Management's Discussion and Analysis or Plan of Operation.

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

OVERVIEW

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

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

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

Share Exchange Transaction

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

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

Name Change and Increase in Authorized Shares of Common Stock

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Basis of presentation and consolidation

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

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

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

Minority Interests

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

Use of estimates

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

License usage rights

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

Concentrations of credit risk

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

Revenue recognition

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

Advertising and transportation expenses

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

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

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

Income taxes

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

Dividends

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

The Series B Convertible Preferred Stock carries dividends at 8% per annum payable quarter in cash in US Dollars.

Comprehensive income

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

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

Foreign currency translation

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

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

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

Fair value of financial instruments

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

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

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

Stock-based payment

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

Basic and diluted earnings (loss) per share

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

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

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

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

Convertible redeemable preferred stock Series B     16,011,864
Detachable common stock warrants                    28,510,347
Placement agent warrants                             2,931,035
                                                    47,453,186

Cash and cash equivalents

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

Restricted cash

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

Trade receivables

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

Inventories

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

Plant and equipment

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

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

Production lines and equipment 10% with 30% residual 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.

Off-balance sheet arrangements

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

Recently Issued Accounting Pronouncements

On January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined in FIN 48 as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. FIN 48 must be applied to all existing tax positions upon initial adoption. The cumulative effect of applying FIN 48 at adoption, if any, is to be reported as an adjustment to opening retained earnings for the year of adoption. The adoption of FIN 48 did not have a material effect on the Company's consolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which relates to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has not yet completed its analysis of the impact of adopting SFAS No. 157 on the consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115, which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159 does not establish requirements for recognizing and measuring dividend income, interest income, or interest expense. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements, included in SFAS No. 157, Fair Value Measurements, and SFAS No. 107, Disclosures about Fair Value of Financial Instruments. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. The Company has not yet completed its assessment of the impact upon adoption of SFAS No. 159 on the consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. This statement retains the fundamental requirements of the original pronouncement requiring that the acquisition method of accounting, or purchase method, be used for all business combinations. SFAS No. 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. In addition, SFAS No. 141(R) requires, among other things, expensing of acquisition related and restructuring related costs, measurement of pre-acquisition contingencies at fair value, measurement of equity securities issued for purchase at the date of close of the transaction and capitalization of in process research and development, all of which represent modifications to current accounting for business combinations. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008. Adoption is prospective and early adoption is not permitted. Adoption of SFAS No. 141(R) will not impact the Company's accounting for business combinations closed prior to its adoption, but given the nature of the changes noted above, the Company expects that its accounting for business combinations occurring subsequent to adoption will be significantly different than that applied following current accounting literature.

In December 2007, the FASB issued SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective for the fiscal year beginning after December 15, 2008. The Company is in the process of evaluating the impact that SFAS 160 will have on its financial statements upon adoption.

RESULTS OF OPERATIONS

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

                                                             Year ended December 31
                                  2007          % of           2006          % of           2005          % of
                                 Audited       Revenue        Audited       Revenue        Audited       Revenue
NET SALES                    $ 104,969,899      100.00 %  $  27,102,441      100.00 %  $  24,577,206      100.00 %

COST OF SALES                  (90,186,253 )     85.92 %    (19,570,525 )     72.21 %    (17,911,674 )     72.88 %

GROSS PROFIT                    14,783,646       14.08 %      7,531,916       27.79 %      6,665,532       27.12 %

A ADMINISTRATIVE EXPENSES       (4,416,087 )      4.21 %     (1,997,379 )      7.37 %       (816,553 )      3.32 %

DEPRECIATION                      (743,743 )      0.71 %       (223,893 )      0.83 %       (214,534 )      0.87 %

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