Infosmart 10Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2008

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

Commission File No. 001-15643

INFOSMART GROUP, INC.

(Exact name of registrant as specified in it charter)

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

5^th Floor, Texaco Building

126-140 Texaco Road,

Tsuen Wan, Hong Kong

(Address of principal executive offices)

(852) 2944-9905

(Registrant's telephone number, including area code)

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

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

Large Accelerated filer o	Non-Accelerated Filer o
Accelerated Filer o	Smaller Reporting Company x

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each issuer's classes of common stock, as of the latest practicable date: 161,560,520 issued and outstanding as of November 17, 2008.

INFOSMART GROUP, INC.

TABLE OF CONTENTS

TO QUARTERLY REPORT ON FORM 10-Q

FOR PERIOD ENDED SEPTEMBER 30, 2008

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4.	Controls and Procedures	9

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	10
Item 1A.	Risk Factors	11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
Signatures		23

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Infosmart Group, Inc.

Condensed Consolidated Financial Statements

For the nine months ended September 30, 2008 and 2007

(Stated in U.S. Dollars)

INDEX TO FINANCIAL STATEMENTS

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

F-1

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

	*Three months ended* *September 30,*						*Nine months ended* *September 30,*
	*2008*			*2007*			*2008*			*2007*

Net sales	$	8,548,142		$	25,615,603		$	22,877,226		$	52,922,049

Cost of sales		(4,437,490	)		(21,041,992	)		(15,961,181	)		(41,461,818	)

Gross profit		4,110,652			4,573,611			6,916,045			11,460,231

Administrative expenses		(2,166,313	)		(1,035,288	)		(4,450,718	)		(3,220,967	)

Selling and distributing costs		(102,817	)		(142,983	)		(278,519	)		(384,032	)

Income from operations		1,841,522			3,395,340			2,186,808			7,855,232

Other income		47,231			833,843			1,014,769			1,413,542

Interest expenses		(136,685	)		(144,480	)		(571,757	)		(478,920	)

Income before income taxes		1,752,068			4,084,703			2,629,820			8,789,854

Income taxes - note 4		(409,531	)		(606,662	)		(460,840	)		(1,109,839	)

Net income		1,342,537			3,478,041			2,168,980			7,680,015

Minority interest		(19,195	)		2,252			(34,979	)		7,276

Net income before dividend		1,323,342			3,480,293			2,134,001			7,687,291

Series B preferred dividend		(36,605	)		(114,045	)		(189,313	)		(364,168	)

Net income applicable to common shareholders		1,286,737			3,366,248			1,944,688			7,323,123

Earning per share - note 9

- basic	$	0.01		$	0.02		$	0.01		$	0.05

- dilutive	$	0.01		$	0.02		$	0.01		$	0.05

Weighted average shares outstanding

- basic		161,560,520			142,294,295			161,560,520			142,294,295

- dilutive		166,517,522			142,964,178			166,517,522			142,964,178

See the accompanying notes to condensed consolidated financial statements

F-2

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

(Unaudited)

(Stated in U.S. Dollars)

	*As of*
	*September 30,*		*December 31,*
	*2008*		*2007*
	*(Unaudited)*		*(Audited)*

ASSETS
Current assets
Cash and cash equivalents	$	850,232	$	1,023,440
Trade receivables		25,419,572		38,725,882
Prepaid expenses and other receivables		3,537,318		544,345
Prepaid tax		30,860		13,847
Inventories (net of allowance for doubtful accounts of $Nil for 2008 and 2007) - note 6		4,269,189		3,396,194

Total current assets		34,107,171		43,703,708
Deferred tax assets - note 4		-		-
Plant and equipment, net - note 7		27,964,467		31,093,668
Intangible assets		1,599,020		1,810,655

TOTAL ASSETS	$	63,670,658	$	76,608,031

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Current liabilities
Trade payables	$	9,267,947	$	25,809,022
Other payables and accrued liabilities		1,574,341		1,672,468
Income tax payable		-		696,946
Current portion of bank borrowings - note 8		6,696,249		6,762,553
Finance lease payable		14,256		34,570
Current portion of other loans		1,889,018		5,065,639

Total current liabilities		19,441,811		40,041,198
Non-current portion of bank borrowings - note 8		456,717		2,092,949
Non-current portion of other loans		8,516,789		717,423
Advance from a related party		929,751		929,634
Deferred tax liabilities - note 4		2,732,350		2,305,729

TOTAL LIABILITIES	$	32,077,418	$	46,086,933

F-3

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONT’D)

AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

(Stated in U.S. Dollars)

	As of
	*September 30,*		*December 31,*
	*2008*		*2007*
	*(Unaudited)*		*(Audited)*
COMMITMENTS AND CONTINGENCIES - note 10
Series B Redeemable Convertible Preferred Stock: No par value - note 11
Authorized 1,800,000 shares; Issued and outstanding:
2008 - Nil shares and 2007 - 597,011 shares	$	-	$	1,690,222
Minority interest		63,156		43,961

STOCKHOLDERS’ EQUITY
Common stock: No par value - note 11
Authorized: 300,000,000 shares; Issued and outstanding:
2008 - 161,560,520 shares and 2007 -144,248,708 shares		4,557,827		2,412,605
Additional paid-in-capital - note 11		8,118,664		8,118,664
Accumulated other comprehensive income		2,775,772		1,517,003
Retained earnings		16,077,821		16,738,643

TOTAL STOCKHOLDERS’ EQUITY		31,530,084		28,786,915

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	63,670,658	$	76,608,031

See the accompanying notes to condensed consolidated financial statements

F-4

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 and 2007

(Unaudited)

(Stated in U.S. Dollars)

	*Nine months ended September 30,*
	*2008*			*2007*

Cash flows from operating activities
Net income	$	2,168,980		$	7,680,0155,284
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation		3,254,739			2,079,711
Deferred income taxes		51,309			223,223
Amortization of license usage right		211,635			209,367
Loss on disposal of property, plant and equipment		-			119,898
Profit on disposal of property, plant and equipment		(38,132	)		-
Changes in operating assets and liabilities:
Trade receivables		13,306,310			(16,023,732	)
Prepaid expenses and other receivables		(2,992,973	)		(105,493	)
Inventories		(872,995	)		(301,404	)
Amount due from related party		-			(5,607	)
Trade payables		(16,541,075	)		7,335,580
Advance from a related party		-			615,440
Dividend payable		-			9,455
Other payables and accrued liabilities		98,127			(2,719,687	)

Net cash flows used in operating activities		(1,354,075	)		(883,234	)

Cash flows from investing activities
Payment for acquisition of fixed assets		(469,216	)		(1,288,719	)
Proceeds from disposal of plant and equipment		90,000			920,622

Net cash flows used in investing activities		(379,216	)		(368,097	)

Cash flows from financing activities
Dividend paid		(189,313	)		(364,168	)
New bank loans raised		353,844			2,568,430
Repayment of non-recurring bank loans		(2,068,750	)		(1,105,226	)
Issuance of common stock		455,000			-
Proceeds from other loans		3,564,062			57,769
Repayment of other loans		(363,367	)		-
Increase in restricted cash		-			360,686
Increase in bank overdrafts		157,424			-
Advance from a related party		-			5,101
New obligations under capital leases		-			17,488

Net cash flows provided by financing activities		1,908,900			1,540,080

Effect of foreign currency translation on cash and cash equivalents		(348,817	)		102,196

Net (decrease) / increase in cash and cash equivalents		(173,208	)		390,945

Cash and cash equivalents, beginning of period		1,023,440			206,258

Cash and cash equivalents, end of period	$	850,232		$	597,203

F-5

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 and 2007

(Unaudited)

(Stated in U.S. Dollars)

	*Nine months ended September 30,*
	*2008*		*2007*

Supplemental disclosures for cash flow information:
Cash paid for:
Interest	$	571,757	$	261,778
Income taxes		100,040		51,480

Non-cash investing and financing activities:
Conversion of Series B Shares to common stock	$	1,690,222	$	685,393

See the accompanying notes to condensed consolidated financial statements

F-6

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

1.	Basis of Presentation

The accompanying condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America for interim consolidated financial information. Accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements.

In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month periods have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. These condensed financial statements should be read in conjunction with the consolidated financial statements and the notes included in the 2007 annual report filed with the Securities and Exchange Commission.

2.	Descriptions of Business

The Company is in the business of developing, manufacturing, marketing, and sales of recordable digital versatile disc (“DVDR”) media and recordable compact discs (“CDR”). We have also been developing our DVD-R manufacturing basis in both Hong Kong and Brazil to capture the worldwide market. As the “war” between high density format DVDR (“HD-DVD”) and Blu-ray DVD formats has ended with the Blu-ray DVD format surviving in the marketplace to become the latest format of DVD recordable media, we have a new perspective in business development in the world market for the next five years. We have acquired the first set of Blu-ray DVD replication systems in China and Hong Kong and will devote more resources to developing the market for Blu-ray DVD replication systems. We have customers in Western Europe, Australia, China, and South America.

F-7

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

3.	Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

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

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

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

As of September 30, 2008, the particulars of the subsidiaries are as follows:

Name of company	Place of incorporation	Date of incorporation	Attributable equity interest	Issued capital

Infosmart Group Limited	British Virgin Islands	March 23, 2005	100%	US$1,427,794
Infoscience Media Global Limited	British Virgin Islands	May 17, 2007	100%	US$1
Portabello Global Limited	British Virgin Islands	March 21, 2007	100%	US$1
Info Smart International Enterprises Limited	Hong Kong	September 26, 2003	100%	US$25.65 (HK$ 200)
Info Smart Technology Limited	Hong Kong	December 14, 2001	100%	US$618,075 (HK$4,820,000)
Infoscience Media Limited	Hong Kong	September 10, 2004	1000%	US$1,282 (HK$10,000)
Infoscience Holdings Limited	Hong Kong	February 23, 2004	100%	US$13 (HK$100)
Discobrás Industria E Comercio De Electro Electronica Ltda	Brazil	March 2006	99.42%	US$7,977,072

Minority Interests

For the development of the market in Brazil, the Company entered into an agreement on March 20, 2006 with two independent third parties for setting up a subsidiary, Discobrás Industria E Comercio De Electro Electronica Ltda (“Discobrás”), in Brazil. Discobrás has a social capital of $8,046,281 (equivalent to R$17,385,600), of which 99.42% or $8,000,000 (equivalent to R$17,285,600) has been subscribed by the Company. The minority interests have been recognized in the accompanying financial statements.

F-8

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

3.	Summary of Significant Accounting Policies (continued)

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes, and the estimation on useful lives of property, plant, and equipment. Actual results could differ from those estimates.

Intangible Assets

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

Revenue Recognition

Revenue from sales of the Company’s products is recognized when the significant risks and rewards of ownership have been transferred to the buyer at the time of delivery and the sales price is fixed or determinable and collection is reasonably assured.

Income Taxes

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

Dividends

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

The Series B Convertible Preferred Stock carried dividends at 8% per annum payable quarter in cash in U.S. 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.

F-9

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

3.	Summary of Significant Accounting Policies (continued)

Foreign Currency Translation

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

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

The exchange rates in effect at September 30, 2008 and 2007 were HK$1 for $0.1287 and $0.1286 US dollars and Real $1 for $0.5274 and $0.5449, respectively. The average exchange rates for 2008 and 2007 were HK$1 for $0.12835 and $0.12818 US dollars and Real $1 for $0.57529 and $0.5163 US dollars, respectively. There was no significant fluctuation in the exchange rates for the conversions between HK dollars and U.S. dollars after the balance sheet date. The exchange rate between Real dollars and U.S. dollars, however, changed from Real$0.5274 for US$1 on September 30, 2008 to Real$0.4455 to US$1 on November 17, 2008.

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, and trade and other payables, approximate their fair values due to the short-term maturity of such instruments. The carrying amounts of borrowings approximate their fair values because the applicable interest rates approximate current market rates.

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

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

F-10

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

3.	Summary of Significant Accounting Policies (continued)

Basic and Diluted Earnings per Share

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

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

The Company’s common stock equivalents at September 30, 2008 include the following:


Detachable common stock warrants			28,510,347
Placement agent warrants			3,740,577
			32,250,924

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.

Trade Receivables

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

Inventories

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

F-11

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

3.	Summary of Significant Accounting Policies (continued)

Plant and Equipment

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

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

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

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

Impairment of Long-Lived Assets

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

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (Revised 2007), BUSINESS COMBINATIONS. This revision to SFAS No. 141 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, at their fair values as of the acquisition date, with limited exceptions. This revision also requires that acquisition-related costs be recognized separately from the assets acquired and that expected restructuring costs be recognized as if they were a liability assumed at the acquisition date and recognized separately from the business combination. In addition, this revision requires that if a business combination is achieved in stages, that the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, be recognized at the full amounts of their fair values.

In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS, an amendment of ARB. No. 51. The objective of this statement is to improve the relevance, comparability, and transparency of the financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Company believes that this statement will not have any impact on its financial statements, unless it deconsolidates a subsidiary.

In March 2008, the FASB issued SFAS No. 161, DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (an amendment to SFAS No. 133). This statement is effective for financial statements issued for fiscal year and interim periods beginning after November 15, 2008 and requires enhanced disclosures with respect to derivative and hedging activities. The Company will comply with the disclosure requirements of this statement if it utilizes derivative instruments or engages in hedging activities upon its effectiveness.

In April 2008, the FASB issued FASB Staff Position No. 142-3, DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS (“FSP No. 142-3”) to improve the consistency between the useful life of a recognized intangible asset (under SFAS No. 142) and the period of expected cash flows used to measure the fair value of the intangible asset (under SFAS No. 141(R)). FSP No. 142-3 amends the factors to be considered when developing renewal or extension assumptions that are used to estimate an intangible asset’s useful life under SFAS No. 142. The guidance in the new staff position is to be applied prospectively to intangible assets acquired after December 31, 2008. In addition, FSP No.142-3 increases the disclosure requirements related to renewal or extension assumptions. The Company does not believe implementation of FSP No. 142-3 have a material impact on its financial statements.

F-12

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

3.	Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

In May 2008, the FASB issued statement No. 162, THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “the Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”.

In May 2008, the FASB issued Statement No. 163, ACCOUNTING FOR FINANCE GUARANTEE INSURANCE CONTRACTS - AN INTERPRETATION OF FASB STATEMENT NO. 60. The premium revenue recognition approach for a financial guarantee insurance contract links premium revenue recognition to the amount of insurance protection and the period in which it is provided. For purposes of this statement, the amount of insurance protection provided is assumed to be a function of the insured principal amount outstanding, since the premium received requires the insurance enterprise to stand ready to protect holders of an insured financial obligation from loss due to default over the period of the insured financial obligation. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008.

In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force (EITF) No. 03-6-1, DETERMINING WHETHER INSTRUMENTS GRANTED IN SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES (“FSP EITF No. 03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and is not expected to have a significant impact on the Company’s financial statements.

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

F-13

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

4.	Income Taxes

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

	*Three months ended* *September 30,*					*Nine months ended* *September 30,*
	*2008*		*2007*			*2008*		*2007*
	*(Unaudited)*		*(Unaudited)*			*(Unaudited)*		*(Unaudited)*

Current taxes	$	409,531	$	639,243		$	460,840	$	854,219
Deferred taxes		-		(32,581	)		-		255,620

	$	409,531	$	606,662		$	460,840	$	1,109,839

The Company is subject to income tax in the United States. No provision for income tax in the United States has been made as the Company had no taxable income for the three months and nine months ended September 30, 2008 and 2007. The statutory tax rate is 34%.

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

The Company’s subsidiaries operating in Hong Kong are subject to profits tax rate of 17.5% on the estimated assessable profits during the periods.

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

	*As of*
	*September 30,*			*December 31,*
	*2008*			*2007*
	*(Unaudited)*			*(Audited)*
Hong Kong
Operating losses available for future periods	$	-		$	-
Temporary difference on accelerated tax depreciation on plant and equipment		2,732,350			2,305,728

The United States
Operating losses available for future periods	$	(115,773	)	$	(482,683	)
Valuation allowance		115,773			482,683

Deferred tax liabilities, net	$	2,732,350		$	2,305,728

Recognized in the balance sheet:
Net deferred tax assets	$	-		$	-
Net deferred tax liabilities		2,732,350			2,305,728

	$	2,732,350		$	2,305,728

F-14

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

5.	Comprehensive Income

	*Nine months ended September 30,*
	*2008*		*2007*
	*(Unaudited)*		*(Unaudited)*

Net income (loss) applicable to common shareholders	$	1,944,688	$	$7,323,123
Foreign currency translation adjustments		859,261		(32,414	)

Total comprehensive income	$	2,803,949	$	7,290,709

6.	Inventories

	*As of*
	*September 30,*		*December 31,*
	*2008*		*2007*
	*(Unaudited)*		*(Audited)*

Raw materials	$	679,620	$	1,190,330
Work in progress		743,032		15,974
Finished goods		2,846,537		2,189,890

	$	4,269,189	$	3,396,194

F-15

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

7.	Plant and Equipment

	*As of*
	*September 30,*		*December 31,*
	*2008*		*2007*
	*(Unaudited)*		*(Audited)*
Costs
Production lines and equipment	$	38,141,869	$	38,034,178
Leasehold improvements		2,108,128		2,132,378
Furniture, fixtures and office equipment		220,534		221,393
Motor vehicles		303,506		260,550

		40,774,037		40,648,499

Accumulated depreciation
Production lines and equipment		11,579,910		8,666,845
Leasehold improvements		1,121,291		811,850
Furniture, fixtures and office equipment		58,479		50,662
Motor vehicles		49,890		25,474

		12,809,570		9,554,831

Net
Production lines and equipment		26,521,959		29,367,333
Leasehold improvements		986,837		1,320,528
Furniture, fixtures and office equipment		162,055		170,731
Motor vehicles		293,616		235,076

	$	27,964,467	$	31,093,668

F-16

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

7.	Plant and Equipment (continued)

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

	*Pledged for banking facilities*
	*As of*
	*September 30,*			*December 31,*
	*2008*			*2007*
	*(Unaudited)*			*(Audited)*

Costs	$	14,724,398		$	14,724,398
Accumulated depreciation		(4,794,146)	)		(4,115,101)	)

Net	$	9,930,252		$	10,609,297

	*Nine months ended September 30,*
	*2008*		*2007*
	*(Unaudited)*		*(Unaudited)*

Depreciation for the period	$	679,045	$	143,745

The components of depreciation charged are:

	*Nine months ended September 30,*
	*2008*		*2007*
	*(Unaudited)*		*(Unaudited)*

Included in factory overheads
Production lines and equipment	$	2,913,065	$	1,143,458

Included in operating expenses
Leasehold improvements		309,441		180,562
Furniture, fixtures and office equipment		7,817		14,716
Motor vehicles		24,416		8,248

		341,674		203,526

	$	3,254,739	$	1,346,984

F-17

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

8.	Bank Borrowings

	*As of*
	*September 30,*		*December 31,*
	*2008*		*2007*
	*(Unaudited)*		*(Audited)*
Secured:
Bank overdrafts repayable on demand	$	351,807	$	194,423
Repayable within one year
Non-recurring bank loans		2,326,068		2,310,090
Other bank borrowings		4,018,374		3,665,280

		6,696,249		6,169,793

Repayable after one year
Non-recurring bank loans		456,717		2,092,949

		7,152,966		8,262,742

Unsecured:
Other bank borrowings		0		592,760

	$	7,152,966	$	8,855,502

The above banking borrowings were secured by the following:

(a)

first fixed legal charge over 17 DVDR production lines with carrying amounts of $9,930,252 (note 9); and

(b)

joint and several guarantees executed by two beneficial shareholders of the Company, a spouse of one of the beneficial shareholders, and a director of the Company’s subsidiary.

9.	Earnings per Share

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

Detachable common stock warrants			28,510,347
Placement agent warrants			3,740,577

			32,250,924

F-18

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

10.

Commitments and Contingences

Operating Lease Commitments

The company leases office and factory premises under various non-cancelable operating lease agreements that expire at various dates through 2010, with an option to renew. All leases are on a fixed repayment basis. None of the leases include contingent rentals. Minimum future commitments under these agreements payable as of September 30, 2008 are as follows:

Period ending September 30,
2008	$	24,686
2009	$	98,743
2010	$	28,800

Contingencies

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

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

F-19

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

11.

Common Stock and Series B Convertible Preferred Stock

	Common Stock				Series B Convertible Preferred Stock						Additional
	No. of				No. of						paid-in
	shares		Amount		shares			Amount			Capital

Balance, January 1, 2008		144,248,708	$	2,412,605		597,011		$	1,690,222		$	8,118,664

Issuance of common stock		1,300,000	$	455,000		-			-			-

Conversion of Series B to common stock on various dates		16,011,812	$	1,690,222		(597,011	)	$	(1,690,222	)	$	8,118,664

Balance, September 30, 2008		161,560,520	$	4,557,827		-		$	-		$	8,118,664

Common Stock

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

Series B Convertible Preferred Stock

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 a financing after the closing of the Company’s share exchange transaction in 2006) were 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 carried 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 was cumulative and non-participating, and carried dividends at 8% per annum payable quarterly in cash in U.S. Dollars.

Conversion: The outstanding and unconverted Series B Convertible Preferred Stock were convertible 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 was permitted unless at the time of the delivery of the Automatic Conversion Notice and on the Automatic Conversion Date, (A) the Company was 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 was effective and had not been suspended by the SEC, (C) as of the Conversion Date, the Registration Statement was effective and had not been suspended by the SEC and no event had occurred which would have likely resulted in the Registration Statement being declared ineffective or suspended by the SEC, and (D) no Triggering Event (as described under “Redemption Rights” in the Company’s Current Report on Form 8-K filed with the Commission on August 24, 2006) had occurred and was continuing.

F-20

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

11.

Common Stock and Convertible Preferred Stock (continued)

All shares of Series B Convertible Preferred Stock outstanding on August 16, 2008 were automatically converted at the then effective Conversion Price.

Additional paid-in capital

The Company allocated the net proceeds ($6,885,000) of the financing between the Series B Convertible 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 issued in the financing (including Placement Agent Warrants which were valued at $644,800) using the Black-Scholes option pricing model with the following assumptions: no dividend yield; weighted average risk free rate of 5.05%; volatility of 368% and contractual life of 5 years. The Company recorded the portion of the proceeds attributable to the stock as mezzanine equity pursuant to EITF Topic D-98, Classification and Measurement of Redeemable Securities after determining the guidance in FAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity did not apply. The Company determined that the warrants meet the definition of a derivative instrument as defined in SFAS 133, Accounting for Derivative Instruments and Hedging Activities, but do not require derivative treatment pursuant to the scope exception in paragraph 11(a) of SFAS 133.

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

12.

Pension Plans

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

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

The assets of the MPF Scheme are controlled by trustees and held separately from those of the Company. The Company met the contribution requirement, and total pension costs were $19,250 and $25,316 for the three months ended September 30, 2008 and 2007, respectively.

F-21

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

13.

Segment Information

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

	*Flash drive and memory card*				*DVDR and Related Products*				*CDR*				*Blu-ray*
	*Nine months ended* *September 30,*				*Nine months ended* *September 30,*				*Nine months ended* *September 30,*				*Nine months ended* *September 30,*
	*2008*		*2007*		*2008*		*2007*		*2008*		*2007*		*2008*		*2007*
	*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*

Revenue from external customers	$	368,630	$	20,709,019	$	18,529,299	$	30,060,724	$	2,169,297	$	2,152,306	$	1,810,000	$	-
Segment profit	$	108,798	$	3,439,573	$	771,393	$	3,882,964	$	373,789	$	357,478	$	915,000	$	-

	*Three months ended* *September 30,*				*Three months ended* *September 30,*				*Three months ended* *September 30,*				*Three months ended* *September 30,*
	*2008*		*2007*		*2008*		*2007*		*2008*		*2007*		*2008*		*2007*
	*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*

Revenue from external customers	$	186,130	$	15,624,296	$	5,364,294	$	9,027,630	$	1,187,718	$	963,677	$	1,810,000	$	-
Segment profit	$	47,879	$	1,911,117	$	198,581		1,411,632	$	181,077		155,292	$	915,000	$	-

As of

September 30,

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,

December 31,

2008

2007

2008

2007

2008

2007

2008

2007

(Unaudited)

(Audited)

(Unaudited)

(Audited)

(Unaudited)

(Audited)

(Unaudited)

(Audited)

Segment assets

186,130

22,981,987

60,486,810

33,360,110

1,187,718

2,388,537

1,810,000

F-22

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

13.

Segment Information (continued)

	*Total*
	*Nine months ended* *September 30,*
	*2008*		*2007*
	*(Unaudited)*		*(Unaudited)*

Revenue from external customers	$	22,877,226	$	52,922,049
Segment profit	$	2,168,980	$	7,680,015

	*Three months ended* *September 30,*
	*2008*		*2007*
	*(Unaudited)*		*(Unaudited)*

Revenue from external customers	$	8,548,142	$	25,615,603
Segment profit	$	1,342,537	$	3,478,041

	*As of*
	*September 30,*		*December 31,*
	*2008*		*2007*
	*(Unaudited)*		*(Audited)*

Segment assets	$	63,670,658	$	58,730,634

F-23

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Stated in U.S. Dollars)

13.

Segment Information (continued)

Other than the production lines and equipment located in Brazil, which have carrying amounts of $10,116,383 and $11,947,265, respectively, at December 31, 2007, all of the Company’s long-lived assets are located in Hong Kong. Geographic information about net sales, which are classified based on location of the customers, is set out as follows:

	*Three months ended* *September 30,*				*Nine months ended* *September 30,*
	*2008*		*2007*		*2008*		*2007*
	*(Unaudited)*		*(Unaudited)*		*(Unaudited)*		*(Unaudited)*

Argentina	$	153,631	$	-	$	457,126	$	-
Australia		359,081		2,594,542		621,810		8,441,874
Belize		-		-		361,744		-
Brazil		3,416,347		3,651,968		10,056,978		12,960,697
China and Hong Kong		4,248,375		18.894,900		9,417,249		28,537,172
Philippine		160,587		-		459,840		-
South America		6,500		-		234,200		-
Thailand		-		22,539		39,739		449,649
Turkey		-		69,816		-		217,314
United Kingdom		-		1,046		-		166,257
United States		89,250		88,130		231,216		1,574,182
Other countries		114,371		292,662		997,324		574,904

Total	$	8,548,142	$	25,615,603	$	22,877,226	$	52,922,049

14.

Comparative Amounts

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

F-24

ITEM 2.

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

Forward Looking Statements

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

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

Overview

We are in the business of developing, manufacturing, marketing and sales of recordable digital versatile disc (“DVDR”) media and recordable compact discs (“CDR”). We manufacture DVDRs with 8x and 16x writable speeds as well as CDRs with 52x writable speeds, and have been developing our DVD-R manufacturing basis in both Hong Kong and Brazil to capture the worldwide market. As the “war” between high density format DVDR (“HD-DVD”) and Blu-ray DVD formats has ended with the Blu-ray DVD format surviving in the marketplace to become the latest format of DVD recordable media, we have a new perspective in business development in the world market for the next five years. We acquired the first set of Blu-ray DVD replication systems in China and Hong Kong and will devote more resources to developing the market for Blu-ray DVD replication systems. A test order has already been successfully produced on our newly installed Anwell Blu-ray® equipment line. As the only Blu-ray® producer in Hong Kong and the first in China, we expect to see several future new orders as Blu-ray® begins to dominate the visual media market. Initial orders for short runs of a Blu-ray® disk reproduction are used to confirm Blu-ray®’s high reproduction standards are achieved prior to initiating production runs. Blu-ray® unit sales produce the highest margins of all the media the Company produces. We have customers in Western Europe, Australia, China, and South America.

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

In March 2006, IS Media formed Discobras, a Brazilian company, with a local partner, with registered capital of US$8 million for our new Brazilian DVDR production facility. We relocated some of our DVDR manufacturing equipment to Brazil in November 2006 and installed them in January 2007. Trial production in Brazil began in March 2007, and is currently producing at full capacity. In addition, the owners of the technologies and intellectual property necessary for the production of our products require that we obtain separate Patent Licenses for the use of intellectual property in our new DVDR manufacturing facility in Brazil. We are currently in the process of obtaining these Patent Licenses.

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

Critical Accounting Policies and Estimates

Principles of Consolidation. The condensed consolidated financial statements include the accounts of the Company and our subsidiaries. All significant inter-company balances and transactions are eliminated on consolidation.

Minority Interests. For the development of the market in Brazil, the Company entered into an agreement on March 20, 2006 with two independent third parties for setting up a subsidiary in Brazil. The Brazilian subsidiary has a social capital of $8,046,281 (equivalent to R$17,385,600), of which 99.42% or $8,000,000 (equivalent to R$17,285,600) has been subscribed by the Company. As of September 30, 2008, neither one of the two independent third parties had fully satisfied their required capital contribution by any means. The minority interests have been recognized in the accompanying financial statements.

Use of Estimates. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes, and the estimation on useful lives of property, plant, and equipment. Actual results could differ from those estimates.

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

Revenue Recognition. Revenue from sales of the Company’s products is recognized when the significant risks and rewards of ownership have been transferred to the buyer at the time of delivery and the sales price is fixed or determinable and collection is reasonably assured.

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

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

The Company's common stock equivalents at September 30, 2008 include the following:

Detachable common stock warrants			28,510,347
Placement agent warrants			3,740,577
			32,250,924

Trade Receivables. Trade receivables are stated at original amount less allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at the period end. The Company extends unsecured credit to customers in the normal course of business and believes all trade receivables in excess of the allowances for doubtful receivables to be fully collectible. Full allowances for doubtful receivables are made when the receivables are overdue for one 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, management makes judgments as to future demand requirements compared to current or committed inventory levels. The Company’s reserve requirements generally increase/decrease due to management’s projected demand requirements, market conditions, and product life cycle changes. During the reporting periods, the Company did not make any allowance for slow-moving or defective inventories.

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

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

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

Construction in Progress. Construction in progress represents a factory under construction and production lines and equipment not ready for use, which are stated at cost less any impairment losses, and are not depreciated. Construction in progress is reclassified to the appropriate category of fixed assets when completed and ready for use.

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

Recent Accounting Pronouncements. In December 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (Revised 2007), BUSINESS COMBINATIONS. This revision to SFAS No. 141 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, at their fair values as of the acquisition date, with limited exceptions. This revision also requires that acquisition-related costs be recognized separately from the assets acquired and that expected restructuring costs be recognized as if they were a liability assumed at the acquisition date and recognized separately from the business combination. In addition, this revision requires that if a business combination is achieved in stages, that the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, be recognized at the full amounts of their fair values.

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

Results of Operations

Comparison of Three Months Ended September 30, 2008 and 2007

Net Sales. For the three months ended September 30, 2008, net sales decreased relative to the three months ended September 30, 2007, from $25,615,603 to $8,548,142. The decrease in net sales is mainly due to a decrease specifically in the sale of DVDRs in Hong Kong, which resulted from our policy of geographical diversification and shift of focus from the lower margin Hong Kong markets to higher margin markets such as Asia and Brazil. Market trends show a high expectation for the new Blu-ray discs and a lower demand for DVDR discs.

Cost of Sales. Cost of sales decreased from $21,041,992, or approximately 82% of net sales for the three months ended September 30, 2007, to $4,437,490, or approximately 52% of net sales for the three months ended September 30, 2008. The decrease in cost of sales is primarily due to a corresponding decrease in sales, further reduced by effective cost controls during the third quarter of 2008.

Gross Profit. Gross profit decreased approximately 10% from $4,573,611 for the three months ended September 30, 2007 to $4,110,652 for the three months ended September 30, 2008. This decrease in gross profit was primarily due to the decrease in net sales.

Selling and Distribution Costs. For the three months ended September 30, 2008, selling and distribution costs decreased approximately 28% from $142,983 to $102,817 relative to the three months ended September 30, 2007. The decrease is attributable to lower freight expenses.

Administrative Expenses. Administrative expenses included depreciation and amortization charges, and was $2,166,313 and $1,035,288 for the three months ended September 30, 2008 and 2007, respectively. The increase in administrative expenses during the two periods was due to an expansion in the administrative operations of our Blu-ray business and an increase in legal expenses in the third quarter of 2008.

Net Income. Net income decreased approximately 61% from $3,478,041 for the three months ended September 30, 2007 to net income of $1,342,537 for the three months ended September 30, 2008. This is due to the decrease in net sales and increased administrative expenses.

Comparison of Nine Months Ended September 30, 2008 and 2007

Net Sales. For the nine months ended September 30, 2008, net sales decreased relative to the nine months ended September 30, 2007, from $52,922,049 to $22,877,226. The decrease in net sales is mainly due to the greater cost fluctuation of outsourced Flash drives and memory cards during the first nine months of 2008 as compared to the same period in 2007. We plan to explore other sources for our outsourced Flash drives and memory cards. Another factor for the decrease in net sales is a decrease specifically in the sale of of DVDRs in Hong Kong, which resulted from our policy of geographical diversification and our shift of focus from the lower margin Hong Kong markets to higher margin markets such as Asia and Brazil. Market trends show a high expectation for the new Blu-ray discs and a lower demand for DVDR discs.

Cost of Sales. Cost of sales decreased from $41,461,818, or approximately 78% of net sales for the nine months ended September 30, 2007, to $15,961,181, or approximately 69% of net sales for the nine months ended September 30, 2008. The approximately 61% decrease is mainly due to a corresponding decrease in sales and lower transportation costs incurred as a result of the operation of our Brazilian factory.

Gross Profit. Gross profit decreased approximately 39% from $11,460,231 for the nine months ended September 30, 2007 to $6,916,045 for the nine months ended September 30, 2008. This decrease in gross profit was primarily due to the decrease in our volume of sales.

Selling and Distribution Costs. For the nine months ended September 30, 2008, selling and distribution costs decreased approximately 27% from $384,032 to $278,519 relative to the nine months ended September 30, 2007. The decrease is attributable to lower freight expenses.

Administrative Expenses. Administrative expenses included depreciation and amortization charges, and was $4,450,718 and $3,220,967 for the nine months ended September 30, 2008 and 2007, respectively. The increase in administrative expenses during the two periods was due to an expansion in the administrative operations of our Blu-ray business and an increase in legal expenses, primarily in connection with financings that closed in April and June of 2008.

Net Income. Net income decreased approximately 71% from $7,680,015 for the nine months ended September 30, 2007 to $2,168,980 for the nine months ended September 30, 2008. This is due to the decrease in net sales and increased administrative expenses.

Liquidity and Capital Resources

Nine Months Ended September 30,	2008			2007			Change

Net cash (used in) provided by operating activities	$	(1,354,075	)	$	(883,234	)	$	(470,841	)

Net cash (used in) investing activities		(379,216	)		(368,097	)		(11,119	)

Net cash provided by financing activities		1,908,900			1,540,080			368,820

Net cash used in operating activities was $1,354,075 for the nine months ended September 30, 2008 and $883,234 for the nine months ended September 30, 2007. The increase in net cash used in operating activities was mainly due to a decrease in trade payables and a decrease in sales volume. The decrease in trade payables was a result of cash payments but was not off-set by a collection of receivables.

Net cash used in investing activities was $379,216 for the nine months ended September 30, 2008 and $368,097 for the nine months ended September 30, 2007. The increase in net cash used in investing activities is mainly related to an increase in acquisitions of plant and equipment.

Net cash provided by financing activities was $1,908,900 for the nine months ended September 30, 2008 and $1,540,080 for the nine months ended September 30, 2007. The increase in net cash provided by financing activities was mainly due to financing proceeds in 2008.

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 Infosmart’s liquidity, capital resources, market risk support, or credit risk support, other than allowing Infosmart to retain a $153,846 deposit that would have been required by the utility company. Infosmart is not aware of any events, demands, commitments, trends, or uncertainties that will result in, or reasonably likely to result in, the termination of this arrangement.

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

Contractual Obligations

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

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

	Payments Due by Period

	Total		Less than 1 year		1-3 Years		3-5 Years		5 Years +
	In Thousands
Contractual Obligations:
Bank Indebtedness	$	7,153	$	6,696	$	457	$	—	$	—
Other Indebtedness		10,405		1,889		8,516		—		—
Operating Leases		152		123		29		—		—
Total Contractual Obligations:	$	17,710	$	8,708	$	9,002	$	—	$	—

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 and does not include contingent rentals.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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

ITEM 1A.

RISK FACTORS

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

Risks Relating to Our Business

Our limited operating history makes evaluation of our business difficult.

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

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

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

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

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

·	price competition;

·	general price increases by suppliers and manufacturers;

·	our ability to maintain and expand our customer relationships;

·	the introduction of new or enhanced products and strategic alliances by us and our competitors;

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

·	consumer acceptance of our products and general shifts in consumer behavior with respect to our industry;

·	our ability to maintain, upgrade, and develop our production facilities and infrastructure;

·	technical difficulties and system downtime;

·	the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure;

·	general economic conditions as well as economic conditions specific to our industry; and

·	our ability to attract and retain qualified management and employees.

If our revenues or operating results fall below the expectations of investors or securities analysts, the price of our common stock could significantly decline.

Our ability to manage our future growth is uncertain.

We are currently anticipating a period of growth as a result of our corporate growth strategy, which aims to, among other things, further develop our manufacturing capabilities, expand our product offerings, and reach new customers. In pursuing these objectives, the resulting strain on our managerial, operational, financial and other resources could be significant. Success in managing such expansion and growth will depend, in part, upon the ability of senior management to manage effectively. Any failure to manage the anticipated growth and expansion could have a material adverse effect on our business.

Increased product returns will decrease our revenues and impact profitability.

We do not make allowances for product returns in our financial statements based on the fact that we have not had a material historical return rate. In order to keep product returns low, we continuously monitor product purchases and returns and may change our product offerings based on the rates of returns. If our actual product returns significantly increase, especially as we expand into new product categories, our revenues and profitability could decrease. Any changes in our policies related to product returns may result in customer dissatisfaction and fewer repeat customers.

Our growth and operating results could be impaired if we are unable to meet our future capital needs.

We may need to raise additional capital in the future to:

·	fund more rapid expansion;

·	acquire or expand into new facilities;

·	maintain, enhance, and further develop our manufacturing systems;

·	develop new product categories or enhanced services;

·	fund acquisitions; or

·	respond to competitive pressures.

If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our stockholders will be diluted. Furthermore, any new securities could have rights, preferences and privileges senior to those of our preferred shares and the common stock into which our preferred shares are convertible. We cannot be certain that additional financing will be available when and to the extent required or that, if available, it will be on acceptable terms. If adequate funds are not available on acceptable terms, we may not be able to fund our expansion, develop or enhance our products or services or respond to competitive pressures.

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

We depend on the continued services and performance of our senior management and other key personnel, particularly Parker Seto, our Chief Executive Officer and President, and Sebastian Tseng, our Regional Director for South America and V.P. of Production and R&D. The loss of any of our executive officers or other key employees could harm our business. Infosmart BVI currently has employment agreements with its key personnel. Further, we expect to assume the employment agreements our executive officers currently have with Infosmart BVI.

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

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

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

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

Further, the owners of the technologies and intellectual property necessary for the production of our products require that we obtain separate patent licenses for the use of intellectual property in our DVDR manufacturing facility in Brazil. We are currently in the process of obtaining these Patent Licenses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We operate in a highly competitive, quickly changing environment. The victory of the Blu-Ray format DVD over the HD-DVD may accelerate the phase-out and technological obsolescence of our current DVDR production machine that produces our current production lines, which would result in impairment in value. Also, as the market has turned to the Blu-ray DVD, we must purchase new equipment to produce Blu-ray DVDR discs, and thus our business and operating results could be adversely affected. Further, if strong competitors challenge us in Brazil and other key markets, we will need to quickly develop an adequate competitive response. If we fail to accurately anticipate market and technological trends, then our business and operating results could be materially and adversely affected.

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

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

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

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

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

Our products may contain undetected and unexpected defects, errors, or failures. If these product defects are substantial, the results could be product recalls, an increased amount of product returns, loss of market acceptance, and damage to our reputation, all of which could increase our costs and cause us to lose sales. We do not carry general commercial liability insurance covering our products. In addition, we are preparing to launch production of Blu-Ray format DVDRs in the fourth quarter of 2008. HD and Blu-Ray format DVDR production will require us to master new production techniques and modify existing or purchase new machinery and equipment. It is possible that we may fail to achieve mastery of these new techniques and production yields could suffer as a result. In early June 2008, we successfully installed the first set of new machinery that can produce Blu-Ray format DVDR in our Hong Kong factory. We are now proceeding with the testing phase by producing sample orders and grasping the new techniques gradually in order to build up high quality control and cost-effectiveness to develop effective operations before proceeding with mass production of Blu-Ray format DVDR discs.

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

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

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

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

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

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

We are at risk of losing our significant investment in Brazil if we are unable to obtain the intellectual property licenses required for our Discobras manufacturing facility.

The owners of the technologies and intellectual property necessary for the production of our products require that we obtain separate patent licenses for the use of intellectual property in our DVDR manufacturing facility in Brazil. We have completed the required procedures in applying for the patent licenses for use at the Discobras manufacturing facility and are now waiting for the patent owners to complete their own procedures, including the submission of the patent licenses to the Patent Office in Brazil for final approval. However, if there is a substantial delay in obtaining approval for our use of the patent licenses, then we may be unable to manufacture a sufficient amount of our products to fill our sales orders, and this could cause us to lose substantial revenues. Further, in the event we are unable to obtain the patent licenses, we may not be able to manufacture our products in Brazil, placing us at risk of losing our significant investment in the Brazilian venture.

Past activities of the Company and its affiliates may lead to future liability for the combined companies.

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

Risks Relating To Doing Business in Hong Kong and Brazil

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

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

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

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

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

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

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

Economic reforms adopted by the Chinese or Brazilian governments have had positive effects on the economic development of these countries, but the governments could change these economic reforms or any of the legal systems at any time. This could either benefit or damage the Company’s operations and profitability. Some of the things that could have this effect are:

·	Level of government involvement in the economy;

·	Control of foreign exchange;

·	Methods of allocating resources;

·	Balance of payments position;

·	International trade restrictions; and

·	International conflict.

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

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

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

·	Currency volatility;

·	Inflation acceleration;

·	Monetary policy and interest rate increases;

·	Fiscal policy and tax changes;

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

·	Foreign exchange controls;

·	Energy shortages; and

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

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

Brazil has in the past experienced extremely high rates of inflation, with annual rates of inflation reaching as high as 2,567% in 1993 (as measured by the Índice Geral de Preços do Mercado published by Fundação Getúlio Vargas, or IGP-M Index). More recently, Brazil’s rates of inflation were 10.4% in 2001, 25.3% in 2002, 8.7% in 2003, 12.4% in 2004, 1.2% in 2005, 3.8% in 2006, 3.5% in 2007, and 5.17% in 2008 (as measured by the IGP-M Index). Inflation, governmental measures to combat inflation, and public speculation about possible future actions have in the past had significant negative effects on the Brazilian economy and have contributed to economic uncertainty in Brazil. If Brazil experiences substantial inflation in the future, our costs may increase and our operating and net margins may decrease. Inflationary pressures may also lead to further government intervention in the economy, which could involve the introduction of government policies that may adversely affect the overall performance of the Brazilian economy.

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

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

The value of our securities will be affected by the foreign exchange rate between the U.S. dollar, the Hong Kong dollar, and the Real.

The value of our common stock will be affected by the foreign exchange rate between U.S. and Hong Kong dollars and Real, and between those currencies and other currencies in which our sales may be denominated. For example, to the extent that we need to convert U.S. or Hong Kong dollars into Real for our operational needs and should the Real appreciate against the U.S. dollar at that time, our financial position, our business, and the price of our common stock may be harmed. Conversely, if we decide to convert our Reals into U.S. or Hong Kong dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. Dollar appreciates against the Real, the U.S. or Hong Kong dollar equivalent of our earnings from our subsidiaries in Hong Kong and Brazil would be reduced. We will engage in hedging activities to manage our financial exposure related to currency exchange fluctuation. In these hedging activities, we might use fixed-price, forward, futures, financial swaps, and option contracts traded in the over-the-counter markets or on exchanges, as well as long-term structured transactions when feasible.

We will depend on Brazil’s foreign investment incentive programs, which provide reductions in taxation or exemptions from taxation for our operations in Brazil. The loss of the tax benefits from these incentive programs may substantially affect our earnings.

Under the State of Bahia’s investment incentive program, our Brazilian subsidiary, Discobras, has been granted a reduction in the Value Added Tax (“VAT”) it is required to pay for products. Discobras pays only 2.28%, as compared to VAT of 12% in Salvador, or 18% in São Paulo. This VAT reduction will be available to us until June 2016. We will also avail ourselves of an incentive program for foreign investment which exempts Discobras from paying Brazil’s ICMS taxes on raw materials it imports for production in Brazil and create substantial tax savings for Infosmart BVI. This tax exemption will last through June 2016. In the event that the VAT reduction program is no longer available to us or we are unable to extend the ICMS tax-exemption, our after-tax earnings would decline by the amount of the tax benefits, which may be substantial.

Risks Relating to Ownership of Our Securities

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

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

Our common stock may have limited liquidity.

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

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

The stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies quoted on the Over-The-Counter Bulletin Board, the stock market on which shares of our common stock are quoted, generally have been very volatile and have experienced sharp share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many of the following factors, some of which are beyond our control:

·	variations in our operating results;

·	announcements of technological innovations, new services or product lines by us or our competitors;

·	changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;

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

·	additions or departures of key personnel; and

·	future sales of our common stock.

Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been initiated.

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

Our Class A Warrants are quoted on the Over-the-Counter Bulletin Board since September 2008. An active trading market for our Class A Warrants may not develop, though, due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our Class A Warrants until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in such warrants is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales. We cannot give you any assurance that an active public trading market for these warrants will develop or be sustained. You may not be able to liquidate your Class A Warrants quickly or at the market price if trading in our Class A Warrants is not active.

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

·	variations in our operating results;

·	announcements of technological innovations, new services or product lines by us or our competitors;

·	changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;

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

·	additions or departures of key personnel; and

·	future sales of our common stock.

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

Our management team has broad discretion as to the allocation and timing of the use of funds from our commercial secured loan transaction that closed in April 2008 and may spend these proceeds in ways with which our shareholders may not agree. The failure of our management to apply these funds effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.

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

Certain members of our board and management own a significant portion of our outstanding shares of stock that are entitled to vote on all corporate actions. These stockholders, acting together, could have a substantial impact on matters requiring the vote of the shareholders, including the election of our directors and most of our corporate actions. This control could delay, defer, or prevent others from initiating a potential merger, takeover, or other change in our control, even if these actions would benefit our shareholders and us. This control could adversely affect the voting and other rights of our other shareholders and could depress the market price of our common stock.

A large number of common shares are issuable upon exercise of outstanding common share warrants. The exercise or conversion of these securities could result in the substantial dilution of your investment in terms of your percentage ownership in the Company as well as the book value of your common shares. The sale of a large amount of common shares received upon exercise of these warrants on the public market to finance the exercise price or to pay associated income taxes, or the perception that such sales could occur, could substantially depress the prevailing market prices for our shares.

As of September 30, 2008, there are outstanding warrants entitling the holders to purchase up to 28,510,347 common shares at an exercise price of $0.326 per share. In the event of the exercise of these securities, you could suffer substantial dilution of your investment in terms of your percentage ownership in the Company as well as the book value of your common shares. In addition, the holders of the common share purchase warrants may sell common shares in tandem with their exercise of those options or warrants to finance that exercise, or may resell the shares purchased in order to cover any income tax liabilities that may arise from their exercise of the warrants.

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

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

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

We take measures to address and improve our financial reporting and compliance capabilities, and we plan to obtain additional financial and accounting resources to support and enhance our ability to meet the requirements of being a public company. We will need to continue to improve our financial and managerial controls, reporting systems and procedures, and documentation thereof. If our financial and managerial controls, reporting systems, or procedures fail, we may be unable to provide accurate financial statements on a timely basis or comply with the Sarbanes-Oxley Act of 2002 as it applies to us. Any failure of our internal controls or our ability to provide accurate financial statements could cause the trading price of our common stock to decrease substantially.

We do not anticipate paying any cash dividends.

We presently do not anticipate that we will pay any dividends on any of our capital stock in the foreseeable future. The payment of dividends, if any, would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any dividends will be within the discretion of our board of directors. We presently intend to retain all earnings, if any, to implement our business plan; accordingly, we do not anticipate the declaration of any dividends in the foreseeable future.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On September 25, 2008, the Board of Directors presented to the holders of 88,736,397 shares of our common stock (the “Majority Shareholders”), constituting a majority of our voting capital stock, the proposal to approve a reverse stock split of our shares of common stock within the range of sixty-for-one (60:1) to one hundred-for-one (100:1) (the “Reverse Split Range”). The Majority Shareholders consented to the Reverse Split Range by written consent in lieu of a meeting.

ITEM 5.

OTHER INFORMATION

(a)

None.

(b)	There were no changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6.

EXHIBITS

EXHIBIT INDEX

Exhibit Number		Description

3.1		Articles of Incorporation (1)

3.2		Bylaws (1)

3.3		Text of Amendment to Bylaws (2)

3.4		Certificate Of Determination Of Rights, Preferences, Privileges And Restrictions Of Series A Convertible Preferred Stock (3)

3.5		Certificate Of Determination Of Rights, Preferences, Privileges And Restrictions Of Series B Convertible Preferred Stock (3)

10.1		Director Agreement between Infosmart Group, Inc. and Chia Ju Chen, dated October 6, 2008 (4)

14.1		Code of Business Conduct and Ethics *

31.1		Section 302 Certification by the Corporation’s Chief Executive Officer *

31.2		Section 302 Certification by the Corporation’s Chief Financial Officer *

32.1		Section 906 Certification by the Corporation’s Chief Executive Officer *

32.2		Section 906 Certification by the Corporation’s Chief Financial Officer *

* Filed herewith

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

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

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

(4)	Filed on October 10, 2008 as an exhibit to the Company’s Current Report on Form 8-K and incorporated herein by reference.

SIGNATURES

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

	INFOSMART GROUP, INC.
	(Registrant)

Date: November 19, 2008	By:	/s/ Parker Seto
		Parker Seto
		Chief Executive Officer and President
		(Principal Executive Officer)

Date: November 19, 2008	By:	/s/ Po Nei Sze
		Po Nei Sze
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

Infosmart (IFSG) Inactive 10-Q2009 Q1 Quarterly report

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