Forward Looking Statements

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

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

Overview

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

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

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

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

Critical Accounting Policies and Estimates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Results of Operations

Comparison of Three Months Ended September 30, 2008 and 2007

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

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

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

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

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

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

Comparison of Nine Months Ended September 30, 2008 and 2007

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

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

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

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

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

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

Liquidity and Capital Resources

 Nine Months Ended September 30,         2008             2007            Change

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

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

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

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

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

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

Off-Balance Sheet Arrangements

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

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

Contractual Obligations

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

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

                                                            Payments Due by Period

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

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

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

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