Infosmart 10Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

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

For the transition period from to

Commission file number: 001-15643

INFOSMART GROUP, INC.

(Exact name of registrant as specified in its charter)

California

(State or other jurisdiction

of incorporation)

001-15643

(Commission File Number)

95-4597370

(IRS Employer

Identification Number)

Flat E, 17th Floor, EGL Tower,

83 Hung To Road

Kwun Tong, Hong Kong

(Address of principal executive offices)

Registrant’s telephone number, including area code: (852) 2868-3385

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No þ

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

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

	Large accelerated filer o	Accelerated filer o
	Non-accelerated filer o	Smaller reporting company þ

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

Number of shares of common stock outstanding as of March 31, 2010: 161,560,520

TABLE OF CONTENTS

TO QUARTERLY REPORT ON FORM 10-Q

FOR PERIOD ENDED MARCH 31, 2010

		Page
PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations	F-2
	Condensed Consolidated Balance Sheets	F-3
	Condensed Consolidated Statements of Cash Flows	F-5
	Notes to Condensed Consolidated Financial Statements	F-7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	10
Item 4(T).	Controls and Procedures	10

PART II	OTHER INFORMATION	11
Item 1.	Legal Proceedings	11
Item 1A.	Risk Factors	11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	21
Item 4.	(Removed and Reserved)	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
Signatures		23
Exhibits

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Infosmart Group Inc.

Condensed Consolidated Financial Statements

For the three months ended March 31, 2010 and 2009

(Stated in US Dollars)

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

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 THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

	Three months ended March 31,
	2010			2009

Net sales	$	3,303,321		$	6,896,490

Cost of sales		(2,895,448	)		(6,263,981	)

Gross profit		407,873			632,509

Administrative expenses		(1,258,155	)		(898,829	)

Selling and distributing costs		(1,045,922	)		(178,918	)

Loss from operations		(1,896,204	)		(445,238	)

Other income		1,150			19,726

Interest expenses		(620,231	)		(383,422	)

Loss before income taxes		(2,515,285	)		(808,934	)

Income taxes - note 5		20,789			(476,484	)

Net loss		(2,494,496	)		(1,285,418	)

Non-controlling interest		25,648			28,123

Net loss applicable to common shareholders		(2,468,848	)		(1,257,295	)

Loss per share - note 14

- basic	$	(0.01	)	$	(0.01	)

- dilutive	$	(0.01	)	$	(0.01	)

Weighted average shares outstanding

- basic		161,560,520			161,560,520

- dilutive		166,517,522			166,517,522

See the accompanying notes to condensed consolidated financial statements

F-2

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2010 AND DECEMBER 31, 2009

(Unaudited)

(Stated in US Dollars)

	As of
	March 31,		December 31,
	2010		2009
	(Unaudited)		(Audited)

ASSETS
Current assets
Cash and cash equivalents	$	349,130	$	186,086

Trade receivables		3,569,438		3,223,962
Prepaid expenses and other receivables - note 7		6,305,505		5,947,327
Prepaid tax		-		403,798
Inventories - note 8		1,807,466		1,299,802

Total current assets		12,031,539		11,060,975
Deferred tax assets - note 5		38,856		37,134
Plant and equipment, net - note 9		30,197,868		31,126,578

TOTAL ASSETS	$	42,268,263	$	42,224,687

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Current liabilities
Trade payables	$	2,891,296	$	2,012,703
Other payables and accrued liabilities - note 10		2,140,036		1,408,150
Income tax payable		160,557		141,934
Current portion of bank borrowings - note 11		890,801		1,024,176
Finance lease payable		94,223		114,458
Current portion of other loans - note 12		5,691,292		5,789,228

Total current liabilities		11,868,205		10,490,649
Non-current portion of bank borrowings - note 11		839,832		-
Non-current portion of other loans - note 12		5,241,377		5,241,377
Advance from a related party - note 13		2,058,653		2,058,653
Deferred tax liabilities - note 5		2,233,848		1,781,327

TOTAL LIABILITIES	$	22,241,915	$	19,572,006

F-3

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONT’D)

AS OF MARCH 31, 2010 AND DECEMBER 31, 2009

(Stated in US Dollars)

	As of
	March 31,			December 31,
	2010			2009
	(Unaudited)			(Audited)
COMMITMENTS AND CONTINGENCIES – note 15

STOCKHOLDERS’ EQUITY
Common stock: No par value – note 16
Authorized: 300,000,000 shares; Issued and outstanding:
2010 – 161,560,520 shares and 2009 –161,560,520 shares		4,557,827			4,557,827
Additional paid-in-capital – note 16		8,118,664			8,118,664
Accumulated other comprehensive income		(553	)		131,282
Retained earnings		7,700,683			10,169,532

TOTAL STOCKHOLDERS’ EQUITY		20,376,621			22,977,305

Non-controlling interest		(350,273	)		(324,624	)

		20,026,348			22,652,681

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	42,268,263		$	42,224,687

See the accompanying notes to condensed consolidated financial statements

F-4

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

	THREE MONTHS ENDED MARCH 31,
	2010			2009

Cash flows from operating activities
Net loss	$	(2,494,496	)	$	(1,285,418	)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Depreciation		799,494			825,720
Income taxes		(20,789	)		476,484
Amortization of license usage right		-			70,545
Changes in operating assets and liabilities:
Trade receivables		(345,476	)		1,291,183
Prepaid expenses and other receivables		(358,178	)		(78,475	)
Prepaid tax		403,798			-
Inventories		(507,664	)		(97,614	)
Trade payables		878,593			214,921
Income Tax payable		18,623			573,536
Other payables and accrued liabilities		731,886			215,788

Net cash flows (used in) / provided by operating activities		(894,209	)		2,206,670

Cash flows from investing activities
Payment for acquisition of fixed assets		(205,128	)		(1,027,091	)

Net cash flows used in investing activities		(205,128	)		(1,027,091	)

Cash flows from financing activities
Proceeds from non-recurring bank loans		1,034,024			-
Repayment of non-recurring bank loans		-			(553,472	)
Repayment of recurring bank loans		-			(1,619,000	)
Proceeds from other loans		-			856,350
Repayment of other loans		(97,936	)		-
Decrease in bank overdrafts		(319,308	)		(4,568	)
Repayment of obligations under capital leases		(17,667	)		-

Net cash flows provided by / (used in) financing activities		599,113			(1,320,690	)

Effect of foreign currency translation on cash and cash equivalents		500,667			40,709

Net increase / (decrease) in cash and cash equivalents		443			(100,402	)

Cash and cash equivalents, beginning of period		348,687			449,089

Cash and cash equivalents, end of period	$	349,130		$	348,687

F-5

INFOSMART GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

	Three months ended March 31,
	2010		2009

Supplemental disclosures for cash flow information:
Cash paid for:
Interest	$	620,231	$	374,170
Income taxes		-		38,994

See the accompanying notes to condensed consolidated financial statements

F-6

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

1.	Basis of presentation

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

In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month periods have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. These condensed financial statements should be read in conjunction with the consolidated financial statements and the notes included in the 2009 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 ,recordable compact discs (“CDR”) and Blu-ray DVD. The company currently manufactures DVDRs, CDRs as well as Blu-ray DVD, and has been developing its DVD-R manufacturing basis in both Hong Kong and Brazil to capture the worldwide market. The company has customers in China and South America.

3.	Continuance of operations

These financial statements have been prepared on a going concern basis. The Company has working capital surplus of $570,326 at December 31, 2009 as compared with a surplus of $503,250 in 2008.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company has incurred significant loss for the year ended December 31, 2009 and has a capital commitment of $5,000,000 to be repayable by monthly installment of $366,666 for the period from June 2009 till Aug 2010. The Company is therefore suffered by a heavily liquidity pressure.

For minimizing the cash flow shortage pressure, the Company had managed its liquidity during this time through a serious of cost reduction initiatives, capital markets transactions and seeking for new finance. At the same time, the directors and shareholders of the Company agree to give full financial support to the Company by realizing their personal assets to make all the operating expenses and all the outstanding liabilities repayable when necessary for the next twelve months.

F-7

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies

Basis of presentation and consolidation

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

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

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

As of March 31, 2010, 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	Hong Kong	September 26,		100	%	US$	25.65
Enterprises Limited		2003				HK$	(200	)
Info Smart	Hong Kong	December 14,		100	%	US$	618,075
Technology Limited		2001				HK$	(4,820,000	)
Infoscience Media	Hong Kong	September 10,		1000	%	US$	1,282
Limited		2004				HK$	(10,000	)
Manwin International	Hong Kong	April 11, 2008		50	%	US$	0.24
Limited						HK$	(2	)
Discobras Industria E Comercio De Electro Electronica Ltda	Brazil	March 2006		99.42	%	US$	7,977,072

F-8

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

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

Basis of presentation and consolidation (Cont’d)

Non-controlling Interests

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

For the development of the market in Blu-ray, the Company entered into an agreement on April 11, 2008 with independent third parties for setting up a subsidiary, Manwin International Limited (“Manwin”) in Hong Kong. Manwin has a capital of $0.24 (equivalent to HK$2) and 50% or US$0.12 (equivalent to HK$1) (“Investment Cost”) of which has been subscribed by the Company. The non-controlling 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.

Revenue recognition

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

Income taxes

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

Dividends

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

F-9

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

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

Basis of presentation and consolidation (Cont’d)

Comprehensive income

The Company has adopted SFAS 130, “Reporting Comprehensive Income”, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances.

Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments of the Company.

Foreign currency translation

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

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

The exchange rates in effect at March 31, 2010 and 2009 were HK$1 for $0.1282 and $0.129 US dollars and Real$1 for $0.5608 and $0.4464 US dollars respectively. The average exchange rates for 2010 and 2009 were HK$1 for $0.1282 and $0.1286 US dollars and Real$1 for $0.5488 and $0.5160 US dollars respectively. There is no significant fluctuation in exchange rate for the conversion between Real dollars, HK dollars and US dollars after the balance sheet date.

F-10

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (cont’d)

Fair value of financial instruments

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

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

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

Basic and diluted earnings per share

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

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

The Company’s common stock equivalents at March 31, 2010 include the following:

Detachable common stock warrants			28,510,347
Placement agent warrants			20,889,848

			49,400,195

Cash and cash equivalents

Cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with initial maturities of three months or less.

F-11

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (cont’d)

Trade receivables

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

Inventories

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

Plant and equipment

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

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

Production lines and equipment		10% with 30% residual 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-live assets

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

F-12

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (cont’d)

Recently Issued Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). Under SFAS 159, a company may choose, at specified election dates, to measure eligible items at fair value and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Effective January 1, 2008, the Company adopted SFAS 159, which is now codified as FASB ASC 825-10-50-28 “Financial Instruments – overall – disclosure – Fair value Option”, but the Company has not elected the fair value option for any eligible financial instruments as of December 31, 2008 and 2009.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combination” (“SFAS 141R”). SFAS 141R is relevant to all transactions or events in which one entity obtains control over one or more other businesses. SFAS 141R requires an acquirer to recognize any assets and noncontrolling interest acquired and liabilities assumed to be measured at fair value as of the acquisition date. Liabilities related to contingent consideration are recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of the consideration may be resolved beyond a reasonable doubt. This revised approach replaces SFAS 141’s cost allocation process in which the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their respective fair value. SFAS 141R requires any acquisition-related costs and restructuring costs to be expensed as incurred as opposed to allocating such costs to the assets acquired and liabilities assumed as previously required by SFAS 141. Under SFAS 141R, an acquirer recognizes liabilities for a restructuring plan in purchase accounting only if the requirements of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, are met. SFAS 141R allows for the recognition of pre-acquisition contingencies at fair value only if these contingencies are likely to materialize. If this criterion is not met at the acquisition date, then the acquirer accounts for the non-contractual contingency in accordance with recognition criteria set forth under SFAS No. 5, “Accounting for Contingencies”, in which case no amount should be recognized in purchase accounting. SFAS 141R is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008, which is now codified as FASB ASC 805 “Business Combination”. The adoption of SFAS 141R did not have a material impact on the Company’s financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”). This Statement amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity and should be reported as equity on the financial statements. SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. Furthermore, disclosure of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest is required on the face of the financial statements. SFAS 160 is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008, and now is codified as FASB ASC 810-10-45-16 “Consolidation — Overall — Other Presentation Matter – Noncontrolling Interest In a Subsidiary”. Accordingly, in 2009, minority interests has been renamed noncontrolling interests, consolidated net income (loss) is reported at amounts that include the amounts attributable to both noncontrolling interests and Nam Tai’s shareholders for all periods presented. In addition, noncontrolling interests has been reported as a component of equity in the consolidated balance sheets and consolidated statements of changes in equity and comprehensive income for all periods presented. The Company has retrospectively applied the presentation to its prior year balances in the consolidated financial statements.

In April 2008, the FASB issued FSP SFAS 142-3, “Determination of the Useful Life of Intangible Assets”. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. This FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The guidance for determining the useful life of a recognized intangible asset in this FSP shall be applied prospectively to intangible assets acquired after the effective date. This FSP is now codified as FASB ASC 350-20, “Intangibles — Goodwill and Other Goodwill” effective for interim and annual periods ending after September 15, 2009. The adoption of FASB ASC 350-20 did not have a material impact on the Company’s financial position, results of operations and cash flows.

F-13

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (cont’d)

Recently Issued Accounting Pronouncements

In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”. This FSP gives guidance on the computation of earnings per share and the impact of share-based instruments that contain certain non forfeitable rights to dividends or dividend equivalents. The FSP is effective for fiscal years beginning after December 31, 2008 and is now codified as FASB-ASC 718 “Compensation-Stock Compensation” effective for interim and annual periods ending after September 15, 2009. The adoption of FASB-ASC 718 did not have a material impact on the Company’s financial position, results of operations and cash flows.

In November 2008, the FASB ratified the consensus reached by the Task Force in EITF Issue 08-7, “Accounting for Defensive Intangible Assets” (“EITF 08-7”). EITF 08-7 requires entities that will acquire a defensive intangible asset after the effective date of SFAS 141R which is now codified as FASB ASC 805 “Business Combination” effective for interim and annual periods ending after September 15, 2009, to account for the acquired intangible asset as a separate unit of accounting and amortize the acquired intangible asset over the period during which the asset would diminish in value. EITF 08-7 is effective for defensive intangible assets acquired in fiscal years beginning on or after December 15, 2008. The adoption of EITF 08-7 did not have a material impact on the Company’s financial position, results of operations and cash flows.

In April 2009, the FASB issued FSP SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies “. FAS 141(R)-1 amends and clarifies FASB Statement No. 141 (revised 2007), “Business Combinations”, to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FAS 141(R)-1 is effective for the interim and annual periods ending after June 15, 2009, which is now codified as FASB ASC 805 “Business Combination”. The adoption of FASB ASC 805 did not have a material impact on the Company’s financial position, results of operations and cash flows.

In April 2009, the FASB issued FSP SFAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”. FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP SFAS 115-2 and FAS 124-2 are effective for the interim and annual periods ending after June 15, 2009, which is now codified as FASB ASC 320 “Investments – Debt and Equity Securities”. The adoption of FASB ASC 320 did not have a material impact on the Company’s financial position, results of operations and cash flows.

In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”. FSP amends SFAS 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “ Interim Financial Reporting”, to require those disclosures in summarized financial information effective for the interim and annual periods ending after June 15, 2009. SFAS 107 is now codified as FASB ASC 825-10-50 “Financial Instrument-Overall-Disclosure”. The adoption of FASB ASC 825-10-50 did not have a material impact on the Company’s financial position, results of operations and cash flows.

In May 2009, the FASB issued FSP SFAS 165 “Subsequent Events”. The objective of this Statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for the interim and annual periods ending after June 15, 2009, which is now codified as FASB ASC 855 “Subsequent Events”. The adoption of FASB ASC 855 did not have a material impact on the Company’s financial position, results of operations and cash flows. Effective February 24, 2010, the Company adopted Accounting Standards Update (“ASU”) No. 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements”, which removes the requirement to disclose the date through which subsequent events have been evaluated. The adoption of the ASU did not have a material impact on the Company’s financial position, results of operations and cash flows.

F-14

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

4.	Summary of significant accounting policies (cont’d)

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued FSP SFAS 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140”. The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. SFAS 166 is effective for the interim and annual periods ending after June 15, 2009, which is now codified as FASB ASC 860-10 “Transfers and Servicing — Overall”. The adoption of FASB ASC 860-10 did not have a material impact on the Company’s financial position, results of operations and cash flows.

In June 2009, the FASB issued FSP SFAS 167 “Amendments to FASB Interpretation No. 46” The objective of this Statement is to amend certain requirements of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”, to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. SFAS 167 is effective for the interim and annual periods ending after June 15, 2009, which is now codified as FASB ASC 810-10-50-2A “Consolidation – Overall – Disclosure — Variable Interest Entities”. The adoption of FASB ASC 810-10-50-2A did not have a material impact on the Company’s financial position, results of operations and cash flows.

In June 2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No 162”, which supersedes all existing non-SEC accounting and reporting standards. The codification does not change GAAP but rather organizes it into a new hierarchy with two levels: authoritative and non-authoritative. All authoritative GAAP carries equal weight and is organized in a topical structure. The adoption of SFAS 168 did not have a material impact on the Company’s financial position, results of operations and cash flows.

In August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and Disclosures (Topic 820)”. This ASU applies to all entities that measure liabilities at fair value within the scope of Topic 820 and provides clarification on how to measure liabilities at fair value when a quoted price in an active market is not available and clarify that it is not required to include a separate input or adjustment to other inputs relating to a restriction of transfer of liabilities. The adoption of ASU No. 2009-05 did not have a material impact on the Company’s financial position, results of operations and cash flows.

In September 2009, the FASB issued ASU No. 2009-06, “Income Taxes (Topic 740)—Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”, and it provides implementation guidance on accounting for uncertainty in income taxes effective for interim and annual reporting period ending on or after September 15, 2009. The adoption of ASU No. 2009-06 did not have any impact on the Company’s financial position, results of operations and cash flows.

In September 2009, the FASB issued ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This update applies to all entities that hold an investment that is required to be measured or disclosed at fair value on a recurring or nonrecurring basis. These amendments permit, as a practical expedient, a reporting entity to measure the fair value of investment on the basis of the net asset value per share of the investment and require disclosures by major category of investment within the scope of this update. ASU No. 2009-12 is effective for interim and annual periods ending after December 15, 2009 and the adoption is not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

F-15

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

4.	Summary of significant accounting policies (cont’d)

Recently Issued Accounting Pronouncements

In December 2009, the FASB issued ASU No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”. The amendments in this update are the result of FASB Statement No. 167 “Amendments to FASB Interpretation No. 46 (R)”, which is now codified as FASB ASC 810-10-50-2A “Consolidation – Overall – Disclosure - Variable Interest Entities” and is effective for the interim and annual periods ending after December 15, 2009. The adoption of ASU No. 2009-17 is not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

In January 2010, the FASB issued ASU No. 2010-02, “Consolidation (Topic 810)”, in which it clarifies that the scope of the decrease in ownership provision of the Subtopic and related guidance applies to a subsidiary or group of assets that is a business or nonprofit activity, but does not apply to sales of substance real estate & conveyances of oil and gas mineral rights. ASU No. 2010-02 is effective for the interim and annual periods ending after December 15, 2009. The adoption of ASU No. 2010-02 is not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

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

F-16

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

5.	Income taxes

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

	Three months ended March 31,
	2010		2009

	(Unaudited)		(Unaudited)

Current taxes		-		(4,897	)
Deferred taxes		20,789		(471,587	)

		20,789		(476,484	)

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 THREE MONTHS ENDED MARCH 31, 2010 AND 2009. 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 16.5% on the estimated assessable profits during the periods.

Deferred tax (assets) liabilities as of March 31, 2010 and December 31, 2009 are composed of the following:

	As of
	March 31,			December 31,
	2010			2009
	(Unaudited)			(Audited)
Hong Kong
Operating losses available for future periods					-
Temporary difference on accelerated tax depreciation on plant and equipment		2,194,992			1,744,193

The United States
Operating losses available for future periods		(4,402,346	)		(3,823,377	)
Valuation allowance		4,402,346			3,823,377

Deferred tax liabilities, net	$	2,194,992		$	1,744,193

Recognized in the balance sheet:
Net deferred tax assets		(38,856	)		(37,134	)
Net deferred tax liabilities		2,233,848			1,781,327

	$	2,194,992		$	1,744,193

F-17

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

6.	Comprehensive income

	THREE MONTHS ENDED MARCH 31,
	2010			2009
	(Unaudited)			(Unaudited)

Net loss applicable to common shareholders	$	(2,468,848	)	$	(1,257,295	)
Foreign currency translation adjustments		(131,835	)		842,582

Total comprehensive loss	$	(2,600,683	)	$	(414,713	)

7. Prepaid expenses and other receivables

	As of
	March 31,		December 31,
	2010		2009
	(Unaudited)		(Audited)

Prepaid professional expenses	$	178,572	$	285,714
Other prepaid operating expenses		1,934,435		1,469,916
Rental and utility deposits		25,006		23,167
Reclassification of Current Account with Infoscience Holdings Limited on disposal		2,935,897		2,936,935
Blu-ray production facility deposit		1,231,595		1,231,595

	$	6,305,505	$	5,947,327

8. Inventories

	As of
	March 31,		December 31,
	2010		2009
	(Unaudited)		(Audited)

Raw materials	$	1,099,678	$	775,711
Finished goods		707,788		524,091

	$	1,807,466	$	1,299,802

F-18

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

9. Plant and equipment

	As of
	March 31,		December 31,
	2010		2009
	(Unaudited)		(Audited)
Costs
Production lines and equipment	$	40,102,644	$	40,258,099
Leasehold improvements		1,602,238		1,637,831
Furniture, fixtures and office equipment		218,808		223,527
Motor vehicles		248,174		252,728

		42,171,864		42,372,185

Accumulated depreciation
Production lines and equipment		10,807,105		10,158,448
Leasehold improvements		958,772		898,805
Furniture, fixtures and office equipment		129,395		121,012
Motor vehicles		78,724		67,342

		11,973,996		11,245,607

Net
Production lines and equipment		29,295,539		30,099,651
Leasehold improvements		643,466		739,026
Furniture, fixtures and office equipment		89,413		102,515
Motor vehicles		169,450		185,386

	$	30,197,868	$	31,126,578

F-19

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

9. Plant and equipment (cont’d)

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

	Pledged for banking facilities
	As of
	March 31,		December 31,
	2010		2009
	(Unaudited)		(Audited)

Costs	$	-	$	615,384
Accumulated depreciation		-		(172,307	)

Net	$	-	$	443,077

	THREE MONTHS ENDED MARCH 31,
	2010		2009
	(Unaudited)		(Unaudited)

Depreciation for the period	$	-	$	257,677

The components of depreciation charged are:

	THREE MONTHS ENDED MARCH 31,
	2010		2009
	(Unaudited)		(Unaudited)

Included in factory overheads
Production lines and equipment	$	698,128	$	701,892

Included in operating expenses
Leasehold improvements		78,452		103,628
Furniture, fixtures and office equipment		10,718		8,210
Motor vehicles		12,196		11,990

		101,366		123,828

	$	799,494	$	825,720

F-20

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

10. Other payables and accrued liabilities

	As of
	March 31,		December 31,
	2010		2009
	(Unaudited)		(Audited)

Customers deposits	$	620,214	$	327,908
Accrued professional fee		232,571		218,532
Staff costs payable		291,124		235,753
Other loan interest payable		644,242		521,445
Other accrued expenses for operations		351,885		104,512

	$	2,140,036	$	1,408,150

11. Bank borrowings

	As of
	March 31		December31
	2010		2009
Secured:
Bank overdrafts repayable on demand	$	-	$	255,987
Repayable within one year

		-		255,987

Unsecured:
Bank overdrafts repayable on demand
Repayable within one year		696,608		768,189
Other non-recurring bank borrowings
Repayable within one year		194,193		-
Other non-recurring bank borrowings
Repayable over one year		839,832		-

		1,730,633		768,189

	$	1,730,633	$	1,024,176

The above banking borrowings were secured by the following:-

(a)

No legal charge as at March 31,2010 and first fixed legal charge over 1 DVDR production lines with carrying amounts of $443,077 as at December 31,2009

(note 7); and

(b)

No guarantees as at March 31,2010 and 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 as at December 31,2009.

F-21

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

12. Other loans

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

	As of March 31			As of December 31
	2010			2009

Year ending December 31
2008	$	-		$	-
2009		-			5,789,228
2010		5,691,292			5,241,377
2011		5,241,377			-

Total		10,932,669			11,030,605
Current portion		(5,691,292	)		(5,789,228	)

Non-current portion		5,241,377			5,241,377

All the other loans are unsecured and have fixed repayment terms. The interest rate is Hong Kong Prime interest rate (the average effective rate is approximately 5% (2010) and 5% (2009) .

13. Advance from a related party

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

	As of March 31		As of December 31
	2010		2009

Prime Corporate Developments Ltd.	$	929,751	$	929,751
Umetech Global Marketing Ltd.	$	1,128,902	$	1,128,902

	$	2,058,653	$	2,058,653

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

F-22

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

14. Earnings per share

The Company’s potentially dilutive securities at March 31, 2010 include the following:

Detachable common stock warrants			28,510,347
Placement agent warrants			20,889,848

			49,400,195

15. Commitments and contingencies

Commitments and contingencies

Operating leases commitments

The Company leases office premises under various non-cancelable operating lease agreements that expire at 24 November 2011, with an option to renew the lease. All leases are on a fixed repayment basis. None of the leases include contingent rentals. Minimum future commitments under these agreements payable as of March 31, 2010 are as follows:-

Year ending March 31
2010			33,462
2011			40,897

Contingencies

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

F-23

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

16. Common stock and convertible preferred stock

Common stock

Additional

No. of

paid-in

Amount

Capital

Balance, January 1, 2010 and March 31, 2010

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.

Additional paid-in capital

The Company allocated the net proceeds ($6,885,000) between the Series B Preferred Stock ($3,738,827) and the warrants ($3,146,173) based upon their relative fair values as of the closing date. The Company determined the fair value of the warrants (including Placement Agent Warrants which were valued at $644,800) using the Black-Scholes option pricing model with the following assumptions: no dividend yield; weighted average risk free rate of 5.05%; volatility of 368% and contractual life of 5 years. The Company recorded the portion of the proceeds attributable to the stock as mezzanine equity pursuant to EITF Topic D-98, Classification and Measurement of Redeemable Securities after determining the guidance in FAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity did not apply. The Company determined that the warrants meet the definition of a derivative instrument as defined in SFAS 133, Accounting for Derivative Instruments and Hedging Activities, but do not require derivative treatment pursuant to the scope exception in paragraph 11(a) of SFAS 133.

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

F-24

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

17. 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 $128.20 (equivalent of HK$1,000). The participants are entitled to 100% of the Company’s contributions together with accrued returns irrespective of their length of service with the Company, but the benefits are required by law to be preserved until the retirement age of 65. The only obligation of the Company with respect to MPF Scheme is to make the required contributions under the plan.

The assets of the schemes are controlled by trustees and held separately from those of the Company. The Company fully complied the contribution requirement and total pension cost was refund of $(22,524) and $19,250 for the three months ended March 31, 2010 and 2009 respectively.

F-25

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

18. Segment Information

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

Three months ended March 31, 2009

	DVDR and									2009
	Related Products			CDR			Blu-ray			Total
NET SALES		6,311,480			510,844			74,166			6,896,490

COST OF SALES		(5,752,750	)		(424,001	)		(87,230	)		(6,263,981	)

GROSS PROFIT		558,730			86,843			(13,064	)		632,509

ADMINISTRATIVE EXPENSES		(672,464	)		-			(3,817	)		(676,281	)

DEPRECIATION		(222,548	)		-			-			(222,548	)

SESELLING AND DISTRIBUTING COSTS		(96,496	)		-			(82,422	)		(178,918	)

INCOME / (LOSS) FROM OPERATIONS		(432,778	)		86,843			(99,303	)		(445,238	)

OTHER INCOME		19,726			-			-			19,726

INTEREST EXPENSES		(383,422	)					-			(383,422	)

INCOME BEFORE INCOME TAXES		(796,474	)		86,843			(99,303	)		(808,934	)

INCOME TAXES		(476,484	)		-			-			(476,484	)

NET INCOME		(1,272,958	)		86,843			(99,303	)		(1,285,418	)

MIMINORITY INTEREST		(21,528	)		-			49,651			28,123

NET (LOSS)/INCOME APPLICABLE TO COMMON SHAREHOLDERS		(1,294,486	)		86,843			(49,652	)		(1,257,295	)

F-26

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

18. Segment Information (Con’t)

Three months ended March 31, 2010

	DVDR and									2010
	Related Products			CDR			Blu-ray			Total
NET SALES		3,188,105			114,706			3,510			3,303,321

COST OF SALES		(2,748,564	)		(114,706	)		(32,178	)		(2,895,448	)

GROSS PROFIT		436,541			-			(28,668	)		407,873

ADMINISTRATIVE EXPENSES		(1,156,463	)		-			(326	)		(1,156,789	)

DEPRECIATION		(101,366	)		-			-			(101,366	)

SELLING AND DISTRIBUTING COSTS		(1,039,864	)		-			(6,058	)		(1,045,922	)

INCOME / (LOSS) FROM OPERATIONS		(1,861,152	)		-			(35,052	)		(1,896,204	)

OTHER INCOME		1,150			-			-			1,150

INTEREST EXPENSES		(618,208	)					(2,023	)		(620,231	)

INCOME BEFORE INCOME TAXES		(2,478,210	)		-			(37,075	)		(2,515,285	)

INCOME TAXES		17,609			-			3,180			20,789

NET INCOME		(2,460,601	)		-			(33,895	)		(2,494,496	)

MIMINORITY INTEREST		8,701			-			16,947			25,648

NET (LOSS)/INCOME APPLICABLE TO COMMON SHAREHOLDERS		(2,451,900	)		-			(16,948	)		(2,468,848	)

F-27

INFOSMART GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(Stated in US Dollars)

18. Segment Information (Con’t)

Year ended December 31, 2009

	DVDR and						2009
	Related Products		CDR		Blu-ray		Total
TOTAL ASSETS		38,111,778		1,548,400		2,564,509		42,224,687

Year ended March 31, 2010

	DVDR and						2008
	Related Products		CDR		Blu-ray		Total
TOTAL ASSETS		38,232,645		1,514,100		2,521,518		42,268,263

Geographic information about net sales, which are classified based on location of the customers, is set out as follows:

	Three months ended March 31,
	2010		2009
	(Unaudited)		(Unaudited)

Argentina		-		-
Australia		-		-
Brazil		3,021,753		4,152,479
China and Hong Kong		248,012		2,530,206
Philippine		-		62,869
South America		-		-
Thailand		-		-
United States		-		-
Other countries		33,556		150,936

Total		3,303,321		6,896,490

19. 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-28

ITEM 2.

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

Forward Looking Statements

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

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

Overview

We are in the business of developing, manufacturing, marketing and sales of recordable digital versatile disc (“DVDR”) media and recordable compact discs (“CDR”) and Blu-ray DVD formats. We have customers in 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.

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 its subsidiaries. All significant inter-company balances and transactions are eliminated on consolidation.

Non-controlling Interests. For the development of the market in Brazil, the Company entered into an agreement on March 20, 2006 with two independent third parties for setting up a subsidiary, Discobrás, in Brazil. Discobrás has a social capital of $8,046,281 (equivalent to R$17,385,600),of which 99.42% or $8,000,000 (equivalent to R$17,285,600) (“Investment Cost”) has been subscribed by the Company. As of September 30, 2007, 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. For the development of the market in Blu-ray, the Company entered into an agreement on April 11, 2008 with independent third parties for setting up a subsidiary, Manwin International Limited (“Manwin”) in Hong Kong. Manwin has a capital of $0.24 (equivalent to HK$2) and 50% or US$0.12 (equivalent to HK$1) (“Investment Cost”) of which has been subscribed by the Company. The minority interests have been recognized in the accompanying financial statements.

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

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 March 31, 2010 include the following:

Detachable common stock warrants			28,510,347
Placement agent warrants			20,889,848
			49,400,195

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

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

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

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

Production lines and equipment		10% with 30% residual 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-live assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company recognizes impairment of long-lived assets in the event that the net book values of such assets exceed the future undiscounted cashflows attributable to such assets. No impairment of long-lived assets was recognized for any of the periods presented.

Recently Issued Accounting Pronouncements

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 March 31, 2010 and 2009

Net Sales. For the three months ended March 31, 2009, net sales decreased relative to the three months ended March 31, 2009, from $6,896,490 to $3,303,321. The decrease in net sales is a decrease specifically in the sale 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 Brazil. Market trends show a growth slower than our expectation for the new Blu-ray discs and a lower demand for DVDR discs.

Cost of Sales. Cost of sales decreased from $6,263,981, or approximately 90% of net sales for the three months ended March 31, 2009, to $2,895,448 or approximately 87% of net sales for the three months ended March 31, 2010. The decrease in cost of sales is primarily due to a corresponding decrease in sales

Gross Profit. Gross profit decreased approximately 35% from $632,509 for the three months ended March 31, 2009 to $407,873 for the three months ended March 31, 2010. This decrease in gross profit was primarily due to the decrease in net sales.

Selling and Distribution Costs. For the three months ended March 31, 2010, selling and distribution costs increased approximately 484% from $178,918 to $1,045,922 relative to the three months ended March 31, 2009. The increase was due to our reallocation of sales related tax from cost of sales to selling and distribution costs.

Administrative Expenses. Administrative expenses included depreciation and amortization charges, and was $1,258,155 and $898,829 for the three months ended March 31, 2010 and 2009, respectively. This increase in administrative expenses was mainly due to the full provision for doubtful debts.

Net Loss. Net loss increased approximately 96% from $1,257,295 for the three months ended March 31, 2009 to net loss of $2,468,848 for the three months ended March 31, 2010. This is due to the decrease in net sales and reallocation of sales related tax.

Liquidity and Capital Resources

Three Months
Ended March 31,	2010				2009				Change

Net cash (used in) provided by operating activities		$	(894,209	)		$	2,206,670			$	(3,100,879	)

Net cash (used in) investing activities			(205,128	)			(1,027,091	)			821,963

Net cash (used in) provided by financing activities			599,113				(1,320,690	)			1,919,803

Net cash used in operating activities was $894,209 for the three months ended March 31, 2010 and Net cash provided by operating activities was $2,206,670 for the three months ended March 31, 2009. The increase in our net cashflow used in operating activities was mainly due to the decrease of our trade receivables and the increase in trade payables.

Net cash used in investing activities was $205,128 for the three months ended March 31, 2010 and $1,027,091 for the three months ended March 31, 2009. The increase in net cash provided by investing activities is mainly related to a increase in acquisitions of plant and equipment.

Net cash provided by financing activities was $599,113 for the three months ended March 31, 2010, and net cash used in financing activities of $1,320,690 for the three months ended March 31, 2009. The increase in our net cash provided by financing activities was mainly due to the proceeds from bank loan.

Off-Balance Sheet Arrangements

There is no off-balance sheet arrangement as at 31 March 2010 and 31 December 2009. 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 March 31, 2010, 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		$	1,731		$	891		$	840		$	—		$	—
Other Indebtedness			10,932			5,691			5,241			—			—
Operating Leases			74			33			41			—			—
Total Contractual Obligations:		$	12,737		$	6,615		$	6,122		$	—		$	—

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 2012, 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 March 31, 2010 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

W are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

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 Quarter 4 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 have 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. (Removed and Reserved).

Item 5. Other Information.

None

Item 6. Exhibits.

Exhibit Number		Description
2.1		Exchange Agreement by and among Cyber, KI Equity, Hamptons Investment Group, Ltd., Prime and the Prime Shareholders dated July 7, 2006 (1)

2.2		First Amendment to the Exchange Agreement dated August 16, 2006 between Cyber, KI Equity Partners, LLC, Hamptons Investment Group, Ltd., Prime, Prime Shareholders, Infosmart Group Ltd. and the Infosmart BVI Shareholders (2)

2.3		Voting Agreement by and among the Infosmart BVI Stockholders and KI Equity dated August 16, 2006 (2)

3.1		Articles of Incorporation (3)

3.2		Bylaws (3)

3.3		Amendment to Bylaws (4)

3.4		Certificate Of Determination Of Rights, Preferences, Privileges And Restrictions Of Series A Convertible Preferred Stock (2)

3.5		Certificate Of Determination Of Rights, Preferences, Privileges And Restrictions Of Series B Convertible Preferred Stock (2)

4.1		Lock-Up Agreement (5)

4.2		Specimen Stock Certificate for Shares of Common Stock of the Company (6)

10.1		Lease of registrant's facilities dated January 29, 2004 (7)

10.2		Lease of registrant's facilities dated March 22, 2006 (7)

10.3		Lease of registrant's facilities dated September 16, 2003 (7)

10.4		Lease of registrant's facilities dated July 25, 2003 (7)

10.5		Lease of registrant's facilities dated September 30, 2003 (7)

10.6		Placement Agent Agreement dated July 7, 2006 between the Registrant, Securities, LLC and Axiom Capital Management, Inc. (2)

10.7		Form of Subscription Agreement between the Registrant and the Investor to be identified therein (2)

10.8		Registration Rights Agreement (2)

10.9		Form of Common Stock Purchase Warrant (2)

10.10		Assignment and Assumption of Placement Agreement by an among Infosmart BVI, Cyber, Keating Securities, LLC and Axiom Capital Management, Inc. dated August 16, 2006 (2)

10.11		Appointment Letter Agreement by and among Po Nei Sze and Infosmart Group Limited dated June 1, 2006 (2)

10.12		Appointment Letter Agreement by and among Andrew Chang and Infosmart Group Limited dated July 1, 2006 (2)

10.13		Appointment Letter Agreement by and among Chung Kwok and Infosmart Group Limited dated July 1, 2006 (2)

10.14		Cooperation Agreement by and among Infoscience Media Ltd. and Infoscience Holdings Ltd. dated December 1, 2005 (2)

10.15		Amendment Agreement by and among Info smart Technology Limited, Info Smart International Enterprises Limited, and Mega Century Ltd. dated January 1, 2006 (2)

10.16		Banking Facilities Letter Agreement by and between Infoscience Media Limited and Hang Seng Bank Limited dated September 15, 2005 (2)

10.17		General Banking Facilities Agreement by and between Info Smart Technology Ltd. and Chiyu Banking Corporation Limited dated November 28, 2003 (2)

10.18		Contract for two Automatic Dual Track DVDR Manufacturing Systems "Streamline II DVDR" between Infoscience Media Ltd. and ACME Cassette Manufacturing Limited dated September 15, 2004 (2)

10.19		Sale and Purchase Agreement between Infoscience Media Limited and New Passion Investments Limited dated December 1, 2006 (8)

16.1		Letter from PKF Hong Kong dated September 10, 2007 (9)

21.1		Subsidiaries *

23.1		Consent of Parker Randall CF (H.K.) CPA Limited *

23.2		Consent of Parker Randall CF (H.K.) CPA Limited *

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

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

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

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

* Filed herewith.

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

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

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

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

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

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

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

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

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

SIGNATURES

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

	INFOSMART GROUP, INC.

Dated: May 14, 2010	By:	/s/ Kwok Chung Lit
		Kwok Chung Lit, Chief Executive Officer and President

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

Name	Position	Date

/s/ Kwok Chung Lit	Chief Executive Officer, President	May 14, 2010
Kwok Chung Lit

/s/ Fan Chun Wang	Chief Financial Officer, Treasurer,	May 14, 2010
Fan Chun Wang	Secretary, Director

/s/ Andrew Chung Yuen Chang	Chairman of the Board of Directors	May 14, 2010
Andrew Chung Yuen Chang

/s/ Simon Lee	Director	May 14, 2010
Simon Lee

/s/ Joseph Chang	Director	May 14, 2010
Joseph Chang

/s/ Chi-Man Lam	Director	May 14, 2010
Chi-Man Lam

Positive
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Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Infosmart (IFSG) Inactive 10-Q2010 Q3 Quarterly report

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