'Infosmart Group, Inc. is a fast-growing and profitable recordable DVDR manufacturer with compounded annual growth of revenue at 40%.'

Overview

Infosmart is a fast-growing and profitable recordable DVD (DVDR) manufacturer. Infosmart operates a state of the art DVDR production facility in Hong Kong and is preparing to launch production of HD-DVDR media - the next generation in optical storage (disc) media. Additionally, Infosmart is poised to become Brazil's largest manufacturer of DVDR discs. This second facility will help garner Infosmart significant share of the country's estimated 600 million disc annual demand.
 

Investment Highlights

Reasons To Consider Infosmart

REASON 1: Offering a solid growth opportunity, Infosmart manufactures
DVDRs, which are skyrocketing in demand. The DVDR is becoming the
global standard, for business data storage due to its high capacity, low cost and full
portability. Last year, worldwide DVDR sales nearly doubled. In addition, installed
DVDR capacity is expected to exceed 11 billion units by 2009. The DVDR sector is
an enormously exploding market.

REASON 2: Today, the DVDR represents the most cost effective data storage device for business, when ranked by cost per megabyte.

Cost Per Megabyte:

REASON 4: Beginning mid-December 2006, the Brazil production facility will come online with plant capacity of 6.4 MM discs per month. This will position IFSG as the largest DVDR manufacturer in Brazil by early 2007.

DVDR demand in South America far outstrips supply. Therefore, Brazilian operations functioning in a less competitive environment, will offer a much higher gross profit and production margin estimated at 41%. This profit margin is significantly higher than that of the Hong Kong production facility.

Plus, it is projected that traditional DVDR use and demand within South and Central America, where adoption is just underway, will remain strong for at least another decade. The Company will be well positioned for broad based sales within Latin American from its Brazilian plant.

REASON 5: The Company's Hong Kong production facility is fully upgradeable for the manufacture of next generation HD-DVDR discs that will become a market force in 2007. Today's conventional DVDR's can hold 4.7 GB of information, while the new HD-DVDR's will have expanded capacity from 15GB to 30GB.

Profile

Infosmart manufactures 8x and 16x discs, and is preparing to launch production of new optical storage media, namely, DVDR (“HD DVD”)/Blu-Ray discs. Infosmart operates a state of the art recordable DVDR factory in Hong Kong, which is presently operating at maximum capacity. In order to act as a one-stop-shop for the optical storage media needs of its customers, Infosmart outsources orders for products it does not produce itself, such as DVD±RW and DVD-RAM and other low margin DVD items. However, there has been a permanent shift in Infosmart’s operations in favor of sales of its own manufactured discs: 89% of Infosmart’s revenues in 2005 were from sales of its own manufactured discs, up from 66% in 2004. In the future, Infosmart expects sales of purchased discs to be insignificant.

To increase sales in developed countries, Infosmart plans to focus its production on the HD DVD. 32 of Infosmart's 44 production lines can be upgraded to HD-DVD production at a time of management's choosing.
 

Infosmart is currently establishing a production facility and a sales base in Brazil in 2006. The gap between technology adoption in developed and developing countries has prolonged the product life cycle for optical storage media. 8x DVDR technology is mature in many developed countries such as the U.S., Western Europe and Australia but at the growth stage of its life cycle in developing countries, such as South America and Africa. Infosmart intends to boost its productivity and return on investment from its existing DVDR equipment by relocating some production to Brazil, one of the world’s largest developing economies. Infosmart believes that a production facility in Brazil will satisfy the high demand for DVDRs in the region, mainly to the local market in Brazil and eventually to other South American markets.

Of the approximately 30 MM DVDR discs sold in Brazil each month in 2005 (management’s estimates), about 18 MM discs are imported, 6.2 MM discs are produced by local manufacturers, and the rest are smuggled from other countries such as Paraguay.

Demand is being boosted by rising DVD player and PC penetration:
 

Based on these figures Infosmart’s Brazilian production facility, Discobras, is expected to become the largest DVDR manufacturer in Brazil with a production capacity of 6 MM discs per month by the end of January 2007. Brazilian DVDR disc demand is expected to soar to 50 MM discs per month by the end of 2006. The Brazilian customs department has been tightening border controls, thereby creating supply shortages for DVDR discs which have driven up prices tremendously.

Research and Development

Infosmart plans to invest up to $500,000 for HD-DVDR pre-production, dye/stamper testing and mold modification. In order to be one of the first manufacturers to mass-produce HD-DVDRs to coincide with the early growth phase of the product life cycle, Infosmart has been working closely with dye and stamper developers in Taiwan and will be conducting pre-production testing to prepare for HD-DVDR production. However, if the market turns in favor of Blu-Ray, the Company will have to purchase new equipment to produce Blu-Ray discs.
 

In today’s high definition optical media market, a format war is still going on between HD DVD and Blu-Ray. While HD DVD players are available earlier than Blu-Ray players in the retail channel, Infosmart strongly believes that two formats will co-exist in the market for quite a long period of time. There are three possible scenarios at the end of this format war:
 

1) One format will finally overtake the other;
2) Two different formats co-exist in the market; or
3) The wide adoption of Combo player/drive/recorder which can support both formats.
 

The coming generation of DVDR discs is of high definition quality. HD DVD has a single layer capacity of 15 GB and a dual-layer capacity of 30 GB. Blu-Ray has a single layer capacity of 25 GB and a dual-layer capacity of 50 GB. Blu-Ray capacities of 100 GB and 200 GB, using four and eight layers respectively, are currently being researched. The HD DVD and BD formats are incompatible, and their adherents have failed to agree on a unified format. HD DVD is compatible with earlier DVD formats.

Infosmart believes that it would take at least 3 to 5 years until one of the formats dominates a significant percentage of the market shares over the other format. It would be difficult for optical media of two incompatible formats to co-exist in the market as that would force duplication in both hardware and down-stream products such as high definition videos, audios and multimedia. In the long run, it would be uneconomical for movie studios, recording companies and consumers to keep producing two different
formats for distribution. While the wide adoption of a combo player/drive/recorder can help the consumers enjoy multimedia in both formats, consumers, as well as content-providers, would prefer one universal format such as the current DVD instead of a rendezvous with the VHS-Betamax format war.

However, there is no harm for Infosmart to bet on either format at this time because both products are sellable and profitable. The Company will closely monitor the market trends and respond immediately according to the changes in the DVDR market.

Financial Projections

The financial picture looks promising for Infosmart Group, Inc. In 2003 revenues were $12.4 MM and increased to $22.4 MM and $24.6 MM in 2004 and 2005 respectively. Once revenues from Brazil start coming in, revenue projections rise to $26 MM, $50.9 MM and $63.8 MM in 2006, 2007 and 2008 respectively.

Net income in 2005 was $4.2 MM and net income for 2006 is projected to be $3.0 MM. Included in the 2006 net income projection are $1.2 MM of expenses associated with the IFSG reverse merger and financing. Excluding these expenses, 2006 net income would be projected at $4.2 MM. Again, once the Brazil facility is operational, Infosmart Group, Inc. estimates 2007 projections to be about $10.9 MM in net income, a 78% revenue growth over 2006.

*Excluding expenses associated with the reverse merger and financing, 2006E net income would be $4.2 MM.

Product

Comparison of Optical Storage Media
 

The chart illustrates the development of Red Laser CD's all the way up to the Blue Laser (Blu Ray) CD's. The primary and dominant difference is storage capacity.
 

Industry Overview and Market Opportunity

In general, demand for DVDR discs has been growing rapidly. Such increased demand has been driven by the higher market penetration of DVD drives, players and recorders, This is a result of, the dramatic increase in the number of movies marketed in the DVD format. The installed base of DVD drives, players and recorders doubled from approximately 200 MM units in 2004 to approximately 390 MM units in 2005. These estimates are inclusive of the installed base of DVD drives in personal computers (PCs) which was estimated to rise from 81 MM in 2004 to 158 MM in 2005. In addition, according to research firm Understanding & Solutions, the worldwide total output of DVDR discs in 2004 was around 2.5 billion, while 2005 it was around 4.8 billion. Due to strong growth of worldwide DVD recorder shipment and PC installation and prices of DVD drives falling 2%-3% per year, annual DVDR disc demand is projected to peak to almost 9 billion discs per year by 2008.

Currently, the largest markets for DVDR discs are Europe, USA and Japan. According to research by Understanding & Solutions, demand for DVDR discs from South America, theMiddle East and Eastern Europe will grow quickly. Taiwanese companies account for approximately 60% of the world’s installed DVDR disc production capacity and output.

Global DVDR Disc Market Opportunity
 

Investor Contact
Pamela Solly
Vice President
After Market Support,
LLC
Tel: +1 (720) 489-4912
ps@aftermarketsupport.com
www.aftermarketsupport.com

Company Contact
Andrew Chang
Chairman
Infosmart Group, Inc.
+(852) 9196-2146
andrew@infosmart.com.hk
www.infosmart.com.hk

FORWARD LOOKING STATEMENTS

This report includes forward-looking statements that reflect Infosmart Group, Inc. current expectations about its future results, performance, prospects and opportunities. Infosmart Group, Inc. . has tried to identify these forward-looking statements by using words and phrases such as "may," "will," "expects," "anticipates," "believes," "intends," "estimates," "plan," "should," "typical," "preliminary," "we are confident" or similar expressions. These forward-looking statements are based on information currently available and are subject to a number of risks, uncertainties and other factors that could cause Infosmart Group, Inc.'s actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, without limitation, the Company's growth expectations and ongoing funding requirements, and specifically, the Company's growth prospects with scalable customers, and those outlined above. Other risks include the Company's limited operating history, the Company's history of operating losses, consumers' acceptance, the Company's use of licensed technologies, risk of increased competition, the potential need for additional financing, the terms and conditions of any financing that is consummated, the limited trading market for the Company's securities, the possible volatility of the Company's stock price, the concentration of ownership, and the potential fluctuation in the Company's operating results.

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