**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-KSB**


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




**For
      the fiscal year ended December 31, 2006**




**OR**


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




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




**Commission
      file number: 00** **1-15643**




**INFOSMART
      GROUP, INC.**


(name
      of
      small business issuer 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)




Issuer’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


Title
                of each class
            
            Name
                of each exchange on which registeredCommon
                Stock, no par value per share
            
            None




Check
      whether the issuer is not required to file reports pursuant to Section 13
      or 15(d) of the Exchange Act. o




Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act during the past 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




Check
      if
      there is no disclosure of delinquent filings response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o




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




The
      issuer’s revenues for the fiscal year ended December 31, 2006 were
      $27,102,441.





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
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the past 60 days. (See definition of affiliate in
      Rule 12b-2 of the Exchange Act.) $7,111,678 based upon the average bid and
      asked price listed on the OTC Bulletin Board on March 22, 2007.





Number
      of
      Shares outstanding as of March 22, 2007 was 136,576,336.





Documents
      Incorporated By Reference: None




Transitional
      Small Business Disclosure Format (Check one): Yes o No þ







**TABLE
      OF CONTENTS**


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


**FOR
      YEAR ENDED DECEMBER 31, 2006**   PART
                  I
              
              PageItem
                  1.
              Description
                  of Business
              3Item
                  2.
              Description
                  of Property
              23Item
                  3.
              Legal
                  Proceedings
              24Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              24PART
                  IIItem
                  5.
              Market
                  for Registrant's Common Equity and Related Stockholder Matters
              24Item
                  6.
              Management's
                  Discussion and Analysis or Plan of Operation
              25Item
                  7.
              Financial
                  Statements
              25Item
                  8.
              Changes
                  in and Disagreements on Accounting and Financial
                  Disclosure
              25Item
                  8A.
              Controls
                  and Procedures
              26Item
                  8B.
              Other
                  Information
              26PART
                  IIIItem
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance with
                  Section
                  16(a) of the Exchange Act
              26Item
                  10.
              Executive
                  Compensation
              29Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management
              30Item
                  12.
              Certain
                  Relationships and Related Transactions
              31Item
                  13.
              Exhibits
              35Item
                  14.
              Principal
                  Accountant Fees and Services
              37Signatures
              
              38




2




**PART
      I**




**ITEM
      1. DESCRIPTION OF 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-KSB 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 Factors Related to Our Business”
below, as well as those discussed elsewhere in this Annual Report on Form
      10-KSB. 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-KSB. 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. 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 us.




*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-KSB. 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. In addition, due to customer demand,
      in the third quarter of 2006, we also started manufacturing recordable compact
      discs (“CDR”). We currently manufacture DVDRs with 8x and 16x writable speeds as
      well as CDRs with 52x writable speeds. We are also preparing for manufacturing
      of high density format DVDR (“HD DVDR”) or Blu-Ray format DVDR discs. We have
      customers in Western Europe, Australia, China and South America.





We
      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.





We
      also
      recently completed construction of our DVDR production facility in Brazil. 
In March 2006, IS Media formed Discobras Industria E Comercio de Electro
      Eletronica Limiteda, a Brazilian company (“Discobras”), with 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.
      We
      have obtained all required government-issued licenses and necessary documents
      and approvals for operating a DVDR production facility in Brazil. We installed
      DVDR manufacturing equipment in February 2007 and began trial production in
      Brazil in March 2007. We expect that regular production will commence in
      April 2007.





**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, we were an
      intermediary to global suppliers and buyers in the manufacturing, wholesaling
      and retailing apparel business. Effective on October 12, 2006, we changed our
      name from Cyber Merchants Exchange, Inc. to Infosmart Group, Inc. (the
“Company”).




3





Company
      Reorganization





Our
      shareholders of record on March 25, 2005 approved on May 16, 2005 a
      reorganization of the Company (the "Company Reorganization"). The 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 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 Shareholders”) to acquire all of the
      equity ownership of Infosmart Group Limited (“Infosmart”) through the
      acquisition of Prime, the former 100% direct equity owner and holding company
      of
      Infosmart. 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’s board of directors and their respective shareholders
      agreed to restructure the ownership of Infosmart’s issued capital stock and this
      resulted in the transfer of entire equity ownership of Infosmart 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, the equity owners
      of Infosmart (which also consisted of Mr. Chung Kwok, Ms. Lui Sau Wan and Prime
      Corporate Developments Limited), and Hamptons, whereby Infosmart and the
      Infosmart 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’s capital stock from the equity owners of
      Infosmart and Hamptons, and the Infosmart Shareholders transferred and
      contributed all of their Infosmart Shares to the Company. In exchange, the
      Company issued to the Infosmart 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
      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.




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
      number of shares of common stock into which the Series B Preferred Stock in
      the
      offering (“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 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. The Infosmart Shareholders and the Investors own, 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. The Company’s stockholders immediately prior to the Exchange own 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 Shareholders and,
      upon conversion, the shares of the Company’s common stock underlying the Series
      A Preferred Shares, is 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 is 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.




**Infosmart’s
      History and Organizational Structure**




Infosmart
      Group Limited (“Infosmart”) was incorporated in the British Virgin Islands on
      August 23, 2005 under the International Business Companies Act, British Virgin
      Islands. Prior to the Re-structuring (as described below) Prime Fortune
      Enterprises Limited, a British Virgin Islands company (“Prime”), was the sole
      equity owner and shareholder of 100% of Infosmart’s issued capital shares. In
      August 2006, the board of directors of both Prime and Infosmart decided to
      re-structure certain shareholdings in Infosmart, so that after the
      re-structuring, Prime would no longer own 100% of Infosmart’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 (the
“Re-structuring”).




5





Prior
      to
      the Re-structuring, Prime owned 100% of the issued capital shares of Infosmart,
      which consisted on 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,
      and in connection with the Re-structuring, Prime’s board of directors approved
      resolutions for Prime to transfer the one (1) issued capital share of Infosmart
      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 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’s Board
      approved resolutions for the issuance of 999 new shares in Infosmart 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 share that each receives (the
“Infosmart Share Issuance”) or an aggregate total payment of $999 for such
      shares. On August 11, 2006, Infosmart issued the 999 Infosmart 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 Share
      Issuance, Prime Corporate, Mr. Chung Kwok and Ms. Sau Wan Lui became the owners
      of 100% of the issued capital shares of Infosmart, with each of them owning
      the
      same number of Infosmart shares as the number of Prime shares that each
      currently owns. Pursuant to a group reorganization completed in October 2005
      (the “Infosmart Reorganization”), Infosmart is the holding company (directly and
      indirectly) of IS Technology, IS International, IS Media and Infosmart’s new
      Brazilian joint venture, Discobras, by the acquisition of 100% of the issued
      and
      outstanding common stock of IS Technology and IS International. IS Technology
      wholly owns IS Media, which, in turn, owns 99.42% of Discobras.





Infosmart
      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.




Current
      Organizational Structure





As
      a
      result of the share exchange transaction, the Company and Infosmart
      Reorganizations, the Infosmart Re-structuring as well as the acquisition of
      a
      new subsidiary in December 2006 discussed above, the Company’s current
      organizational structure is as follows (the percentages depict the current
      equity interests):




6




flowchart


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 writable high
      density format DVDRs (“HD DVDR”) or 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.





**Current
      Products**





We
      currently develop, manufacture, market and sell recordable digital versatile
      discs (“DVDRs”). A recordable digital versatile disc 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 currently manufacture discs with 8x and
      16x writable speed ratings. We estimate that our sales of our 8x writable speed
      DVDRs account for approximately 67% of our output, while 16x writable speed
      DVDRs make up approximately 17% of our output.





We
      also
      currently manufacture recordable compact discs (“CDRs”). CDR is a ‘write-once’
recordable disc storage media format that can be used for data, photos, video
      and music. CDR has been widely used all over the world due to its advantages
      on
      capacity, mobility, costs and most importantly, compatibility. According to
      Techno Systems Research Co., Ltd. (Japan), total global production volume of
      CD
      media in 2005 was 7,891,800,000 discs. We currently manufacture CD-R with a
      standard capacity of 700MB for data and 80MIN for music. The writable speed
      is
‘52x’ and we estimate that our sales of these CDRs account for approximately 16%
      of our output.





**Research
      and Development**





Infosmart
      is investing approximately $1,200,000 over the next 12 months on pre-production
      activities for HD DVDR production, including dye and stamper testing, mould
      modification and process fine-tuning. In order to position the company to be
      one
      of the first companies to have the capabilities to mass-produce HD DVDRs to
      coincide with the early growth phase of the product life cycle, we have worked
      closely with dye and stamper developers in Taiwan and will be conducting
      pre-production testing to prepare for HD DVDR production. However, if the market
      turns in favor of Blu-Ray, the Company will have to purchase new equipment
      to
      produce Blu-Ray discs.




**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 as well as CDRs per month. Currently, our product mix is
      approximately 67% of 8x DVDRs, approximately 17% of 16x DVDRs as well as
      approximately 16% of CDRs . We
      have
      the flexibility to switch production easily between the two product types.
      After
      manufacturing the DVDRs and CDRs, Infosmart puts its products through a rigorous
      quality assurance process.  Infosmart’s Quality Management System complies
      with ISO9001:2000 requirements and Infosmart is ISO 9000 certified. Our
      production equipment is easily upgradeable to HD DVDR production, and we believe
      that this flexibility provides us with competitive advantage if HD format DVDRs
      win the current standard war against Blu-Ray format DVDRs. Whichever format
      wins, however, the Company expects to make needed production purchases in 2007
      in order to catch the expected first waves of demand in the high definition
      media storage market.




**Intellectual
      Properties and Licenses**





Infosmart
      does not own any patents or any other intellectual properties. ****** **** The
      intellectual properties used in manufacturing our products are provided to
      us
      pursuant to two separate cooperation agreements described below.





*Agreement
      1*





The
      first
      cooperation agreement (“Agreement 1”) was entered into between our subsidiary
      Infosmart Technology Limited (“IS Technology”) and Mega Century Limited (“Mega
      Century”), a Hong Kong company formerly controlled by Chief Financial Officer Po
      Nei Sze, on January 1, 2006. Under Agreement 1, the parties agreed to combine
      operationally their production facilities so that Mega Century and IS Technology
      can both produce DVDRs using certain intellectual properties for the production
      of DVDRs for which Mega Century was granted a patent licenses (the “Patent
      License”) for use by the DVDR developer, and also the right to manufacture DVDRs
      under a government manufacturing license (the “Manufacturing License”) held by
      the Mega Century. In addition, Mega Century agreed that (1) IS Technology has
      full legal and beneficial ownership of the first 6,500,000 DVDR discs (the
      “First Minimum Quantity”) produced in IS Technology’s production facilities each
      whole month during the one year term of Agreement 1, which IS Technology can
      sell to third parties or to Mega Century; and (2) for any amount of DVDRs
      produced in excess of the First Minimum Quantity (excluding quantities sold
      by
      IS Technology directly to Mega Century), IS Technology will receive 70% of
      the
      gross profits from the sale of such DVDRs.




8





In
      exchange, IS Technology agreed that for any amount of discs produced in excess
      of the First Minimum Quantity (excluding quantities sold by IS Technology
      directly to Mega Century), Mega Century receives 30% of the gross profits from
      the sale of such DVDRs. Under Agreement 1, Mega Century is responsible for
      paying all the relevant licensee fees and IS Technology is responsible for
      all
      the recurrent costs and expenses incurred for the production of all DVDR
      products manufactured at IS Technology’s production facility during the one
      year term of Agreement 1. On January 1, 2006, Mega Century, IS Technology
      and Infosmart International Enterprises Limited (“IS International”) entered
      into an Amendment Agreement amending Agreement 1 whereby IS International agreed
      to be an additional party to Agreement 1 and to undertake IS Technology’s rights
      and obligations with IS Technology, jointly and severally.




*Agreement
      2*





The
      second cooperation agreement (“Agreement 2”) was entered into between our
      subsidiary Infoscience Media Limited (“IS Media”) and Infoscience Holdings
      Limited, an independent third party, (the “Third Party”) on December 1, 2005.
      Under Agreement 2, the parties agreed to combine operationally their production
      facilities so that both IS Media and the Third Party can both produce DVDRs
      at
      their combined facilities using certain intellectual properties for the
      production of DVDRs for which the Third Party 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 the Third Party. The Third Party 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 the Third Party’s production facilities (the “Combined Facilities”) for each
      whole month during the one year term of Agreement 2.





In
      exchange, IS Media agreed: (1) the Third Party 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 the Third Party
      with stand-by credit facility 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 Agreement 2, the Third Party 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 Agreement 2.





On
      December 1, 2006, IS Media entered into a Sale and Purchase Agreement with
      New
      Passion Investments Limited in which it purchased 100% of the outstanding stock
      of Infoscience Holdings Limited.





*Patent
      Licenses*





Agreement
      2 has been extended for a further 2 years. Accordingly, we continue to produce
      the Products under the Patent License from the DVDR developer and also the
      Manufacturing License. Agreement 1 is not extended due to the suspension of
      production in IS Technology and IS International. The suspension of production
      is mainly due to the relocation of certain productions lines to Brazil and
      the
      other productions lines are used to support the production in IS Media. The
      production in Hong Kong is going to be focused in IS Media. In addition, in
      connection with the completion of the Discobras DVDR production facility in
      Brazil, Infosmart is in the process of obtaining the required Patent License
      for
      use of intellectual property required to manufacture its DVDR products in
      Brazil. We expect that the process will be completed in April 2007.




The
      Patent Licenses discussed above that are held by Mega Century and the Third
      Party 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 (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.





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





Raw
      material costs constitute approximately 50% of the production costs for DVDR
      and
      CDR discs. Key materials used in DVDR and CDR 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.
      Infosmart orders 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 market determined.





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 have since dropped into the
      $2.80-$3.10 range. It is anticipated that expanded industry capacity for PCB
      will offset upward price pressures resulting from rising oil prices, leading
      to
      price stability or even a modest price decline in PCB prices in the near
      term.




9




**Marketing
      and Distribution**





We
      mainly
      sell to distributors, who resell to retailers. We have acquired about 80% of
      our
      customers, and increased our exposure in Europe, USA, South America, the Middle
      East, Asia and China, through attendance at trade shows such as:





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





·
            Comdex
                (Las Vegas, USA) 2003




·
            Computex
                (Taipei, Taiwan) 2004





·
            Gitex
                (Dubai, UAE) 2004 and 2005





·
            China
                Sourcing Fairs 2004





·
            IT
                Brazil 2005, 2006





·
            Hong
                Kong Electronics Show 2004, 2005,
                2006





We
      have
      gained the rest of our customers mainly through print advertising and
      referrals.





To
      further establish our distribution and sales network, we are planning a
      marketing campaign in Brazil including advertisements in Brazilian newspapers
      and magazines, and we also plan to attend the following local Brazilian trade
      exhibitions in 2006:





·
            Abras
                (exhibition for buyers and purchasers for supermarkets and retail
                shops)


·
            HI-FI
                (exhibition of audio and video
                products)





·
            ESCORALERES
                (exhibition for schools and student usage products)


·
            GAME
                (video game trade show)





**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 47% of our revenue in 2006, are
      as
      follows:





·
            E-Net
                Distribution is the largest optical media distribution company in
                Europe;
                business from E-Net contributes 13.9% of our revenue. E-Net sells
                to
                European as well as Middle Eastern retailers and sources from us
                about 15%
                of the blank DVDR discs that it sells.




·
            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 20.4% of our
                revenue.





·
            AgroDigital
                markets our DVD blank media in Brazil. AgroDigital obtains about
                30% of
                its DVDR blank media supplies from us. Sales to AgroDigital account
                for
                approximately 12.7% of our revenue.




10




Management
      expects that the proportion of revenue accounted for by these customers will
      decrease as its new 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 HD DVDR discs.





Our
      pricing and payment terms are flexible. Our objective is to build a strong
      base
      of loyal customers and management will offer competitive price 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
      Brazil local market, it is the norm to pay Cash or checks on Delivery (C.O.D.).
      We do not intend to give any payment terms to our Brazilian customers except
      some major customers such as local chain stores or departmental stores, which
      will eliminate any credit risk from new customers in this newly developed
      market. ******





**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
            
            
            23.75**USB
                Drive**
            
            
            Non-
                optical
            
            
            2
                GB
            
            
            70
                - 140
            
            
            7-12**Flash
                Memory**
            
            
            Non-
                optical
            
            
            1
                GB
            
            
            76
                - 120
            
            
            7.4-11.7**Hard
                Disc**
            
            
            Non-
                optical
            
            
            200
                GB
            
            
            130
            
            
            0.06**CD-R**
            
            
            Optical
            
            
            700
                MB
            
            
            0.18-0.30
            
            
            0.026-0.043**DVD±R***
            
            
            Optical
            
            
            4.7
                GB
            
            
            0.6-0.8
            
            
            0.012-0.017**HD
                DVD****
            
            
            Optical
            
            
            15-30
                GB
            
            
            10-15
            
            
            0.05-0.07**Blu-Ray**
            
            
            Optical
            
            
            25-50
                GB
            
            
            25-30
            
            
            0.06-0.10




Note:
      1GB
      = 1024 MB





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.
      However the hard disc 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.





High
      Density format and Blu-Ray format DVDRs represent the next generation of optical
      media. High density optical storage media (HD DVDR/Blu-Ray) utilizes blue
      lasers, which have shorter wavelengths than the red lasers used for DVDR and
      enable data storage on polycarbonate discs at higher densities needed for
      high-definition film and television images. Blue lasers increase the storage
      capacity per disc from 4.7-8.5GB to 40-50GB. Two incompatible blue laser
      technologies have been developed, namely HD DVDR and Blu-Ray, led by Toshiba
      and
      Sony respectively. Both sides have failed to agree on a unified format that
      would support a single consumer hardware platform and thereby avoid a rerun
      of
      the VHS versus Betamax war that held back the early development of the
      videocassette industry. The damage of the format war can be reduced with the
      introduction of “ultra-multi” drives which can read both formats. Blu-Ray and HD
      DVDR discs have ultra-large capacity and are predicted to be impacting the
      market in a significant way from late 2006 to 2007.





11




***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 23, 2007, we had 166 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.




**RISK
      FACTORS**





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





***Risks
      Relating to Our Business***





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





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








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





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





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





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





●
            price
                competition;




12




●
            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.





**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






13




●
            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
      the
      Company's preferred shares and the common stock into which the Company's
      preferred shares are convertible. We currently do not have any commitments
      for
      additional financing. We cannot be certain that additional financing will be
      available when and to the extent required or that, if available, it will be
      on
      acceptable terms. If adequate funds are not available on acceptable terms,
      we
      may not be able to fund our expansion, develop or enhance our products or
      services or respond to competitive pressures.





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




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





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




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




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





Our
      ability to produce our products depends on a cooperation agreement (the
“Cooperation Agreement”) with IS Holdings, that has been granted licenses (the
“Patent Licenses”) for the use of technologies and intellectual properties
      necessary for the production of all of our products. Such Cooperation Agreement
      has currently been extended to December 31, 2008, and can be renewed thereafter.
      If we are unable to renew this Cooperation Agreement or otherwise lose our
      rights under the Cooperation Agreement, we could lose our ability to manufacture
      our products.





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





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





**We
      may be unable to obtain our own 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 Hong Kong Business License held by IS Holdings
      under the Cooperation Agreement. If we are unable to renew this Cooperation
      Agreement or otherwise lose our rights under the Cooperation Agreement, there
      is
      no guarantee that we will be able to obtain the Hong Kong Business Licenses
      necessary to operate our manufacturing facilities in Hong Kong.




14




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





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





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





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





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





We
      operate in a highly competitive environment. Our competitors 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 its
      ability to continue to develop and introduce differentiated and innovative
      products and customer solutions successfully on a timely basis. The success
      of
      our product offerings is dependent on several factors including understanding
      customer needs, strong digital technology, differentiation from competitive
      offerings, market acceptance and lower costs. Although we believe that we can
      take the necessary steps to meet the competitive challenges of these
      marketplaces, no assurance can be given with regard to our ability to take
      these
      steps, the actions of competitors, some of which will have greater resources
      than us, or the pace of technological changes.





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




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





**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, including
      CMC and Ritek, have financial and human resources that are substantially greater
      than ours, which increases the competitive pressures we face. Customers make
      buying decisions based on many factors, including among other things, new
      product and service offerings and features; product performance and quality;
      ease of doing business; a vendor’s ability to adapt to customers’ changing
      requirements; responsiveness to shifts in the marketplace; business model;
      contractual terms and conditions; vendor reputation and vendor viability. As
      competition increases, each factor on which we compete becomes more important
      and the lack of competitive advantage with respect to one or more of these
      factors could lead to a loss of competitive position, resulting in fewer
      customer orders, reduced revenues, reduced margins, reduced levels of
      profitability and loss of market share. We expect competitive pressure to remain
      intense.




15





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





We
      operate in a highly competitive, quickly changing environment. We are preparing
      for high density format DVDR (“HD DVDR”) or Blu-Ray format DVDR production.
      Thirty two (32) of Infosmart’s forty-nine (49) production lines can be upgraded
      to HD DVDR production at a time of management’s choosing. However, if the market
      turns in favor of Blu-Ray, the Company will have to purchase new equipment
      to
      produce Blu-Ray DVDR discs, and thus the Company’s business and operating
      results could be adversely affected. If strong competitors challenge us in
      Brazil and other key markets, we will need to quickly develop an adequate
      competitive response. If we fail to accurately anticipate market and
      technological trends, then our business and operating results could be
      materially and adversely affected.





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





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





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





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





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




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





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





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




16





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





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





**A
      significant portion of the revenues will depend on the success of 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 new DVDR manufacturing facility in
      Brazil. We are in the process of obtaining the Patent Licenses for use at the
      Discobras manufacturing facility and expect that the process will be completed
      in April 2007. 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.**




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





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




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




17





**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 or another epidemic
      or outbreak. China and Hong Kong reported a number of cases of SARS in April
      2003. Any prolonged recurrence of SARS or other adverse public health
      developments in China or in Hong Kong may have a material adverse effect on
      our
      business operations. For instance, health or other government regulations
      adopted in response may require temporary closure of our production facilities
      or of our offices. Such closures would severely disrupt our business operations
      and adversely affect our results of operations. We have not adopted any written
      preventive measures or contingency plans to combat any future outbreak of SARS
      or any other epidemic.





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





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





·
            Level
                of government involvement in the
                economy;





·
            Control
                of foreign exchange;





·
            Methods
                of allocating resources;





·
            Balance
                of payments position;





·
            International
                trade restrictions; and





·
            International
                conflict.




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





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




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





●
            Currency
                volatility;





●
            Inflation
                acceleration;





●
            Monetary
                policy and interest rate increases;





●
            Fiscal
                policy and tax changes;




18




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





●
            Foreign
                exchange controls;





●
            Energy
                shortages; and





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





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





**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 and 3.8% in 2006 (as
      measured by the IGP-M Index). Inflation, governmental measures to combat
      inflation and public speculation about possible future actions have in the
      past
      had significant negative effects on the Brazilian economy and have contributed
      to economic uncertainty in Brazil. If Brazil experiences substantial inflation
      in the future, our costs may increase and our operating and net margins may
      decrease. Inflationary pressures may also lead to further government
      intervention in the economy, which could involve the introduction of government
      policies that may adversely affect the overall performance of the Brazilian
      economy.





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





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




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





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





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





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




19




**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 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 in which shares of our common stock will be quoted, generally
      have been very volatile and have experienced sharp share price and trading
      volume changes. The trading price of our common stock is likely to be volatile
      and could fluctuate widely in response to many of the following factors, some
      of
      which are beyond our control:




●
            variations
                in our operating results;




●
            announcements
                of technological innovations, new services or product lines by us
                or our
                competitors;  ●
            changes
                in expectations of our future financial performance, including financial
                estimates by securities analysts and investors;




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




●
            additions
                or departures of key personnel; and





●
            future
                sales of our common stock.




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




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





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




20





**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 control approximately 56% of our outstanding
      shares of stock that are entitled to vote on all corporate actions.
      Specifically, Chung Kwok, our Chief Executive Officer, President and Director
      and Po Nei Sze, our Chief Financial Officer, Secretary, Treasurer and Director,
      control approximately 56% of the outstanding voting. 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 160,260,512 shares of common stock outstanding. 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 22, 2007, there are outstanding warrants entitling the holders to purchase
      up to 28,510,346 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
      will incur increased costs and compliance risks as a result of becoming a public
      company with substantial business operations.**





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




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




21





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





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





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





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




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





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




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.




22





**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.
            
            Expired
                in 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 in January 31, 2007 and March 14, 2007 for 4thand 5thfloors respectively and subsequently renewed for further 2 years
                to
                January 31, 2009 for both floors (entered by Infoscience Media
                Limited)





We
      lease
      office and factory premises under various non-cancelable operating lease
      agreements that expire at various dates through years 2007 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,
      2006 are as follows:


Year
                  ending December 312007
              
              $
              80,8062008
              
              
              32,0822009
              
              
              2,674




Rental
      expense was $169,221 and $518,967 during 2006 and 2005, respectively. We believe
      that our existing facilities are well maintained and in good operating
      condition.





**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.





We
      also
      use a warehouse and the sales office, which are located in São Paulo and are
      where most of the current commercial activities are conducted. The warehouse
      is
      owned by our local Brazilian partner and we are not obligated to pay rent for
      using the premises. The warehouse is located at Rua Santa Clara, Brás, while the
      sales office is located at Rua Alameda Santo, Cerqueria Cesar, both in São
      Paulo.




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.Rua
                Santa Clara, No 272/274, Bras, Sao Paulo, Brazil - SP, CEP
                03025-030
            
            Warehouse
            
            15,000
                sq. ft.
            
            None.Alameda
                Santos, 211 CJ., 401/402, Cerqueira Cesar, Sao Paulo, Brazil - SP,
                CEP
                01419-000
            
            Sales
                Office
            
            1,400
                sq. ft.
            
            November
                30, 2008, with options for renewal.




23





**ITEM
      3. LEGAL PROCEEDINGS**




The
      Company is from time to time subject to legal claims and legal proceedings
      that
      arise in the ordinary course of its 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 claims and litigation
      against Infosmart.




**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 seeks to recover from
      Cyber $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 has defended against the preference
      claim by asserting that such transfers were made in the ordinary course of
      business. This bankruptcy proceeding is currently scheduled for trial on May
      17,
      2007.  The Company plans to defend this claim vigorously.




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




**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 closing 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, 2006
            
            
            0.52
            
            
            0.25June
                30, 2006
            
            
            1.25
            
            
            0.30May
                31, 2006
            
            
            1.25
            
            
            0.30February
                28, 2006
            
            
            0.51
            
            
            0.30November
                30, 2005
            
            
            0.55
            
            
            0.25August
                31, 2005
            
            
            1.45
            
            
            0.25May
                31, 2005
            
            
            1.28
            
            
            1.11February
                28, 2005
            
            
            1.28
            
            
            0.94





Note:
            
            Quotations
                on and prior to July 22, 2005 were adjusted for a 10-for-85 reverse
                stock
                split on July 22, 2005. On August 16, 2006, the Company changed its
                fiscal
                year end to December 31stand thus the high and low bid quotations for the quarter ended June
                30,
                2006 is also provided.





We
      currently have approximately 136,576,336 shares of common stock issued and
      outstanding, no shares of Series A preferred stock issued and outstanding,
      and
      883,081 shares of Series B preferred stock issued and outstanding.




24





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 an additional
      28,510,345 shares of our common stock.





Assuming
      conversion of all the preferred stock and exercise of all warrants, we will
      have
      approximately 188,770,859 shares of common stock outstanding.





**Sales
      of Unregistered Securities**





None.





**Holders**




We
      currently have 191 record holders of our common stock and 21 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.




**ITEM
      6. 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, 2006 and 2005 should be read in
        conjunction with our financial statements and the notes to those financial
        statements that are included elsewhere in this Annual Report on Form 10-KSB.
        Our
        discussion includes forward-looking statements based upon current expectations
        that involve risks and uncertainties, such as our plans, objectives,
        expectations and intentions. Actual results and the timing of events could
        differ materially from those anticipated in these forward-looking statements
        as
        a result of a number of factors, including those set forth under the “Risk
        Factors”, “Cautionary Notice Regarding Forward-Looking Statements”, and
        elsewhere in this report. We use words such as “anticipate,” “estimate,” “plan,”
“project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”
“will,” “should,” “could,” and similar expressions to identify forward-looking
        statements. Readers are cautioned not to place undue reliance on these
        forward-looking statements, which speak only as of the date hereof. Except
        as
        required by law, we do not undertake any obligation to update or keep current
        either (i) any forward-looking statement to reflect events or circumstances
        arising after the date of such statement, or (ii) the important factors that
        could cause our future results to differ materially from historical results
        or
        trends, results anticipated or planned by us, or which are reflected from
        time
        to time in any forward-looking statement.*
 
 **OVERVIEW**
 
 Infosmart
        Group, Inc. (the “Company”), through our wholly owned subsidiary Infosmart Group
        Limited (“Infosmart”), is mainly in the business of developing, manufacturing,
        marketing and sales of recordable digital versatile disc (“DVDR”) optical
        media. However, due to customer demand, in the third quarter of 2006, the
        Company also started to manufacture recordable compact discs (“CDR”). We
        currently manufacture DVDRs with 8x and 16x writable speeds as well as CDRs
        with
        52x writable speed. We are also preparing for the manufacturing of high density
        format DVDR (“HD DVDR”) or Blu-Ray format DVDR discs. We have customers in
        Western Europe, Australia, China and South America. We currently manufacture
        and
        ship our products from Hong Kong where we operate state of the art DVDR and
        CDR
        manufacturing facilities.
 
  25
  The
        Company owns all of the capital stock of Infosmart, a holding company
        incorporated in the British Virgin Islands. Infosmart beneficially owns 100%
        of
        the issued and outstanding capital stock of both: (i) Info Smart Technology
        Limited (“IS Technology”), a company incorporated under the laws of Hong Kong;
        and (ii) Info Smart International Enterprises Limited (“IS International”), a
        company incorporated under the laws of Hong Kong. IS Technology owns all
        of the
        issued and outstanding capital stock of Infoscience Media Limited (“IS Media”),
        a company incorporated under the laws of Hong Kong. IS Media owns 99.42%
        of the
        issued and outstanding capital stock of Discobras Industria E Comercio de
        Eletro
        Eletronica Ltda., a company incorporated under the laws of Brazil (“Discobras”),
        the remaining 0.58% ownership interest in Discobras is held by our local
        Brazilian partner. 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 we expect that regular production will commence
        beginning April 2007. 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 in the process of obtaining these Patent Licenses and expect
        that
        the process will be completed in April 2007.
  **Share
        Exchange Transaction**
 
 The
        Company did not become engaged in the DVDR manufacturing business until August
        of 2006. Before the closing of the share exchange transaction in August 2006,
        we
        were a shell company with nominal assets and operations, whose sole business
        was
        to identify, evaluate and investigate various companies with the intent that,
        if
        such investigation warrants, a business combination be negotiated and completed
        pursuant to which the Company would acquire a target company with an operating
        business with the intent of continuing the acquired company’s business as a
        publicly held entity. We entered in an Exchange Agreement (the “Exchange
        Agreement”) dated July 7, 2006 and amended on August 14, 2006 with KI Equity
        Partners II, LLC (“KI Equity”), Infosmart, the owners of 100% of the capital
        shares of Infosmart, namely Chung Kwok, Po Nei Sze, Prime Corporate Developments
        Limited (“Prime Corporate”) and Hamptons Investment Group Limited (“Hamptons”)
        (collectively the “Infosmart Shareholders”), and Worldwide Gateway Co., Ltd. The
        closing of the Exchange Agreement occurred on August 16, 2006. At the closing
        of
        the Exchange Agreement, the Company acquired all of Infosmart’s capital shares
        (the “Infosmart Shares”) from the Infosmart Shareholders, and the Infosmart
        Shareholders transferred and contributed all of their Infosmart Shares to
        the
        Company. In exchange, the Company issued 1,000,000 shares of its Series A
        Convertible Preferred Stock to the Infosmart Shareholders. Each share of
        the
        Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”) is
        convertible into 116.721360 shares of the Company's common stock, subject
        to
        adjustments. The Series A Preferred Stock were to be immediately and
        automatically converted into shares of the Company's common stock upon the
        approval by a majority of the Company's stockholders (voting together on
        an
        as-converted-to-common-stock basis) and the filing of a Certificate of Amendment
        to the Company’s Articles of Incorporation, following the closing of the
        Exchange Agreement, to increase in the number of authorized shares of the
        Company's common stock from 40,000,000 shares to 300,000,000 shares and to
        change of the Company's corporate name to Infosmart Group, Inc.
 
 As
        a
        result of the closing of the Exchange Agreement, Infosmart became the wholly
        owned subsidiary of the Company and became the Company’s main operational
        business. The Exchange transaction, for accounting and financial reporting
        purposes, is deemed to be a reverse acquisition, where the Company (the legal
        acquirer) is considered the accounting acquiree and Infosmart (the legal
        acquiree) is considered the accounting acquirer, and thus the historical
        financial statements of the Company are the financial statements of Infosmart.
        On August 16, 2006, pursuant to the authority granted by the Company’s bylaws,
        the Board of Directors of the Company changed its fiscal year end from May
        31 to
        December 31 of each year.
 
 **Name
        Change and Increase in Authorized Shares of Common Stock**
 
 On
        October 12, 2006, the Company effected an increase in the number of authorized
        shares of the Company's common stock from 40,000,000 shares to 300,000,000
        shares and also effected a change of the Company's corporate name (the “Name
        Change”) to “Infosmart Group, Inc.” (the “Amendments”) through the filing of a
        Certificate of Amendment to the Company’s Articles of Incorporation with the
        State of California’s Secretary of State. Per the conversion rights set forth in
        the Certificate of Determination for the Series A Preferred Stock, upon filing
        and acceptance of the Amendments to the Company’s Articles of Incorporation, all
        of the Series A Preferred Stock were automatically converted into approximately
        116,721,360 shares of the Company’s Common Stock. The Company’s Name Change and
        its trading symbol (OTCBB: IFSG) became effective on the OTC Bulletin Board
        on
        October 18, 2006.
 
 26
  **CRITICAL
        ACCOUNTING POLICIES AND ESTIMATES**
  **Principles
        of consolidation**
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        subsidiaries. All significant inter-company balances and transactions are
        eliminated in consolidation.
  **Minority
        Interests**
 
 For
        the
        development of the market in Brazil, the Company entered into an agreement
        on
        March 20, 2006 with two independent third parties 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. As of December 31, 2006,
        neither one of the two independent third parties satisfied their required
        capital contribution by any means. As a result, no minority interests have
        been
        recognized in the accompanying financial statements.
 
 **Use
        of estimates**
 
 In
        preparing financial statements in conformity with accounting principles
        generally accepted in the United States of America, management makes estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosures of contingent assets and liabilities at the dates of the financial
        statements, as well as the reported amounts of revenues and expenses during
        the
        reporting periods. These accounts and estimates include, but are not limited
        to,
        the valuation of accounts receivable, inventories, deferred income taxes
        and the
        estimation on useful lives of property, plant and equipment. Actual results
        could differ from those estimates.
 
 27
  **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 IS Holdings.
 
 **Revenue
        recognition**
 
 Revenue
        from sales of the Company’s products is recognized when the significant risks
        and rewards of ownership have been transferred to the buyer at the time of
        delivery and the sales price is fixed or determinable and collection is
        reasonably assured.
 
 **Stock-based
        payment**
 
 The
        Company adopted the SFAS No. 123R, "Share-Based Payment" ("SFAS 123R") using
        the
        modified prospective method. Under SFAS 123R, equity instruments issued to
        service providers for their services are measured at the grant-date fair
        value
        and recognized in the statement of operations over the vesting
        period.
 
 **Basic
        and diluted earnings per share**
 
 The
        Company reports basic earnings per share in accordance with SFAS No. 128,
        “Earnings Per Share”. Basic earnings per share is computed using the weighted
        average number of shares outstanding during the periods presented. The weighted
        average number of shares of the Company represents the common stock outstanding
        during the period. The calculation of the weighted average number of
        shares also includes the number of common stock equivalent of Series A
        Convertible Preferred Stock (110,236,841) issued to the Original Infosmart
        Shareholders for the Exchange transaction as they were mandatory converted
        to
        common stock after the balance sheet date.
 
 Diluted
        earning per share is based on the assumption that all dilutive convertible
        shares and stock options were converted or exercised. Dilution is computed
        by
        applying the treasury stock method. Under this method, options and warrants
        are
        assumed to be exercised at the beginning of the period (or at the time of
        issuance, if later), and as if funds obtained thereby were used to purchase
        common stock at the average market price during the period. The Company’s common
        stock equivalents at December 31, 2006 include the following:
  28
  Convertible
                  redeemable preferred stock Series B
              
              
              24,459,088Detachable
                  common stock warrants
              
              
              28,510,345Placement
                  agent warrants
              
              
              2,931,03555,900,468
 
 **Accounts
        receivables**
 
 The
        Company extends unsecured credit to customers in the normal course of business
        and believes all trade receivables in excess of the allowances for doubtful
        receivables to be fully collectible. Full allowances for doubtful receivables
        are made when the receivables are overdue for one (1) year and an allowance
        is
        also made when there is objective evidence that the Company will not be able
        to
        collect all amounts due according to original terms of receivables. Bad debts
        are written off when identified. The Company does not accrue interest on
        trade
        accounts receivable.
 
 **Inventories**
 
 Inventories
        are valued at the lower of cost or market with cost determined on a first-in,
        first-out basis. In assessing the ultimate realization of inventories, the
        management makes judgments as to future demand requirements compared to current
        or committed inventory levels. The Company’s reserve requirements generally
        increase as the management projected demand requirements; decrease due to
        market
        conditions, product life cycle changes.
 
 29
  **Plant
        and equipment**
 
 Plant
        and
        equipment are stated at cost less accumulated depreciation. Cost represents
        the
        purchase price of the asset and other costs incurred to bring the asset into
        its
        existing use. Maintenance, repairs and betterments, including replacement
        of
        minor items, are charged to expense; major additions to physical properties
        are
        capitalized.
 
 Depreciation
        of plant and equipment is provided using the straight-line method over their
        estimated useful lives. The principal annual rates are as follows:
 
 Production
                  line and equipment
              10%
                  with 30% residual valueLeasehold
                  improvement and others
              20%
 
 Construction
        in progress represents factory under construction, which is stated at cost
        less
        any impairment losses, and is not depreciated. Cost comprises the direct
        costs
        of construction. Construction in progress is reclassified to the appropriate
        category of fixed assets when completed and ready for use.
 
 **Impairment
        of long-live assets**
 
 Long-lived
        assets are reviewed for impairment whenever events or changes in circumstances
        indicate that the carrying amount of the assets may not be recoverable. The
        Company recognizes impairment of long-lived assets in the event that the
        net
        book values of such assets exceed the future undiscounted cashflows attributable
        to such assets. No impairment of long-lived assets was recognized for any
        of the
        periods presented.
 
 30
  **Recent
        accounting pronouncements**
 
 In
        February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
        155, Accounting for Certain Hybrid Financial Instruments (“SFAS No. 155”), which
        amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
        Activities, and SFAS No. 140, Accounting for Transfers and Servicing of
        Financial Assets and Extinguishments of Liabilities. SFAS No. 155 simplifies
        the
        accounting for certain derivatives embedded in other financial instruments
        by
        allowing them to be accounted for as a whole if the holder elects to account
        for
        the whole instrument on a fair value basis. SFAS No. 155 also clarifies and
        amends certain other provisions of SFAS No. 133 and SFAS No. 140. SFAS No.
        155
        is effective for all financial instruments acquired, issued or subject to
        a
        remeasurement event occurring in fiscal years beginning after September 15,
        2006. Earlier adoption is permitted, provided the company has not yet issued
        financial statements, including for interim periods, for that fiscal year.
        We do
        not believe the adoption of SFAS No. 155 will have a material impact on the
        Company's condensed consolidated financial position or results of operations.
 
 In
        March
        2006, FASB released SFAS No. 156, “Accounting for Servicing of Financial
        Assets,” to simplify accounting for separately recognized servicing assets and
        servicing liabilities. SFAS No. 156 amends SFAS No. 140, “Accounting for
        Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”
SFAS No. 156 permits an entity to choose either the amortization method or
        the
        fair value measurement method for measuring each class of separately recognized
        servicing assets and servicing liabilities after they have been initially
        measured at fair value. SFAS No. 156 applies to all separately recognized
        servicing assets and liabilities acquired or issued after the beginning of
        an
        entity’s fiscal year that begins after September 15, 2006. SFAS No. 156 will be
        effective for the Company as of December 31, 2006, the beginning of the
        Company’s 2007 fiscal year. We do not believe the adoption of SFAS No. 156 will
        have a material impact on our condensed consolidated financial position or
        results of operations.
 
 In
        July
        2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes.” This
        interpretation requires that we recognize in our financial statements, the
        impact of a tax position, if that position is more likely than not of being
        sustained on audit, based on the technical merits of the position. The
        provisions of FIN 48 are effective as of the beginning of our 2007 fiscal
        year,
        with the cumulative effect of the change in accounting principle recorded
        as an
        adjustment to opening retained earnings. We are currently evaluating the
        effect
        of FIN 48 on its financial statements.
 
 31
  In
        September 2006, the FASB issued SFAS No. 157 “Fair Value Measurement” (“SFAS
        157”). SFAS 157 defines fair value, establishes a framework for measuring fair
        value, and expands disclosures about fair value measurements. This Statement
        shall be effective for financial statements issued for fiscal years beginning
        after November 15, 2007, and interim periods within those fiscal years. Earlier
        application is encouraged, provided that the reporting entity has not yet
        issued
        financial statements for that fiscal year, including any financial statements
        for an interim period within that fiscal year. The provisions of this statement
        should be applied prospectively as of the beginning of the fiscal year in
        which
        this Statement is initially applied, except in some circumstances where the
        statement shall be applied retrospectively. We are currently evaluating the
        effect, if any, of SFAS 157 on its financial statements.
  In
        September 2006, the SEC issued SAB No. 108, which provides guidance on the
        process of quantifying financial statement misstatements. In SAB No. 108,
        the
        SEC staff establishes an approach that requires quantification of financial
        statement errors, under both the iron-curtain and the roll-over methods,
        based
        on the effects of the error on each of the Company’s financial statements and
        the related financial statement disclosures. SAB No. 108 is generally effective
        for annual financial statements in the first fiscal year ending after November
        15, 2006. The transition provisions of SAB No. 108 permits existing public
        companies to record the cumulative effect in the first year ending after
        November 15, 2006 by recording correcting adjustments to the carrying values
        of
        assets and liabilities as of the beginning of that year with the offsetting
        adjustment recorded to the opening balance of retained earnings. The Company
        is
        currently evaluating the effect, if any, of SAB No. 108 on its financial
        statements.
 
 32
  **RESULTS
        OF OPERATIONS**
 
 **Comparison
        of Two Years Ended December 31, 2006 and 2005.**
 
 The
        following table sets forth the results of our operations for the periods
        indicated as a percentage of net sales:
 
 Year
                  ended  December 312006
              
              %
                  of
              
              2005
              
              %
                  ofAudited
              
              Revenue
              
              Audited
              
              RevenueNET
                  SALES
              
              $
              27,102,441
              
              
              100.00
              %
              $
              24,577,206
              
              
              100.00
              %COST
                  OF SALES
              
              
              19,570,525
              
              
              72.21
              %
              
              17,911,674
              
              
              72.88
              %GROSS
                  PROFIT
              
              
              7,531,916
              
              
              27.79
              %
              
              6,665,532
              
              
              27.12
              %A
                  ADMINISTRATIVE EXPENSES
              
              
              1,997,379
              
              
              7.37
              %
              
              816,553
              
              
              3.32
              %DEPRECIATION
              
              
              223,893
              
              
              0.83
              %
              
              214,534
              
              
              0.87
              %SESELLING
                  AND DISTRIBUTING COSTS
              
              
              475,781
              
              
              1.76
              %
              
              641,096
              
              
              2.61
              %INCOME
                  FROM OPERATIONS
              
              
              4,834,863
              
              
              17.84
              %
              
              4,993,349
              
              
              20.32
              %PROFESSIONAL
                  EXPENSES RELATED TO RESTRUCTURING AND SHARE EXCHANGE
              
              
              2,753,390
              
              
              10.16
              %
              
              320,892
              
              
              1.31
              %REVERSAL
                  OF COMMISSION PAYABLE
              
              
              -
              
              
              0.00
              %
              
              718,250
              
              
              2.92
              %OTHER
                  INCOME
              
              
              449,985
              
              
              1.66
              %
              
              302,903
              
              
              1.23
              %INTEREST
                  EXPENSES
              
              
              511,322
              
              
              1.89
              %
              
              520,827
              
              
              2.12
              %INCI
                  INCOME BEFORE INCOME TAXES
              
              
              2,020,136
              
              
              7.45
              %
              
              5,172,783
              
              
              21.05
              %INCOME
                  TAXES
              
              
              955,592
              
              
              3.53
              %
              
              958,022
              
              
              3.90
              %NET
                  INCOME
              
              
              1,064,544
              
              
              3.93
              %
              
              4,214,761
              
              
              17.15
              %SESERIES
                  B PREFERRED DIVIDENDS
              
              
              202,069
              
              
              0.75
              %
              
              -
              
              
              0.00
              %SESERIES
                  B PREFERRED DEEMED DIVIDEND
              
              
              2,297,157
              
              
              8.48
              %
              
              -
              
              
              0.00
              %NET
                  (LOSS)/INCOME APPLICABLE TO COMMON SHAREHOLDERS
              
              $
              (1,434,682
              )
              
              (5.29
              )%
              $
              4,214,761
              
              
              17.15
              %
  33
  **Comparison
        of Two Years Ended December 31, 2006 and 2005**
 
 ***Net
        Sales*** *.* For
        the
        year ended December 31, 2006, net sales increased approximately 10.3% from
        $24,577,206 to $27,102,441 relative to the year ended December 31, 2005.
        The
        increase in revenue was mainly due to the effect of new market sales generated
        in Brazil and a substantial increase in sales in Australia, Asia and North
        America, but this was partly offset by a substantial decrease in our net
        sales
        in Europe. The decrease of net sales in Europe was driven by our policy of
        geographical diversification and a shift in our Company’s focus from the lower
        margin market in Europe to other higher margin markets, like
        Brazil.
 
 ***Cost
        of Sales*** *.* Cost
        of
        sales increased from $17,911,674, or approximately 72.9% of net sales for
        the
        year ended December 31, 2005, to $19,570,525, or approximately 72.2% of net
        sales for the year ended December 31, 2006. The approximately 9.3% 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 13.0% from $6,665,532 for the year ended December
        31, 2005 to $7,531,916 for the year ended December 31, 2006. 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.
        In
        addition, the slight increase of our gross profit percentage from approximately
        27.1% for the year ended December 31, 2005 to approximately 27.8% for the
        year
        ended December 31, 2006 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 2006.
 
 ***Selling
        and Distribution Costs*** .
        For the
        year ended December 31, 2006, selling and distribution costs decreased
        approximately 25.8% from $641,096 to $475,781 relative to the year ended
        December 31, 2005. This decrease in selling and distribution costs was mainly
        due to the change to a more competitive freight forwarder which led to a
        reduction of our freight expenses for the year ended December 31, 2006. In
        addition, fewer overseas exhibitions were held as we focused on more effective
        local exhibitions, and which, in turn, lowered the exhibition expenses we
        incurred for the year ended December 31, 2006.
 
 34
 ***Administrative
        Expenses.*** Administrative
        expenses increased approximately 144.6% from $816,553 for the year ended
        December 31, 2005 to $1,997,379 for the year ended December 31, 2006. This
        substantial increase in administrative expenses during the year ended December
        31, 2006 was mainly because we wrote off leasehold improvements and other
        fixed
        assets of approximately $382,000 for the consolidation of our Hong Kong
        production facilities by shifting capacity from the Chai Wan facility to
        our
        Tsuen Wan facility, we had an increase of approximately $455,000 in expenses
        mainly related to the charges of top management’s remunerations as well as the
        employment of new administrative personnel, and also due to an increase of
        approximately $290,000 mainly for various legal and professional fees that
        were
        incurred for the provision of supporting services after the share exchange
        transaction and financing activities.
 
 ***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. 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 decreased approximately 74.7% from $4,214,761 for the year ended December
        31, 2005 to $1,064,544 for the year ended December 31, 2006. Further, the
        net
        income margin was 3.9% and 17.1% in the same comparable periods in 2006 and
        2005, respectively. This decrease in net income was due primarily to the
        professional expenses related to our restructuring and the share exchange
        transaction of approximately $2.8 million for the year ended December 31,
        2006
        as well as the reallocation of certain manufacturing equipment from Hong
        Kong to
        Brazil in November 2006 which reduced approximately 35% of our production
        capacity during the last two months of the year. Excluding the effect of
        the
        professional expenses related to the restructuring and share exchange
        transaction, the decrease of adjusted net income from $4,535,653 for the
        year
        ended December 31, 2005 to $3,817,934 for the year ended December 31, 2006
        would
        represent a decrease of only approximately 15.8%. This decrease was mainly
        due
        to the reversal of commission payable of $718,250 that occurred during the
        year
        ended December 31, 2005. Our Company and our customers agreed to cancel
        potential sales rebates worth $718,250, which had been accrued but not paid
        in
        prior years. Excluding the reversal of the commission payable of $718,250
        in
        2005, the final adjusted net income for the year ended December 31, 2005
        would
        have been $3,817,403. In this regard, the adjusted net income for the year
        ended
        December 31, 2006 was slightly higher than last year.
  35
  **GROWTH
        STRATEGIES**
 
 Our
        growth strategy is to continue to focus on the production of DVDRs for developed
        and, increasingly, developing economies while preparing some of our production
        lines for the next generation HD format DVDRs and/or Blu-Ray format DVDRs
        for
        sale to developed countries. By the end of 2007, we plan to have at least
        two
        production lines converted to HD format DVDR output and another 32 lines
        ready
        for conversion. The timing of product and territory market entry and exit
        is a
        critical determinant of success in the optical media market. Flexibility
        in our
        technology base and manufacturing locations will enable us to time the switch
        of
        emphasis to HD format or Blu-Ray format DVDR production and regional markets
        according to local information and actual, rather than projected, market
        developments.
 
 We
        started production of CDRs during the third quarter of 2006 because of the
        demand from our customers. Since we have executed our geographical
        diversification policy, our customer base has become more diverse and we
        do not
        expect that we will have to rely solely on one or two large customers in
        the
        future. Further, a number of customers have adopted the concept of “one-stop
        shop” and they prefer to order both DVDRs as well as CDRs from one single
        supplier, like us.
 
 **New
        Markets** **:**
 
 **South
        America and Brazil**
 
 36
  As
        expected, sales in South America grew significantly in the year 2006 and
        we
        anticipate that sales will continue to grow in this region in the near future.
 
 Our
        Company’s latest developments in connection with Brazil are discussed in the
        section above entitled “Overview.” For other South American countries, we will
        select strong distribution partners, conduct more marketing activities and
        exhibitions, and pre-position inventory in bonded warehouses in the region
        to
        ensure prompt delivery of our products.
 
 Brazil
        will remain our main focus in 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
        plan
        to launch 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, and has earmarked a $400,000 budget
        for
        this marketing effort over the next 12 months.
 
 **Other
        Developing Markets - The Middle East, Africa, Eastern European
        Region/Russia**
 
 Some
        of
        our Western European distributors sell our products to retailers in the Middle
        East and Eastern Europe. We plan to exploit opportunities in major developing
        markets in the Middle East, Africa, Russia and Eastern European countries
        directly by attending tradeshows and advertising in trade websites.
 
 **Online
        Marketing Exposure**
 
 The
        Internet is increasingly being used for product sourcing. We currently invest
        approximately $20,000 per year on online exposure  in
        industry portals such as globalsources.com, alibaba.com and the Hong Kong
        Trade
        Development Council website. We plan to increase our online promotional
        activities in 2007.
 
 37
  **Next
        Generation HD DVDR**
 
 We
        are  investing
        approximately $1,200,000 over the next 12 months on pre-production activities
        for HD DVDR production, including dye and stamper testing, mould modification
        and process fine-tuning. In order to position the Company to be one of the
        first companies to have the capabilities to mass-produce HD DVDRs to coincide
        with the early growth phase of the product life cycle, we have worked closely
        with dye and stamper developers in Taiwan and will be conducting pre-production
        testing to prepare for HD DVDR production. However, if Blu-Ray format DVDRs
        become the dominant format, we would need to purchase totally new equipment
        for
        Blu-Ray DVDR production. Although we are getting ready to produce HD DVDRs,
        we
        will still work closely with distributors to monitor the market demand and
        we
        will continue to keep in touch with Blu-Ray technology providers for more
        technical information, so that we would be ready to move straight into Blu-Ray
        DVDR production in the event that such market needs arise.
  **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 **Year
        Ended December 31, 2006**
 
 Net
        cash
        flow provided by operating activities was $4,679,397 for the year ended December
        31, 2006 and $2,269,328 for the year ended December 31, 2005. The substantial
        increase in our net cash flow provided by operating activities for the year
        ended December 31, 2006 was mainly due to the increase of our trade payables
        and
        the improvement of our inventory turnover ratios from 31.1 days in 2005 to
        23.5
        days in 2006 which generated more cash flow.
 
 Net
        cash
        flow used in investing activities was $8,654,722 and $1,454,531 for the years
        ended December 31, 2006 and 2005, respectively. Uses of cash flow for investing
        activities mainly related to the capital expenditures for the acquisition
        of
        plant and equipment as well as for the construction of our production facilities
        in Brazil.
 
 38
  Net
        cash
        flow provided by financing activities was $4,027,732 for the year ended December
        31, 2006. Compared with net cash flow used in financing activities of $756,134
        for the year ended December 31, 2005, the substantial increase in our net
        cash
        flow was mainly due to the inflow of net proceeds of approximately $6.4 million
        from the financing that we completed in August 2006, with $400,000 being
        retained with the Escrow Account initially for comprehensive investor relations,
        public relations and after market support. As of December 31, 2006, a balance
        of
        $281,114 was retained with the Escrow Account.
  **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.
 
 The
        following tables summarize our contractual obligations as of December 31,
        2006,
        and the effect these obligations are expected to have on our liquidity and
        cash
        flows in future periods.
  **Payments
                  Due by Period****Total**
              
              **Less
                  than 1 year**
              
              **1-3
                  Years**
              
              **3-5
                  Years**
              
              **5
                  Years +****In
                  Thousands**Contractual
                  Obligations:Bank
                  Indebtedness
              
              $
              6,398
              
              $
              3,504
              
              $
              2,894
              
              $
              —
              
              $
              —Other
                  Indebtedness
              
              
              6,024
              
              
              4,140
              
              
              1,738
              
              
              146
              
              
              —Operating
                  Leases
              
              
              386
              
              
              165
              
              
              197
              
              
              24
              
              
              —Purchase
                  Obligations
              
              
              419
              
              
              419
              
              
              —
              
              
              —
              
              
              —Total
                  Contractual Obligations:
              
              $
              13,227
              
              $
              8,228
              
              $
              4,829
              
              $
              170
              
              $
              —
  39
  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 Infosmart’s
        behalf. This guarantee exempted Infosmart from the obligation of paying a
        deposit required by the electric utility company. This off-balance sheet
        arrangement has no effect on the Infosmart’s liquidity, capital resources,
        market risk support or credit risk support, other than allowing Infosmart
        to
        retain approximately $297,000 deposit that would have been required by the
        utility company. Infosmart is not aware of any events, demands, commitments,
        trends or uncertainties that will result in of reasonably likely result in
        the
        termination of this arrangement.
  40
  Other
        than the arrangement described above, we have not entered into any other
        financial guarantees or other commitments to guarantee the payment obligations
        of any third parties. We have not entered into any derivative contracts that
        are
        indexed to our shares and classified as shareholder’s equity or that are not
        reflected in our consolidated financial statements. Furthermore, we do not
        have
        any retained or contingent interest in assets transferred to an unconsolidated
        entity that serves as credit, liquidity or market risk support to such entity.
        We do not have any variable interest in any unconsolidated entity that provides
        financing, liquidity, market risk or credit support to us or engages in leasing,
        hedging or research and development services with us.
 
 **Quantitative
        and Qualitative Disclosures about Market Risk**
 
 We
        currently do not use derivative financial instruments in its investment
        portfolio and have no foreign exchange contracts. Our financial instruments
        consist of cash and cash equivalents, trade accounts receivable, accounts
        payable and long-term obligations. We consider investments in highly liquid
        instruments purchased with a remaining maturity of 90 days or less at the
        date
        of purchase to be cash equivalents. However, in order to manage the foreign
        exchange risks, we will engage in hedging activities to manage our financial
        exposure related to currency exchange fluctuation. In these hedging activities,
        we might use fixed-price, forward, futures, financial swaps and option contracts
        traded in the over-the-counter markets or on exchanges, as well as long-term
        structured transactions when feasible.
 
 *Interest
        Rates* .
        Our
        exposure to market risk for changes in interest rates relates primarily to
        our
        short-term investments and short-term obligations; thus, fluctuations in
        interest rates would not have a material impact on the fair value of these
        securities. As of December 31, 2006, we had approximately $206,000 in cash
        and
        cash equivalents. A hypothetical 10% increase or decrease in interest rates
        would not have a material impact on our earnings or loss, or the fair market
        value or cash flows of these instruments.
 
 *Foreign
        Exchange Rates* .
        The
        majority of our revenues derived are in US dollars and the majority of our
        expenses and liabilities incurred are in Hong Kong dollars. Thus, our revenues
        and operating results may be impacted by exchange rate fluctuations in both
        currencies. We have not tried to reduce our exposure to exchange rate
        fluctuations by using hedging transactions. However, we may choose to do
        so in
        the future. We may not be able to do this successfully. Accordingly, we may
        experience economic losses and negative impacts on earnings and equity as
        a
        result of foreign exchange rate fluctuations. The effect of foreign exchange
        rate fluctuation during the year ended December 31, 2006 was not material
        to
        us.
 *Inflation* *.* We
          believe that inflation has not had a material effect on our operations
          to
          date.
 41
  **ITEM
        7. FINANCIAL STATEMENTS**





The
      financial statements are listed in the Index to Financial Statements on page
      F-1.




**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURES**





The
      Company informed Corbin & Company, LLP ("Corbin"), its independent
      registered public accounting firm, that the Company dismissed Corbin and engaged
      a new independent registered public accounting firm. The new independent
      registered public accounting firm is PKF Hong Kong (“PKF”). Pursuant to Item
      304(a) Regulation S-K under the Securities Act of 1933, as amended, and under
      the Securities Exchange Act of 1934, as amended, the Company reported the
      following:




(a)
            (i)
            The
                Company dismissed Corbin as its independent registered public accounting
                firm effective on August 22, 2006.





(ii)
            During
                the period August 25, 2005 (inception) to May 31, 2006, the Company’s
                financial statements did not contain any adverse opinions or disclaimers
                of opinion, and were not qualified or modified as to uncertainty,
                audit
                scope, or accounting principles, except for an explanatory paragraph
                indicating substantial doubt about the Company’s ability to continue as a
                going concern in the audit report for the period August 25, 2005
                (inception) to May 31, 2006.




(iii)
            The
                dismissal of Corbin and engagement of PKF was approved by the
                Corporation's Board of Directors.





(iv)
            The
                Company and Corbin did not have any disagreements with regard to
                any
                matter of accounting principles or practices, financial statement
                disclosure, or auditing scope or procedure for the audited financials
                for
                the period from August 25, 2005 (inception) to May 31, 2006 and subsequent
                interim period from May 31, 2006 through the date of
                dismissal.





(v)
            During
                the Company's fiscal year ended May 31, 2006, prior to the dismissal
                of
                Corbin, the Company did not experience any reportable
                events.





(b)
            On
                August 16, 2006, the Company engaged PKF of Hong Kong, to be the
                Company's
                independent registered public accounting
                firm.





(i)
            Prior
                to engaging PKF, the Company had not consulted PKF regarding the
                application of accounting principles to a specified transaction,
                completed
                or proposed, the type of audit opinion that might be rendered on
                the
                Company’s financial statements or a reportable event, nor did the
                Company consult with PKF regarding any disagreements with its prior
                auditor on any matter of accounting principles or practices, financial
                statement disclosure, or auditing scope or procedure, which disagreements,
                if not resolved to the satisfaction of the prior auditor, would have
                caused it to make a reference to the subject matter of the disagreements
                in connection with its reports.




42




(ii)
            The
                Company did not have any disagreements with Corbin and therefore
                did not
                discuss any past disagreements with
                Corbin.





(c)
            The
                Company provided a copy of the Form 8-K Current Report announcing
                the
                change in certifying accountants to Corbin prior to filing it with
                the SEC
                on August 24, 2006 and requested Corbin to furnish it with a letter
                addressed to the SEC stating whether it agrees with the statements
                made by
                the Registrant regarding Corbin. A copy of Corbin's letter to the
                SEC
                dated August 22, 2006 was filed as Exhibit 16.1 to that Form 8-K
                Current
                Report.





**ITEM
      8A. CONTROLS AND PROCEDURES**





(a) Evaluation
      of Disclosure Controls and Procedures .
      Regulations under the Securities Exchange Act of 1934 require public companies
      to maintain “disclosure controls and procedures,” which are defined to mean a
      company’s controls and other procedures that are designed to ensure that
      information required to be disclosed in the reports that it files or submits
      under the Securities Exchange Act of 1934 is recorded, processed, summarized
      and
      reported, within the time periods specified in the Commission’s rules and forms.
      Our Chief Executive Officer (“CEO”), President, and Chief Financial Officer
      (“CFO”) carried out an evaluation of the effectiveness of our disclosure
      controls and procedures as of the end of the period covered by this report.
      Based on those evaluations, as of the Evaluation Date, our CEO, President,
      and
      CFO believe:




(i)
            that
                our disclosure controls and procedures are designed to ensure that
                information required to be disclosed by us in the reports we file
                under
                the Securities Exchange Act of 1934 is recorded, processed, summarized
                and
                reported within the time periods specified in the SEC’s rules and forms
                and that such information is accumulated and communicated to our
                management, including the CEO and CFO, as appropriate, to allow timely
                decisions regarding required disclosure;
                and




(ii)
            that
                our disclosure controls and procedures are
                effective.





(b) Changes
      in Internal Controls .
      There
      were no significant changes in our internal controls or, to our knowledge,
      in
      other factors that could significantly affect our internal controls subsequent
      to the evaluation date.




**ITEM
      8B. OTHER INFORMATION**





On
      December 1, 2006, Infoscience Media Limited (“IS Media”), our wholly owned
      subsidiary, entered into a Sale and Purchase Agreement (the “Agreement”) with
      New Passion Investments Limited (“New Passion”) whereby IS Media purchased all
      of the shares of InfoScience Holdings Limited (“IS Holdings”) for HK$1.00. IS
      Media has a Cooperation Agreement with IS Holdings wherein they agreed to
      combine operationally their production facilities so that both IS Media and
      IS
      Holdings can produce DVDRs at their combined facilities using certain
      intellectual properties for the production of DVDRs for which IS Holdings holds
      patent licenses for use from the DVDR developer and also a right to manufacture
      DVDRs under a government manufacturing license held by IS Holdings.




**PART
      III**




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF****THE   
      EXCHANGE ACT**




As
      of
      March 30, 2006, the directors and executive officers of the Company, 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**Chung
                Kwok
            
            
            39
            
            
            Chief
                Executive Officer, President and Director
            
            
            8/16/06Po
                Nei Sze
            
            
            34
            
            
            Chief
                Financial Officer, Treasurer, Secretary and Director
            
            
            8/16/06Chang
                Chung Yuen, Andrew (“Andrew Chang”)
            
            
            37
            
            
            Chairman
                of the Board of Directors
            
            
            8/16/06Godwin
                Wong
            
            
            56
            
            
            Director
            
            
            8/16/06Parker
                Seto
            
            
            39
            
            
            Director
            
            
            3/16/07Simon
                Lee
            
            
            38
            
            
            Director
            
            
            3/16/07




**Business
      Experience Descriptions**




Chung
      Kwok - Chief Executive Officer, President and Director .
      Chung
      Kwok, the Company’s Chief Executive Officer, President and Director has over
      twelve years experience in the optical storage media industry. In 1993, Mr.
      Kwok
      began his international sales career with a subsidiary of Sonopress AG, one
      of
      the world’s top three pre-recorded CD/DVD manufacturers, and gained significant
      experience of the dynamics of storage media markets around the world. In 1997,
      Mr. Kwok co-founded Mega Winner (HK), Ltd. (“Mega Winner”), a leading CD
      manufacturer, before spotting the DVDR market opportunity and co-founding
      Infosmart in 2002. He served as Chairman of the Hong Kong Optical Disc
      Manufacturing and Technology Association from 2000 to 2002. He received his
      Bachelor of Mathematics degree from the Chinese University of Hong
      Kong.




43





Po
      Nei
      Sze - Chief Financial Officer, Treasurer, Secretary and Director .
      Po Nei
      Sze is the Company’s Chief Financial Officer, Treasurer, Secretary and Director.
      Ms. Sze co-founded Infosmart in 2002 and oversees its finance, human resources,
      accounting, purchasing and shipping departments. Before joining Infosmart,
      she
      worked with Wing Shing Cassette Manufacturing Co. Ltd. Between 1996 and 1998
      and
      witnessed the evolution of media production from cassette to VCD to DVDR. She
      established her own company, Mega Century, with her spouse in 1998 to produce
      VCDs. Ms. Sze’s relationship with and ownership in Mega Century were completely
      terminated in February 2005. Ms. Sze received her degree in Business
      Administration from the British Columbian Institute of Technology in Canada.
      Ms.
      Sze is the wife of Mr. Wong Hiu Ming (“Tony Wong”), who is a non-executive
      member of the Board of Directors of Prime, Infosmart, IS International, Is
      Technology and IS Media.





Andrew
      Chang - Chairman of the Board of Directors .
      Andrew
      Chang, Chairman of the Board of Directors, is a seasoned entrepreneur. 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 degrees from the
      University of Macquaire, Australia and a Bachelor of Commerce degree majoring
      in
      accounting from the University of New South Wales, Australia. Mr. Chang is
      the
      cousin of Mr. Tony Wong, one of Infosmart’s non-executive
      directors.





Godwin
      Wong - Director .
      Godwin
      Wong is a Director of the Company and has been on the faculty of the Haas School
      of Business at the University of California, Berkeley for twenty years. Dr.
      Wong
      was raised in Hong Kong and was educated in the U.S. with a Ph.D. from Harvard
      University, a Master’s degree from University of California, Los Angeles and a
      baccalaureate from the University of Wisconsin. Dr. Wong serves on the Board
      of
      Directors of the United Commercial Bank, other NASDAQ companies and certain
      technology ventures in the San Francisco area and overseas, and previously
      for
      other California financial institutions. He has been advisor/consultant and
      specialist/strategist to various organizations, corporations, government
      agencies and business enterprises in the U.S., Canada, Europe and Asia. Dr.
      Wong
      has been appointed Chief Expert Advisor for the City Government of Beijing
      HaiDian, where the Silicon Valley of China, Zhong Guan Cun, is located. He
      also
      serves as director to one of the top ten software companies in Shanghai. He
      has
      assisted companies in the negotiation of business transactions, technology
      transfer, and mergers and acquisitions. Representing various investment groups,
      Mr. Wong has run his own San Francisco management companies in real estate,
      consulting and investment management with over thirty-five employees. He speaks,
      reads and writes fluent Chinese in four dialects.





Parker
      Seto - Director. Parker
      Seto graduated from the Chinese University of Hong Kong in Professional
      Accountancy stream with a Bachelor of Business Administration (Honour) in 1990.
      He 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. He has
      extensive experience in initial public offerings and auditing public companies
      and provides financial advisory services. Parker is the Managing Director of
      WestPark Capital, Inc., a U.S. investment banking firm and he has been invited
      to be the advisor of several mid-sized businesses in Hong Kong and Mainland
      China for general business management consultation.





Simon
      Lee - Director. Simon
      Lee graduated from the Chinese University of Hong Kong in 1990 with major in
      Physics. Since then, Lee has been working in the commercial sector and has
      extensive experience in corporate financial and business management. Lee gained
      a Master of Business Administration from the Chinese University of Hong Kong
      specializing in accounting and finance stream in [Year]. 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. He
      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. Simon is also
      a
      Research Fellow of the Corporate Governance and Financial Policy Centre of
      Hong
      Kong Baptist University. He has been regularly invited by multinational
      companies to give training to professionals in the banking and personal
      financial management sector.





**Family
      Relationships**





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





**Involvement
      in Certain Legal Proceedings**




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





(a)
            Had
                any bankruptcy petition filed by or against any business of which
                such
                person was a general partner or executive officer either at the time
                of
                the bankruptcy or within two years prior to that
                time;





(b)
            Been
                convicted in a criminal proceeding or subject to a pending criminal
                proceeding;





(c)
            Been
                subject to any order, judgment, or decree, not subsequently reversed,
                suspended or vacated, of any court of competent jurisdiction, permanently
                or temporarily enjoining, barring, suspending or otherwise limiting
                his
                involvement in any type of business, securities, futures, commodities
                or
                banking activities; and




44




(d)
            Been
                found by a court of competent jurisdiction (in a civil action), the
                Securities and Exchange Commission or the Commodity Futures Trading
                Commission to have violated a federal or state securities or commodities
                law, and the judgment has not been reversed, suspended, or
                vacated.





Mr.
      Chung
      Kwok 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 is currently 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 has ruled for Mega Winner
      to be wind-up (Companies Winding-up No. 1360 of 2003). A Liquidator was
      appointed on March 1, 2004 to wind-up Mega Winner.





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





Except
      as
      otherwise set forth herein, based solely on review of the copies of such forms
      furnished to the Company, or written representations that no reports were
      required, the Company believes that for the fiscal year ended December 31,
      2006, beneficial owners complied with Section 16(a) filing requirements
      applicable to them, except: Andrew Chang, Chung Kwok, Po Nei Sze, and Prime
      Corporate Developments Ltd. filed their initial statements of beneficial
      ownership two days late; Chung Kwok, Po Nei Sze and Prime Corporate Developments
      Ltd. filed Form 4’s on November 2, 2006 reflecting the automatic conversion of
      their Series A Preferred shares into common stock that occurred on October
      17,
      2006 and certain gift transfers of Series A Preferred shares that occurred
      on
      October 11, 2006; Sau Wan Lui filed a Form 3 on November 2, 2006 representing
      the acquisition of shares pursuant to certain gift transfers of Series A
      Preferred shares on October 11, 2006, and a Form 4 on November 2, 2006
      reflecting the automatic conversion of the Series A Preferred shares into common
      stock; and Andrew Chang did not file a Form 4 reflecting certain gift transfers
      of Series A Preferred shares on October 11, 2006 and the automatic conversion
      of
      the Series A Preferred shares into common stock on October 17, 2006. In
      addition, Godwin Wong did not file an initial statement of beneficial ownership.




**Code
      of Ethics**





A
      code of
      ethics relates to written standards that are reasonably designed to deter
      wrongdoing and to promote:





·
            Honest
                and ethical conduct, including the ethical handling of actual or
                apparent
                conflicts of interest between personal and professional
                relationships;




·
            Full,
                fair, accurate, timely and understandable disclosure in reports and
                documents that are filed with, or submitted to, the SEC and in other
                public communications made by an
                issuer;




·
            Compliance
                with applicable governmental laws, rules and
                regulations;




·
            The
                prompt internal reporting of violations of the code to an appropriate
                person or persons identified in the code;
                and




·
            Accountability
                for adherence to the code.




The
      Company has not adopted a formal code of ethics because all of its executive
      officers are also directors, who are already subject to ethical and fiduciary
      standards imposed by law. However, the Company intends to develop a formal
      code
      of ethics that will apply to all of its employees (including its executive
      officers). Upon completion, the Company 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 do not currently have
      an
      audit committee, however, for certain purposes of the rules and regulations
      of
      the SEC, the Company’s board of directors is deemed to be its audit committee.
      The board of directors has determined that each of its members is able to read
      and understand fundamental financial statements and has substantial business
      experience that results in that member’s financial sophistication. In addition,
      two directors qualify as an “audit committee financial expert” within the
      meaning of the rules and regulations of the SEC. Accordingly, the board of
      directors believes that each of its members has sufficient knowledge and the
      experience necessary to fulfill the duties and obligations that an audit
      committee would have. Our board of directors intends, however, to appoint an
      audit committee in the near future.




45





**ITEM
      10. 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 year ended
      December 31, 2006. The following table summarizes all compensation for fiscal
      year 2006 received by our Chief Executive Officer, and the Company’s two most
      highly compensated executive officers who earned more t han
      $100,000 in fiscal year 2006.





**SUMMARY
                COMPENSATION TABLE**Name
                and principal position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Stock
                Awards
              ($)
            
            Option
                Awards
              ($)
            
            Non-Equity
                Incentive Plan Compen-sation
              ($)
            
            Nonquali-fied
                Deferred Compen-sation Earnings
              ($)
            
            All
                Other Compen-sation ($)
            
            Total
                ($)Chung
                Kwok, Chief Executive Officer and President
            
            
            2006
            
            $
            70,913
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            70,913Kevin
                R. Keating, former President, Secretary and Treasurer
            
            
            2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Pauline
                Sze, CFO, Treasurer, Secretary and
              Director
            
            
            2006
            
            $
            85,063
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            85,063




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




There
      are
      no unexercised options, unvested stock awards or equity incentive plan awards
      for any of the above-named executive officers outstanding as of December 31,
      2006.





**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,
      2006.





**DIRECTOR
                COMPENSATION**Name
            
            Fees
                Earned or Paid in Cash ($)
            
            Stock
                Awards
              ($)
            
            Option
                Awards
              ($)
            
            Non-Equity
                Incentive Plan Compen-sation
              ($)
            
            Change
                in Pension Value and Nonqualified Deferred Compensation
                Earnings
              ($)
            
            All
                Other Compen-sation ($)
            
            Total
                ($)Andrew
                Chang
              Chairman
                of Infosmart
            
            $
            38,580
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            38,580Godwin
                Wong, Director
            
            $
            17,500
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            17,500





There
      were no stock or option awards issued to any directors and outstanding as of
      December 31, 2006.





**Employment
      and Director Agreements**





Infosmart
      entered into a Letter of Appointment agreement with Mr. Chung Kwok on June
      1,
      2006. Effective June 1, 2006, Mr. Kwok was appointed Chief Executive Officer
      and
      Director of Infosmart and his base monthly salary is HK$60,000 per month or
      approximately US$7,772 per month. Such salary is subject to an annual review
      by
      the Board of Directors (“Board”) at a time determined by the 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.




Infosmart
      entered into a Letter of Appointment agreement with Mr. Andrew Chang on July
      1,
      2006. Effective July 1, 2006, Mr. Chang was appointed Chairman and Director
      of
      Infosmart and his base monthly salary is HK$50,000 per month or approximately
      US$6,435 per month. Such salary is subject to an annual review by the Board
      of
      Directors (“Board”) at a time determined by the 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.




46





Infosmart
      entered into a Letter of Appointment agreement with Ms. Po Nei Sze on June
      1,
      2006. Effective June 1, 2006, Ms. Sze was appointed Chief Financial Officer
      and
      Director of Infosmart and her base monthly salary is HK$50,000 per month or
      approximately US$6,435 per month. Such salary is subject to an annual review
      by
      the Board of Directors (“Board”) at a time determined by the 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.




All
      of
      the above-described Letters of Appointment agreements state the officer and/or
      directors employment may be terminated immediately, without Company 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 the Board does not
      affect his position with Infosmart 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 Board
      tends
      to bring himself or Infosmart 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. 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 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, during or at any time after termination of their
      employment.




**Long-Term
      Incentive Plan Awards**




We
      do not
      currently have any long term incentive plans.




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




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




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 22, 2007 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.





**Amount
                and Nature****of
                Beneficial**
            
            **Percent****Title
                of Class**
            
            **Name
                and Address of Beneficial Owner (1)**
            
            **Ownership
                (2)**
            
            **of
                Class (2)**Common
            
            Chung
                Kwok (7)
            
            
            17,625,392
            (2)
            
            
            11.0
            %Common
            
            Po
                Nei Sze (7)
            
            
            62,370,292
            (3)
            
            
            38.9
            %Common
            
            Andrew
                Chang
            
            
            9,483,727
            
            
            
            5.9
            %Common
            
            Godwin
                Wong
            
            
            0
            
            
            
            0
            %Common
            
            Parker
                Seto
            
            
            0
            
            
            
            0
            %Common
            
            Simon
                Lee
            
            
            0
            
            
            
            0
            %Common
            
            Prime
                Corporate Developments Limited (7)
            
            
            62,370,292
            (4)
            
            
            38.9
            %Common
            
            Lui
                Sau Wan (7)
            
            
            20,757,376
            (6)
            
            
            13.0
            %Common
            
            KI
                Equity Partners II, LLC (7)
              c/o
                Timothy J. Keating, Manager
              5251
                DTC Parkway, Suite 1090
              Greenwood
                Village, Colorado 80111
            
            
            8,604,160
            (5)
            
            
            5.4
            %**All
                officers and directors as a group (6 persons)**
            
            
            89,479,411
            
            
            
            55.8
            %


(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.


47





(2)
            
            The
                amount of beneficial ownership assumes the conversion of all 883,081.429
                shares of Series B Preferred Stock outstanding as of March 22, 2007,
                in
                which each share of Series B Preferred Stock is converted into 26.819924
                shares of the Company’s common stock (23,684,176 shares of common stock on
                an as-converted basis), and thus the percentage of common stock
                beneficially owned is based on a total of 160,260,512 shares of the
                Company’s common stock outstanding as of March 22, 2007. Figures may vary
                slightly due to rounding.(3)
            
            Ms.
                Po Nei Sze is the sole owner of Prime Corporate and exercises sole
                voting
                and investment control over such shares.(4)
            
            Ms.
                Po Nei Sze is the sole owner of Prime Corporate and exercises sole
                voting
                and investment control over the shares owned by Prime
                Corporate.(5)
            
            Timothy
                J. Keating is the manager of KI Equity and exercises sole voting
                and
                investment control over such shares.(6)
            
            Ms.
                Lui Sau Wan’s address is No. 188, Victoria Road, Hong
                Kong.(7)
            
            These
                individuals or entities entered into a shareholder voting agreement
                (the
                “Voting Agreement”) to vote their shares in favor of changing the
                Company’s name and also increasing the authorized shares of the Company’s
                common stock from 40,000,000 to 300,000,000 shares. Pursuant to the
                Voting
                Agreement, these parties also agreed (a) that they will take all
                such
                actions so that the number of the Company’s directors shall be seven, (b)
                to vote in favor of the election of the six director designees by
                Infosmart (which currently includes Po Nei Sze, Chung Kwok, Andrew
                Chang,
                Parker Seto and Simon Lee and will also include one other independent
                director to be designated by Infosmart) and KI Equity’s one director
                designee, Godwin Wong, to the Board of Directors of the Company
                (collectively the “Director Designees”) as set forth in the Voting
                Agreement, and (c) that they will not vote (or cause a vote) for
                the
                removal of the Director Designees from the Board of Directors.


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





**Certain
      Relationships and Related Transactions**




**PRIOR
      TO MERGER WITH INFOSMART GROUP LIMITED**





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




Pursuant
      to a Stock Option Assumption Agreement entered into between the Company and
      Frank Yuan as of May 31, 2005 (“Option Assumption Agreement”), Frank Yuan, the
      former CEO of the Company 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, 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.




A
      certain
      Amended and Restated Securities Purchase Agreement (“SPA”) by and among KI
      Equity, the Company and Frank Yuan dated August 25, 2005, pursuant to Section
      7.2 thereof, Frank Yuan has 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.




A
      certain
      Transfer and Assumption Agreement dated May 31, 2005 (“Assumption Agreement”) by
      and among the Company, 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 Frank 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 has
      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.




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 seeks 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 intends to defend against such preference claim by asserting that such
      transfers were made in the ordinary course of business and such other available
      defenses. The Company filed its answer to the compliant on or about April 20,
      2006. To the extent the Company incurs any losses, costs or damages with respect
      to the preference claim, including attorneys’ fees and related costs, the
      Company believes it may recover such losses, costs and damages from Frank Yuan
      and ASAP pursuant to the indemnification provisions under the Assumption
      Agreement and/or Amended SPA. The Company has informed Frank Yuan and ASAP
      that
      it intends to seek indemnification from them with respect to the preference
      claim. Further, the Company has informed Frank Yuan and ASAP that the $50,000
      reserve originally due to be paid March 30, 2006 under the terms of the
      Assumption Agreement will be retained by the Company until this preference
      claim
      is resolved to satisfy any potential indemnity claims.




48




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
      Exchange Agreement.





Kevin
      R.
      Keating was the sole officer and a director of the Company prior to the closing
      of the Exchange Agreement. 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 stockholder of the
      Company prior to the closing of the Exchange transaction), 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
      Exchange Agreement.





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





At
      the
      closing of the Exchange Agreement, pursuant to the terms of the Exchange
      Agreement, 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 Exchange Agreement.





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 the Series B 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 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 will have registration rights similar to the
      registration rights afforded to the holders of Series B 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 Exchange Agreement, the Company also entered into an aftermarket
      support agreement between the Company and Keating Aftermarket Support, LLC
      (“KAMS”), with such terms and conditions as mutually acceptable to Infosmart,
      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 Combination 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, 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 Exchange Agreement.





**AFTER
      MERGER WITH INFOSMART GROUP LIMITED**





The
      related transactions of our predecessor’s officers, directors and/or 5%
      Infosmart shareholders are as follows:





***Advances
      from Related Parties***





Advances
      from certain related parties to Infosmart’s working capital are as
      follows:




49





As
                of December 31,2006
            
            2005Eternal
                Scene
            
            $
            514,401
            
            $
            -Prime
                Corporate
            
            
            927,991
            
            
            2,217,054$
            1,442,392
            
            $
            2,217,054





Advances
      from Prime Corporate are interest-free, unsecured and the related party has
      undertaken not to demand repayment in the next twelve months. Of the amount
      included in the amount due to Eternal Scene, only $384,560 is interest-bearing
      at a monthly rate of 2% and the remaining balance is interest-free. The whole
      amount is unsecured and repayable on demand. As of December 31, 2005, the
      amounts originally due to Tony Wong, Eternal Scene and Po Nei Sze, which
      amounted to $3,870, $129,000 and $1,707,348, respectively, were assigned to
      Prime Corporate pursuant to consent letters dated the same date.





***Related
      Party Material Transactions***





Infosmart’s
      material transactions with related parties during the years ended December
      31,
      2006 and 2005 included:





Year
                ended December 31,2006
            
            2005Sales
                of raw materials to Mega Century at costs actual incurred
            
            $
            -
            
            $
            29,197Purchases
                of finished goods from Mega Century at market prices
            
            
            -
            
            
            24,677Factory
                rentals received from Mega Century at market rental rates
            
            
            -
            
            
            2,572





Mega
      Century Limited, a Hong Kong company (“Mega Century”), is a company formerly
      controlled by Ms. Po Nei Sze. However, only the transactions with Mega Century
      up to February 7, 2005 are regarded as related party transactions as management
      believes that Mega Century was no longer a related party following the transfer
      of entire interest in Mega Century by Ms. Sze and her family members to
      independent third parties.





***Infosmart
      Reorganization Related Transactions***





On
      October 20, 2005, Infosmart and its subsidiaries (including IS Technology,
      IS
      International and IS Media) reorganized their corporate structure (the
“Infosmart Reorganization”).





Immediately
      before the Infosmart Reorganization, the 20,000 fully-paid issued and
      outstanding shares of IS Technology were held as follows: (a) 14,255 shares
      held
      by Eternal Scene International Limited (“Eternal Scene”) (an entity controlled
      by Infosmart Director and Company CFO and director Po Nei Sze (“Ms. Sze”)); (b)
      4,245 shares held by Infosmart and Company CEO and Director Mr. Chung Kwok
      (“Mr.
      Kwok”) and (c) 1,500 shares held in trust by Ms. Li Woon Che (“Ms. Li”) for the
      benefit of Ms. Lui Sau Wan (“Ms. Lui”), representing approximately 71.3%, 21.2%
      and 7.5% of the entire issued common stock of IS Technology, respectively.
      On
      October 19, 2005, IS Technology increased its authorized share capital to
      5,000,000 shares.





In
      connection with the Infosmart Reorganization, on October 20, 2005, Prime
      Corporate Developments Limited (“Prime Corporate”), a company solely owned and
      controlled by Ms. Sze, converted $617,287 (equivalent to HK$4,800,000) in
      outstanding loans to IS Technology into 4,800,000 shares of IS Technology’s
      voting common stock, par value $0.13 (equivalent to HK$1) per share. Prime
      Corporate then directed IS Technology to issue 4,799,999 IS Technology shares
      to
      Infosmart and one (1) IS Technology share to be held in trust by Mr. Wong Hiu
      Ming (“Tony Wong”) for the benefit of Prime Corporate, the husband of Ms. Sze,
      instead of issuing such shares to Prime Corporate.





Further,
      following the conversion, Infosmart also acquired the remaining 20,000
      outstanding and issued shares of IS Technology stock as follows:





1.
            Infosmart
                acquired the 14,255 IS Technology shares previously held by Eternal
                Scene
                in exchange for a cash payment of HK$14,255 or approximately
                US$1,827.





2.
            Mr.
                Kwok agreed to transfer his 4,245 IS Technology shares to Infosmart
                in
                exchange for an issuance to him by Infosmart of 43 shares of Infosmart
                stock. After transferring his 4,245 IS Technology shares to Infosmart,
                Mr.
                Kwok then assigned his right to receive the 43 Infosmart shares to
                Prime
                Fortune Enterprises Limited (“Prime”). All of the 1,000 fully-paid issued
                and outstanding shares of Prime's stock are held as follows: 713
                shares by Prime Corporate, 212 shares by Mr. Kwok, and 75 shares
                by Ms.
                Lui.




50





3.
            Ms.
                Li, who held the 1,500 IS Technology shares in trust for the benefit
                of
                Ms. Lui, agreed to transfer 1,500 IS Technology shares in exchange
                for an
                issuance to her by Infosmart of 15 shares of Infosmart stock. After
                transferring the 1,500 IS Technology shares to Infosmart, Ms. Li
                then
                waived****her
                right to receive the 15 Infosmart
                shares.





Immediately
      before the Infosmart Reorganization, the 200 fully-paid issued shares of IS
      International were held as follows: (a) 161 shares by Prime Corporate
      Developments Limited (“Prime Corporate”), an entity controlled by Ms. Sze, Prime
      Corporate’s sole shareholder; (b) 24 shares by Rise Tech Holdings Limited (“Rise
      Tech”); and (c) 15 shares held in trust by Ms. Li for the benefit of Ms. Lui,
      representing 80.5%, 12.0% and 7.5% of the entire issued common stock of IS
      International. Infosmart acquired all 200 issued and outstanding shares of
      IS
      Technology stock as follows:




1.
            Prime
                     Corporate agreed to transfer its 161 IS International shares
                to Infosmart
                in exchange for an issuance to Prime Corporate by Infosmart of 161
                shares
                of Infosmart stock to Prime Corporate (including an issuance of one
                (1)
                share to Tony Wong, to hold in trust for the benefit of Prime Corporate).
                After transferring its 161 IS Technology shares to Infosmart, Prime
                Corporate then assigned its right to receive the 161 Infosmart shares
                to
                Prime.




2.
            Rise
                Tech agreed to transfer its 24 IS International shares to Infosmart
                in
                exchange for an issuance to Rise Tech by Infosmart of 24 shares of
                Infosmart stock. After transferring its 24 IS Technology shares to
                Infosmart, Rise Tech then waived its right to receive the 24 Infosmart
                shares.





3.
            Ms.
                Li, who held the 15 IS International shares in trust for the benefit
                of
                Ms. Lui, agreed to transfer 15 IS International shares in exchange
                for an
                issuance to Ms. Li by Infosmart of 15 shares of Infosmart stock.
                After
                transferring the 15 IS Technology shares to Infosmart, Ms. Li then
                assigned****her
                right to receive the 15 Infosmart shares to
                Prime.





Thus,
      after the Infosmart Reorganization, Infosmart beneficially owned all 4,820,000
      shares of issued and outstanding shares IS Technology stock, and all 200 shares
      of issued and outstanding shares IS International stock. IS Technology owns
      all
      of the issued and outstanding shares of IS Media’s stock.





Further,
      as described above, the following persons assigned the rights to receive a
      total
      of 219 Infosmart shares to Prime, as follows: (1) Mr. Kwok, 43 shares; (2)
      Ms.
      Li, 15 shares; and (3) Prime Corporate, 161 shares. Rather than being issued
      the
      219 Infosmart shares, Prime agreed to waive its rights to all 219 Infosmart
      shares in exchange for the issuance of one (1) share of Infosmart stock, which
      was the only issued and outstanding share of Infosmart stock. Thus, following
      the Infosmart Reorganization, Prime became the owner of 100% of the voting
      power
      in Infosmart.





***Infosmart
      Re-structuring Related Transactions***





In
      August
      2006, and immediately prior to the closing of Exchange Agreement, the board
      of directors of both Prime and Infosmart decided to re-structure certain
      shareholdings in Infosmart, so that after the re-structuring, Prime would no
      longer own 100% of Infosmart’s issued capital shares and so that Prime
      Corporate, Mr. Chung Kwok (“Mr. Kwok”) and Ms. Lui Sau Wan (“Ms. Lui”) would
      replace Prime as the direct owners of 100% of the issued capital shares and
      equity ownership of Infosmart (the “Re-structuring”).





Prior
      to
      the Re-structuring, Prime owned 100% of the issued capital shares of Infosmart,
      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. Kwok, and 75 shares held by Ms. Lui. On August 11, 2006, and in
      connection with the Re-structuring, Prime’s board of directors approved
      resolutions for Prime to transfer the one (1) issued capital share of Infosmart
      owned by Prime to Prime shareholder Mr. Kwok in exchange for a cash payment
      of
      $1.00 (the “Prime Transfer”), and that pursuant to such resolutions, Prime
      transferred the one Infosmart share to Mr. 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’s Board
      approved resolutions for the issuance of 999 new shares in Infosmart to Prime
      Corporate Developments Limited (“Prime Corporate”), Mr. Kwok and Ms. Lui, as
      follows: 713 shares to Prime Corporate, 211 shares to Mr. Kwok, and 75 shares
      to
      Ms. Lui, in exchange for a cash payment by Prime Corporate, Mr. Kwok and Ms.
      Lui
      of $1.00 per Infosmart share that each receives (the “Infosmart Share Issuance”)
      or an aggregate total payment of $999 for such shares, and that on August 11,
      2006, Infosmart issued the 999 Infosmart shares, in amounts as described above,
      to Prime Corporate, Mr. Kwok and Ms. Lui, in exchange, received the $999 cash
      payment, pursuant to such resolutions.





A s
      a
      result of and immediately after the Prime Transfer and the Infosmart Share
      Issuance, Prime Corporate, Mr. Kwok and Ms. Lui became the owners of 100% of
      the
      issued capital shares of Infosmart, with each of them owning the same number
      of
      Infosmart shares as the number of Prime shares that each currently owns.




51





***Other
      Related Transactions***





For
      the
      period December 31, 2005 through the closing of the Exchange Agreement on August
      16, 2006, Prime Corporate Developments Limited, and Infosmart and the Company
      shareholder and a related entity solely owned by the Company’s CFO and Director
      Ms. Po Nei Sze, has loaned approximately $384,615 to Infosmart in connection
      with the construction of the Discobras manufacturing facility in Brazil.





Pursuant
      to the Exchange Agreement, as amended on August 16, 2006, immediately prior
      to
      the Closing of the Exchange, Infosmart issued 58.82 shares of the its capital
      stock to Hamptons Investment Group, Ltd. ("Hamptons") (which will convert
      into approximately 6,484,519 of the Company’s common stock upon Mandatory
      Conversion of the 55,556 shares Series A Preferred Stock Hamptons received
      in
      connection with the Exchange transaction) for services provided as a finder
      in
      connection with the Exchange transaction.





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
      company.





**Director
      Independence**





Three
      of
      our directors -- Mr. Godwin Wong, Mr. Parker Seto and Mr. Simon Lee --
      are independent directors as that term is defined under NASDAQ
      Rule 4200(a)(15).





**ITEM
      13.**  **EXHIBITS**





**EXHIBIT
      INDEX**




**Exhibit****Number**
            
            **Description**2.1
            
            Amended
                and Restated Securities Purchase Agreement, dated August 25, 2005
                (5)2.2
            
            Transfer
                and Assumption Agreement dated as of May 31, 2005 (5)2.3
            
            Exchange
                Agreement by and among Cyber, KI Equity, Hamptons Investment Group,
                Ltd.,
                Prime and the Prime Shareholders dated July 7, 2006
                *(6)2.4
            
            Guarantee
                and Assumption Agreement by and among Cyber, Infosmart, IS International,
                IS Technology and IS Media dated July 7, 2006 (6)2.5
            
            First
                Amendment to the Exchange Agreement dated August 16, 2006 between
                Cyber,
                KI Equity Partners, LLC, Hamptons Investment Group, Ltd., Prime,
                Prime
                Shareholders, Infosmart Group Ltd. and the Infosmart Shareholders
                *
                (7)2.6
            
            Amended
                and Restated Guarantee and Assumption Agreement by and among Cyber,
                IS
                International, IS Technology and IS Media dated August 16, 2006
                (7)2.7
            
            Voting
                Agreement by and among the Infosmart Stockholders and KI Equity dated
                August 16, 2006 (7)2.8
            
            Escrow
                Agreement by and among Cyber, KI Equity, Infosmart, the Infosmart
                Stockholders and Richardson, as escrow agent, dated August 16, 2006
                (7)2.9
            
            Financial
                Advisory Agreement by an among Keating Securities LLC and Cyber Merchants
                Exchange Inc. dated August 16, 2006 (7)3.1
            
            Articles
                of Incorporation (1)3.2
            
            Bylaws
                (1)3.3
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series A Convertible Preferred
                Stock




52




3.4
            
            Certificate
                Of Determination Of Rights, Preferences, Privileges And Restrictions
                Of
                Series B Convertible Preferred Stock4.1
            
            Lock-Up
                Agreement (2)4.2
            
            Specimen
                Stock Certificate for Shares of Common Stock of the Company
                (4)10.1
            
            Lease
                of registrant's facilities dated January 29, 2004 (3)10.2
            
            Lease
                of registrant's facilities dated March 22, 2006 (3)10.3
            
            Lease
                of registrant's facilities dated September 16, 2003 (3)10.4
            
            Lease
                of registrant's facilities dated July 25, 2003 (3)10.5
            
            Lease of registrant's facilities dated September 30, 2003
                (3)10.6
            
            Placement
                Agent Agreement dated July 7, 2006 between the Registrant, Securities,
                LLC
                and Axiom Capital Management, Inc. * (7)10.7
            
            Form
                of Subscription Agreement between the Registrant and the Investor
                to be
                identified therein (7)10.8
            
            Registration
                Rights Agreement (7)10.9
            
            Form
                of Common Stock Purchase Warrant (7)10.10
            
            Assignment
                and Assumption of Placement Agreement by an among Infosmart, Cyber,
                Keating Securities, LLC and Axiom Capital Management, Inc. dated
                August
                16, 2006 (7)10.11
            
            Appointment
                Letter Agreement by and among Po Nei Sze and Infosmart Group Limited
                dated
                June 1, 2006 (7)10.12
            
            Appointment
                Letter Agreement by and among Andrew Chang and Infosmart Group Limited
                dated July 1, 2006 (7)10.13
            
            Appointment
                Letter Agreement by and among Chung Kwok (aka Andy Kwok) and Infosmart
                Group Limited dated July 1, 2006 (7)10.14
            
            Cooperation
                Agreement by and among Infoscience Media Ltd. and Infoscience Holdings
                Ltd. dated December 1, 2005 (7)10.15
            
            Cooperation
                Agreement by and among Info Smart Technology Limited. and Mega Century
                Limited dated January 1, 2006 (7)





10.16
            
            Amendment
                Agreement by and among Info smart Technology Limited, Info Smart
                International Enterprises Limited, and Mega Century Ltd. dated January
                1,
                2006 (7)10.17
            
            Banking
                Facilities Letter Agreement by and between Infoscience Media Limited
                and Hang Seng Bank Limited dated September 15, 2005
                (7)10.18
            
            General
                Banking Facilities Agreement by and between Info Smart Technology
                Ltd. and
                Chiyu Banking Corporation Limited dated November 28, 2003
                (7)10.19
            
            Contract
                for two Automatic Dual Track DVDR Manufacturing Systems "Streamline
                II
                DVDR" between Infoscience Media Ltd. and ACME Cassette Manufacturing
                Limited dated September 15, 2004
                (7)




53




10.20
            
            Sale
                and Purchase Agreement between Infoscience Media Limited and New
                Passion
                Investments Limited dated December 1, 2006 (9)24.1
            
            Power
                of Attorney (3)31.1
            
            Section 302
                Certification by the Corporation’s Chief Executive Officer
                (9)31.2
            
            Section 302
                Certification by the Corporation’s Chief Financial Officer
                (9)32.1
            
            Section 906
                Certification by the Corporation’s Chief Executive Officer
                (9)32.2
            
            Section 906
                Certification by the Corporation’s Chief Financial Officer
                (9)




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




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





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





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





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





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





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





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





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





(9)
            Filed
                herewith.




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




The
      following table sets forth fees billed to us by our auditors during the fiscal
      years ended December 31, 2006 and December 31, 2005 for:
      (i) services rendered for the audit of our annual financial statements and
      the review of our quarterly financial statements, (ii) services by our
      auditor that are reasonably related to the performance of the audit or review
      of
      our financial statements and that are not reported as Audit Fees,
      (iii) services rendered in connection with tax compliance, tax advice and
      tax planning, and (iv) all other fees for services rendered.




December
              31,
                2006
            
            December
              31,
                2005(i)       Audit
                Fees
            
            $
            111,138
            
            $
            59,600(ii)      Audit
                Related Fees
            
            
            5,791
            
            
            559(iii)     Tax
                Fees
            
            
            15,258
            
            
            14,988(iv)      All
                Other Fees
            
            
            —
            
            
            —Total
                fees
            
            $
            132,187
            
            $
            75,147


54




**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 2, 2007
            By:
            /s/
                CHUNG KWOKChung
                Kwok, President and Chief Executive Officer




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


**Name**
            
            **Position**
            
            **Date**/s/
                CHUNG KWOK
              Chung
                Kwok
            
            Director
            
            April
                2, 2007/s/
                PO NEI SZE
              Po
                Nei Sze
            
            Director
            
            April
                2, 2007/s/
                PARKER SETO
              Parker
                Seto
            
            Director
            
            April
                2, 2007/s/
                SIMON LEE
              Simon
                Lee
            
            Director
            
            April
                2, 2007/s/
                ANDREW CHANG
              Andrew
                Chang
            
            Chairman
                of Board of Directors
            
            April
                2, 2007


55




**INFOSMART
      GROUP INC.**


**(FORMERLY
      CYBER MERCHANTS EXCHANGE INC.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 AND 2005**


Index
          to
          financial statements
 PAGESReport
                  ofindependent
                  registered public accounting firm
              F-2Consolidated
                  statements of operations
              F-3Consolidated
                  balance sheets
              F-4Consolidated
                  statements of cash flows
              F-6Consolidatedstatements
                  of stockholders’ equity
              F-8Notes
                  to consolidated financial statements
              F-9




F-1








**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Board of Directors and Stockholders of


Infosmart
      Group Inc.


(formerly
      Cyber Merchants Exchange Inc.)








We
      have
      audited the accompanying consolidated balance sheets of Infosmart Group Inc.
      (the “Company”) and its subsidiaries as of December 31, 2006 and 2005, and the
      related consolidated statements of operations, stockholders’ equity and cash
      flows for each of the two years in the period ended December 31, 2006. 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 statement 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, 2006 and 2005, and the consolidated results
      of
      their operations and their cash flows for each of the two years in the period
      ended December 31, 2006 in conformity with accounting principles generally
      accepted in the United States of America.




















PKF


Certified
      Public Accountants


Hong
      Kong, China


March
      23,
      2007











F-2





**INFOSMART
      GROUP** **INC.**


**(FORMERLY
      CYBER MERCHANTS EXCHANGE INC.)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


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


**(Stated
      in US Dollars)**





***Year
                ended December 31******2006***
            
            ***2005***Netsales
            
            $
            27,102,441
            
            $
            24,577,206Cost
                of sales
            
            
            (19,570,525
            )
            
            (17,911,674
            )Gross
                profit
            
            
            7,531,916
            
            
            6,665,532Administrative
                expenses
            
            
            (1,997,379
            )
            
            (816,553
            )Depreciation-
                note 15
            
            
            (223,893
            )
            
            (214,534
            )Selling
                and distributing costs
            
            
            (475,781
            )
            
            (641,096
            )Income
                from operations
            
            
            4,834,863
            
            
            4,993,349Professional
                expenses related toRestructuringand
                Share Exchange - note 8
            
            
            (2,753,390
            )
            
            (320,892
            )Reversal
                of commission payable - note 9
            
            
            -
            
            
            718,250Other
                income - note 10
            
            
            449,985
            
            
            302,903Interest
                expenses
            
            
            (511,322
            )
            
            (520,827
            )Income
                before income taxes
            
            
            2,020,136
            
            
            5,172,783Income
                taxes - note 11
            
            
            (955,592
            )
            
            (958,022
            )Net
                income
            
            
            1,064,544
            
            
            4,214,761Series
                B preferred dividends
            
            
            (202,069
            )
            
            -Series
                B preferred deemed dividend-
                note 22
            
            
            (2,297,157
            )
            
            -(2,499,226
            )
            
            -Net
                (loss) income applicable to commonshareholders
            
            $
            (1,434,682
            )
            $
            4,214,761(Loss)
                earnings per share-
                basic and dilutive - note 12
            
            $
            (0.01
            )
            $
            0.04Weighted
                average shares outstanding-
                basic and dilutive - note12
            
            
            119,188,957
            
            
            110,236,841





See
      the
      accompanying notes to consolidated financial statements





F-3








**INFOSMART
      GROUP** **INC.**


**(FORMERLY
      CYBER MERCHANTS EXCHANGE INC.)**


**CONSOLIDATED
      BALANCE SHEETS**


**AS
      OF DECMEBER 31, 2006 AND 2005**


**(Stated
      in US Dollars)**




***As
                  of December 31******2006***
              
              ***2005*****ASSETS**Current
                  assetsCash
                  and cash equivalents
              
              $
              206,258
              
              $
              154,368Restricted
                  cash - notes 5 and 17(b)
              
              
              552,193
              
              
              263,085Trade
                  receivables,
                  net of allowance of doubtful debts of $nilin
                  2006in
                  2006and
                  2005
              
              
              6,171,366
              
              
              3,252,678Prepaid
                  expenses and other receivables - note 13
              
              
              269,477
              
              
              1,478,343Inventories,
                  net-
                  note 14
              
              
              1,058,039
              
              
              1,427,790Totalcurrent
                  assets
              
              
              8,257,333
              
              
              6,576,264Deferred
                  tax assets - note 11
              
              
              459,823
              
              
              45,724Plant
                  and equipment, net - note 15
              
              
              33,911,540
              
              
              18,298,753Intangible
                  assets - note 7
              
              
              2,092,809
              
              
              -**TOTAL
                  ASSETS**
              
              $
              44,721,505
              
              $
              24,920,741**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****LIABILITIES**Current
                  liabilitiesTrade
                  payables
              
              $
              2,926,078
              
              $
              1,800,984Other
                  payables and accrued liabilities-
                  note 16
              
              
              8,756,675
              
              
              1,102,953Income
                  tax payable
              
              
              363,645
              
              
              -Current
                  portion of bank borrowings - note 17
              
              
              3,503,654
              
              
              4,461,840Current
                  obligations under capital leases - note 18
              
              
              -
              
              
              52,692Current
                  portion of other loans-
                  note 19
              
              
              1,268,044
              
              
              1,996,614Totalcurrent
                  liabilities
              
              
              16,818,096
              
              
              9,415,083Non-current
                  portion of bank borrowings - note 17
              
              
              2,893,927
              
              
              -Non-current
                  portion of other
                  loans - note 19
              
              
              1,884,202
              
              
              1,750,131Advance
                  from a related party - note 20
              
              
              927,991
              
              
              2,217,054Deferred
                  taxliabilities - note 11
              
              
              3,001,360
              
              
              2,497,054**TOTAL
                  LIABILITIES**
              
              $
              25,525,576
              
              $
              15,879,322**COMMITMENTS
                  AND CONTINGENCIES****-
                  note 21**










F-4








**INFOSMART
      GROUP** **INC.**


**(FORMERLY
      CYBER MERCHANTS EXCHANGE INC.)**


**CONSOLIDATED
      BALANCE SHEETS (cont’d)**


**AS
      OF DECEMBER 31, 2006 AND 2005**


**(Stated
      in US Dollars)**





***As
                of December 31******2006***
            
            ***2005***Series
                B Redeemable Convertible Preferred Stock: No par value - note22Authorized
                1,800,000 shares; Issued and outstanding 911,974.54shares
            
            $
            2,581,926
            
            $
            -**STOCKHOLDERS’
                EQUITY**Common
                stock: No par valueAuthorized:
                2006 - 300,000,000 shares and 2005 - 40,000,000shares;
                Issued and outstanding: 2006 - 135,801,426.44 sharesand
                2005-
                10,119,040 shares
            
            
            1,520,901
            
            
            1Preferred
                stock: No par value - note 22Authorized
                7,000,000 shares; Issued and outstanding: 2006 and2005
                - nil share
            
            
            -
            
            
            -Series
                A Convertible Preferred Stock: No par value - note22Authorized
                1,200,000 shares; Issued and outstanding2006
                and 2005 - nil share
            
            
            -
            
            
            -Additional
                paid-in-capital - note 22
            
            
            8,118,664
            
            
            619,877Accumulated
                other comprehensive income
            
            
            19,237
            
            
            31,658Retained
                earnings
            
            
            6,955,201
            
            
            8,389,883**TOTAL
                STOCKHOLDERS’ EQUITY**
            
            
            16,614,003
            
            
            9,041,419**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            44,721,505
            
            $
            24,920,741







See
      the
      accompanying notes to consolidated financial statements








F-5





**INFOSMART
      GROUP INC.**


**(FORMERLY
      CYBER MERCHANTS EXCHANGE INC.)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


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


**(Stated
      in US Dollars)**




***Year
                  ended December 31******2006***
              
              ***2005*****Cash
                  flows from operating activities**Net
                  income
              
              $
              1,064,544
              
              $
              4,214,761Adjustments
                  to reconcile net income to net cashflowsprovided
                  by operating activities:Depreciation
              
              
              1,820,529
              
              
              1,695,697Deferred
                  income taxes
              
              
              577,767
              
              
              958,022Loss
                  on disposal of property, plant and equipment
              
              
              381,498
              
              
              -Professional
                  expenses related to Restructuring and ShareExchange
              
              
              2,628,993
              
              
              -Changes
                  in operating assets and liabilities:Trade
                  receivables
              
              
              (2,882,093
              )
              
              (1,378,159
              )Prepaid
                  expenses and other receivables
              
              
              167,669
              
              
              (1,684,202
              )Inventories
              
              
              365,608
              
              
              289,229Trade
                  payables
              
              
              1,071,828
              
              
              (2,163,581
              )Income
                  tax payable
              
              
              363,928
              
              
              -Advance
                  from a related party
              
              
              (1,287,409
              )
              
              (32,846
              )Other
                  payables and accrued liabilities
              
              
              406,535
              
              
              370,407Net
                  cash flows provided by operating activities
              
              
              4,679,397
              
              
              2,269,328**Cash
                  flows from investing activities**Acquisition
                  of plant and equipment
              
              
              (8,686,331
              )
              
              (1,454,531
              )Cash
                  acquired on the acquisition of subsidiaries - notes 6 and
                  7
              
              
              31,609
              
              
              -Net
                  cash flows (used in) investing activities
              
              
              (8,654,722
              )
              
              (1,454,531
              )**Cash
                  flows from financing activities**Dividend
                  paid
              
              
              (202,069
              )
              
              (1,501,167
              )Proceeds
                  from new bank loans
              
              
              618,240
              
              
              3,475,726Proceeds
                  from other loans
              
              
              128,600
              
              
              1,286,000Repayment
                  of non-recurring bank loans
              
              
              (3,705,482
              )
              
              (2,939,563
              )Net
                  advancement of other bank borrowings
              
              
              1,766,999
              
              
              623,956Repayment
                  of other loans
              
              
              (674,436
              )
              
              (111,770
              )Increase
                  in restricted cash
              
              
              (289,930
              )
              
              (129,097
              )(Decrease)
                  increase in bank overdrafts
              
              
              (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
              
              
              (52,569
              )
              
              (1,693,041
              )Net
                  cash flows provided by (used in) financing activities
              
              
              4,027,732
              
              
              (756,134
              )Effect
                  of foreign currency translation on cash and cash
                  equivalents
              
              
              (517
              )
              
              479Net
                  increase in cash and cash equivalents
              
              
              51,890
              
              
              59,142Cash
                  and cash equivalents, beginning of period
              
              
              154,368
              
              
              95,226Cash
                  and cash equivalents, end of period
              
              
              206,258
              
              $
              154,368










See
      the
      accompanying notes to consolidated financial statements





F-6





**INFOSMART
      GROUP INC.**


**(FORMERLY
      CYBER MERCHANTS EXCHANGE INC.)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (CONT’D)**


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


**(Stated
      in US Dollars)**





***Year
                ended December 31******2006***
            
            ***2005***Supplemental
                disclosures for cash flow information:Cash
                paid for:Interest
            
            $
            511,309
            
            $
            454,901Income
                taxes
            
            
            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 A shares to common stock
            
            
            -
            
            
            -Conversion
                of Series B shares to common stock
            
            
            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-7





**INFOSMART
      GROUP INC.**


**(FORMERLY
      CYBER MERCHANTS EXCHANGE INC.)**


**CONSOLIDATED
      STATEMENTS OF** **STOCKHOLDERS’
      EQUITY**


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





**(Stated
                in US Dollars)**
            
            
            
            
            
            
            
            
            
            
            
            **Accumulated****Series
                A Preferred**
            
            **Additional**
            
            **other****Common
                stock**
            
            **stock**
            
            **Paid-in**
            
            **comprehensive**
            
            **Retained****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **capital**
            
            **Income****/(loss)**
            
            **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 translation adjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            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 22
            
            
            -
            
            
            999
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **999**Issuance
                of Series A shares - note 22
            
            
            -
            
            
            -
            
            
            944,445
            
            
            -
            
            
            (21,336
            )
            
            -
            
            
            -
            
            
            **(21,336**
            **)**Issuance
                of common stock-
                notes 8 and 22
            
            
            3,309,770
            
            
            747,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **747,000**Issuance
                of Series A shares - notes 8 and 22
            
            
            -
            
            
            -
            
            
            55,555
            
            
            -
            
            
            1,431,993
            
            
            -
            
            
            -
            
            
            **1,431,993**Conversion
                of Series A shares - note22
            
            
            116,721,360
            
            
            -
            
            
            (1,000,000
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **-**Issuance
                of Series B shares withdetachable
                Warrants - note 22
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,443,330
            
            
            -
            
            
            -
            
            
            **5,443,330**Series
                B preferred deemed-
                dividend - note 22
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,297,157
            )
            
            **(2,297,157**
            **)**Conversion
                of Series B shares - note 22
            
            
            4,851,256
            
            
            512,101
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **512,101**Exercise
                of warrants - note22
            
            
            800,000
            
            
            260,800
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            **260,800**Issuance
                of Placement AgentWarrants
                - note 22
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            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**





See
      notes
      to consolidated financial statements








F-8


**INFOSMART
        GROUP** **INC.**
 **(FORMERLY
        CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
        in US Dollars)**


**1.**
            **Change
                of company name and financial year
                date**





Effect
      from October 12, 2006, the company changed its name from Cyber Merchants
      Exchange Inc. to Infosmart Group Inc. (the “Company”).





On
      August
      16, 2006, the Company’s Board of Directors approved a change of fiscal year end
      date from May 31 to December 31, with all the required filings submitted to
      the
      United States Securities and Exchange Commission.





**2.**
            **Corporation
                information****and
                reorganization**





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.





Recapitalization





The
      Company entered into an Exchange Agreement dated July 7, 2006 and amended on
      August 14, 2006 (the “Exchange Agreement”) with KI Equity Partners II, LLC (“KI
      Equity”), Infosmart Group Limited (“Infosmart”), the owners of 100% of the
      capital shares of Infosmart, namely Chung Kwok, Po Nei Sze (“Ms. Sze”), Prime
      Corporate Developments Limited (“Prime Corporate”) (collectively the “Original
      Infosmart Shareholders”) and Hamptons Investment Group Limited (“HIG”)
      (collectively the “Infosmart Shareholders”), and Worldwide Gateway Co., Ltd. The
      closing of the Exchange Agreement occurred on August 16, 2006.





At
      the
      closing of the Exchange Agreement, the Company acquired all of Infosmart’s
      capital shares (the “Infosmart Shares”) from the Infosmart Shareholders, and the
      Infosmart Shareholders transferred and contributed all of their Infosmart Shares
      to the Company. In exchange, the Company issued 1,000,000 shares of its Series
      A
      Convertible Preferred Stock (note 22) to the Infosmart Shareholders. Each share
      of the Company’s Series A Convertible Preferred Stock (“Series A Preferred
      Stock”) is convertible into 116.72136 shares of the Company's common stock,
      subject to adjustments. On October 12, 2006, the Series A Preferred Stock
      automatically converted into shares of the Company's common stock upon the
      filing and acceptance of a Certificate of Amendment to the Company’s Articles of
      Incorporation with the Secretary of State of the State of California pursuant
      to
      the approval by a majority of the Company's stockholders (voting together on
      an
      as-converted-to-common-stock basis), following the closing of the Exchange
      Agreement, an increase in the number of authorized shares of the Company's
      common stock from 40,000,000 shares to 300,000,000 shares and a change of the
      Company's corporate name to Infosmart Group Inc..





As
      a
      result of the closing of the Exchange Agreement, Infosmart became the wholly
      owned subsidiary of the Company and became the Company’s main operational
      business. The Exchange transaction, for accounting and financial reporting
      purposes, is deemed to be a reverse takeover transaction (“RTO”).





The
      RTO
      has been accounted for as a recapitalization of the Company whereby the
      historical financial statements and operations of Infosmart become the
      historical financial statements of the Company, with no adjustment to the
      carrying value of the assets and liabilities. The 944,444.45 shares of the
      Company’s Series A Preferred Stock (which is convertible into 110,236,841 common
      stocks) outstanding prior to the RTO are accounted for at $(21,336) of net
      book
      value of deficit at the time of the RTO (note 6). The accompanying consolidated
      financial statements reflect the recapitalization of the stockholders’ equity as
      if the transaction occurred as of the beginning of the first period
      presented.





F-9
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**2.**
            **Corporation
                information and reorganization
                (cont’d)**





Restructuring





For
      the
      purpose of RTO, the companies comprising Infosmart group underwent the
      restructuring on October 20, 2005 (the “Re-structuring”). Infosmart acquired all
      of the outstanding and issued shares of common stock of its subsidiaries
      (including Info Smart Technology Limited (“ISTL”), Info Smart International
      Enterprises Limited (“ISIEL”) and Infoscience Media Limited (“IML”)) from their
      then existing stockholders (the “Former Infosmart Stockholders”) in
      consideration for the issuance of 1 share of $1 each of the Company’s voting
      common stock, representing 100% of the voting power in Infosmart, at the
      direction of the Former Infosmart Stockholders, to Prime Fortune Enterprises
      Limited (“Prime”).





Prime’s
      issued and outstanding ordinary shares were owned as follows: 713 shares held
      by
      Prime Corporate, 212 shares held by Chung Kwok, and 75 shares held by Sau Wan
      Lui. On August 11, 2006, at the request of the new investors of Series B
      Redeemable Convertible Preferred Stock and in connection with the RTO, Prime’s
      Board of Directors approved resolutions for Prime to transfer the one (1) issued
      and outstanding ordinary share of Infosmart owned by Prime to Prime shareholder,
      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 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’s Board
      approved resolutions for the issuance of 999 new shares in Infosmart to Prime
      Corporate, Chung Kwok and Sau Wan Lui, as follows: 713 shares to Prime
      Corporate, 211 shares to Chung Kwok, and 75 shares to Sau Wan Lui, in exchange
      for a cash payment by Prime Corporate, Chung Kwok and Sau Wan Lui of $1.00
      per
      Infosmart share that each receives (the “Infosmart Share Issuance”) or an
      aggregate total payment of $999 for such shares, and that on August 11, 2006,
      the Company issued the 999 Infosmart shares, in amounts as described above,
      to
      Prime Corporate, Chung Kwok and Sau Wan Lui and, in exchange, received the
      $999
      cash payment, pursuant to such resolutions.





**3.**
            **Description
                of business**





The
      Company, through its wholly owned subsidiary, Infosmart, is engaged in the
      business of developing, manufacturing, marketing and sales of recordable digital
      versatile disc (“DVDR”), an optical digital disc used for storing data and
      interactive sequences as well as audio and video files, under the two
      cooperation agreements as detailed below. Due to customers demand, in the third
      quarter of 2006, the Company also commenced the manufacture of recordable
      compact discs (“CDR”).





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





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





F-10
 **INFOSMART
              GROUP** **INC.**
 **(FORMERLY
              CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
              in US Dollars)**





**3.**
            **Description
                of business****(cont’d)**





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. The Company was constructing a
      DVDR
      production facility in Brazil. The Company relocated some of its DVDR
      manufacturing equipment from Hong Kong to Brazil. The subsidiary had obtained
      all required government licenses and all other documents and approvals necessary
      to operate a DVDR production facility in Brazil. Production in Brazil is
      expected to start in April 2007.





In
      order
      to produce DVDR Discs ("the Products"), the manufacturers need to obtain two
      licenses:





(1) license
      agreement granted from DVDR developer (intellectual property owner) to produce
      the Products (the “License Agreement”); and





(2)
            The
                license for the manufacture of optical discs issued by the Customs
                and
                Excise Department of Hong Kong (the "Manufacturing
                License").





The
      applications for the License Agreement and the Manufacturing License are
      relatively complex and time-consuming. In order to obtain the Manufacturing
      License, the Company has to submit an application form with all necessary
      supporting documents to the Optical Disc License Division of the Customs and
      Excise Department, the production has to be halted for about a month for the
      Customs and Excise Department to arrange an appointment for the inspection
      of
      manufacturing premises and the Company will be informed of the result within
      14
      working days. The license is valid on the date of payment for a period of 3
      years.





Due
      to
      historical association with Mega Century Limited (“Mega Century”), a company
      formerly controlled by Ms. Sze and her family members up till February 7,2005
      when the entire equity interest of Mega Century owned by them was transferred
      to
      an independent third party, the Company has entered into cooperation agreements
      with Mega Century and a third party respectively for the production of the
      Products instead of halting production for a month during the application period
      for the licenses. With the relocation of certain production lines from Hong
      Kong
      to Brazil and the relocation of Hong Kong production facility from Chai Wan
      to Tsuen Wan in 2006, there will be a month's period for the Customs and Excise
      Department to inspect the new production facility in Tsuen Wan.





During
      the years, the Company operated under two cooperation agreements. The first
      corporation agreement (“Agreement 1”) was entered into on December 1, 2002
      between ISTL and Mega Century. The second cooperation agreement (“Agreement 2”)
      was entered into between IML and an independent third party, Infoscience
      Holdings Limited (“IHL”) on December 1, 2004. IHL became the wholly-owned
      subsidiary of the Company with effect from December 1, 2006 (note
      7).





Agreement
      1





Mega
      Century is engaged in the business of producing the Products. Mega Century
      has
      been granted the License Agreement by DVDR developer to use certain intellectual
      properties owned by DVDR developer in order to produce the Products. Mega
      Century is also the holder of the Manufacturing License for the manufacture
      of
      optical Disc/Stampers issued by the Customs and Excise Department of Hong Kong.
      Pursuant to the Agreement 1, during the period from December 1, 2002 to December
      31, 2005 (“First Cooperation Period”), Mega Century agrees to share technical
      know-how with ISTL and ISTL agrees to provide the production facilities, human
      and other resources (“Combined Facilities”) to produce the
      Products.





F-11
 **INFOSMART
              GROUP** **INC.**
 **(FORMERLY
              CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
              in US Dollars)**





**3.**
            **Description
                of business****(cont’d)**





In
      accordance with Agreement 1, ISTL is required to purchase from Mega Century
      at
      least $1,200,000 worth of Products, cumulatively (the “Minimum Sales”) during
      the First Cooperation Period. In respect of the Minimum Sales, Mega Century
      would purchase the necessary raw materials from ISTL at cost (“Production Cost”)
      incurred by ISTL and Mega Century shall use the Combined Facilities to
      manufacture the Products and sell to ISTL at the market price for the Products
      at the time of sale.




For
      Products manufactured at the Combined Facilities, Mega Century is responsible
      for paying all the relevant licensee fees and ISTL is responsible for all the
      recurrent costs and expenses incurred.





Agreement
      1 further provides that the legal title and full beneficial ownership of the
      first 6,500,000 units of the Products (the “Minimum Quantity”) produced at the
      Combined Facilities within each whole month during the First Cooperation Period
      shall belong to ISTL and in this connection ISTL shall have the right to sell
      the Minimum Quantity to the third party buyers and/or to Mega
      Century.





For
      all
      Products manufactured in excess of the Minimum Quantity, the direct production
      cost is wholly borne by ISTL and the gross profit is shared between Mega Century
      and ISTL in the proportion of 30% and 70% respectively.





On
      January 1, 2004, Mega Century, ISTL and ISIEL entered into an agreement amending
      Agreement 1 whereby ISIEL agreed to be an additional party to Agreement 1 and
      to
      undertake ISTL’s rights and obligations with ISTL jointly and
      severally.





During
      2006 and 2005, the production volume at the Combined Facilities was within
      the
      Minimum Quantity under Agreement 1. As a result, the Products wholly belonged
      to
      the Company in accordance to Agreement 1. Related party sales and purchases
      are
      detailed in note 24.





Up
      to
      December 31, 2004, the Company fulfilled the Minimum Sales as required by
      Agreement 1 and, as a result, there was no purchase commitments regarding such
      Minimum Sales requirement.





An
      extension agreement was signed on January 1, 2006 for the extension of the
      First
      Cooperation Period to December 31, 2006 with a renewal option.





The
      renewal option for Agreement 1 has not been exercised due to the suspension
      of
      production by ISTL and ISIEL during the year. The suspension of production
      was
      mainly due to the relocation of certain production lines of ISTL and ISIEL
      to
      Brazil and the remaining productions lines being transferred to IML to support
      the production by IML.




Agreement
      2





With
      respect to Agreement 2, IHL also obtained the relevant License Agreement and
      Manufacturing License, whereby each of IHL and IML agrees that during the period
      from December 1, 2004 to December 31, 2005 (the “Second Cooperation Period”) to
      combine operationally their production facilities and resources to produce
      the
      Products similar to the arrangement set forth in Agreement 1.





For
      the
      Products manufactured at the combined facilities, IHL is responsible for paying
      all the relevant licensee fees and IML is responsible for all the recurrent
      costs and expenses incurred.





F-12
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**3.**
            **Description
                of business (cont’d)**





Agreement
      2 provides that the legal title and full beneficial ownership of the first
      5,000,000 units of the Products (the “Second Minimum Quantity”) produced by the
      combined production facilities within each whole month during the Second
      Cooperation Period shall belong to IML and in this connection IML shall have
      the
      right to sell the Second Minimum Quantity to third party buyers and/or to IHL.
      For those quantities in excess of the Second Minimum Quantity, they shall belong
      to IHL.





An
      agreement was signed on December 1, 2005 to extend the Second Cooperation Period
      to December 31, 2006 with a renewal option. An extension agreement was signed
      on
      November 29, 2006 to further extend the Second Cooperation Period until December
      31, 2008 under the same terms and conditions of the extension agreement signed
      on December 1, 2005.





**4.**
            **Continuance
                of operations**





These
      financial statements have been prepared on a going concern basis. Due to the
      fact that the Company is engaged in a capital intensive industry, the Company’s
      working capital (deficit) as of December 31, 2006 was $(8,560,763). Its ability
      to continue as a going concern is dependent upon the ability of the Company
      to
      meet its obligations and repay its liabilities arising from normal business
      operations when they come due. The Company plans to satisfy its capital needs
      through revenue generated from its business and financing transactions through
      the sale of equity and/or debt securities.





Management’s
      plans for the continuation of the Company as a going concern include financing
      the Company’s operations through debt financing from the banks, trade creditors
      and investors with extended credit terms. Further, one of the stockholders
      of
      the Company has undertaken to financially support the Company in the course
      of
      its operation as necessary. In 2007, the Company commenced trial operations
      in
      Brazil and the management of the Company believes that the resulting new markets
      will generate significant opportunities in South America with growth in both
      revenues and profits and will enhance the cash flow position of the
      Company.





**5.**
            **Summary
                of significant accounting
                policies**





*Basis
      of presentation and consolidation*





On
      August
      16, 2006, the RTO were completed. Accordingly, accounting for recapitalization
      is adopted for the preparation of consolidated financial statements. This means
      that the consolidated financial statements are issued under the name of the
      legal parent, the Company, but a continuation of consolidated financial
      statements of Infosmart.





The
      comparative figures represent the financial position of Infosmart and the
      results of their operations and their cash flows.





On
      October 20, 2005, the Restructuring was completed and accordingly, accounting
      for recapitalization is adopted for the preparation of the comparative figures
      of the consolidated financial statements. It means that the consolidated
      financial statements for the year ended December 31, 2005 are issued under
      the
      name of the legal parent, Infosmart, but includes the combined financial
      statements of ISTL and ISIEL.





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





F-13
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**








**5.**
            **Summary
                of significant accounting policies****(cont’d)**





The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries. The subsidiaries included in the consolidated financial statements
      are Infosmart, ISIEL, ISTL, IML, IHL and Discobrás. All
      significant inter-company accounts and 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. As of December 31, 2006,
      neither one of the two independent third parties satisfied their required
      capital contribution by any means. As a result, no 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 IHL (note 7).





F-14
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**5.**
            **Summary
                of significant accounting policies
                (cont’d)**





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





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





Trade
                receivables
            
            ***As
                of December 31******2006***
            
            ***2005***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 $45,463 and $101,590 during 2006 and 2005 respectively
      and
      are included in selling and distributing costs.





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








F-15
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**5.**
            **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 is Hong Kong dollars (“HK$”). 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, 2006 and 2005 were HK$1 for $0.1286
      and
      $0.1290 respectively. The average exchange rates for 2006 and 2005 were HK$1
      for
      $ 0.1287 and $0.1286 respectively. There is no significant fluctuation in
      exchange rate for the conversion of HK$ to US dollars after the balance sheet
      date.





F-16
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**5.**
            **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 currency of the
      Company is HK$, 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 2005 represents the number
      of
      common stock equivalent of Series A Convertible Preferred Stock
      (110,236,841)(note 2) 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, 2006 include the
      following:





Convertible
                redeemable preferred stock Series B
            
            
            24,459,088Detachable
                common stock warrants
            
            
            28,510,345Placement
                agent warrants
            
            
            2,931,03555,900,468





F-17
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**5.**
            **Summary
                of significant accounting policies
                (cont’d)**





*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.





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





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





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.





F-18
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**5.**
            **Summary
                of significant accounting policies
                (cont’d)**





*Impairment
      of long-live assets*





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





*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 17), the Company
      does not have any off-balance sheet arrangements.





*Recent
      accounting pronouncements*





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





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





F-19
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**5.**
            **Summary
                of significant accounting policies
                (cont’d)**





*Recent
      accounting pronouncements (cont’d)*





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





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





In
      September 2006, the SEC issued SAB No. 108, which provides guidance on the
      process of quantifying financial statement misstatements. In SAB No. 108, the
      SEC staff establishes an approach that requires quantification of financial
      statement errors, under both the iron-curtain and the roll-over methods, based
      on the effects of the error on each of the Company’s financial statements and
      the related financial statement disclosures. SAB No. 108 is generally effective
      for annual financial statements in the first fiscal year ending after November
      15, 2006. The transition provisions of SAB No. 108 permits existing public
      companies to record the cumulative effect in the first year ending after
      November 15, 2006 by recording correcting adjustments to the carrying values
      of
      assets and liabilities as of the beginning of that year with the offsetting
      adjustment recorded to the opening balance of retained earnings. The Company
      is
      currently evaluating the effect, if any, of SAB No. 108 on its financial
      statements.





**6.**
            **Reverse
                acquisition**





Pursuant
      to the Exchange Agreement as detailed in note 2, the Company acquired 100%
      ownership interest in Infosmart, in consideration for the issuance by the
      Company of 1,000,000 shares of its Series A Convertible Preferred Stock to
      the
      Infosmart Shareholders. The acquisition of Infosmart has been accounted for
      using the recapitalization accounting treatment which is equivalent to reverse
      takeover accounting basis with Infosmart being the accounting parent and the
      Company being the accounting subsidiary. The net deficits of the Company at
      the
      completion date on August 16, 2006 are as follows :-





(Unaudited)Current
                assetsCash
                and cash equivalents
            
            $
            28,664Current
                liabilitiesOther
                payables and accrued liabilities
            
            
            (50,000
            )Net
                deficits acquired
            
            $
            (21,336
            )








F-20
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**








**7.**  **Acquisition
      of business**





*Acquisition
      of Interest in IHL*





Pursuant
      to a Sale and Purchase Agreement dated December 1, 2006, the Company acquired
      100% of the equity interest in IHL on November 30, 2006 at a consideration
      of
      $0.1286 (approximately HK$1) in cash. The purchase price has been allocated
      based on the estimated fair values of the assets acquired and liabilities
      assumed as of the date of acquisition. The following represents the allocation
      of the purchase price on November 30, 2006:





Net
                assetsat
                date of
            
            Fair
                value
            
            Estimatedacquisition
            
            adjustments
            
            fair
                valueCash
                and cash equivalents
            
            $
            2,945
            
            $
            -
            
            $
            2,945Trade
                receivables
            
            
            48,920
            
            
            -
            
            
            48,920Prepaid
                expenses and other receivables
            
            
            63,427
            
            
            -
            
            
            63,427Due
                from ISTL
            
            
            4,506,524
            
            
            -
            
            
            4,506,524Property,
                plant and equipment, net
            
            
            723,605
            
            
            -
            
            
            723,605Intangible
                assets - License usage rights
            
            
            -
            
            
            2,092,809
            
            
            2,092,809Deferred
                tax assets
            
            
            -
            
            
            479,511
            
            
            479,511Trade
                payables
            
            
            (9,722
            )
            
            -
            
            
            (9,722
            )Other
                payables and accrued liabilities
            
            
            (4,381,005
            )
            
            -
            
            
            (4,381,005
            )Secured
                bank loans
            
            
            (3,527,014
            )
            
            -
            
            
            (3,527,014
            )$
            (2,572,320
            )
            $
            2,572,320
            
            $
            -Cash
                consideration
            
            
            
            
            
            
            
            $
            0





IHL
      holds
      the relevant License Agreement and Manufacturing License in order to produce
      the
      Products (see note 3). Through the acquisition of the equity interest in IHL,
      the Company secured the renewal of the cooperation agreement with IHL and
      obtained the right to use the relevant License Agreement and Manufacturing
      License. The license usage rights will be amortized on a straight line basis
      starting from January 1, 2007 over the remaining term of the
      license.





F-21
 **INFOSMART
              GROUP** **INC.**
 **(FORMERLY
              CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
              in US Dollars)**





**8.**
            **Professional
                expenses related to Restructuring and Share
                Exchange**




***Year
                ended December 31******2006***
            
            ***2005***Issuance
                of shares of Infosmart’scommon
                stock to HIG (Note 8(a))
            
            $
            1,431,993
            
            $
            -Reverse
                Merger fees (Note8(b))
            
            
            450,000
            
            
            -Issuance
                of the Company’s common stock toprofessional
                parties (Note 8(c))
            
            
            747,000
            
            
            -Others
            
            
            124,397
            
            
            320,892$
            2,753,390
            
            $
            320,892





Notes:





8(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.


8(b).
            Keating
                Securities, LLC. was paid an advisory fee of
                $450,000.


8(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.


8(d).
            The
                above professional expenses relate to the Restructuring and Share
                Exchange
                which occurred during the year and are
                non-recurring.





**9.**
            **Reversal
                of commission payable**





In
      2005,
      a major customer of the Company granted full forbearance for commission payable
      by the Company for the previous period.





**10.**
            **Other
                income**





***Year
                ended December 31******2006***
            
            ***2005***Interest
                income
            
            $
            23,821
            
            $
            7,307Scrap
                sales
            
            
            322,006
            
            
            211,754Other
                income
            
            
            104,158
            
            
            83,842$
            449,985
            
            $
            302,903








F-22
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**








**11.**
            **Income
                taxes**




The
      components of the income before income taxes are :-





***Year
                ended December 31******2006***
            
            ***2005***Hong
                Kong
            
            $
            5,247,207
            
            $
            5,172,783The
                British Virgin Islands
            
            
            (1,720,880
            )
            
            -The
                United States
            
            
            (1,506,191
            )
            
            -$
            2,020,136
            
            $
            5,172,783




The
      components of the provision for income taxes are :-





***Year
                ended December 31******2006***
            
            ***2005***Current
                taxesHong
                Kong
            
            $
            377,825
            
            $
            -Deferred
                taxesHong
                Kong
            
            
            577,767
            
            
            958,022$
            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, 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
      effective income tax expenses differs from the statutory rate of 34% in the
      United States as follows:





***Year
                ended December 31******2006***
            
            ***2005***Provision
                for income tax at34%
            
            $
            686,846
            
            $
            1,758,746Foreign
                tax rate differential
            
            
            (280,690
            )
            
            (853,509
            )Increase
                in valuation
                allowance
            
            
            512,105
            
            
            -Others
            
            
            37,331
            
            
            52,785Effective
                income tax expenses
            
            $
            955,592
            
            $
            958,022





F-23
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**11.**
            **Income
                taxes (cont’d)**





Deferred
      tax (assets) liabilities as of December 31, 2006 and 2005 are composed of the
      following:





***As
                of December 31******2006***
            
            ***2005***Hong
                KongOperating
                losses available for future periods
            
            $
            (475,704
            )
            $
            (573,653
            )Temporary
                difference on accelerated taxdepreciation
                on plant and equipment
            
            
            3,017,241
            
            
            3,024,983The
                United StatesOperating
                losses available for future periods
            
            
            (512,105
            )
            
            -Valuation
                allowance
            
            
            512,105
            
            
            -Deferred
                tax liabilities, net
            
            $
            2,541,537
            
            $
            2,451,330Recognized
                in the balance sheet:Net
                deferred tax assets
            
            $
            (459,823
            )
            $
            (45,724
            )Net
                deferred tax liabilities
            
            
            3,001,360
            
            
            2,497,054$
            2,541,537
            
            $
            2,451,330





The
      Company has a federal net operating loss carry forward of $1,506,191 available
      to offset taxable income through to the year 2026. The Company recorded a
      deferred income tax asset for the tax effect of net operating loss carryforwards
      aggregating $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, 2006, the effect of such
      limitation, if imposed, has not been determined. The federal net operating
      loss
      carry forward of $121,336 up to the date of RTO was expired due to the
      cumulative ownership change of more than 50 percent over a three-year
      period.





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





F-24
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**








**12.**
            **Earnings
                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)(note 2) 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, 2006 include the
      following:





Convertible
                redeemable preferred stock Series B
            
            
            24,459,088Detachable
                common stock warrants
            
            
            28,510,345Placement
                agent warrants
            
            
            2,931,03555,900,468





The
      Company stock equivalents on issue during the period were non-dilutive and
      accordingly, the basic and diluted earnings per share are the same.





**13.**
            **Prepaid
                expenses and other
                receivables**





***As
                of December 31******2006***
            
            ***2005***Prepaid
                professionalexpenses
                related to Restructuring andShare
                Exchange
            
            $
            -
            
            $
            28,896Other
                prepaid operating expenses
            
            
            41,409
            
            
            -Rental
                and utility deposits
            
            
            96,260
            
            
            49,014Advance
                to Mega Century
            
            
            -
            
            
            24,882Advances
                to IHL
            
            
            -
            
            
            1,227,738Other
                receivables for advancement
            
            
            131,808
            
            
            147,813$
            269,477
            
            $
            1,478,343





As
      of
      December 31, 2005, the advances to IHL and Mega Century were interest-free,
      unsecured and had no fixed terms of repayment.





**14.**
            **Inventories**





***As
                  of December 31******2006***
              
              ***2005***Raw
                  materials
              
              $
              205,481
              
              $
              272,124Finished
                  goods
              
              
              852,558
              
              
              1,155,666$
              1,058,039
              
              $
              1,427,790





F-25
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**








**15.**
            **Plant
                and equipment**




***As
                    of December 31******2006***
                
                ***2005***CostsProduction
                    lines and equipment
                
                $
                36,689,884
                
                $
                21,895,934Leasehold
                    improvements
                
                
                1,144,540
                
                
                954,794Furniture,
                    fixtures and office equipment
                
                
                70,247
                
                
                116,078Motor
                    vehicles
                
                
                54,753
                
                
                54,92437,959,424
                
                
                23,021,730Accumulated
                    depreciationProduction
                    lines and equipment
                
                
                6,151,290
                
                
                4,299,143Leasehold
                    improvements
                
                
                637,856
                
                
                363,144Furniture,
                    fixtures and office equipment
                
                
                32,020
                
                
                42,382Motor
                    vehicles
                
                
                29,202
                
                
                18,3086,850,368
                
                
                4,722,977NetProduction
                    lines and equipment
                
                
                30,538,594
                
                
                17,596,791Leasehold
                    improvements
                
                
                506,684
                
                
                591,650Furniture,
                    fixtures and office equipment
                
                
                38,227
                
                
                73,696Motor
                    vehicles
                
                
                25,551
                
                
                36,61631,109,056
                
                
                18,298,753Construction
                    in progress,
                    at cost
                
                
                2,802,484
                
                
                -Plant
                    and equipment, net
                
                
                33,911,540
                
                $
                18,298,753





An
      analysis of production lines and equipment acquired under capital leases and
      pledged to banks for banking facilities (note 17(a)) granted to the Company
      is
      as follows:





***Acquired
                  under***
                ***capital
                  leases***
              
              ***Pledged
                  for***
                ***banking
                  facilities******As
                  of December 31***
              
              ***As
                  of December 31******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005***Costs
              
              $
              -
              
              $
              1,677,000
              
              $
              8,333,280
              
              $
              4,192,500Accumulated
                  depreciation
              
              
              -
              
              
              (289,283
              )
              
              (133,230
              )
              
              (723,206
              )Net
              
              $
              -
              
              $
              1,387,717
              
              $
              8,200,050
              
              $
              3,469,294
 
 ***Acquired
                  under***
                ***capital
                  leases***
              
              ***Pledged
                  for***
                ***banking
                  facilities******As
                  of December 31***
              
              ***As
                  of December 31******2006***
              
              ***2005***
              
              ***2006***
              
              ***2005***Depreciation
                  for the year
              
              $
              -
              
              $
              117,390
              
              $
              133,230
              
              $
              292,565





F-26
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**15.**
            **Plant
                and equipment (cont’d)**





The
      components of depreciation charged are:





***Year
                ended December 31******2006***
            
            ***2005***Included
                in factory overheadsProduction
                lines and equipment
            
            $
            1,596,636
            
            $
            1,481,163Included
                in operating expensesLeasehold
                improvements
            
            
            191,634
            
            
            181,721Furniture,
                fixtures and office equipment
            
            
            21,300
            
            
            21,862Motor
                vehicles
            
            
            10,959
            
            
            10,951223,893
            
            
            214,534$
            1,820,529
            
            $
            1,695,697





During
      the year ended December 31, 2006, plant and equipment with a
      cost of
      $767,535 were disposed of at no consideration resulting in losses of $381,498.
      There was no disposal for the year ended December 31, 2005.




**16.**
            **Other
                payables and accrued
                liabilities**




***As
                of December 31******2006***
            
            ***2005***Customers
                deposits
            
            $
            117,306
            
            $
            201,655Accrued
                professional fee
            
            
            264,327
            
            
            317,340Staff
                costs payable
            
            
            210,920
            
            
            173,047Other
                loan interest payable
            
            
            127,632
            
            
            66,132Due
                tothe
                ex-shareholder of IHL
            
            
            4,277,656
            
            
            -Due
                to a related company, Eternal Scene
            
            
            514,401
            
            
            -Payables
                for acquisition costs of plant and equipment
            
            
            2,871,667
            
            
            -Other
                accrued expenses for operations
            
            
            372,766
            
            
            344,779$
            8,756,675
            
            $
            1,102,953





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-27
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**








**17.**
            **Bank
                borrowings**




***As
                of December 31******2006***
            
            ***2005***Secured:Bank
                overdrafts repayable on demand
            
            $
            -
            
            $
            256,140Repayable
                within one yearNon-recurring
                bank loans
            
            
            1,738,029
            
            
            794,066Other
                bank borrowings
            
            
            1,765,625
            
            
            1,747,8473,503,654
            
            
            2,798,053Repayable
                after one yearNon-recurring
                bank loans
            
            
            2,893,927
            
            
            -6,397,581
            
            
            2,798,053Unsecured:Bank
                overdrafts repayable on demand
            
            
            -
            
            
            2,883Repayable
                within one yearOther
                bank borrowings
            
            
            -
            
            
            1,660,904-
            
            
            1,663,787$
            6,397,581
            
            $
            4,461,840





As
      of
      December 31, 2006, the Company’s banking facilities are composed of the
      following:




**Amount****Facilities
                granted**
            
            **Granted**
            
            **Utilized**
            
            **Unused**Letter
                of credit including:-
                Outstanding letter of credit
            
            
            
            $578,495-
                Letter of credit under trust receipt
            
            
            
            1,187,130$
            3,086,400
            
            
            1,765,625
            
            $
            1,320,775Bank
                overdrafts
            
            
            514,400
            
            
            -
            
            
            514,400Non-recurring
                bank loans
            
            
            4,631,956
            
            
            4,631,956
            
            
            -Invoice
                discounting
            
            
            1,543,200
            
            
            225,675
            
            
            1,317,525Bank
                guarantee for utility deposit
            
            
            297,066
            
            
            297,066
            
            
            -$
            10,073,022
            
            $
            6,920,322
            
            $
            3,152,700





As
      of
      December 31, 2006, the above banking borrowings were secured by the
      following:





(a)
            first
                fixed legal charge over 7 DVDR discs production lines with carrying
                amounts of $8,200,050 (note 15);





(b)
            charge
                over bank deposit of $271,079; and





(c)
            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 Hong Kong Prime Rate per
      annum. Interest rate of bank loan in IHL was at 1.25% over one month Hong Kong
      Interbank Offered Rate per annum.














F-28
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**




18.
            Obligations
                under capital leases




During
      the year ended December 31, 2005, the Company leased certain production lines
      and equipment (Note 15) under non-cancelable leases classified as capital
      leases. The leases were negotiated for terms ranging from 1 to 2 years. Interest
      rates were fixed at the contract date. All leases were on a fixed repayment
      basis. None of the leases included contingent rentals. The following is a
      schedule of future minimum lease payments for capital leases together with
      the
      present value of the net minimum lease payments :-





***As
                of December 31******2006***
            
            ***2005***Year
                ending December 312006
            
            $
            -
            
            $
            52,919Total
                minimum lease payments
            
            
            -
            
            
            52,919Total
                capital lease charges
            
            
            -
            
            
            (227
            )Present
                value of lease payments
            
            
            -
            
            
            52,692Current
                portion
            
            
            -
            
            
            (52,692
            )Non-current
                portion
            
            $
            -
            
            $
            -





**19.**
            **Other
                loans**





In
      2005,
      a new loan of $1,286,000 was arranged from an independent third party for
      working capital of the Company. The loan is bearing interest at Hong Kong Prime
      Rate per annum, unsecured and repayable by 24 monthly installments with the
      first installment due in January of 2007.





In
      connection with the acquisition of production lines and equipment with a cost
      of
      $2,560,898 in 2004, a debt financing was arranged with an independent third
      party. The loan bears interest of 5.6% per annum (subject to annual revision),
      is unsecured and is repayable by 60 monthly installments, with the first
      installment payment due in April of 2005.





For
      2006,
      the average effective annual interest borrowing rate was approximately of 5.7%
      (2005 : 5.7%).





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





***As
                of December 31,******200******6***
            
            ***2005***Year
                ending December 312006
            
            $
            -
            
            $
            1,996,6142007
            
            
            1,268,044
            
            
            505,0682008
            
            
            1,175,433
            
            
            534,0902009
            
            
            563,027
            
            
            564,7782010
            
            
            145,742
            
            
            146,195Total
            
            
            3,152,246
            
            
            3,746,745Current
                portion
            
            
            (1,268,044
            )
            
            (1,996,614
            )Non-current
                portion
            
            $
            1,884,202
            
            $
            1,750,131





F-29
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**20.**
              **Advance
                  from a related****party**





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





***As
                of December 31******2006***
            
            ***2005***Prime
                Corporate
            
            $
            927,991
            
            $
            2,217,054





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





**21.**
            **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 2007
      to
      2009,  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, 2006 are as follows :-





Year
                ending December 312007
            
            $
            165,0762008
            
            
            112,9812009
            
            
            83,5722010
            
            
            23,596





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





Capital
      commitments





On
      March
      26, 2006 the Company had entered into a contract with an engineer in Hong Kong
      to construct the factory in Brazil with contract sum of approximately
      $2,721,000. As of December 31, 2006, approximately $419,000 of this balance
      remains outstanding.





Contingencies





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





The
      case
      of In Re: Factory 2-U Stores, Inc. (U.S. Bankruptcy Court, District of Delaware
      - Adv. Proc. No. 005-30480) remains outstanding.  On March 7, 2006, a
      complaint was filed against Cyber Merchants 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 seeks to recover from Cyber $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 has defended against the preference claim by asserting that
      such transfers were made in the ordinary course of business. This bankruptcy
      proceeding is currently scheduled for trial on May 17, 2007.  The Company
      plans to defend this claim vigorously. No provision has been made in respect
      of
      this claim.





**22.**
            **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*
            
            *C**apital*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, 2006for
                the exchange of:-
                1,000 shares of Infosmart’s common stockheld
                by Original Infosmart Shareholders
            
            
            -
            
            
            -
            
            
            944,445
            
            
            -
            
            
            -
            
            
            -
            
            
            (21,336
            )-
                58.82352 shares of Infosmart’s commonstock
                held by HIG
            
            
            -
            
            
            -
            
            
            55,555
            
            
            -
            
            
            -
            
            
            -
            
            
            1,431,993Issuance
                of common stock for the completionof
                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 detachablewarrants
                on August 16, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,092,857
            
            
            3,738,827
            
            
            5,443,330Issuance
                of Placement Agent warrantsonvarious
                dates
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (644,800
            )
            
            644,800Conversion
                of Series A to common stockon
                October 12, 2006
            
            
            116,721,360
            
            
            -
            
            
            (1,000,000
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Conversion
                of Series B to common stockonvarious
                dates
            
            
            4,851,256
            
            
            512,101
            
            
            -
            
            
            -
            
            
            (180,883
            )
            
            (512,101
            )
            
            -Issuanceof
                common stock for the exerciseof
                warrants
            
            
            800,000
            
            
            260,800
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2006
            
            
            135,801,426
            
            $
            1,520,901
            
            
            -
            
            $
            -
            
            
            911,974
            
            $
            2,581,926
            
            $
            8,118,664








F-30
 **INFOSMART
              GROUP** **INC.**
 **(FORMERLY
              CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
              in US Dollars)**








**22.**
            **Common
                Stock and Convertible Preferred Stock
                (cont’d)**





Common
      Stock





Following
      the closing of the Exchange Agreement, there was an increase in the number
      of
      authorized shares of the Company's common stock from 40,000,000 shares to
      300,000,000. 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”). Each Series A Preferred share would be
      convertible into 116.72136 shares of the Company’s common stock (the “Conversion
      Rate”). The Series A Preferred Shares were automatically converted into shares
      of the Company’s common stock (the “Mandatory Conversion”) at such time as the
      Company filed the amendment to its Articles of Incorporation with California’s
      Secretary of State (the “Amendment”) increasing the authorized number of shares
      of Common Stock from 40,000,000 to 300,000,000 so that the Company had a
      sufficient number of authorized and unissued shares of Common Stock so as to
      permit the conversion of all outstanding shares of the Series A Preferred Stock,
      and the Company changes its corporate name (collectively, the “Corporate
      Actions”).





The
      Corporate Actions were approved on September 5, 2006 by the Company’s Board of
      Directors and the holders of at least a majority of the Company’s outstanding
      capital stock. All the required filings were submitted to the United States
      Securities and Exchange Commission and the Amendment was filed and accepted
      by
      California’s Secretary of State on October 11, 2006.





Series
      B Preferred Stock and Warrants





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








F-31
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**22.**
            **Common
                Stock and Convertible Preferred Stock
                (cont’d)**





Series
      B Preferred Stock and Warrants (cont’d)





Immediately
      following the closing of the Exchange, the Company received gross proceeds
      of
      approximately $7.65 million in connection with the Financing from the Investors.
      Pursuant to Subscription Agreements entered into with these Investors, the
      Company sold 1,092,857.143 shares of the Company’s Series B Preferred Stock with
      detachable warrants at a price per share of $7.00. Each share of Series B
      Preferred Stock will be convertible into shares of the Company’s common stock.
      It will be convertible into shares of the Company’s common stock at the election
      of the holder at 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.





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
      issuable as if converted at the record date.





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





F-32
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**





**22.**
            **Common
                Stock and Convertible Preferred Stock
                (cont’d)**





Series
      B Preferred Stock and Warrants (cont’d)





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





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




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.








F-33
 **INFOSMART
            GROUP** **INC.**
 **(FORMERLY
            CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
            in US Dollars)**







**23.**
            **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 $77,885 and $66,107 for the years ended December 31,
      2006
      and 2005 respectively.





**24.**
            **Related
                party transactions**





Apart
      from the transactions disclosed elsewhere in the financial statements, the
      Company had the following material transactions with its related parties during
      the year ended December 31, 2005:





***Year
                ended December 31******2006***
            
            ***2005***Sales
                of raw materials to Mega Century at costs actualincurred
            
            $
            -
            
            $
            29,197Purchases
                of finished goods from Mega Century atmarket
                prices
            
            
            -
            
            
            24,677Factory
                rentals received from Mega Century at marketrentals
            
            
            -
            
            
            2,572





Note:
      Only the transactions with Mega Century up to February 7, 2005 are regarded
      as
      related party transactions as the management considers that Mega Century was
      no
      longer a related party following the transfer of entire interest in Mega Century
      by Ms. Sze and her family members (Note 3).








F-34
 **INFOSMART
              GROUP** **INC.**
 **(FORMERLY
              CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
              in US Dollars)**





**25.**
            **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:





***DVDR
                and Related Products***
            
            ***CDR***
            
            ***Total******Year
                ended December 31***
            
            ***Year
                ended December 31***
            
            ***Year
                ended December 31******2006***
            
            ***2005***
            
            ***2006***
            
            ***2005***
            
            ***2006***
            
            ***2005***Revenue
                from external customers
            
            $
            25,622,351
            
            $
            24,251,654
            
            $
            1,480,090
            
            $
            325,552
            
            $
            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
            
            
            520,827Depreciation
            
            
            1,721,108
            
            
            1,673,235
            
            
            99,421
            
            
            22,462
            
            
            1,820,529
            
            
            1,695,697Segment
                profit
            
            
            4,512,839
            
            
            5,420,905
            
            
            260,687
            
            
            72,770
            
            
            4,773,526
            
            
            5,493,675Segment
                assets
            
            
            42,584,004
            
            
            23,657,987
            
            
            2,137,501
            
            
            35,016
            
            
            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














F-35
 **INFOSMART
              GROUP** **INC.**
 **(FORMERLY
              CYBER MERCHANTS EXCHANGE INC.)**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Stated
              in US Dollars)**





**25.**
              **Segment
                  Information (Cont****’d)**





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




***Year
                ended December 31******2006***
            
            ***200******5***Total
                consolidated revenue
            
            $
            27,102,441
            
            $
            24,577,206Total
                profit for reportable segments
            
            $
            4,773,526
            
            $
            5,493,675Unallocated
                amounts relating to operations:Professional
                expenses related to RestructuringandShare
                Exchange
            
            
            (2,753,390
            )
            
            (320,892
            )Income
                before taxes
            
            $
            2,020,136
            
            $
            5,172,783




***As
                  of December 31******2006***
              
              ***2005***AssetsTotal
                  assets for reportable segments
              
              $
              44,721,505
              
              $
              23,693,003Advance
                  toIHL
              
              
              -
              
              
              1,227,738$
              44,721,505
              
              $
              24,920,741





Other
      than the production lines and equipment with carrying amount of $12,900,406
      (2005: $nil) and the construction in progress (note 15) 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:





***Year
                ended December 31******2006***
            
            ***2005***Australia
            
            $
            5,841,997
            
            $
            2,130,973Brazil
            
            
            6,870,908
            
            
            106,344Chile
            
            
            521,747
            
            
            206,672Czech
                Republic
            
            
            413,237
            
            
            -China
                and Hong Kong
            
            
            4,264,994
            
            
            2,970,216United
                Kingdom
            
            
            4,770,317
            
            
            18,553,687United
                States
            
            
            1,583,684
            
            
            17,588Singapore
            
            
            1,213,742
            
            
            -Thailand
            
            
            398,691
            
            
            120,198Other
                countries
            
            
            1,223,124
            
            
            471,528Total
            
            $
            27,102,441
            
            $
            24,577,206





**26.**
            **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-36