, Hong
                Kong.(6)
            
            R.
                James P. Morton is the natural control person with voting and dispositive
                control over these shares. Mr. Morton’s address is 1 Regent Street,
                London, England SW1Y 4NS.




**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





**Certain
      Relationships and Related Transactions**





Described
      below are certain transactions or series of transactions during our 2006 and
      2007 fiscal years between us and our executive officers, directors, and the
      beneficial owners of 5% or more of our common stock, and certain persons
      affiliated with or related to these persons, including family members, in which
      they had or will have a direct or indirect material interest in an amount that
      exceeds $120,000, other than compensation arrangements that are otherwise
      required to be described under "Executive Compensation."




Prior
      to the Share Exchange Transaction





The
      Company had a revolving $500,000 line of credit with Frank Yuan, former Chief
      Executive Officer of the Company, and his spouse, Vicky Yuan. The line of credit
      bore interest at 8% per annum and was to expire on February 2006. The line
      of
      credit was terminated, and the Company’s obligations thereunder were assumed by
      ASAP Show, Inc.




41





Pursuant
      to a Stock Option Assumption Agreement entered into between the Company and
      Frank Yuan as of May 31, 2005 (“Option Assumption Agreement”), Mr. Yuan agreed
      to assume all obligations of the Company with respect to options to purchase
      36,025 shares of the Company’s common stock held by certain employees and
      consultants. In connection with the Option Assumption Agreement, Mr. Yuan
      delivered a certificate representing 36,025 shares of the Company’s common
      stock, which shares may be cancelled to the extent Yuan fails to deliver shares
      to such holders upon exercise.





Pursuant
      to the terms of the Amended and Restated Securities Purchase Agreement (“SPA”)
      by and among KI Equity, the Company, and Frank Yuan dated August 25, 2005,
      Mr.
      Yuan agreed to indemnify KI Equity and the Company for certain claims and
      liabilities arising prior to the closing of the Amended SPA for a limited time.





On
      May
      31, 2005, the Company entered into a Transfer and Assumption Agreement
      (“Assumption Agreement”) with Frank Yuan and ASAP Show, Inc. (“ASAP”), a then
      wholly owned subsidiary of the Company, under which the Company transferred
      all
      of its Assets (as defined therein) to ASAP and ASAP assumed all of the Company’s
      liabilities (“Assumed Liabilities”). Under Section 5 of the Assumption
      Agreement, ASAP and Mr. Yuan agreed to indemnify the Company for any claims
      and
      liabilities relating to the Assumed Liabilities. Further, pursuant to Section
      3
      of the Assumption Agreement, an indemnity reserve for $50,000 (“Indemnity
      Escrow”) was established to satisfy any claims that may arise for indemnity
      under the Amended SPA or the Assumption Agreement. The Company retained the
      Indemnity Escrow beyond the six month period after the closing of the Amended
      SPA pending the resolution of the Preference Action discussed below, which
      was
      resolved on June 21, 2007.





On
      March
      7, 2006, a complaint 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. (“Preference Action”). 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 agreement, subject to the bankruptcy court’s
      approval. The bankruptcy court approved the settlement and dismissed the
      complaint with prejudice on June 21, 2007.




Effective
      October 5, 2005, the Company entered into a contract with Vero Management,
      L.L.C. (“Vero”) for managerial and administrative services, which contract was
      amended effective November 1, 2005. Vero has not been engaged to provide, and
      Vero does not render, legal, accounting, auditing, investment banking, or
      capital formation services. Kevin R. Keating, a former officer and director
      of
      the Company, is the manager of Vero. The term of the contract was for one year,
      but the contract may be terminated at any time. In consideration of the services
      provided, Vero was paid $2,500 for each month in which services are rendered.
      The Company’s contract with Vero was terminated effective at the closing of the
      share exchange transaction with Infosmart Group, Limited, a company incorporated
      in the British Virgin Islands (“Infosmart BVI”), on August 16, 2006 (“Share
      Exchange”).





Kevin
      R.
      Keating was the sole officer and a director of the Company prior to the Share
      Exchange. Kevin R. Keating is the father of Timothy J. Keating, the principal
      member of Keating Investments, LLC. Keating Investments, LLC is the managing
      member of KI Equity, (which was the majority shareholder of the Company prior
      to
      the closing of the Share Exchange), Keating Securities, LLC, the registered
      broker-dealer affiliate of Keating Investments, LLC, and KAMS. Kevin R. Keating
      is not affiliated with and has no equity interest in Keating Investments, LLC,
      KI Equity, KAMS, or Keating Securities, LLC and disclaims any beneficial
      interest in the shares of the Company’s common stock owned by KI Equity.
      Similarly, Keating Investments, LLC, KI Equity, KAMS, and Keating Securities,
      LLC disclaim any beneficial interest in the shares of the Company’s common stock
      currently owned by Kevin R. Keating. Kevin R. Keating is also the manager and
      sole member of Vero Management, LLC, which had a management agreement with
      the
      Company that terminated effective as of the closing of the Share
      Exchange.




42





Margie
      L.
      Blackwell, Luca Toscani, and Jeff L. Andrews were directors of the Company
      prior
      to the closing of the Share Exchange. Ms. Blackwell and Mr. Toscani are each
      members of Keating Investments, LLC, and Mr. Andrews is a Vice President of
      Keating Investments, LLC.





At
      the
      closing of the Share Exchange and pursuant to the terms of the share exchange
      agreement with Infosmart BVI, the Company entered into financial advisory
      agreement with Keating Securities, LLC (“Keating Securities”), a registered
      broker-dealer, under which Keating Securities was compensated by the Company
      for
      its advisory services rendered to the Company in connection with the Exchange.
      Prior to the exchange, the Company was a public shell company. The transaction
      advisory fee of $450,000 was paid to Keating Securities at the closing of the
      Share Exchange.





Keating
      Securities and Axiom Capital Management, Inc. (“Placement Agents”) acted as
      placement agents in connection with the private placement that closed in August
      of 2006 in which we sold Series B Convertible Preferred Stock and common stock
      purchase warrants. For their services, the Placement Agents received a
      commission equal to 8% of the gross proceeds from the offering and a
      non-accountable expense allowance equal to 2% of the gross proceeds. In
      addition, the Placement Agents received, for nominal consideration, warrants
      to
      purchase 10% of the total number of shares of common stock into which the Series
      B Convertible Preferred Stock issued in the private placement may be converted,
      with an exercise price of $0.326 per share. The warrants are fully vested and
      have a term of five years. The Placement Agent warrants have registration rights
      similar to the registration rights afforded to the holders of Series B
      Convertible Preferred Stock and Warrants. A total of 2,931,035 warrant shares
      were granted to the Placement Agents, of which 1,658,045 were transferred to
      Keating Securities’ agents and employees.





At
      the
      closing of the Share Exchange, the Company entered into an aftermarket support
      agreement between with Keating Aftermarket Support, LLC (“KAMS”), with such
      terms and conditions as mutually acceptable to Infosmart BVI, the Company,
      and
      KAMS. Pursuant to this agreement, the parties agreed that: (i) KAMS shall
      provide after market support services to the Company for a period of one year
      after the closing of the Share Exchange with the monthly retainer to be paid
      to
      KAMS for such services being $12,500, (ii) the Company shall engage a qualified
      research firm approved by KAMS to issue an independent research report and
      provide research coverage on the Company following the closing of the Share
      Exchange, with the Company being responsible for paying an estimated total
      cost
      of $35,000 for an initial independent research report and three subsequent
      quarterly reports thereafter, and (iii) the Company agreed to allocate a
      $400,000 annual budget for third party aftermarket support and investor
      relations services for the one year period after closing of the Share
      Exchange.





The
      Share Exchange Transaction





On
      July 7, 2006, the Company entered into an Exchange Agreement with KI Equity
      Partners LLC, Prime Fortune Enterprises Ltd. (“Prime”), the equity owners of
      Prime, namely, Chung Kwok, Po Nei Sze, and Prime Corporate Developments Limited
      (the “Prime Shareholders”), and Hamptons Investment Group Ltd. (“Hamptons”)
      (collectively the “Infosmart BVI Shareholders”) to acquire all of the equity
      ownership of Infosmart Group Limited, a company incorporated in the British
      Virgin Islands (“Infosmart BVI”) through the acquisition of Prime, the former
      100% direct equity owner and holding company of Infosmart BVI. Under the terms
      of the Exchange Agreement, immediately prior to the closing of the share
      exchange transaction, Hamptons was to receive 58.82352 shares of Prime’s capital
      stock as payment for its services as a finder in connection with the exchange
      transaction.




On
      August
      11, 2006, Prime’s and Infosmart BVI’s boards of directors and their respective
      shareholders agreed to restructure the ownership of Infosmart BVI’s issued
      capital stock, resulting in the transfer of the entire equity ownership of
      Infosmart BVI directly to Chung Kwok and the Prime Shareholders. On August
      14,
      2006, the Company entered into a First Amendment to the Exchange Agreement
      with
      KI Equity, Prime, the equity owners of Prime, Infosmart BVI, the equity owners
      of Infosmart BVI (which also consisted of Chung Kwok, Lui Sau Wan, and Prime
      Corporate Developments Limited), and Hamptons, whereby Infosmart BVI and the
      Infosmart BVI Shareholders replaced Prime and the Prime Shareholders as parties
      to the Exchange Agreement and assumed all of Prime’s and the Prime Shareholders’
obligations, representations, warranties, liabilities, and responsibilities
      under the Exchange Agreement, including Prime’s obligation to issue the shares
      of stock to compensate Hamptons for its services immediately prior to the
      closing of the share exchange transaction. Pursuant to the Exchange Agreement,
      as amended by the First Amendment, the Company acquired all of the outstanding
      shares of Infosmart BVI’s capital stock from the equity owners of Infosmart BVI
      and Hamptons, and the Infosmart BVI Shareholders transferred and contributed
      all
      of their Infosmart BVI shares to the Company. In exchange, the Company issued
      to
      the Infosmart BVI Shareholders 1,000,000 shares of the Company’s Series A
      Preferred Stock, which were convertible into 116,721,360 shares of the Company’s
      common stock and have since been converted in full. The share exchange
      transaction closed on August 16, 2006.





Chung
      Kwok is currently a director of the Company, and the dollar value of Mr. Kwok’s
      interest in the share exchange transaction was approximately $206,831 at the
      time of closing. Po Nei Sze is currently an executive officer of the Company,
      and the dollar value of Ms. Sze’s interest in the share exchange transaction was
      approximately $731,905 at the time of closing. Lui Sau Wan is a 5% shareholder
      of the Company, and the dollar value of Ms. Lui’s interest in the share exchange
      transaction was approximately $243,584 at the time of closing.





Other
      Related Transactions





During
      the period December 31, 2005 to the closing of Share Exchange on August 16,
      2006, Prime Corporate Developments Limited, a related entity solely owned by
      the
      Company’s Chief Financial Officer and Director Ms. Po Nei Sze, loaned
      approximately $384,615 to Infosmart BVI in connection with the construction
      of
      the Discobras manufacturing facility in Brazil. As of December 31, 2007,
      $316,097 of the original principal amount remains outstanding. During the fiscal
      year ended December 31, 2007, Infosmart BVI paid $NIL in principal of the
      original principal amount to Prime Corporate Developments Limited, and there
      is
      no interest on the loan.





Other
      than the above transactions or otherwise set forth in any reports filed by
      the
      Company with the SEC, the Company and its subsidiaries have not entered into
      any
      material transactions with any director, executive officer, and nominee for
      director, beneficial owner of five percent or more of its common stock, or
      family members of such persons. The Company is not a subsidiary of any other
      company.





**Director
      Independence**





Four
      of
      our directors - Simon Lee, Wai Chuen Leung, Joseph Chang, Chi-Man
      Lam -- are independent directors as that term is defined under AMEX Rules
      and Regulations.




43





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTING FEES AND SERVICES**





Fees
      for
      professional services provided by our current independent auditors, Parker
      Randall CF (H.K.) CPA Limited*, and our former independent auditors, PKF Hong
      Kong, in each of the last two fiscal years, in each of the following categories
      are:




**2007***
            
            **2006**Audit
                fees
            
            $
            73,630
            
            $
            111,138Audit-
                related fees
            
            
            10,000
            
            
            5,791Tax
                fees
            
            
            17,085
            
            
            15,258All
                other fees
            
            
            —
            
            
            —





*
      We
      retained Parker Randall CF (H.K.) CPA Limited on August 10, 2007.





Fees
      for
      audit services include fees associated with the annual audit and the review
      of
      documents filed with the Securities and Exchange Commission. Audit-related
      fees
      principally include fees reasonably related to the performance of the audit
      or
      review of our financial statements and that are not reported as Audit Fees.
      Tax
      fees included tax compliance, tax advice and tax planning work.




**ITEM
      15.**  **EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES**




**Financial
      Statements**





A
      list of
      the financial statements of the Company filed as part of this Report can be
      found above in Part II, Item 8.





**Exhibit****Number**
            
            **Description**2.1
            
            Exchange
                Agreement by and among Cyber, KI Equity, Hamptons Investment Group,
                Ltd.,
                Prime and the Prime Shareholders dated July 7, 2006 (1)2.2
            
            First
                Amendment to the Exchange Agreement dated August 16, 2006 between
                Cyber,
                KI Equity Partners, LLC, Hamptons Investment Group, Ltd., Prime,
                Prime
                Shareholders, Infosmart Group Ltd. and the Infosmart BVI Shareholders
                (2)2.3
            
            Voting
                Agreement by and among the Infosmart BVI Stockholders and KI Equity
                dated
                August 16, 2006 (2)3.1
            
            Articles
                of Incorporation (3)3.2
            
            Bylaws
                (3)3.3
            
            Amendment
                to Bylaws (4)3.4
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series A Convertible Preferred Stock
                (2)




3.5
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series B Convertible Preferred Stock (2)4.1
            
            Lock-Up
                Agreement (5)4.2
            
            Specimen
                Stock Certificate for Shares of Common Stock of the Company
                (6)10.1
            
            Lease
                of registrant's facilities dated January 29, 2004 (7)10.2
            
            Lease
                of registrant's facilities dated March 22, 2006 (7)10.3
            
            Lease
                of registrant's facilities dated September 16, 2003 (7)10.4
            
            Lease
                of registrant's facilities dated July 25, 2003 (7)10.5
            
            Lease
                of registrant's facilities dated September 30, 2003 (7)10.6
            
            Placement
                Agent Agreement dated July 7, 2006 between the Registrant, Securities,
                LLC
                and Axiom Capital Management, Inc. (2)10.7
            
            Form
                of Subscription Agreement between the Registrant and the Investor
                to be
                identified therein (2)10.8
            
            Registration
                Rights Agreement (2)




44




10.9
            
            Form
                of Common Stock Purchase Warrant (2)10.10
            
            Assignment
                and Assumption of Placement Agreement by an among Infosmart BVI,
                Cyber,
                Keating Securities, LLC and Axiom Capital Management, Inc. dated
                August
                16, 2006 (2)10.11
            
            Appointment
                Letter Agreement by and among Po Nei Sze and Infosmart Group Limited
                dated
                June 1, 2006 (2)10.12
            
            Appointment
                Letter Agreement by and among Andrew Chang and Infosmart Group Limited
                dated July 1, 2006 (2)10.13
            
            Appointment
                Letter Agreement by and among Chung Kwok and Infosmart Group Limited
                dated
                July 1, 2006 (2)10.14
            
            Cooperation
                Agreement by and among Infoscience Media Ltd. and Infoscience Holdings
                Ltd. dated December 1, 2005 (2)





10.15
            
            Amendment
                Agreement by and among Info smart Technology Limited, Info Smart
                International Enterprises Limited, and Mega Century Ltd. dated January
                1,
                2006 (2)10.16
            
            Banking
                Facilities Letter Agreement by and between Infoscience Media Limited
                and Hang Seng Bank Limited dated September 15, 2005
                (2)10.17
            
            General
                Banking Facilities Agreement by and between Info Smart Technology
                Ltd. and
                Chiyu Banking Corporation Limited dated November 28, 2003
                (2)10.18
            
            Contract
                for two Automatic Dual Track DVDR Manufacturing Systems "Streamline
                II
                DVDR" between Infoscience Media Ltd. and ACME Cassette Manufacturing
                Limited dated September 15, 2004 (2)10.19
            
            Sale
                and Purchase Agreement between Infoscience Media Limited and New
                Passion
                Investments Limited dated December 1, 2006 (8)16.1
            
            Letter
                from PKF Hong Kong dated September 10, 2007 (9)21.1
            
            Subsidiaries
                *23.1
            
            Consent
                of Parker Randall CF (H.K.) CPA Limited *23.2
            
            Consent
                of PKF*31.1
            
            Section 302
                Certification by the Corporation’s Chief Executive Officer
                *31.2
            
            Section 302
                Certification by the Corporation’s Chief Financial Officer
                *32.1
            
            Section 906
                Certification by the Corporation’s Chief Executive Officer
                *32.2
            
            Section 906
                Certification by the Corporation’s Chief Financial Officer
                *




* Filed
      herewith.





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





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




(3)
            Filed
                on May 6, 1999 as an exhibit to the Company's Registration Statement
                on
                Form SB-2 (File No. 333-60487), as amended, and incorporated herein
                by
                reference.





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





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





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





(7)
            Filed
                on September 15, 2006 as an exhibit to the Company's Registration
                Statement on Form SB-2 (File No. 333-137362) and incorporated herein
                by
                reference.




45




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





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





46


**SIGNATURES**




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




**INFOSMART GROUP,
              INC.**Dated:
                April 1, 2008
            By:
            /s/
                Parker SetoParker
                Seto, Chief Executive Officer and
                President




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


**Name**
            
            **Position**
            
            **Date**/s/
                Parker Seto
              Parker
                Seto
            
            Chief
                Executive Officer, President
            
            April
                1, 2008/s/
                Po Nei Sze
              
              Po
                Nei Sze
            
            Chief
                Financial Officer, Treasurer, Secretary, Director
            
            April
                1, 2008/s/
                Andrew Chung Yuen Chang
              
              Andrew
                Chung Yuen Chang
            
            Chairman
                of the Board of Directors
            
            April
                1, 2008/s/
                Chung Kwok
              
              Chung
                Kwok
            
            Director
            
            April
                1, 2008/s/
                Simon Lee
              
              Simon
                Lee
            
            Director
            
            April
                1, 2008/s/
                Wai Chuen Leung
              
              Wai
                Chuen Leung
            
            Director
            
            April
                1, 2008/s/
                Joseph Chang
              
              Joseph
                Chang
            
            Director
            
            April
                1, 2008/s/
                Chi-Man Lam
              
              Chi-Man
                Lam
            
            Director
            
            April
                1, 2008





47