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

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

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

Recent Developments

Although there is no current definitive sales agreement, we received a test order during the second quarter of 2008 from a leading recorded media supplier of live concerts and films in Asia for the installation of Blu-rayŽ DVD for a film using our newly installed Anwell Blu-rayŽ equipment line purchased in March 2008 and installed in May and June 2008. A test order is done to confirm Blu-rayŽ's high reproduction standards are achieved prior to initiating production runs. As the only Blu-rayŽ producer in Hong Kong and the first in China, we expect to see several future orders as Blu-rayŽ begins to dominate the visual media market.

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.

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, 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. The minority interests have been recognized in the accompanying financial statements.

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

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

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

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.

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 June 30, 2008 include the following:

Convertible redeemable preferred stock Series B     15,653,950
Detachable common stock warrants                    28,510,347
Placement agent warrants                             3,740,577

                                                    47,904,874

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%

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

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

Recent accounting pronouncements. 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.

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 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 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 business combination, establishes th 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(R0 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

Comparison of Three Months Ended June 30, 2008 and 2007

Net Sales. For the three months ended June 30, 2008, net sales decreased relative to the three months ended June 30, 2007, from $19,608,031 to $6,768,637. The decrease in net sales is mainly due to the greater cost fluctuation of outsourced Flash drives and memory cards for the past half year. We plan to explore other sources of these of Flash drives and memory cards to alleviate the costs during the coming few months. Also, there was a decrease in net sales in China, which is our main customer segment base, as a result of a blizzard in China that interrupted our distribution networks during the first quarter of 2008, which networks have not completely recovered, yet. Another factor in the decrease in net sales of DVDRs in Hong Kong was our policy of geographical diversification and our shift in focus from the lower margin Hong Kong markets to higher margin markets, such as Asia and Brazil.

Cost of Sales. Cost of sales decreased from $14,506,478, or approximately 73.98% of net sales for the three months ended June 30, 2007, to $5,025,074, or approximately 74.24% of net sales for the three months ended June 30, 2008. We were able to effectively control our cost of sales from the three months ended June 30, 2007 to the three months ended June 30, 2008.

Gross Profit. Gross profit decreased approximately 65% from $5,101,553 for the three months ended June 30, 2007 to $1,743,563 for the three months ended June 30, 2008. This decrease in gross profit was primarily due to the decrease in net sales.

Selling and Distribution Costs. For the three months ended June 30, 2008, selling and distribution costs decreased approximately 36% from $161,533 to $102,835 relative to the three months ended June 30, 2007. The decrease is attributable to lower freight expenses.

Administrative Expenses. Administrative expenses included depreciation and amortization charges, and was $1,504,181 and $1,254,629 for the three months ended June 30, 2008 and 2007, respectively. This increase in administrative expenses was due to an expansion in our administrative operations for our Blu-ray production.

Net Income. Net income decreased from $3,296,691 for the three months ended June 30, 2007 to a net loss of $6,540 for the three months ended June 30, 2008. This is due to the decrease in net sales and increased administrative expenses.

Comparison of Six Months Ended June 30, 2008 and 2007

Net Sales. For the six months ended June 30, 2008, net sales decreased relative to the six months ended June 30, 2007, from $27,306,446 to $14,329,084. The decrease in net sales is mainly due to the greater cost fluctuation of outsourced Flash drives and memory cards for the past half year. We plan to explore other sources of these of Flash drives and memory cards to alleviate the costs during the coming few months. Also, there was a decrease in net sales in China, which is our main customer segment base, as a result of a blizzard in China that interrupted our distribution networks during the first quarter of 2008, which networks have not completely recovered, yet. Another factor in the decrease in net sales of DVDRs in Hong Kong was our policy of geographical diversification and our shift in focus from the lower margin Hong Kong markets to higher margin markets, such as Asia and Brazil.

Cost of Sales. Cost of sales decreased from $20,419,825, or approximately 74.78% of net sales for the six months ended June 30, 2007, to $11,523,691, or approximately 80.42% of net sales for the six months ended June 30, 2008. The decrease is mainly due to a corresponding decrease in net sales during the first half of 2008.

Gross Profit. Gross profit decreased approximately 59% from $6,886,621 for the six months ended June 30, 2007 to $2,805,393 for the six months ended June 30, 2008. This decrease in gross profit was primarily due to the decrease in our net sales.

Selling and Distribution Costs. For the six months ended June 30, 2008, selling and distribution costs decreased from $241,049 to $175,702 relative to the six months ended June 30, 2007. The decrease is attributable to lower freight expenses.

Administrative Expenses. Administrative expenses included depreciation and amortization charges, and was $2,284,405 and $2,185,679 for the six months ended June 30, 2008 and 2007, respectively. This slight increase in administrative expenses was due to an expansion in our administrative operations for our Blu-ray production.

Net Income. Net income decreased from $4,201,975 for the six months ended June 30, 2007 to $826,443 for the six months ended June 30, 2008. This is primarily due to the decrease in net sales.

Liquidity and Capital Resources

                 Six Months
               Ended June 30,                 2008           2007         Change

      Net cash (used in) provided by
      operating activities                $ (2,548,654 ) $ (1,691,386 ) $ (857,268 )

      Net cash (used in) investing
      activities                               (72,729 )     (231,374 )    158,645

      Net cash provided by financing
      activities                             2,142,900      2,328,440     (185,540 )

Net cash used in operating activities was $2,548,654 for the six months ended June 30, 2008 and $1,691,386 for the six months ended June 30, 2007. The increase in our net cash used in operating activities was mainly due to the decrease of our trade payables with a corresponding decrease in sales volume. The decrease in our trade payable wasa result of cash payments, which was off-set by collection of receivables.

Net cash used in investing activities was $72,729 for the six months ended June 30, 2008 and $231,374 for the six months ended June 30, 2007. The decrease in net cash used in investing activities is mainly related to a decrease in acquisitions of plant and equipment during the first half of 2008.

Net cash provided by financing activities was $2,142,900 and $2,328,440 for the six months ended June 30, 2008 and 2007, respectively. The decrease in our net cash provided by financing activities was mainly due to the repayment of a bank loan.

Off-Balance Sheet Arrangements

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

Other than the arrangement described above, we have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity or that are not reflected in our 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 June 30, 2008, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

                                                            Payments Due by Period

                                                  Less than
                                       Total       1 year       1-3 Years      3-5 Years       5 Years +
                                                                 In Thousands
Contractual Obligations:
Bank Indebtedness                    $   7,454   $     6,457   $       997   $           -   $           -
Other Indebtedness                      10,731         1,383         9,348               -               -
Operating Leases                           340           178           162               -               -
Total Contractual Obligations:       $  14,614   $    12,357   $     2,257   $           -   $           -

Bank indebtedness consists of secured and unsecured borrowings from our banking facilities arrangements including letters of credit, bank overdrafts, and non-recurring bank loans.

Other indebtedness consists of loans and debt financing from independent third parties for working capital and the acquisition of DVDR production lines and equipment.

Operating leases amounts include a lease for factory premises under non-cancelable operating lease agreement that expires in year 2010, with an option to renew the lease. The lease is on a fixed repayment basis. The lease does not include contingent rentals.

Purchase obligations consist of a contract with an engineer in Hong Kong to set up the foundation for the factory in Brazil.