SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K/A



xANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



For the year ended December 31, 2011



Commission File No. 000-51599



Infusion Brands International, Inc.

(Exact name of registrant as specified in
its charter)



|Nevada                                   |  | 54-2153837                       
|---------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of          |  | (IRS Employer Identification No.)
|incorporation or organization)           |  |                                  
|                                         |  |                                  
|14375 Myerlake Circle                    |  |                                  
|Clearwater, Florida                      |  | 33760                            
|(Address of principal executive offices) |  | (Zip Code)                       



(727) 230-1031

(Registrant’s telephone number, including
area code)



Securities registered under Section 12(b) of the Exchange Act:



|Title of each class registered: |  | Name of each exchange on which registered:
|------------------------------- |  | ------------------------------------------
|None.                           |  | None.                                     



Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.00001 par value per share.



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ̈Nox





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









Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YesxNo ̈



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



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



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





|Large accelerated filer                                                     |  ̈ |  | Accelerated filer         |  ̈
|--------------------------------------------------------------------------- | - |  | ------------------------- | -
|                                                                            |   |  |                           |  
|Non-accelerated filer
        (Do not check if a smaller reporting company) |  ̈ |  | Smaller reporting company | x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ̈
Nox



Revenues for the year ended December 31,
2011: $17,940,829



The aggregate market value of the registrant’s
voting common stock held by non-affiliates as of June 30, 2011 based upon the closing price reported for such date on the OTC Bulletin
Board was US $429,551.



As of March 23, 2012 the registrant had
181,459,602 shares of its common stock issued and outstanding.



Documents Incorporated by Reference: None.



2







Explanatory Notes



The purpose of this amendment (this “Amendement”)
on Form 10-K/A to Infusion Brand International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011, as
filed with the Securities and Exchange Commission on March 30, 2012 (the “Original Report”), is as stated below:



| | · | The Report of the Registered Independent
Accounting Firm that was filed with the Original Report has been corrected to reflect the operating periods
that are consistent with the accompanying consolidated financial statements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The Consolidated Statements of Stockholders’
Equity (Deficit) for the years ended December 31, 2012 and 2011 are now presented to prominently display comprehensive income for
each period. This information was previously only disclosed only in the footnotes.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the Certifications contained in Exhibits 31 and 32 have been updated to a current date relative to the filing of this Amendment.



No
other changes have been made to our Original Report. This Amendment speaks as of the original filing date of the Original Report,
does not reflect events that may have occurred subsequent to the filing of the Original Report and does not modify or update in
any way disclosures made in the Original Report other than as described above.



2







Infusion Brands International, Inc.



FORM 10-K/A



For the year ended December 31, 2011



TABLE OF CONTENTS



|            |                                                                                                              |  | PAGE
|----------- | ------------------------------------------------------------------------------------------------------------ |  | ----
|            | PART I                                                                                                       |  |     
|ITEM 1.     | Business                                                                                                     |  | 5   
|ITEM 1A.    | Risk Factors                                                                                                 |  | 9   
|ITEM 1B.    | Unresolved Staff Comments                                                                                    |  | 14  
|ITEM 2.     | Properties                                                                                                   |  | 14  
|ITEM 3.     | Legal Proceedings                                                                                            |  | 14  
|ITEM 4.     | Mine Safety Disclosures                                                                                      |  | 14  
|            | PART II                                                                                                      |  |     
|ITEM 5.     | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 15  
|ITEM 6.     | Selected Financial Data                                                                                      |  | 16  
|ITEM 7.     | Management’s Discussion and Analysis of Financial Condition and Results of Operation                         |  | 16  
|ITEM 7A.    | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 29  
|ITEM 8.     | Consolidated Financial Statements                                                                            |  | 29  
|ITEM 9.     | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 63  
|ITEM 9A(T). | Controls and Procedures                                                                                      |  | 63  
|ITEM 9B.    | Other Information                                                                                            |  | 63  
|            |                                                                                                              |  |     
|            | PART III                                                                                                     |  |     
|ITEM 10.    | Directors, Executive Officers and Corporate Governance                                                       |  | 64  
|ITEM 11.    | Executive Compensation                                                                                       |  | 69  
|ITEM 12.    | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 70  
|ITEM 13.    | Certain Relationships and Related Transactions, and Director Independence                                    |  | 71  
|ITEM 14.    | Principal Accounting Fees and Services                                                                       |  | 72  
|            |                                                                                                              |  |     
|            | PART IV                                                                                                      |  |     
|ITEM 15.    | Exhibits, Financial Statement Schedules                                                                      |  | 73  
|            |                                                                                                              |  |     
|            | SIGNATURES                                                                                                   |  | 77  



3







PART I



FORWARD-LOOKING STATEMENTS:



This Annual Report on Form 10-K (including
the section regarding Management's Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking
statements regarding our business, financial condition, results of operations and prospects. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to
represent an all-inclusive means of identifying forward-looking statements as denoted in this Annual Report on Form 10-K. Additionally,
statements concerning future matters are forward-looking statements.



Although forward-looking statements in
this Annual Report on Form 10-K reflect the good faith judgment of our Management, such statements can only be based on facts and
factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual
results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements.
Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically
addressed under the heading "Risks Related to Our Business" below, as well as those discussed elsewhere in this Annual
Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of
the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission ("SEC"). You
can obtain any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You
can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition,
the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including us.



We undertake no obligation to revise or
update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual
Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of
this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial
condition, results of operations and prospects.



4







ITEM 1 – BUSINESS



Description of Business



General Development of Business:



Infusion Brands International, Inc. (the
“Company”, “Infusion Brands”, “we”, or “our”), formerly OmniReliant Holdings, Inc.,
is a Nevada Corporation organized in 2004. Infusion Brands is a consumer products company that leverages direct response programming
to satisfy unmet market demands and solve every day problems, with an array of innovative consumer products that have potential
to disrupt their categories with significant competitive advantages, features and benefits.



We are a company driven by powerful brands
in four attractive consumer categories:



| | · | Hardware/Tools
| | - | --------------

| | · | Housewares/Cleaning
| | - | -------------------

| | · | Lifestyle
| | - | ---------

| | · | Fitness
| | - | -------



We accomplish these goals currently in
North America, Europe, and beginning in 2012 in Asia, by utilizing five direct to consumer channels of distributions:



| | · | direct response programming
| | - | ---------------------------

| | · | ecommerce
| | - | ---------

| | · | live television shopping
| | - | ------------------------

| | · | traditional retail
| | - | ------------------

| | · | print media
| | - | -----------



In territories other than those mentioned
above, we leverage international distribution partnerships to replicate what we are now doing in North America and Europe, thereby
creating global sales velocity much faster than if we attempted to do it ourselves. We expect that in the future we will implement
our North American and European strategy of distribution worldwide.



By leveraging our access to capital, human
resource expertise, proprietary intellectual property and global corporate infrastructure, the Company strives to:



| | - | Drive consistent and predictable revenue growth with solid gross margins, by leveraging direct
response programming; creating both brand awareness and brand relationships with consumers leading to increasing revenue, earnings
and brand equity for shareholders.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | Drive global sales velocity for all our innovative consumer products by supporting our current
distribution as well as adding new distribution in new markets we serve through our international channel partners.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | Innovate and identify new product line extension for our existing brands to continue to increase
sales and brand equity.
| | - | ------------------------------------------------------------------------------------------------------------------------

| | - | Strive to continue to grow our business organically by the identification or innovation of new
products.
| | - | --------------------------------------------------------------------------------------------------------

| | - | Position our brands and products to outperform the competition by:
| | - | ------------------------------------------------------------------

| | o | Constantly focusing on driving value innovation rather than just simple incremental improvement
| | - | -----------------------------------------------------------------------------------------------



5







| | o | Developing effective direct response marketing campaigns leading to increase brand awareness and
driving sales velocity
| | - | -----------------------------------------------------------------------------------------------------------------------

| | o | Cross marketing and extending our brands across our entire customer base.
| | - | -------------------------------------------------------------------------

| | - | Leverage cloud computing to expand consumer acquisition, creating lean and flexible supply chains,
business processes and scalable best practices.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| | - | Leverage our financial resources in a conservatively strategic approach to be opportunistic.
| | - | --------------------------------------------------------------------------------------------

| | - | Focus on the pursuit of opportunities with the highest return on investment for the long term,
while also driving short-term corporate initiatives.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



Our plan of operation consists of setting
new industry standards, maintaining a strong commitment to innovation, and increasing the pace of our new product innovation and
speed to market. Our approach includes extensive research in emerging technology trends, key global market trends and customer
challenges that enable us to prioritize our efforts and capture market share.



While our initial and immediate objectives
are focused on organic growth, we also strive to create additional shareholder value through strategic acquisitions which may increase
our sales through opening access to new global markets, decrease costs by creating stronger purchasing power and-or add accretive
revenue and earnings to our existing operations.



During our year ended December 31, 2010,
management with the support of our Board of Directors, concluded that the continuing losses from holdings in the Fashion Goods
and ecommerce Segments (the “Discontinued Segments”) and the associated drain on our capital resources warranted discontinuance
of the businesses and disposal of the assets comprising the Discontinued Segments.



We have reported our disposals of the Discontinued
Segments throughout this Annual Report as discontinued operations pursuant to ASC 205-20 Presentation of Financial Statements.
Under ASC 205–20, a component of an entity that can be clearly distinguished operationally and for financial reporting purposes
from the rest of the entity is reported in discontinued operations if both (a) the operations and cash flows have been or will
be eliminated from the ongoing operations and (b) the continuing entity will have no significant ongoing involvement or obligations
associated with the components disposed. The Discontinued Segments meet these criteria for purposes of presentation of discontinued
operations.



Business and Material Asset Acquisitions



On May 9, 2011, we purchased 50% of the
outstanding common stock of Home Shopping Express S.A. (“HSE”) for cash consideration of $75,154, and an option to
purchase the remaining 50% of the outstanding common stock of HSE based upon its forward revenue levels. HSE,
which is located in Baleares, Spain, is engaged in the development and retail sale of consumer products throughout most of Europe,
in particular, HSE's flagship product the DualSawTM by Startwin. Through this acquisition, we became the principal owners
of the intellectual property related to DualSawTM in geographic regions whereby Startwin already took ownership of this trademark
right. By combining our enterprises, we believe this acquisition helps to unify the worldwide brand for DualSawTM. Moreover,
with a global presence this acquisition will help open channels of distribution for cross border promotion of our other respective
branded products.



6







Our rights associated with our purchase
contractually provide for management and governance control over all operational and financial aspects of HSE. Upon our purchase,
all pre-acquisition HSE board members resigned and our Chief Executive Officer was appointed as the sole board member. We also
have rights to all earnings of HSE. As a result of the rights associated with our initial investment in HSE and following the guidance
in ASC 810 Consolidation, we have concluded that HSE is a variable interest entity on the basis that our 50% interest in
the HSE common stock affords us symmetrically higher voting rights than would typically accompany a 50% ownership interest in common
stock; in this instance our voting rights effectively rise to 100%. Further, we have concluded that the Company is the primary
beneficiary to the variable interest entity pursuant to ASC 810, because we have the controlling financial interest. That is, we
possess the power to direct the activities of HSE and we have the right to receive all of its residual returns. Accordingly, HSE
has been consolidated with our financial information for reporting purposes since the date of its purchase.



Further, we report HSE as a separate geographic
segment. The following tables summarize the composition of our operations, assets, liabilities, redeemable preferred stock and
(deficit) by geographic area:



|                                         |  | Year ended December 31, 2011 |           
|---------------------------------------- |  | ---------------------------- | ----------
|                                         |  | United States                |           
|Product sales                            |  | $                            | 15,129,907
|(Loss) income from continuing operations |  | $                            | (7,048,652



|                                                    |  | December 31, 2011 |            
|--------------------------------------------------- |  | ----------------- | -----------
|                                                    |  | United States     |            
|Assets:                                             |  |                   |            
|Current assets                                      |  | $                 | 5,520,008  
|Long-lived and other assets                         |  |                   | 2,261,134  
|                                                    |  | $                 | 7,781,142  
|Liabilities, redeemable preferred stock and equity: |  |                   |            
|Current liabilities                                 |  | $                 | 5,402,221  
|Debt and other                                      |  |                   | 2,440,222  
|Redeemable preferred stock                          |  |                   | 20,471,818 
|(Deficit) equity                                    |  |                   | (19,168,544
|                                                    |  | $                 | 9,145,717  



Principal Products and Distribution Methods



We are engaged in identifying affordable
and demonstrable products to market principally to domestic customers through direct-to-consumer channels such as television infomercials,
live shopping networks, and ecommerce channels. Our products are also sold through web sites operated by the live shopping networks
that agree to carry our products and our own proprietary websites. Our principal product has been the DualSaw TM with its
patented counter rotating dual blade technology. The DualSaw TM sales comprised 52% and 74% of our product sales during the
years ended December 31, 2011 and 2010, respectively.



Status of any Publicly Announced New Product
or Service



Our new product SnoreRx, licensed through
TheraScent Products LLC, and our own proprietary cleaning brand, Drain Dr. by DOC, has recently been launched in direct response
programming. Launch of these two products in 2012 represents our new strategy of bringing products to market first through direct
response programming and then with success in this marketplace, we will roll out these products into other channels of distribution.
Success of these and all other new product launches will depend on many factors, including reception to the product by consumers,
our continued ability to source and deliver product and successful transference from direct response programming to other channels
of distribution. While all necessary governmental approvals for these products were obtained, there could be the need for governmental
approval of successive lines of these products, the effect of which is expected to be immaterial.



7







Government Regulation



Various aspects of our business are subject
to regulation and ongoing review by a variety of federal, state, and local agencies, including the Federal Trade Commission, the
United States Post Office, the Consumer Product Safety Commission, the Federal Communications Commission, Food and Drug Administration,
various States' Attorneys General and other state and local consumer protection and health agencies. The statutes, rules and regulations
applicable to the Company's operations, and to various products marketed by it, are numerous, complex and subject to change.



We will collect and remit sales tax in
the states in which it has a physical presence. We are prepared to collect sales taxes for other states, if laws are passed requiring
such collection. We do not believe that a change in the tax laws requiring the collecting of sales tax will have a material adverse
effect on our financial condition or results of operations.



Employees



As of March 23, 2012 we have 47 employees,
who work full-time. We consider our relations with our employees to be very good.



Competition



Competition in the consumer products industry
is intense and may be expected to intensify. There are other, larger and well-established consumer products companies with whom
we must compete. We compete directly with several companies which generate sales from direct to consumer marketing methods.



We also compete with a large number of
consumer product companies and retailers which have substantially greater financial, marketing and other resources than Infusion
Brands, some of which have recently commenced, or indicated their intent to conduct, direct response marketing.



We also compete with companies that make
imitations of Infusion Brands’ products at substantially lower prices. Products similar to our products may be sold in department
stores, home improvement stores, pharmacies, general merchandise stores and through magazines, newspapers, direct mail advertising
and catalogs. It is management's opinion that many of its major competitors are better and longer established, better financed
and with enhanced borrowing credit based on historical operations, and enjoy substantially higher revenues than Infusion Brands
does currently.



As a new entrant into this marketing industry,
we rely on the skill, experience and discernment of our new management. Our major competitors include consumer products companies
such as Emerson, Bosch, Church & Dwight Co., Estee Lauder, Alberto Culver, Reckitt Benckiser, Thane International, and Guthy
Renker.



Customers



Our customer base changes based on our product mix and channels
of distribution. During the years ended December 31, 2011 and 2010, no one customer accounted for more than 20% of our overall
product sales.



8







ITEM 1A – RISK FACTORS



Our business faces many risks. We believe
the risks described below are the material risks we face. However, the risks described below may not be the only risks we face.
Additional unknown risks or risks that we currently consider immaterial may also impair our business operations. If any of the
events or circumstances described below actually occurs, our business, financial condition or results of operations could suffer,
and the trading price of our shares of common stock could decline significantly. Investors should consider the specific risk factors
discussed below, together with the “Special Note Regarding Forward-Looking Information” and the other information contained
in this Annual Report on Form 10-K and the other documents that we will file from time to time with the SEC.



RISKS RELATED TO OUR BUSINESS:



TO DATE WE HAVE HAD SIGNIFICANT OPERATING
LOSSES, AND AN ACCUMULATED DEFICIT AND HAVE HAD LIMITED REVENUES AND DO NOT EXPECT TO BE PROFITABLE FOR AT LEAST THE FORESEEABLE
FUTURE, AND CANNOT PREDICT WHEN WE MIGHT BECOME PROFITABLE, IF EVER.



We have been operating at a loss since
our inception, and we expect to continue to incur substantial losses for the foreseeable future. Net loss for the years ended December
31, 2011 and 2010 was $6,944,405 and $16,069,954, respectively, resulting in an accumulated deficit of $65,657,012 as of December
31, 2011. Further, we may not be able to generate significant revenues in the future. In addition, we expect to incur substantial
operating expenses in order to fund new product launches. As a result, we expect to continue to experience substantial negative
cash flow for at least the foreseeable future and cannot predict when, or even if, we might become profitable.



OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL
DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.



In their report dated March 23, 2012, Meeks
International LLC stated that our financial statements for the fiscal year ended December 31, 2011 were prepared assuming that
we would continue as a going concern and that the factors that follow raise substantial doubt about the Company's ability to continue
as a going concern. Our ability to continue as a going concern is an issue raised as a result of our recurring losses from operations
and our net capital deficiency. We continue to experience net operating losses. Our ability to continue as a going concern is subject
to our ability to generate a profit and raise capital to finance our operations.



ADDITIONAL FINANCING IS NECESSARY FOR
THE IMPLEMENTATION OF OUR GROWTH STRATEGY.



We may require additional debt and/or equity
financing to pursue our growth strategy. Given our limited operating history and existing losses, there can be no assurance that
we will be successful in obtaining additional financing. Lack of additional funding could force us to curtail substantially our
growth plans or cease our operations. Furthermore, the issuance by us of any additional securities pursuant to any future financing
activities undertaken by us would dilute the ownership of existing shareholders and may reduce the price of our common stock.



Furthermore, debt financing, if available,
will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility.
Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations.



9







WE MAY BE UNABLE TO MANAGE OUR GROWTH
OR IMPLEMENT OUR EXPANSION STRATEGY.



We may not be able to expand our product
and service offerings, our client base and markets, or implement the other features of our business strategy at the rate or to
the extent presently planned. Our projected growth will place a significant strain on our financial resources. If we are unable
to successfully manage our future growth our financial condition and results of operations could be materially and adversely affected.



FLUCTUATIONS IN OUR OPERATING RESULTS
AND ANNOUNCEMENTS AND DEVELOPMENTS CONCERNING OUR BUSINESS AFFECT OUR STOCK PRICE.



Our operating results, the number of stockholders
desiring to sell their shares, changes in general economic conditions and the financial markets, the execution of new contracts
and the completion of existing agreements and other developments affecting us, could cause the market price of our common stock
to fluctuate substantially.



OUR BUSINESS MAY BE AFFECTED BY FACTORS
OUTSIDE OF OUR CONTROL.



Our ability to increase sales and to profitably
distribute and sell our products and services is subject to a number of risks, including changes in our business relationships
with our principal distributors, competitive risks such as the entrance of additional competitors into our markets, pricing and
technological competition, risks associated with the development and marketing of new products and services in order to remain
competitive and risks associated with changing economic conditions and government regulation. Our inability to overcome these risks
could materially and adversely affect our operations.



OUR SUCCESS DEPENDS, IN PART, ON THE
QUALITY AND SAFETY OF OUR PRODUCTS.



Our success depends, in part, on the quality
and safety of our products. If our products are found to be defective or unsafe, or if they otherwise fail to meet our customers’
standards, our relationship with our customers could suffer, our brand appeal could be diminished, and we could lose market share
and/or become subject to liability claims, any of which could result in a material adverse effect on our business, results of operations
and financial condition.



RISKS RELATING TO OUR CURRENT FINANCING
ARRANGEMENT:



THERE ARE A LARGE NUMBER OF SHARES UNDERLYING
OUR CONVERTIBLE PREFERRED STOCK, WARRANTS AND STOCK OPTIONS THAT MAY AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.



We have 181,459,602 common shares outstanding
as of March 23, 2012. Also as of March 23, 2012 we have 343,663,679 common shares linked to our Convertible Preferred Stock, Warrants
and Stock Options, as reflected in the following table. The conversion or exercise, as the case may be, of these securities, will
result in the dilution of our current shareholders



10







|Securities                           |  | Common Stock Equivalent |            
|------------------------------------ |  | ----------------------- | -----------
|Convertible Preferred Stock:         |  |                         |            
|Series C Convertible Preferred Stock |  |                         | 10,242,100 
|Series E Convertible Preferred Stock |  |                         | 6,062,168  
|Series G Convertible Preferred Stock |  |                         | 115,000,000
|Total Convertible Preferred Stock    |  |                         | 131,304,268
|                                     |  |                         |            
|Warrants:                            |  |                         |            
|Class B-2                            |  |                         | 480,000    
|Class C-1                            |  |                         | 1,365,614  
|Class C-2                            |  |                         | 1,365,614  
|Class G                              |  |                         | 115,000,000
|Vicis Warrant                        |  |                         | 70,000,000 
|Warrants issued to Broker Dealers    |  |                         | 5,546,980  
|Total Warrants                       |  |                         | 193,758,208
|                                     |  |                         |            
|Stock Options (1)                    |  |                         | 18,601,203 
|                                     |  |                         |            
|Total Common Equivalent Shares       |  |                         | 343,663,679



(1) On January 12, 2012, a consulting agreement
was terminated and stock options linked to 12,097,468 shares of common stock were cancelled. Such cancellation is reflected in
the table.



RISKS RELATING TO OUR COMMON STOCK:



Our
inability to use shares of our common stock to finance future OPERATIONS could impair the growth and expansion of our business.



The extent to which we will be able or
willing to use shares of our common stock to further our operations will depend on (i) the market value of our securities which
will vary, (ii) liquidity, which is presently limited, and (iii) the willingness of potential sellers to accept shares of our common
stock as full or partial payment for their business. Using shares of our common stock for this purpose may result in significant
dilution to existing stockholders. To the extent that we are unable to use common stock to fund operations, our ability to grow
may be limited by the extent to which we are able to raise capital through debt or equity financings. We may not be able to obtain
the necessary capital to finance operations. If we are unable to obtain additional capital on acceptable terms, we may be required
to reduce the scope of expansion or redirect resources committed to internal purposes. Our failure to use shares of our common
stock to fund future operations may hinder our ability to grow our business.



Our
common stock may be affected by limited trading volume and price fluctuations which could adversely impact the value of our common
stock.



There has been limited trading in our common
stock and there can be no assurance that an active trading market in our common stock will either develop or be maintained. Our
common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations which could
adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that
factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial
markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to
periodically enter the market in the belief that we will have poor results in the future. We cannot predict the actions of market
participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.



11







Our
stock price may be volatile.



The market price of our common stock is
likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control,
including the following:



| | • | changes in our industry;
| | - | ------------------------

| | • | competitive pricing pressures;
| | - | ------------------------------

| | • | our ability to obtain working capital financing;
| | - | ------------------------------------------------

| | • | additions or departures of key personnel;
| | - | -----------------------------------------

| | • | sales of our common stock;
| | - | --------------------------

| | • | our ability to execute our business plan;
| | - | -----------------------------------------

| | • | operating results that fall below expectations;
| | - | -----------------------------------------------

| | • | loss of any strategic relationship;
| | - | -----------------------------------

| | • | regulatory developments; and
| | - | ----------------------------

| | • | economic and other external factors.
| | - | ------------------------------------



In addition, the securities markets have
from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.



IF WE FAIL TO REMAIN CURRENT ON OUR
REPORTING REQUIREMENTS, WE COULD BE REMOVED FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO SELL
OUR SECURITIES AND THE ABILITY OF STOCKHOLDER TO SELL THEIR SECURITIES IN THE SECONDARY MARKET.



Our common stock current trades on the
Over-the-Counter Bulletin Board (“OTC:BB”) under the symbol “INBI.” Companies trading on the OTC:BB must
be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports
under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could
be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders
to sell their securities in the secondary market.



A SOLE SHAREHOLDER BENEFICIALLY OWNS
APPROXIMATELY 91.1% OF OUR COMMON STOCK. THIS SOLE SHAREHOLDER’S INTERESTS COULD CONFLICT WITH YOURS AND SIGNIFICANT SALES
OF STOCK HELD BY THEM COULD HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE. ADDITIONALLY, BECAUSE THIS SHAREHOLDER HOLDS A MAJORITY
OF THE VOTING POWER OF OUR CAPITAL STOCK, OTHER SHAREHODLERSS MAY BE UNABLE TO EXERCISE CONTROL.



As of March 23, 2012, Vicis Capital Master
Fund beneficially owned approximately 91.1% of our common stock. As a result, Vicis Capital Master Fund will have significant influence
to:



| | - | elect or defeat the election of our directors;
| | - | ----------------------------------------------



| | - | amend or prevent amendment of our articles of incorporation or bylaws;
| | - | ----------------------------------------------------------------------



| | - | effect or prevent a merger, sale of assets or other corporate transaction; and
| | - | ------------------------------------------------------------------------------



12







| | - | control the outcome of any other matter submitted to the stockholders for vote.
| | - | -------------------------------------------------------------------------------



As a result of their ownership and positions,
Vicis Capital Master Fund is able to significantly influence all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. In addition, sales of significant amounts of shares held by Vicis
Capital Master Fund, or the prospect of these sales, could adversely affect the market price of our common stock.



BECAUSE WE MAY BE SUBJECT TO THE “PENNY
STOCK” RULES, YOU MAY HAVE DIFFICULTY IN SELLING OUR COMMON STOCK.



If our stock price is less than $5.00 per
share, our stock may be subject to the SEC’s penny stock rules, which impose additional sales practice requirements and restrictions
on broker-dealers that sell our stock to persons other than established customers and institutional accredited investors. The application
of these rules may affect the ability of broker-dealers to sell our common stock and may affect your ability to sell any common
stock you may own.



According to the SEC, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include:



| | - | Control of the market for the security by one or a few broker-dealers that are often related to
the promoter or issuer;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | - | Manipulation of prices through prearranged matching of purchases and sales and false and misleading
press releases;
| | - | -------------------------------------------------------------------------------------------------------------------



| | - | “Boiler room” practices involving high pressure sales tactics and unrealistic price
projections by inexperienced sales persons;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | - | Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
| | - | ------------------------------------------------------------------------------------------



The wholesale dumping of the same securities
by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those
prices with consequent investor losses.



As an issuer of “penny stock”
the protection provided by the federal securities laws relating to forward looking statements does not apply to us.



Although the federal securities law provide
a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this
safe harbor is not available to issuers of penny stocks. As a result, if we are a penny stock we will not have the benefit of this
safe harbor protection in the event of any claim that the material provided by us contained a material misstatement of fact or
was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading.



ITEM 1B—UNRESOLVED STAFF COMMENTS



None



13







ITEM 2—PROPERTIES



We own our principal office building and
land that are located at 14375 Myerlake Circle, Clearwater, Florida 33760. Our building has 34,000 square feet and it is situated
on approximately 5 1⁄2 acres of land. This facility is used as the headquarters for our business operations. Our building
and land serve as collateral for a mortgage note payable with a balance of $1,891,542 on December 31, 2011. See Note 10 to our
Consolidated Financial Statements included elsewhere herein for information on our long-term debt.



ITEM 3—LEGAL PROCEEDINGS



Mediaxposure Limited (Cayman) v. Kevin
Harrington, Timothy Harrington, Infusion Brands International, Inc. (f/k/a OminReliant Holdings, Inc.), Vicis Capital Master Fund
and Vicis Capital LLC:



United States District Court, Middle District
of Florida, Case No. 11-CV-410



On February 28, 2011, Mediaxposure Limited
(Cayman) (“Mediaxposure”) as purported assignee of claims of ResponzeTV, Ltd (“RETV”) commenced an action
in the United States District Court, Middle District of Florida against certain individuals alleging a single case of action for
breach of fiduciary duty arising from an alleged misconduct of former board members. On October 7, 2011, Mediaxposure filed an
amended complaint naming the Company and alleging that the Company breached a purported fiduciary duty to RETV. The amended complaint
seeks unspecified money damages as against all defendants.



The Company moved to dismiss the Complaint
on December 6, 2011, and oral argument of the Company’s motion is scheduled for March 27, 2012. The Company disputes the
allegations of the amended complaint and intends to vigorously defend the action.



General



As of December 31, 2011, the end of the
annual period covered by this report, the Company was subject to the various legal proceedings and claims discussed above, as well
as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of
business. In the opinion of management, the Company does not have a potential liability related to any current legal proceeding
or claim that would individually or in the aggregate materially adversely affect its financial condition or operating results.
However, the results of legal proceedings cannot be predicted with certainty. Should the Company fail to prevail in these legal
matters, the operating results of a particular reporting period could be materially adversely affected.



ITEM 4 — MINE SAFETY DISCLOSURES



None



14







PART II



ITEM 5 — MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Shares of the Company’s common stock
are quoted on the Over the Counter Bulletin Board ("OTCBB") under the symbol INBI. Our shares were listed for trading
in July of 2006. The following table sets forth, for the last two fiscal years, the quarterly range of high and low intraday closing
bid information per share of our common stock as quoted on the Over the Counter Bulletin Board.



|Quarter Ended      |  | High ($) |  | Low ($)
|------------------ |  | -------- |  | -------
|December 31, 2011  |  | 0.04     |  | 0.01   
|September 30, 2011 |  | 0.02     |  | 0.01   
|June 30, 2011      |  | 0.02     |  | 0.01   
|March 31, 2011     |  | 0.05     |  | 0.01   
|December 31, 2010  |  | 0.10     |  | 0.04   
|September 30, 2010 |  | 0.16     |  | 0.04   
|June 30, 2010      |  | 0.11     |  | 0.06   
|March 31, 2010     |  | 0.40     |  | 0.11   



Holders:



As of March 23, 2012, we had 36 record
holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include
beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing
agencies. The transfer agent of our common stock is Registrar and Transfer Company.



Dividend Policy



The Company has not paid or declared any
dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future.



Equity Compensation Plan Information



The following table summarizes the equity
compensation plans under which our securities may be issued as of December 31, 2011.



Equity compensation plans required to be
approved and approved by security holders: none.

Equity compensation plans not required
to be approved by security holders:

Number of securities to be issued upon exercise
of stock options: 18,601,203

Weighted average exercise price of outstanding
options: $0.02

Number of securities remaining available
under equity compensation plan: 31,804,916



RECENT SALES OF UNREGISTERED SECURITIES



On December 14, 2011 we issued and sold
3,500,000 shares of our Series G Convertible Preferred Stock and Series G Warrants to purchase an aggregate of 35,000,000 shares
of our common stock to Vicis at a per share exercise price of $0.10 for an aggregate purchase price value of $3,500,000 in cash.
Vicis is a beneficial owner of 91.1% of our outstanding capital stock.



15







On July 8, 2011 we issued and sold 3,000,000
shares of our Series G Convertible Preferred Stock and Series G Warrants to purchase an aggregate of 30,000,000 shares of our common
stock to Vicis at a per share exercise price of $0.10 for an aggregate purchase price value of $3,000,000 in cash. Vicis is a beneficial
owner of 91.1% of our outstanding capital stock.



On February 8, 2011, we issued 20,162,448
shares of common stock to a consulting organization as partial consideration in connection with a consulting agreement. We are
obligated to issue such number of additional common shares that represent 5.0% of our post-issuance outstanding shares after fulfillment
of our redemption obligations under the Series G Preferred Stock.



On June 30, 2010, we issued and sold 5,000,000
shares of our Series G Convertible Preferred Stock and Series G Warrants to purchase an aggregate of 50,000,000 shares of our common
stock to Vicis at a per share exercise price of $0.10 for an aggregate purchase price value of $5,000,000 consisting of (1) $3,500,000
in cash and (2) the return and cancellation of the note in the principal amount of $1,500,000 issued to Vicis Capital Master Fund
pursuant to a Note Purchase Agreement dated June 4, 2010 between Vicis and the Company. Vicis is a beneficial owner of 91.1% of
our outstanding capital stock.



On June 4, 2010, we entered into a Note
Purchase Agreement with Vicis Capital Master Fund pursuant to which we sold an 8% convertible promissory note in the principal
amount of $1,500,000 for an aggregate purchase price of $1,500,000 (the “Note”). The Note is due on demand in the holder’s
discretion.  The Note is convertible into securities offered by the Company in a future financing pursuant to the terms
of the Note Purchase Agreement. Vicis is a beneficial owner of 91.1% of our outstanding capital stock.



We believe that the offer and sale of the
securities referenced in this section were exempt from registration under the Securities Act by virtue of Section 4(2) of
the Securities Act and/or Regulation D promulgated there under as transactions not involving any public offering. All of the
purchasers of unregistered securities for which we relied on Section 4(2) and/or Regulation D represented that they were
accredited investors as defined under the Securities Act, except for up to 35 non-accredited investors. The purchasers in each
case represented that they intended to acquire the securities for investment only and not with a view to the distribution thereof
and that they either received adequate information about the registrant or had access, through employment or other relationships,
to such information; appropriate legends were affixed to the stock certificates issued in such transactions; and offers and sales
of these securities were made without general solicitation or advertising.



ITEM 6 - SELECTED FINANCIAL DATA



As a smaller reporting company we are not
required to provide the information required by this Item.



ITEM 7 – MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



We file as a consolidated entity which
includes the parent holding company Infusion Brands International, Inc., the domestic operating entity, Infusion Brands, Inc.,
the Spain subsidiary Home Shopping Express, S.A. and our 60% ownership in Infusion Studios LLC, owner of the building that housing
our corporate offices and serves as production studios for our brands.



16







In early May 2011, we purchased the rights
to 100% of the profits and loss of Home Shopping Express, S.A, located in Belarus, Spain which is treated as a variable interest
entity and which is consolidated in to our financial statements commencing May 1, 2011.



Business



Infusion Brands is a consumer products
company that leverages direct response programming to satisfy unmet market demands and solve every day problems, with an array
of innovative consumer products that have potential to disrupt their categories with significant competitive advantages, features
and benefits. We accomplish this through our strategy of innovating or identifying potential profitable products and vetting them
through research of markets, consumer tastes and test marketing. Once a product passes our internal evaluation, we then move to
secure all necessary rights to the product and place it in our funnel for further market testing.



Our current strategy is to test most products
first through direct response programming to test market acceptance, price sensitivity and overall viability and worthiness of
continuing to invest in such innovative products and brands. If products are successful in this channel of distribution, we then
begin the process of distributing them through our owned and operated channels of distribution and our international distribution
partners. We plan to test launch between 4-9 new products or brand extensions of existing products during the current year.



Executive Overview



We accomplished the following during 2011:



Corporate:



| | · | Product sales increased by 150% from the
prior year
| | - | ---------------------------------------------------

| | · | Our gross margin increased by 4%, representing
an 11% year over year increase
| | - | -----------------------------------------------------------------------------

| | · | Advertising and promotion cost increased
only 22.7%, relative to a product sales increase of 150%
| | - | -------------------------------------------------------------------------------------------------

| | · | Accounting and professional fees decreased
67.2% from the prior year and we have more control and more accurate reporting than ever.
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | · | Employment Costs after excluding all non-cash
payments relating to stock options and the acquisition of Home Shopping Express SA, increased only 5.6%, a minor increase relative
to the increase and revenue and considering our overall corporate expansion during 2011.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | General and Administrative Costs decreased
2.2% when costs associated with the newly acquired subsidiary are removed.
| | - | ---------------------------------------------------------------------------------------------------------------------

| | · | For the first time in the Company’s
history we had a bargain purchase on an acquisition. In addition, the acquisition increased our number of importers, distributors
and vendor relationships by 100% for our flagship product DualSaw.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Brands



| | · | Lowered our cost of goods for the CS450
DualSaw by 22% by forging better relationships with our suppliers.
| | - | ----------------------------------------------------------------------------------------------------------

| | · | During Q4, we sold our CS450 DualSaw into
National and Regional Retail stores for the first time. These sales accounted for 20% of our overall product sales in 2011.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Successfully launched Ruby Crystal Nail
Care System in live television shopping. Sales of this product accounted for 3.5% of our overall product sales in 2011.Successfully
launched the Tony Little Massage Chair in Q4 2011 in live television shopping. Sales of this product accounted for 5.2% of our
overallproduct sales.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17







In 2011, we used live television shopping
as the initial vetting ground for all our new products. However in Q4 2011, we changed our methodology of bringing products to
market and moved to initially testing new products in via direct response programming. The reason for this change was to reduce
the long lead time and long sales cycles that exist in live shopping. In using this change in strategy, we have proven that we
will be able to bring more products to market in 2012, as evidenced by our SnoreRx and Drain Dr. campaigns which launched in Q1
2012..



Strategic Priorities



Innovation



| | · | Innovate and identify new products faster.
| | - | ------------------------------------------

| | · | Drive sales via direct response programming
to create brand awareness.
| | - | ----------------------------------------------------------------------

| | · | Successfully move products through our
other channels of distribution.
| | - | ----------------------------------------------------------------------

| | · | Manage our cash flow through use of media
funding, purchase order and accounts receivable financing.
| | - | ----------------------------------------------------------------------------------------------------

| | · | Leverage our supplier relationships to
secure our supply chain and maintain healthy margins on our product sales.
| | - | -----------------------------------------------------------------------------------------------------------------

| | · | Continue to perfect our patents and intellectual
property.
| | - | ----------------------------------------------------------



Channel Partners



| | · | Develop strategic partnerships with people
who have synergistic relationships to our company.
| | - | ---------------------------------------------------------------------------------------------



Sustainability



| | · | Become sustainable a sustainable operation,
no longer investor dependent, by generating sales volumes and gross margins to become profitable. Managing our available cash is
and will continue to be a priority of the Company in order to meet our operating needs and our new product launches.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Shareholder Value



| | · | Increase shareholder value by building
brand equity and customer acquisition.
| | - | -----------------------------------------------------------------------------



Financial Results



The Company performed in line with expectations
in 2011 with the exception that we were not able to bring to market new products or product line extensions at the rate with which
we had expected for the year and thus we did not have the product sales revenue we needed to bring the company to profitability
during the year.



Our ability to be profitable in the future
will depend on the quality of the products we select for testing, the results of those tests in the consumer market, our ability
to license and source these products to meet the demand, consumer ever shifting tastes and demands and our ability to fund our
expansion through our current and future cash flows, leveraging the financing available to us in the areas of media finance, purchase
order and accounts receivable.



18







Financial Summary



Year ended December 31, 2011 compared
to year ended December 31, 2010:



Revenues and costs of revenues –We derive the majority of our revenues from the sale of corporate owned consumer products through direct to consumer, retail
and live television shopping channels of distribution. We also collect rents from leasing a portion of the real estate we own in
Clearwater, Florida. Our comparison of material components of revenues are as follows:



Product sales: Our consolidated
product sales increased by $10,765,741 or 150% to $17,940,829 for the year ended December 31, 2011 from $7,175,088 for the year
ended December 31, 2010. HSE contributed $2,810,922 of the increase. The balance of the increase in consolidated product sales
was attributable to our entry into traditional retail channels. Two significant products contributed 52% and 14% of the consolidated
revenues, respectively, during the year ended December 31, 2011. Our management anticipates launching 3-5 new products and line
extensions of current product offerings in the coming year. Since new product launches produce uncertain results, any decline in
sales of our current flagship product line could have a significant adverse affect on our operating results in the coming year.



Cost of product sales: Our cost
of product sales increased by $6,272,407 or 137% to $10,848,156 for the year ended December 31, 2011 from $4,575,749 for the year
ended December 31, 2010. HSE contributed $1,757,328 of the increase. The balance of the increase was attributable to the significant
increase in our consumer products sales for reasons discussed in the previous section. Our gross margin as a percent of product
sales during the year ended December 31, 2011 amounted to 39.5% compared to 36.2% during the year ended December 31, 2010. The
increase in gross margin is reflective of the success of our strategy to build brands in traditional retail outlets such as Menards
and Costco; in comparison to prior years, most of our sales were transacted via direct response programming alone. During the year
ended December 31, 2011, the profit margin on our domestic operations amounted to 39.9% and the profit margins on our European
operations amounted to 37.5%. Margins on retail products, when initially launched on direct response programming, are dependent
upon the demands for specific types of products, as well as the lifecycle and length of such direct response programming. Accordingly,
our ongoing margins will likely be volatile until we establish branded products in retail outlets that will serve as our long-term
base of offerings with consistent and more predictable margins and revenue streams.



Other revenue: Services revenue
of $849,833 was recognized during the year ended December 31, 2010 and was derived from one customer contract that was prepaid
with common stock of the customer. We had no services revenue during the year ended December 31, 2011. Because our concentration
is and will be on our consumer products branding strategies, we do not anticipate further pursuing these types of revenue lines
in future periods. Rental income of commercial real estate that we own and occupy amounted to $243,107 for the year ended December
31, 2011, a decrease of $66,391 or 21.4% when compared to $309,498 of rental income that we reported for the year ended December
31, 2010. The decrease was attributable to lower third-party occupancy as our operations expand and we take more of the space for
our own corporate use.



Other operating expenses –
Other operating expenses consist of advertising expense, accounting and professional expenses, employment costs, depreciation and
amortization and administrative expenses. Our analysis of the material components of changes in other operating expenses are as
follows:



19







Advertising and promotion: Advertising
and promotion expense increased by $985,001 or 22.7% for the year ended December 31, 2011 to $5,331,463 from $4,346,462 for the
year ended December 31, 2010. Because we offer product for sale in direct to consumer marketing method, there is a direct correlation
between our product sales revenue and our advertising expense. As such, as noted above, we had an increase in revenue from prior
comparable period; therefore we would expect an increase in advertising expense. However, because we have initiated retail channels
as a new distribution method, advertising expenses as a percentage of sales decreased by (50.9%) from 60.6% for the year ended
December 31, 2010 to 29.7% for the year ended December 31, 2011. As a consumer products company, advertising and promotion expenses
will continue to be a material operating expense.



Employment Costs: Employment related
costs consist of salaries and payroll, employee insurance, and share-based payment. These costs increased by $1,964,151or 84.8%
to $4,278,874 for the year ended December 31, 2011 from $2,314,723 for the year ended December 31, 2010. Non-cash, share-based
payment, included in our employment costs decreased by $426,852 or 54.0% to $363,910 for the year ended December 31, 2011 from
$790,792 for the year ended December 31, 2010. HSE’s employment costs contributed $1,112,614 of the increase in 2011, and
this amount included a one-time cash payment of $679,000 and $41,096 of non-cash, share-based payment awarded to the HSE President.
Our employment costs otherwise increased due to our continued growing of the business. Non-cash share-based payment expense declined
due to a reduction in the number of employee stock options awarded.



Other general and administrative:
These costs and expenses include royalties, bad debts, occupancy costs and general office expenses. Our general and administrative
costs increased by $353,238 or 14.8% to $2,740,246 for the year ended December 31, 2011 from $2,387,008 for the year ended December
31, 2010. While there was an overall increase, the main driver was an increase of $405,940 attributable to the HSE acquisition.
Relative to last year results, excluding the HSE acquisition, our general and administrative costs actually decreased by $52,702
attributable to Company operational efficiencies.



Accounting and professional expense:
Accounting and consulting professional expenses decreased by $1,324,876 or 45.1% to $1,614,000 for the year ended December 31,
2011 from $2,938,876 for the year ended December 31, 2010. These costs include fees relating to legal, professional consulting
and audit related expenses. These costs also include $352,471 of share-based payment expense during the year ended December 31,
2011 for restricted stock issued to a consulting advisor. Our fees have otherwise substantially decreased due to bringing many
of these categories of services in-house.



Depreciation and amortization: Our
amortization of intangible assets and depreciation of property and equipment decreased $631,601, or 71.9%, to $247,075 for the
year ended December 31, 2011 compared to $878,676 during the year ended December 31, 2010. The decrease was the result of intangible
assets that were impaired during the year ended December 31, 2010.



Bargain purchase gain, net of expense
–The fair value of net assets of HSE that we acquired on May 6, 2011 exceeded the purchase price that we paid by $244,113.
This amount, less $43,697 in acquisition expenses ($200,416) is reflected in our operating results.



Impairments: Impairments of long
lived assets during the year ended December 31, 2010 related to our continuing operations consisting of intangible software costs
and patents that were impaired in the amounts of $3,881,462 after our management had concluded that such assets were related to
the prior business model and no longer going to generate cash flow to support their carrying value.



Other income (expense)– Other
income and expense includes fair value adjustments related to our derivative financial instruments, interest expense and income,
extinguishments and impairments. Our analysis of the material components of changes in the other income (expense) section of the
statement of operations are as follows:



20







Interest expense – Interest
expense includes amortization of deferred finance costs and interest on our mortgage loan and other notes payable. Interest expense
increased by $254,324 or 173.7% to $400,710 during the year ended December 31, 2011 compared to $146,386 for the year ended December
31, 2010. Interest expense increased due to higher average balances resulting from the HSE acquisition and balances associated
with our purchase order, accounts receivable and media financing arrangements discussed below in Liquidity and Capital Resources.



Interest and other income –
Other income increased by $69,550 or 38.4% to $250,552 during the year ended December 31, 2011 from $181,002 the year ended December
31, 2010. The increase is largely attributable the settlement of a legal matter resulting in gains of $116,667 and collection of
previously recorded contingent liabilities and bad debts.



Derivative income (expense) –
Derivative income (expense) represents the changes in the fair values of our derivative financial instruments, consisting of derivative
warrants and compound embedded derivatives that have been bifurcated from preferred stock. Fair value decreases during the year
ended December 31, 2010 resulted in income of $20,936,333. On December 17, 2011, we entered into agreements with the holders of
the warrants and preferred stock to modify the financial instruments to exclude provisions, such as down-round anti-dilution protection,
that cause these derivative financial instruments to be classified in liabilities and carried at fair value. On the modification
date, we adjusted all derivative financial instruments to fair values, with charges or credits to income, and reclassified the
remaining balances to paid-in capital. Accordingly, in the absence of future modification to these agreements or the issuance of
additional financial instruments that give rise to derivative classification and measurement, we do not anticipate further derivative
income (expense).



Litigation settlement – During
the year ended December 31, 2010, we settled a lawsuit for a payment of $62,500. We have no other legal cases that give rise to
accrual as of December 31, 2011.



Income taxes – During the
year ended December 31, 2011, HSE recorded foreign income taxes of $73,436 on its taxable income.



Loss (income) from continuing operations
– We have reported loss from continuing operations of $6,899,056 during the year ended December 31, 2011 compared to income
of $7,919,912 during the year ended December 31, 2010. The largest single factor giving rise to this change was the reclassification
of derivative liabilities to stockholders equity and the discontinuance of recognizing changes in fair values of derivatives in
our income. As more fully discussed above, we recorded $20,936,333 in derivative income during the year ended December 31, 2010
with no similar amounts required during the year ended December 31, 2011. Another significant factor underlying this change was
the recognition of impairment charges amounting to $3,881,462 during the year ended December 31, 2010 with no similar amounts during
the year ended December 31, 2011. With the exclusion of the effects of derivative fair value changes in our income and not incurring
further impairment charges our substantial increase in revenues and profit margin, which are discussed above, resulted in a substantial
decrease in our loss from continuing operations during the year ended December 31, 2011 compared to the year ended December 31,
2010.



Loss from operations of discontinued
segments – Operating activities of the Discontinued Segments are presented as one-line captions in our consolidated statements
of operations. The composition of the operations of the Discontinued Segments for the year ended December 31, 2010 is as follows:



21







|Revenues of discontinued segments |  | $ | 6,859,602   |  
|--------------------------------- |  | - | ----------- | -
|Cost of revenues                  |  |   | 7,757,634   |  
|                                  |  |   | (898,032    | )
|Costs and operating expenses:     |  |   |             |  
|Impairments of long-lived assets  |  |   | 19,091,392  |  
|General and administrative        |  |   | 1,602,181   |  
|Depreciation and amortization     |  |   | 485,797     |  
|Total costs and expenses          |  |   | 21,179,370  |  
|Loss from operations              |  |   | (22,077,402 | )
|Other expenses:                   |  |   |             |  
|Impairment of investments         |  |   | (2,405,339  | )
|Equity in income of investees     |  |   | 540,078     |  
|Interest expense                  |  |   | (10,082     | )
|Net loss                          |  |   | (23,952,745 | )
|Loss on disposals                 |  |   | (279,070    | )
|Loss from discontinued operations |  | $ | (24,231,815 | )



We have no ongoing involvement with these
discontinued company’s or assets and, accordingly, incurred no costs related to the Discontinued Segments during the year
ended December 31, 2011.



Non-controlling interests –
A non-controlling interest, formerly called a minority interest, is the portion of equity in a subsidiary not attributable, directly
or indirectly, to a parent. Non-controlling interests arise from the consolidation of subsidiaries as a result of voting control
or based upon benefits of an entity’s variable interests. Non-controlling interests amounted to net charges of $45,349 during
the year ended December 31, 2011, of which $52,124 in charges is associated with the income of HSE and $6,775 in credits is associated
with the minority interests in our Studios real estate holding company.



Net loss – We have reported
net loss of $6,944,405 during the year ended December 31, 2011 compared to a net loss of $16,069,954 during the year ended December
31, 2010. The decrease is a result of the items discussed in the preceding discussion.



(Loss) income applicable to common stockholders– (Loss) income applicable to common stockholders represents our net (loss) income as adjusted for accrued dividends
and accretions on our preferred stock. For reporting purposes, loss applicable to common stockholders is allocated between amounts
associated with continuing operations and amounts associated with discontinued operations. Our (loss) income from continuing operations
applicable to common stockholders decreased from income of $8,161,861 for the year ended December 31, 2010 to a loss of $17,846,346
for the year ended December 31, 2011. Our (loss) income from discontinued operations applicable to common stockholders increased
from a loss of $24,231,815 for the year ended December 31, 2010 to zero for the year ended December 31, 2011. Our increase in loss
from continuing operations applicable to common shareholders during the year ended December 31, 2010 is attributable to the $9,017,633
increase in dividends and accretions on redeemable preferred stock, offset by net income during the year ended December 31, 2010.
There was no income (loss) from discontinued operations for the year ended December 31, 2011.



(Loss) income applicable to common stockholders
per common share – Basic (loss) income per common share represents our loss or income applicable to common shareholders
divided by the weighted average number of common shares outstanding during the period. Diluted (loss) income per common share gives
effect to all potentially dilutive securities. For purposes of computing (loss) income per common share when discontinued operations
are present, current accounting standards indicate that the (loss) income from continuing operations should serve as the benchmark
for establishing whether financial instruments have a dilutive effect. When financial instruments are dilutive, we compute the
effects on diluted loss per common share arising from warrants and options using the treasury stock method. We compute the effects
on diluted loss per common share arising from convertible securities using the if-converted method. (Loss) income per common share
is allocated between our (loss) income associated with continuing operations and discontinued operations. All adjustments to reconcile
our net (loss) income to (loss) income applicable to common stockholders are reflected as an adjustment to (loss) income from continuing
operations. The following table reflects the composition of our income (losses) applicable to the common shareholders and the (losses)
income per common share:



22







|                                                                                                                                                                |  | Years Ended December 31, |            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -----------
|                                                                                                                                                                |  | 2011                     |            
|                                                                                                                                                                |  |                          |            
|Reconciliation of (loss) income from continuing operations attributable to Infusion Brands to (loss) income attributable to Infusion Brand common shareholders: |  |                          |            
|(Loss) income from continuing operations attributable to Infusion Brands                                                                                        |  | $                        | (6,899,056 
|Loss attributable to non-controlling interests                                                                                                                  |  |                          | (45,349    
|Preferred stock dividends and accretion                                                                                                                         |  |                          | (10,901,941
|(Loss) income from continuing operation and numerator for basic (loss) income per common share                                                                  |  |                          | (17,846,346
|Adjustment for application of the if-converted method                                                                                                           |  |                          | —          
|Numerator for diluted (loss) income per common share                                                                                                            |  | $                        | (17,846,346
|                                                                                                                                                                |  |                          |            
|Loss from discontinued operations                                                                                                                               |  | $                        | —          
|                                                                                                                                                                |  |                          |            
|(Loss) income per common share:                                                                                                                                 |  |                          |            
|Basic:                                                                                                                                                          |  |                          |            
|Continuing operations                                                                                                                                           |  | $                        | (0.10      
|Discontinued operations                                                                                                                                         |  | $                        | —          
|Diluted                                                                                                                                                         |  |                          |            
|Continuing operations                                                                                                                                           |  | $                        | (0.10      
|Discontinued operations                                                                                                                                         |  | $                        | —          
|                                                                                                                                                                |  |                          |            
|Weighted average common shares—denominator for basic                                                                                                            |  |                          | 177,922,001
|Denominator for diluted                                                                                                                                         |  |                          | 177,922,001



Liquidity and Capital Resources



The preparation of financial statements
in accordance with generally accepted accounting principles contemplates that operations will be sustained for a reasonable period.
However, we have incurred operating losses of $6,675,462 and $12,988,537 during the years ended December 31, 2011 and 2010, respectively.
In addition, during these periods, we used cash of $7,110,580 and $6,534,877, respectively, in support of our operating activities.
As more fully discussed in Note 11, we have material redemption requirements associated with our Series G Preferred Stock during
the year ended December 31, 2013. Since our inception, we have been substantially dependent upon funds raised through the sale
of preferred and common stock and warrants to sustain our operating and investing activities. These are conditions that raise substantial
doubt about our ability to continue as a going concern for a reasonable period.



23







Our management began implementing strategic
plans designed and developed during the fourth quarter of the prior year with the intention of alleviating ongoing operating losses.
The principal focus of these plans was an intensified emphasis on the redesign of the consumer products business, shifting its
focus from the highly expensive product based distribution model to a global brand development and brand ownership model. Management
believes that the planned model, which is currently being executed, will provide more consistent margins, more predictable revenue
streams as well as current and long-term profitability by curtailing the cost structure, allowing for longer product life, and
providing for next-generation product lines and follow-on opportunities to those branded products. However, substantial investment
continues to be required to support this change. The Company received $6,500,000 of funding from the sale of preferred stock and
warrants during the year ended December 31, 2011. Notwithstanding this additional funding, our ability to continue as a going concern
for a reasonable period is dependent upon achieving our management’s plans for the Company’s reorganization and, ultimately,
generating profitable operations from those restructured operations. While we have made significant tangible progress, we cannot
give any assurances regarding the success of management’s plans. Our consolidated financial statements do not include adjustments
relating to the recoverability of recorded assets or liabilities that might be necessary should we be unable to continue as a going
concern.



Cash and cash equivalents amounted to $1,890,806
as of December 31, 2011 compared to $1,746,510 at December 31, 2010. We have working capital of $1,231,687 as of December 31, 2011
and we had working capital of $2,088,260 at December 31, 2010.



Cash Flow from Operating Activities– We used cash of $7,110,580 and $6,534,877 in our operating activities during the years ended December 31, 2011 and
2010, respectively.



We recorded net losses attributable to
Infusion Brands International, Inc. of $6,899,056 and $16,311,903 during the years ended December 31, 2011 and 2010, respectively.
Our net losses are partially offset by net non-cash charges (credits) of $875,579 and $6,485,351 during the years ended December
31, 2011 and 2010, respectively. Our analysis of the material components of changes in non-cash charges are as follows:



| | · | We recognized a non-cash bargain purchase
gain in connection with our purchase of HSE of $200,416.
| | - | --------------------------------------------------------------------------------------------------

| | · | We recognized share-based payment expense
of $716,411 and $790,792 during the years ended December 31, 2011 and 2010, respectively.
| | - | -----------------------------------------------------------------------------------------------------------------------------------

| | · | During the year ended December 31, 2010,
non-cash charges included asset impairment charges of $22,972,854 and investment impairment charges of $2,409,525. These charges
arose from the disposals of the Discontinued Segments.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | During the year ended December 31, 2010,
non-cash (credits) include changes in the fair value of derivative financial instruments and other activity associated with our
financial instruments, amounting to a credit of $20,936,333 during the year ended December 31, 2010. On December 17, 2010, we entered
into agreements with the holders of the warrants and preferred stock to modify the financial instruments to exclude provisions,
such as down-round anti-dilution protection, that cause these derivative financial instruments to be classified in liabilities
and carried at fair value. On the modification date, we adjusted all derivative financial instruments to fair values, with charges
or credits to income, and reclassified the remaining balances to paid-in capital. Accordingly, in the absence of future modification
to these agreements or the issuance of additional financial instruments that give rise to derivative classification and measurement,
we do not anticipate further derivative income (expense).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our cash from operating activities also
includes sources and (uses) of cash flow from changes in our operating assets and liabilities of $(1,087,103) and $3,291,675 for
years ended December 31, 2011 and 2010, respectively.



24







Cash Flow from Investing Activities– We used cash of $164,427 and $278,036 in our investing activities during the years ended December 31, 2011 and 2010,
respectively. During each year, these activities consisted of normal purchases of assets and website development costs. During
the year ended December 31, 2011 investing activities included the use of $57,298 in cash to acquire the Company’s interest
in HSE, which is net of cash of HSE acquired. During the year ended December 31, 2010, the Company made investments in companies
that were included among the assets of the Discontinued Segments in the amount of $200,750.



We have no commitments for the purchase
of property and equipment or other long lived assets.



Cash Flow from Financing Activities– We received $7,395,570 and $4,865,270 cash in our financing activities during
the years ended December 31, 2011 and 2010, respectively. We generated cash principally from preferred stock and warrant financings
of $6,500,000 and $5,000,000 during the years ended December 31, 2011 and 2010, respectively. Uses of cash from financing activities
relate to the principal payments we made on our mortgage loan. During the year ended December 31, 2010, we also redeemed the common
stock of a former officer for $100,000 which was solely a negotiated condition of the officer’s separation.



Preferred Stock Redemption Requirements– We have 11,500,000 shares of Series G Preferred Stock outstanding that are mandatorily redeemable for cash of $70,099,651
on June 30, 2013 as follows:



| | · | The stated value of $11,500,000 is payable
on June 30, 2013.
| | - | ------------------------------------------------------------

| | · | An additional dividend equal to $1.00
per share of Series G Preferred was payable on June 30, 2011 if the special preferred distribution discussed in the next bullet
point has not been paid before that date (aggregate redemption value $11,500,000). The investor waived payment of this additional
dividend on the payment date, but it will continue to accrue dividends as provided in the Certificate of Designation at a rate
of 8%. That is, the original face value of the Series G Preferred accrues dividends at 8% from the issuance date and the unpaid
additional dividend amount accrues dividends at 8% from June 30, 2011.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A special preferred distribution equal
to $4.096 per share of Series G Preferred is payable on June 30, 2013 or earlier at our option (aggregate redemption value of $47,099,651).
This special preferred distribution could have been reduced by the amount of the additional dividend discussed in the preceding
bullet point if the additional dividend was paid on the June 30, 2011.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, during the years ended December
31, 2011 and 2010, dividends of $1,371,068 and $205,905, respectively were accrued and recorded as reductions in paid-in capital
in the absence of accumulated earnings. However, no dividends have been paid. These unpaid dividends, plus the aforementioned redemption
amount will be payable on June 30, 2013.



Other Financing Activities –
On January 28, 2011, we entered into an accounts receivable sales and financing arrangement that provides for the assignment and
sale of certain qualified accounts receivable to a financial institution. The facility provides for cash advances in amounts of
75% of qualified accounts receivable balances assigned up to an amount of $1,000,000. The financial institution receives an initial
discount of 1.75% of the net realizable value of the qualified receivable. Subsequently, the lender receives an additional 1.0%
discount for each 15 day period that the qualified receivable has not been collected. Further, the lender has a secured priority
interest in certain accounts receivable and inventories that are specific to the receivables. This arrangement does not qualify
for sales accounting under current accounting standards and is, therefore, subject to accounting as a financing arrangement wherein
we will carry the assigned receivables in our accounts until they are settled and advances that we receive from the lender will
be reflected as liabilities. The discounts will be classified as interest expense. There was $1,025,330 outstanding under this
arrangement as of December 31, 2011.



25







On March 2, 2011, we entered into a media
funding arrangement with financial institution that provides for the financing of certain of our defined media and marketing material
expenditures. The borrowing facility does not have a stated maximum, although borrowings are limited to certain defined account
receivable levels. The facility has an initial term of one year with consecutive one year renewal terms unless terminated by either
party. It provides for fees to the lender equal to 2.5% of the qualified amounts paid plus deferred payment arrangements that provide
for interest at an approximate rate of 8.7% per annum. The creditor has a first creditor’s secured priority interest in the
accounts receivable that they finance. As of December 31, 2011, no balances were outstanding under this facility. We carry media
funding advances in the accounts payable and accrued liabilities classification in our balance sheet.



Critical Accounting Policies



Our discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those
related to reserves, deferred tax assets and valuation allowance, impairment of long-lived assets, fair value of our financial
instruments and equity instruments. We base our estimates on historical experience and on various other assumptions that we believe
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.



While all of our accounting policies impact
the consolidated financial statements, certain policies are viewed to be critical. Critical accounting policies are those that
are both most important to the portrayal of our financial condition and results of operations and that require management’s
most subjective or complex judgments and estimates. Management believes the policies that fall within this category are the policies
on revenue recognition and accounts receivable and other intangible assets, investments, financial and derivative instruments.



Revenue recognition – Revenue
is recognized when evidence of the arrangement exists, the product is shipped to a customer, or in the limited circumstances, at
destination, when terms provide that title passes at destination, the fee for the service is fixed or determinable and when we
have concluded that amounts are collectible from the customers. Estimated amounts for sales returns and allowances are recorded
at the time of sale. Shipping costs billed to customers are included as a component of product sales. The associated cost of shipping
is included as a component of cost of product sales.



Accounts receivable –Accounts
receivable represents normal trade obligations from customers that are subject to normal trade collection terms, without discounts
or rebates. Notwithstanding these collections, we periodically evaluate the collectability of our accounts receivable and consider
the need to establish an allowance for doubtful accounts based upon our historical collection experience and specifically identifiable
information about our customers.



26







Inventories –Inventories
consist of retail merchandise that is in its finished form and ready for sale to end-user customers. Inventories are recorded at
the lower of average cost or market. Normal in-bound freight-related costs from our vendors are included as part of the net cost
of merchandise inventories. Other costs associated with acquiring, storing and transporting merchandise inventories are expensed
as incurred and included in cost of goods sold. Our inventories are acquired and carried for retail sale and, accordingly, the
carrying value is susceptible to, among other things, market trends and conditions and overall customer demand. We use our best
estimates of all available information to establish reasonable inventory quantities. However, these conditions may cause our inventories
to become obsolete and/or excessive. We review our inventories periodically for indications that reserves are necessary to reduce
the carrying values to the lower of cost or market values.



Impairments – Our management
evaluates its tangible and definite-lived intangible assets for impairment under ASC 350 Intangible Assets and ASC 360 Impairments
and Disposals.



| | · | Our evaluation related to goodwill provides
for a two step process. The first step is to compare the carrying value of the company to the enterprise value, generally determined
using the market in which our common stock trades. If the carrying value, including goodwill, exceeds the enterprise value, the
implied goodwill is determined by reevaluating the carrying values of all assets. The excess of the carrying value of goodwill
over its implied value requires recognition as an operating expense.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Our evaluation related to tangible and
intangible long-lived assets provides a two step process. The first step is to compare our undiscounted cash flows, as projected
over the remaining useful lives of the assets, to their respective carrying values. In the event that the carrying values are not
recovered by future undiscounted cash flows, as a second step, we compare the carrying values to the related fair values and, if
lower, record an impairment adjustment. For purposes of fair value, we generally use replacement costs for tangible fixed assets
and discounted cash flows, using risk-adjusted discount rates, for intangible assets.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investments – Our investments
consist of available for sale securities, non-marketable securities and other equity investments.



Available-for-Sale Investments:
Investments that we designate as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded
in accumulated other comprehensive income (loss). We base the cost of the investment sold on the specific identification method
using market rates for similar financial instruments.



Non-Marketable and Other Equity Investments:
We account for non-marketable and other equity investments under either the cost or equity method and include them in other long-term
assets. Our non-marketable and other equity investments include:



Equity method investments occur when we have
the ability to exercise significant influence, but not control, over the investee. We record equity method adjustments in gains
(losses) on equity investments, net. Equity method adjustments include: our proportionate share of investee income or loss, gains
or losses resulting from investee capital transactions, amortization of certain differences between our carrying value and our
equity in the net assets of the investee at the date of investment, and other adjustments required by the equity method.

Non-marketable cost method investments occur
when we do not have the ability to exercise significant influence over the investee.



Other-Than-Temporary Impairment:
All of our non-marketable and other investments are subject to a periodic impairment review. Investments are considered to be impaired
when a decline in fair value is judged to be other-than-temporary. The indicators that we use to identify those events and circumstances
include:



27







the investee's revenue and earnings trends relative
to predefined milestones and overall business prospects;

the technological feasibility of the investee's products
and technologies;



the general market conditions in the investee's industry
or geographic area, including regulatory or economic changes;

factors related to the investee's ability to remain
in business, such as the investee's liquidity, debt ratios, and the rate at which the investee is using its cash; and



the investee's receipt of additional funding at a
lower valuation. If an investee obtains additional funding at a valuation lower than our carrying amount or a new round of equity
funding is required for the investee to remain in business, and the new round of equity does not appear imminent, it is presumed
that the investment is other than temporarily impaired, unless specific facts and circumstances indicate otherwise.



Investments that we identify as having
an indicator of impairment are subject to further analysis to determine if the investment is other than temporarily impaired, in
which case we write down the investment to its estimated fair value. For non-marketable equity investments that we do not consider
viable from a financial or technological point of view, we write the entire investment down, since we consider the estimated fair
value to be nominal.



Financial instruments –Financial
instruments consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual
obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially
unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another
financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with
the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, investments, accounts receivable,
accounts payable, accrued liabilities, derivative financial instruments, long-term debt, and redeemable preferred stock.



We carry cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities and long-term debt at historical costs; their respective estimated fair values
approximate carrying values. We carry derivative financial instruments at fair value in accordance with Financial ASC 815 Accounting
for Derivative Financial Instruments and Hedging Activities (“ASC 815”). We carry redeemable preferred stock at
either its basis derived from the cash received or fair value depending upon the classification afforded the preferred stock, or
embedded components thereof, in accordance with ASC 815 and ASC 480 Financial Instruments with Characteristics of both Equity
and Liabilities (“ASC 480”).



Derivative financial instruments
– Derivative financial instruments, as defined in ASC 815 consist of financial instruments or other contracts that contain
a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment
and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further,
derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare
instances, assets.



We generally do not use derivative financial
instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have entered into certain other financial
instruments and contracts, such as redeemable preferred stock arrangements and freestanding warrants with features that are either
(i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash
settled by the counterparty. As required by Statement 133, these instruments are required to be carried as derivative liabilities,
at fair value, in our financial statements.



28







On December 17, 2010, we entered into agreements
with the holders of the warrants and preferred stock to modify the financial instruments to exclude provisions, such as down-round
anti-dilution protection, that cause these derivative financial instruments to be classified in liabilities and carried at fair
value. On the modification date, we adjusted all derivative financial instruments to fair values, with charges or credits to income,
and reclassified the remaining balances to paid-in capital. Accordingly, in the absence of future modification to these agreements
or the issuance of additional financial instruments that give rise to derivative classification and measurement, we do not anticipate
further derivative income (expense).



Recent Accounting Pronouncements



In June 2011, the Financial Accounting
Standards Board, or FASB, issued additional guidance for the presentation of comprehensive income. The new guidance changes the
way other comprehensive income (“OCI”) appears within the financial statements. Companies will be required to show
net income, OCI and total comprehensive income in one continuous statement or in two separate but consecutive statements. Components
of OCI may no longer be presented solely in the statement of changes in shareholders’ equity. Any reclassification between
OCI and net income will be presented on the face of the financial statements. The new guidance is effective for our company beginning
January 1, 2012. The adoption of the new guidance will not impact the measurement of net income or other comprehensive income.



In May 2011, FASB issued ASU 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This accounting update
generally aligns the principles for fair value measurements and the related disclosure requirements under U.S. GAAP and International
Financial Reporting Standards. From a U.S. GAAP perspective, the amendments are largely clarifications, but some could have a significant
effect on certain companies. A number of new disclosures also are required. Except for certain disclosures, the guidance applies
to public and nonpublic companies and is to be applied prospectively. For public companies and nonpublic companies, the amendments
are effective during interim and annual periods beginning after December 15, 2011. Early adoption by public companies is not permitted.
Nonpublic companies may apply the amendments early, but no earlier than for interim periods beginning after December 15, 2011.



Legal and Other Contingencies



As discussed in Part I, Item 3 of this
Form 10-K under the heading "Legal Proceedings" and in Note 15 "Commitments and Contingencies" in Notes to
Consolidated Financial Statements, the Company is subject to various legal proceedings and claims that arise in the ordinary course
of business. In accordance with GAAP, the Company records a liability when it is probable that a loss has been incurred and the
amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether
an exposure can be reasonably estimated. In management's opinion, the Company does not have a potential liability related to any
current legal proceedings and claims that would individually or in the aggregate materially adversely affect its financial condition
or operating results. However, the outcomes of legal proceedings and claims brought against the Company are subject to significant
uncertainty. Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved
against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely
affected.



ITEM 7A - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK



As a smaller reporting company we are not
required to provide the information required by this Item.



ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA



29







REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Board of Directors and Stockholders
of

Infusion Brands International, Inc. and
Subsidiaries



We have audited the accompanying consolidated
balance sheets of Infusion Brands International, Inc. and Subsidiaries at December 31, 2011 and 2010 and the related consolidated
statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 2011 and 2010. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Infusion Brands International,
Inc. and Subsidiaries at December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for the years ended December 31, 2011 and 2010, in conformity with accounting principles generally
accepted in the United States of America.



The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 of the accompanying
consolidated financial statements, the Company has incurred significant recurring losses from operations and is dependent on outside
sources of financing for continuation of its operations and management is restructuring and redirecting its operating initiatives
that require the use of its available capital resources. These factors raise substantial doubt about the Company's ability to continue
as a going concern.



/s/Meeks International LLC

Tampa, Florida

March 23, 2012



30







Infusion Brands International, Inc. and
Subsidiaries

Consolidated Balance Sheets



|                                                                                                                            |  | December 31, |            
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -----------
|                                                                                                                            |  | 2011         |            
|Assets                                                                                                                      |  |              |            
|                                                                                                                            |  |              |            
|Current assets:                                                                                                             |  |              |            
|Cash and cash equivalents                                                                                                   |  | $            | 1,890,806  
|Accounts receivable, net of allowances for returns and bad debts of $293,983 and $216,413                                   |  |              | 2,788,358  
|Inventories, net                                                                                                            |  |              | 2,375,509  
|Prepaid expenses and other current assets                                                                                   |  |              | 553,428    
|Total current assets                                                                                                        |  |              | 7,608,101  
|Property and equipment, net                                                                                                 |  |              | 2,751,362  
|Other assets                                                                                                                |  |              | 349,737    
|Intangible assets, net                                                                                                      |  |              | 38,832     
|Total assets                                                                                                                |  | $            | 10,748,032 
|                                                                                                                            |  |              |            
|Liabilities, Redeemable Preferred Stock and Deficit                                                                         |  |              |            
|                                                                                                                            |  |              |            
|Current liabilities:                                                                                                        |  |              |            
|Accounts payable and accrued expenses                                                                                       |  | $            | 5,166,921  
|Accounts receivable financing arrangement                                                                                   |  |              | 1,025,330  
|Notes payable and maturities of long-term debt                                                                              |  |              | 115,651    
|Deferred revenue                                                                                                            |  |              | 68,512     
|Total current liabilities                                                                                                   |  |              | 6,376,414  
|Long-term debt                                                                                                              |  |              | 2,231,786  
|Security deposits from leasees                                                                                              |  |              | 17,578     
|Total liabilities                                                                                                           |  |              | 8,625,778  
|                                                                                                                            |  |              |            
|Commitments and contingencies (Note 15 )                                                                                    |  |              | —          
|                                                                                                                            |  |              |            
|Redeemable preferred stock                                                                                                  |  |              | 20,471,818 
|                                                                                                                            |  |              |            
|Deficit:                                                                                                                    |  |              |            
|Infusion Brands shareholders’ deficit:                                                                                      |  |              |            
|Series C Preferred Stock, $0.00001 par, 10,620,000 shares authorized and issued, 1,024,210 and 1,024,210 shares outstanding |  |              | 4,946,910  
|Series E Preferred Stock, $0.00001 par, 13,000,000 shares authorized and issued, 2,526,776 and 2,526,776 shares outstanding |  |              | 2,344,776  
|Common Stock, $0.00001 par, 800,000,000 shares authorized; 181,457,508 and 158,795,060 shares issued and outstanding        |  |              | 1,816      
|Paid-in capital                                                                                                             |  |              | 39,592,589 
|Accumulated deficit                                                                                                         |  |              | (65,657,012
|Cumulative translation adjustments                                                                                          |  |              | 23,733     
|Total Infusion Brands shareholders’ deficit                                                                                 |  |              | (18,747,188
|Non-controlling interests                                                                                                   |  |              | 397,624    
|Total deficit                                                                                                               |  |              | (18,349,564
|Total liabilities, redeemable preferred stock and deficit                                                                   |  | $            | 10,748,032 





See accompanying notes.





31







Infusion Brands International, Inc. and
Subsidiaries

Consolidated Statements of Operations



|                                                                                                                    |  | Years Ended December 31, |           
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                                                                    |  | 2011                     |           
|                                                                                                                    |  |                          |           
|Revenues:                                                                                                           |  |                          |           
|Product sales                                                                                                       |  | $                        | 17,940,829
|Cost of product sales (including depreciation expense of $24,188 and $16,200, respectively)                         |  |                          | 10,848,156
|Gross profit                                                                                                        |  |                          | 7,092,673 
|                                                                                                                    |  |                          |           
|Other revenues:                                                                                                     |  |                          |           
|Rental income                                                                                                       |  |                          | 243,107   
|Services and other revenues                                                                                         |  |                          | —         
|Total other revenues                                                                                                |  |                          | 243,107   
|                                                                                                                    |  |                          |           
|Other costs and operating expenses:                                                                                 |  |                          |           
|Advertising and promotional                                                                                         |  |                          | 5,331,463 
|Employment costs                                                                                                    |  |                          | 4,278,874 
|Other general and administrative                                                                                    |  |                          | 2,740,246 
|Accounting and professional                                                                                         |  |                          | 1,614,000 
|Depreciation, excluding depreciation classified in cost of product sales                                            |  |                          | 247,075   
|Bargain purchase                                                                                                    |  |                          | (200,416  
|Impairments                                                                                                         |  |                          | —         
|                                                                                                                    |  |                          | 14,011,242
|Loss from operations                                                                                                |  |                          | (6,675,462
|                                                                                                                    |  |                          |           
|Other income (expense), net:                                                                                        |  |                          |           
|Interest expense                                                                                                    |  |                          | (400,710  
|Interest and other income                                                                                           |  |                          | 250,552   
|Derivative income                                                                                                   |  |                          | —         
|Litigation settlement                                                                                               |  |                          | —         
|Total other income (expense), net                                                                                   |  |                          | (150,158  
|                                                                                                                    |  |                          |           
|(Loss) income from continuing operations before income taxes, discontinued operations and non-controlling interests |  |                          | (6,825,620
|Income taxes                                                                                                        |  |                          | (73,436   
|(Loss) income from continuing operations, before discontinued operations and non-controlling interests              |  |                          | (6,899,056
|Discontinued operations:                                                                                            |  |                          |           
|Loss from operations of discontinued operating segments                                                             |  |                          | —         
|Loss on disposal of operating segments                                                                              |  |                          | —         
|Loss from discontinued operations                                                                                   |  |                          | —         
|                                                                                                                    |  |                          |           
|Net loss attributable to Infusion Brands International                                                              |  |                          | (6,899,056
|Net loss attributable to non-controlling interests                                                                  |  |                          | (45,349   
|                                                                                                                    |  |                          |           
|Net loss                                                                                                            |  | $                        | (6,944,405



Continued on next page.





See accompanying notes.





32







Infusion Brands International, Inc. and
Subsidiaries

Consolidated Statements of Operations



|                                                                                                                                                                |  | Years Ended December 31, |            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -----------
|                                                                                                                                                                |  | 2011                     |            
|                                                                                                                                                                |  |                          |            
|Reconciliation of (loss) income from continuing operations attributable to Infusion Brands to (loss) income attributable to Infusion Brand common shareholders: |  |                          |            
|(Loss) income from continuing operations attributable to Infusion Brands                                                                                        |  | $                        | (6,899,056 
|Loss attributable to non-controlling interests                                                                                                                  |  |                          | (45,349    
|Preferred stock dividends and accretion                                                                                                                         |  |                          | (10,901,941
|(Loss) income from continuing operations and numerator for basic (loss) income per common share                                                                 |  |                          | (17,846,346
|Adjustment for application of the if-converted method                                                                                                           |  |                          | —          
|Numerator for diluted (loss) income per common share                                                                                                            |  | $                        | (17,846,346
|                                                                                                                                                                |  |                          |            
|Loss from discontinued operations                                                                                                                               |  | $                        | —          
|                                                                                                                                                                |  |                          |            
|(Loss) income per common share:                                                                                                                                 |  |                          |            
|Basic:                                                                                                                                                          |  |                          |            
|Continuing operations                                                                                                                                           |  | $                        | (0.10      
|Discontinued operations                                                                                                                                         |  | $                        | —          
|Diluted:                                                                                                                                                        |  |                          |            
|Continuing operations                                                                                                                                           |  | $                        | (0.10      
|Discontinued operations                                                                                                                                         |  | $                        | —          
|                                                                                                                                                                |  |                          |            
|Weighted average common shares—denominator for basic                                                                                                            |  |                          | 177,922,001
|Potentially dilutive financial instruments:                                                                                                                     |  |                          |            
|Stock options                                                                                                                                                   |  |                          | —          
|Warrants                                                                                                                                                        |  |                          | —          
|Convertible preferred stock                                                                                                                                     |  |                          | —          
|Denominator for diluted                                                                                                                                         |  |                          | 177,922,001





See accompanying notes.





33







Infusion Brands International, Inc. and
Subsidiaries

Consolidated Statements of Cash Flows



|                                                                            |  | Years Ended December 31, |           
|--------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                            |  | 2011                     |           
|Cash flows from operating activities:                                       |  |                          |           
|                                                                            |  |                          |           
|Net loss                                                                    |  | $                        | (6,899,056
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                          |           
|Share-based payment                                                         |  |                          | 716,411   
|Depreciation expense                                                        |  |                          | 250,511   
|Bargain purchase                                                            |  |                          | (200,416  
|Bad debts expense and returns and allowances                                |  |                          | 88,321    
|Amortization of intangible assets                                           |  |                          | 20,752    
|Impairment of assets                                                        |  |                          | —         
|Derivative income                                                           |  |                          | —         
|Impairment of investments                                                   |  |                          | —         
|Equity in losses of investees                                               |  |                          | —         
|Loss on disposal of discontinued segments                                   |  |                          | —         
|Non-cash severance                                                          |  |                          | —         
|Loss on disposal of property and equipment                                  |  |                          | —         
|Amortization of deferred finance costs                                      |  |                          | —         
|Changes in operating assets and liabilities:                                |  |                          |           
|Accounts receivable                                                         |  |                          | (1,785,433
|Inventories                                                                 |  |                          | 731,704   
|Prepaid expenses and other assets                                           |  |                          | (507,523  
|Accounts payable and accrued expenses                                       |  |                          | 405,637   
|Deferred revenue                                                            |  |                          | 68,512    
|Net cash used in operating activities                                       |  |                          | (7,110,580
|                                                                            |  |                          |           
|Cash flows from investing activities:                                       |  |                          |           
|Purchases of property and equipment                                         |  |                          | (107,129  
|Purchase of HSE, net of $17,856 cash received                               |  |                          | (57,298   
|Purchases of investments                                                    |  |                          | —         
|Net cash used in investing activities                                       |  |                          | (164,427  
|                                                                            |  |                          |           
|Cash flows from financing activities:                                       |  |                          |           
|Proceeds from sale of preferred stock and warrants                          |  |                          | 6,500,000 
|Accounts receivable financing arrangement, net                              |  |                          | 1,025,330 
|Principal payments on long-term debt                                        |  |                          | (129,760  
|Redemption of common stock                                                  |  |                          | —         
|Net cash provided from financing activities                                 |  |                          | 7,395,570 
|                                                                            |  |                          |           
|Foreign currency translation adjustments                                    |  |                          | 23,733    
|                                                                            |  |                          |           
|Net change in cash and cash equivalents                                     |  |                          | 144,296   
|Cash and cash equivalents at beginning of year                              |  |                          | 1,746,510 
|Cash and cash equivalents at end of year                                    |  | $                        | 1,890,806 





See accompanying notes.





34







Infusion Brands International, Inc. and
Subsidiaries

Consolidated Statements of Cash Flows



Supplemental Cash Flow Information



|                                                            |  | Years Ended December 31, |        
|----------------------------------------------------------- |  | ------------------------ | -------
|                                                            |  | 2011                     |        
|                                                            |  |                          |        
|Cash paid for interest                                      |  | $                        | 136,905
|Cash paid for income taxes                                  |  | $                        | —      
|                                                            |  |                          |        
|Disposals of discontinued segments:                         |  |                          |        
|Assets of discontinued segments, including cash of $166,899 |  |                          |        
|Liabilities of discontinued segments                        |  |                          |        
|Net assets of discontinued segments                         |  |                          |        
|Proceeds                                                    |  |                          |        
|Loss on disposals                                           |  |                          |        





See accompanying notes.





35







Infusion Brands International, Inc. and
Subsidiaries

Consolidated Statements of Stockholders’
Equity (Deficit)



For the years ended December 31, 2011 and
2010





|                                                     |  |                 |           |   | Common Stock |  |             | Paid-in |  |   | Accumulated other
    Comprehensive |   |  | Accumulated  |            |   | Infusion Brands
    International, Inc. |   |          | Non-Controlling  |  |   | Total Stockholders’ |  
|---------------------------------------------------- |  | --------------- | --------- | - | ------------ |  | ----------- | ------- |  | - | ----------------------------------- | - |  | ------------ | ---------- | - | --------------------------------------- | - | -------- | ---------------- |  | - | ------------------- | -
|                                                     |  | Preferred Stock |           |   | Shares       |  |             | Amount  |  |   | Capital                             |   |  | Income Items |            |   | Deficit                                 |   |          | Equity (deficit) |  |   | Interests           |  
|                                                     |  |                 |           |   |              |  |             |         |  |   |                                     |   |  |              |            |   |                                         |   |          |                  |  |   |                     |  
|Balances,
    January 1, 2010                        |  | $               | 3,177,317 |   |              |  | 159,128,329 |         |  | $ | 1,591                               |   |  | $            | 46,370,212 |   |                                         | $ | 425,000  |                  |  | $ | (42,642,655         | )
|Income from continuing
    operations                |  |                 | —         |   |              |  | —           |         |  |   | —                                   |   |  |              | —          |   |                                         |   | —        |                  |  |   | 8,121,199           |  
|Loss from discontinued
    operations                |  |                 | —         |   |              |  | —           |         |  |   | —                                   |   |  |              | —          |   |                                         |   | —        |                  |  |   | (24,191,151         | )
|Other comprehensive income
    (loss) items:         |  |                 |           |   |              |  |             |         |  |   |                                     |   |  |              |            |   |                                         |   |          |                  |  |   |                     |  
|Unrealized
    gains and losses                      |  |                 | —         |   |              |  | —           |         |  |   | —                                   |   |  |              | —          |   |                                         |   | (425,000 | )                |  |   | —                   |  
|Comprehensive
    loss                               |  |                 |           |   |              |  |             |         |  |   |                                     |   |  |              |            |   |                                         |   |          |                  |  |   |                     |  
|                                                     |  |                 |           |   |              |  |             |         |  |   |                                     |   |  |              |            |   |                                         |   |          |                  |  |   |                     |  
|Other changes to stockholders’
    equity (deficit): |  |                 |           |   |              |  |             |         |  |   |                                     |   |  |              |            |   |                                         |   |          |                  |  |   |                     |  
|Reclassification of derivatives                      |  |                 | —         |   |              |  | —           |         |  |   | —                                   |   |  |              | 3,584,182  |   |                                         |   | —        |                  |  |   | —                   |  
|Accretion of Preferred
    Stock                     |  |                 | —         |   |              |  | —           |         |  |   | —                                   |   |  |              | (1,680,534 | ) |                                         |   | —        |                  |  |   | —                   |  
|Share-based payment                                  |  |                 | —         |   |              |  | —           |         |  |   | —                                   |   |  |              | 790,792    |   |                                         |   | —        |                  |  |   | —                   |  
|Redemption                                           |  |                 | —         |   |              |  | (1,300,000  | )       |  |   | (13                                 | ) |  |              | (99,987    | ) |                                         |   | —        |                  |  |   | —                   |  
|Dividends Preferred Stock                            |  |                 | —         |   |              |  | —           |         |  |   | —                                   |   |  |              | (203,774   | ) |                                         |   | —        |                  |  |   | —                   |  
|Consolidation of Wineharvest                         |  |                 | —         |   |              |  | —           |         |  |   | —                                   |   |  |              | —          |   |                                         |   | —        |                  |  |   | —                   |  
|Conversions                                          |  |                 | (832,541  | ) |              |  | 966,731     |         |  |   | 11                                  |   |  |              | 832,530    |   |                                         |   | —        |                  |  |   | —                   |  
|Balances, December
    31, 2010                      |  | $               | 2,344,776 |   |              |  | 158,795,060 |         |  | $ | 1,589                               |   |  | $            | 49,593,421 |   |                                         | $ | —        |                  |  | $ | (58,712,607         | )







See accompanying notes.





36







Infusion Brands International, Inc. and
Subsidiaries

Consolidated Statements of Stockholders’
Equity (Deficit)



|                                                     |  |                 |           |  | Common Stock |  |             | Paid-in |  |   | Accumulated other
    Comprehensive |  |  | Accumulated  |            |   | Infusion Brands
    International, Inc. |   |        | Non-Controlling  |  |   | Total Stockholders’ |  
|---------------------------------------------------- |  | --------------- | --------- |  | ------------ |  | ----------- | ------- |  | - | ----------------------------------- |  |  | ------------ | ---------- | - | --------------------------------------- | - | ------ | ---------------- |  | - | ------------------- | -
|                                                     |  | Preferred Stock |           |  | Shares       |  |             | Amount  |  |   | Capital                             |  |  | Income Items |            |   | Deficit                                 |   |        | Equity (deficit) |  |   | Interests           |  
|                                                     |  |                 |           |  |              |  |             |         |  |   |                                     |  |  |              |            |   |                                         |   |        |                  |  |   |                     |  
|Balances,
    January 1, 2011                        |  | $               | 2,344,776 |  |              |  | 158,795,060 |         |  | $ | 1,589                               |  |  | $            | 49,593,421 |   |                                         | $ | —      |                  |  | $ | (58,712,607         | )
|Net loss                                             |  |                 | —         |  |              |  | —           |         |  |   | —                                   |  |  |              | —          |   |                                         |   | —      |                  |  |   | (6,944,405          | )
|Other comprehensive income
    (loss) items:         |  |                 |           |  |              |  |             |         |  |   |                                     |  |  |              |            |   |                                         |   |        |                  |  |   |                     |  
|Currency
    translation                             |  |                 | —         |  |              |  | —           |         |  |   | —                                   |  |  |              | —          |   |                                         |   | 23,733 |                  |  |   | —                   |  
|Comprehensive
    income (loss)                      |  |                 |           |  |              |  |             |         |  |   |                                     |  |  |              |            |   |                                         |   |        |                  |  |   |                     |  
|                                                     |  |                 |           |  |              |  |             |         |  |   |                                     |  |  |              |            |   |                                         |   |        |                  |  |   |                     |  
|Other changes to stockholders’
    equity (deficit): |  |                 |           |  |              |  |             |         |  |   |                                     |  |  |              |            |   |                                         |   |        |                  |  |   |                     |  
|Accretion of preferred
    stock                     |  |                 | —         |  |              |  | —           |         |  |   | —                                   |  |  |              | (9,530,873 | ) |                                         |   | —      |                  |  |   | —                   |  
|Reclassification of preferred
    stock              |  |                 | 4,946,910 |  |              |  | —           |         |  |   | —                                   |  |  |              | —          |   |                                         |   | —      |                  |  |   | —                   |  
|Dividends on preferred
    stock                     |  |                 | —         |  |              |  | —           |         |  |   | —                                   |  |  |              | (1,371,068 | ) |                                         |   | —      |                  |  |   | —                   |  
|Share-based payment —employees                       |  |                 | —         |  |              |  | 2,500,000   |         |  |   | 25                                  |  |  |              | 363,915    |   |                                         |   | —      |                  |  |   | —                   |  
|Share-based payment—others                           |  |                 | —         |  |              |  | 20,162,448  |         |  |   | 202                                 |  |  |              | 352,269    |   |                                         |   | —      |                  |  |   | —                   |  
|Purchase of HSE                                      |  |                 | —         |  |              |  | —           |         |  |   | —                                   |  |  |              | —          |   |                                         |   | —      |                  |  |   | —                   |  
|Sale
    of preferred and warrants                   |  |                 | —         |  |              |  | —           |         |  |   | —                                   |  |  |              | 184,925    |   |                                         |   | —      |                  |  |   | —                   |  
|Balances, December
    31, 2011                      |  | $               | 7,291,686 |  |              |  | 181,457,508 |         |  | $ | 1,816                               |  |  | $            | 39,592,589 |   |                                         | $ | 23,733 |                  |  | $ | (65,657,012         | )





See accompanying notes.





37







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements



Note
1 – Organization and nature of business operations:



Infusion Brands International, Inc. is
a Nevada Corporation. We are a global consumer products company, specializing in developing innovative solutions and marketing
profitable brands through our international direct-to-consumer channels of distribution.



Note 2 – Going concern and management’s
plans:



The preparation of financial statements
in accordance with generally accepted accounting principles contemplates that operations will be sustained for a reasonable period.
However, we have incurred operating losses of $6,675,462 and $12,988,537 during the years ended December 31, 2011 and 2010, respectively.
In addition, during these periods, we used cash of $7,110,580 and $6,534,877, respectively, in support of our operating activities.
As more fully discussed in Note 11, we have material redemption requirements associated with our Series G Preferred Stock during
the year ended December 31, 2013. Since our inception, we have been substantially dependent upon funds raised through the sale
of preferred and common stock and warrants to sustain our operating and investing activities. These are conditions that raise substantial
doubt about our ability to continue as a going concern for a reasonable period.



Our management began implementing strategic
plans designed and developed during the fourth quarter of the prior year with the intention of alleviating ongoing operating losses.
The principal focus of these plans was an intensified emphasis on the redesign of the consumer products business, shifting its
focus from the highly expensive product based distribution model to a global brand development and brand ownership model. Management
believes that the planned model will provide more predictable revenue streams as well as current and long-term profitability by
curtailing the cost structure, allowing for longer product life, and providing for next-version, next-generation and follow-on
opportunities to those branded products. However, substantial investment is required to support this change. The Company received
$6,500,000 of funding from the sale of preferred stock and warrants during the year ended December 31, 2011. Notwithstanding this
additional funding, our ability to continue as a going concern for a reasonable period is dependent upon achieving our management’s
plans for the Company’s reorganization and, ultimately, generating profitable operations from those restructured operations.
We cannot give any assurances regarding the success of management’s plans. Our consolidated financial statements do not include
adjustments relating to the recoverability of recorded assets or liabilities that might be necessary should we be unable to continue
as a going concern.



Note 3 – Summary of significant accounting policies:



Use of estimates – The preparation
of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America
requires our management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements.
Significant estimates embodied in our consolidated financial statements include (i) estimating the collectability of accounts receivable
and the recoverability of inventories and (ii) developing cash flow projections for purposes of evaluating the recoverability of
long-lived assets. All estimates are developed by or under the direction of our Chief Executive Officer using the best available
information at the time of the estimate. However, actual results could differ from those estimates.



38







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements



Note 3 – Summary of significant accounting policies (continued):



Principles of consolidation and equity
method investees– Our consolidated financial statements include the accounts of Infusion Brands International, Inc.,
and our wholly-owned subsidiaries Infusion Brands, Inc. and Infusion Brands Studios, LLC. Our consolidated financial statements
also include the accounts of Home Shopping Express, SA (“HSE”), which is 50% owned. HSE is consolidated because it
is a variable interest entity and Infusion Brands International, Inc. is the primary beneficiary. We otherwise consider investments
that provide us 20% to 50% voting interest in the investee equity investments. As of December 31, 2011 and 2010, we have no equity
investments.



Discontinued operations –
We apply the component approach to the application of discontinued operations when we dispose of significant assets and businesses.
A component is an entity that comprises cash flows and operations that are clearly discernible from our continuing operations and
cash flows. A component may consist of an identifiable segment, a subsidiary, a reporting unit or an asset group that meets these
criteria. The result of operations of a component that has been discontinued or disposed are reported as discontinued operations
when both (i) the operations and cash flows of the component have or will be eliminated from the ongoing, or continuing, operations
of the Company and (ii) the Company has no significant continuing involvement with the component following the disposal transaction.
Disposals by sale or abandonment are reported as discontinued operations in the period that sale or abandonment occurs. See Note
5.



Revenue recognition – We derive
revenue from the sale of consumer product and commercial rents. Revenues are recognized when evidence of the arrangement exists,
in the case of product sales when the product is received by the customer, or in the limited circumstances, at destination, when
terms provide that title passes at destination, when the fee is fixed or determinable and finally when we have concluded that amounts
are collectible from the customers. Estimated amounts for product sales returns and allowances are recorded at the time of sale.
Shipping costs billed to customers are included as a component of product sales. The associated cost of shipping is included as
a component of cost of product sales.



Due to the nature of retail business sector,
our revenues may be concentrated from time-to-time in the sale of certain specific products or a single product. These concentrations
generally arise from the timing and intensity of our marketing and infomercial campaigns related to those specific products. During
the years ended December 31, 2011 and 2010, two products individually comprised 52% and 14% and 74% and 24%, respectively, of our
consolidated product sales.



Accounts receivable –Accounts
receivable represents normal trade obligations from customers that are subject to normal trade collection terms, without discounts
or rebates. We may require deposits or retainers when we consider a customer’s credit risk to warrant the collection of such.
Notwithstanding these collections, we periodically evaluate the collectability of our accounts receivable and consider the need
to establish an allowance for doubtful accounts based upon our historical collection experience and specifically identifiable information
about our customers.



Inventories –Our inventories
consist of retail merchandise that is in its finished form and ready for sale to end-user customers. In-bound freight-related costs
from our vendors are included as part of the net cost of merchandise inventories. Other costs associated with acquiring, storing
and transporting merchandise inventories are expensed as incurred and included in cost of goods sold. Our inventories are acquired
and carried for retail sale and, accordingly, the carrying value is susceptible to, among other things, market trends and conditions
and overall customer demand. We use our best estimates of all available information to establish reasonable inventory quantities.
However, these conditions may cause our inventories to become obsolete and/or excessive. We review our inventories periodically
for indications that reserves are necessary to reduce the carrying values to the lower of cost or market values.



39











Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements



Note 3 – Summary of significant accounting policies (continued):



Property and equipment –Property
and equipmentare recorded at our cost. We depreciate property and equipment, other than land, using the straight-line method
over lives that we believe the assets will have utility. Buildings and building improvements are depreciated over 30 years. Furnishings
and office equipment are depreciated over 5 years. We allocate depreciation expense related to assets directly associated with
our product sales to cost of product sales. Depreciation for our real estate assets and general office assets is included in operating
expenses. Our expenditures for additions, improvements and renewals are capitalized, while normal expenditures for maintenance
and repairs are charged to expense.



Intangible assets and impairment –
Our intangible assets at December 31, 2011 consist of patents that we acquired in connection with our purchases of HSE in April
2011. Intangible assets are recorded at cost and are amortized using straight line methods over estimated lives. We evaluate the
carrying value of identifiable intangible assets for impairment annually or at more frequent intervals should circumstances indicate
impairment may be present.



Our impairment analyses at December 31,
2010 for both identifiable intangibles and goodwill indicated that full impairment was required. The following table summarizes
the impairment charges by continuing operations and discontinued operations during the year ended December 31, 2010:



|                        |  | Continuing Operations    |           |  | Discontinued Operations  |   |           |          | 
|----------------------- |  | ------------------------ | --------- |  | ------------------------ | - | --------- | -------- | 
|Former Segment (Note 5) |  | Identifiable Intangibles |           |  | Identifiable Intangibles |   |           | Goodwill | 
|                        |  |                          |           |  |                          |   |           |          | 
|Consumer Products:      |  |                          |           |  |                          |   |           |          | 
|Infusion Brands         |  | $                        | 3,881,462 |  |                          |   | —         |          | 
|eCommerce:              |  |                          |           |  |                          |   |           |          | 
|Abazias                 |  |                          | —         |  |                          | $ | 5,903,975 |          | 
|Wineharvest             |  |                          | —         |  |                          |   | —         |          | 
|Fashion Goods:          |  |                          |           |  |                          |   |           |          | 
|RPS Trading             |  |                          | —         |  |                          |   | 336,355   |          | 
|Designer Liquidator     |  |                          | —         |  |                          |   | —         |          | 
|                        |  | $                        | 3,881,462 |  |                          | $ | 6,240,330 |          | 



Share-based payment – We apply
the grant-date fair value method to our share-based payment arrangements with employees. Under this method, share-based compensation
cost to employees is measured at the grant date fair value based on the value of the award and is recognized over the service period,
which is usually the vesting period for employees. Share-based payments to non-employees are recorded at fair value on the measurement
date and reflected in expense over the service period. We have applied the Binomial Lattice option valuation model to determine
the grant-date fair value of stock options and employee stock purchase plan shares.



Advertising – We generally
expense advertising costs when it is incurred. Commencing in the prior fiscal year we began engaging for the production of infomercials
related to consumer products. Our accounting policy for infomercial production costs provides that the costs are deferred in prepaid
assets until the first airing, at which time the cost is expensed in its entirety.



40







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 3 – Summary of significant accounting policies (continued):



Financial instruments –Financial
instruments consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual
obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially
unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another
financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with
the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable,
accrued liabilities, derivative financial instruments, long-term debt, and redeemable preferred stock. We carry cash and cash equivalents,
accounts payable and accrued liabilities and long-term debt at historical costs; their respective estimated fair values approximate
carrying values due to the limited terms. We carry redeemable preferred stock at historical cost and accrete carrying values to
estimated redemption values over the term of the financial instrument.



Redeemable preferred stock –
Redeemable preferred stock (and, if ever, any other redeemable financial instrument we may enter into) is initially evaluated for
possible classification as liabilities in instances where redemption is certain to occur. Redeemable preferred stock classified
as liabilities is recorded and carried at fair value. Redeemable preferred stock that does not, in its entirety, require liability
classification is evaluated for embedded features that may require bifurcation and separate classification as derivative liabilities.
In all instances, the classification of the redeemable preferred stock host contract that does not require liability classification
is evaluated for equity or mezzanine classification based upon the nature of the redemption features. Generally, any feature that
could require cash redemption for matters not within our control, irrespective of probability of the event occurring, requires
classification outside of stockholders’ equity. Redeemable preferred stock that is recorded in the mezzanine section is accreted
to its redemption value through charges to stockholders’ equity when redemption is probable using the effective interest
method.



Income taxes
–Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.



When tax returns
are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while
others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with
tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits
in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities
upon examination. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in
the statement of operations. Three years of our consolidated income tax returns are subject to examination by the Internal Revenue
Service. However, the Service has not indicated to us its intention to perform an audit of any prior filing.



41







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 3 – Summary of significant accounting policies (continued):



Comprehensive income –Comprehensive
income is defined as all changes in stockholders’ equity from transactions and other events and circumstances. Therefore,
comprehensive income includes our net income (loss) and all charges and credits made directly to stockholders’ equity other
than stockholder contributions and distributions, such as the changes in fair value of our available for sale investments. The
following table reconciles our net loss to comprehensive loss for the periods presented herein:



|                                                            |  | Years ended December 31, |           
|----------------------------------------------------------- |  | ------------------------ | ----------
|                                                            |  | 2011                     |           
|Net (loss) income                                           |  | $                        | (6,944,405
|Currency translation adjustments                            |  |                          | 23,733    
|Unrealized gains (losses) on available for sale investments |  |                          | —         
|Comprehensive loss                                          |  | $                        | (6,920,672



(Loss) income per common share –
Basic (loss) income per common share represents our loss or income applicable to common shareholders divided by the weighted average
number of common shares outstanding during the period. Diluted (loss) income per common share gives effect to all potentially dilutive
securities. For purposes of computing (loss) income per common share when discontinued operations are present, current accounting
standards indicate that the (loss) income from continuing operations should serve as the benchmark for establishing whether financial
instruments have a dilutive effect. When financial instruments are dilutive, we compute the effects on diluted loss per common
share arising from warrants and options using the treasury stock method. We compute the effects on diluted loss per common share
arising from convertible securities using the if-converted method. (Loss) income per common share is allocated between our (loss)
income associated with continuing operations and discontinued operations. All adjustments to reconcile our net (loss) income to
(loss) income applicable to common stockholders are reflected as an adjustment to (loss) income from continuing operations.



New Accounting Pronouncements -In
June 2011, the FASB issued additional guidance for the presentation of comprehensive income. The new guidance changes the way other
comprehensive income (“OCI”) appears within the financial statements. Companies will be required to show net income,
OCI and total comprehensive income in one continuous statement or in two separate but consecutive statements. Components of OCI
may no longer be presented solely in the statement of changes in shareholders’ equity. Any reclassification between OCI and
net income will be presented on the face of the financial statements. The new guidance is effective for the Company beginning January
1, 2012. The adoption of the new guidance will not impact the measurement of net income or other comprehensive income.



In May 2011, FASB issued ASU 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This accounting update
generally aligns the principles for fair value measurements and the related disclosure requirements under U.S. GAAP and International
Financial Reporting Standards. From a U.S. GAAP perspective, the amendments are largely clarifications, but some could have a significant
effect on certain companies. A number of new disclosures also are required. Except for certain disclosures, the guidance applies
to public and nonpublic companies and is to be applied prospectively. For public companies and nonpublic companies, the amendments
are effective during interim and annual periods beginning after December 15, 2011. Early adoption by public companies is not permitted.
Nonpublic companies may apply the amendments early, but no earlier than for interim periods beginning after December 15, 2011.



42







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 4 – Acquisition:



On May 9, 2011, we purchased 50% of the
outstanding common stock of Home Shopping Express S.A. (“HSE”) for cash consideration of $75,154, and an option to
purchase the remaining 50% of the outstanding common stock of HSE based upon its forward revenue levels. HSE,
which is located in Baleares, Spain, is engaged in the development and retail sale of consumer products throughout most of Europe,
in particular, HSE's flagship product the DualSawTM by Startwin. Through this acquisition, we became the principle owners
of the intellectual property related to DualSawTM in geographic regions whereby Startwin already took ownership of this trademark
right. By combining our enterprises, we believe this acquisition helps to unify the worldwide brand for DualSawTM. Moreover,
with a global presence this acquisition will help open channels of distribution for cross border promotion of our other respective
branded products.



Our rights associated with our purchase
contractually provide for management and governance control over all operational and financial aspects of HSE. Upon our purchase,
all pre-acquisition HSE board members resigned and our Chief Executive Officer was appointed as the sole board member. We also
have rights to all earnings of HSE. As a result of the rights associated with our initial investment in HSE and following the guidance
in ASC 810 Consolidation, we have concluded that HSE is a variable interest entity on the basis that our 50% interest in
the HSE common stock affords us symmetrically higher voting rights than would typically accompany a 50% ownership interest in common
stock; in this instance our voting rights effectively rise to 100%.



43







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 4 – Acquisition (continued):



Further, we have concluded that the Company
is the primary beneficiary to the variable interest entity pursuant to ASC 810, because we have the controlling financial interest.
That is, we possess the power to direct the activities of HSE and we have the right to receive all of its residual returns.



Accordingly, the assets, liabilities and
results of operations of HSE have been consolidated commencing with May 1, 2011, which date was used for convenience after our
conclusion that there were no material intervening transactions between May 1, 2011 and May 9, 2011.



The following table reflects the assets
of HSE acquired and liabilities assumed, at their respective fair values, as reconciled with our purchase consideration:



|Assets acquired:                                          |  |   |            |  
|--------------------------------------------------------- |  | - | ---------- | -
|Cash                                                      |  | $ | 17,856     |  
|Accounts receivable                                       |  |   | 697,395    |  
|Inventories                                               |  |   | 1,039,987  |  
|Land, buildings and operating equipment                   |  |   | 535,971    |  
|Other assets with future benefits                         |  |   | 171,995    |  
|Liabilities assumed:                                      |  |   |            |  
|Accounts payable and accrued liabilities                  |  |   | (1,429,114 | )
|Notes payable                                             |  |   | (299,393   | )
|Non-controlling interest                                  |  |   | (345,500   | )
|Purchase consideration:                                   |  |   |            |  
|Cash consideration disbursed                              |  |   | (75,154    | )
|Contingent consideration, recorded in liabilities         |  |   | (69,930    | )
|Bargain purchase gain                                     |  |   | 244,113    |  
|Less, acquisition costs that were expensed                |  |   | (43,697    | )
|Bargain purchase, net of expenses reflected in operations |  | $ | 200,416    |  



The following unaudited condensed pro forma
financial information gives effect to our acquisition of HSE as if it had occurred at the beginning of the respective periods.
Pro forma financial information is not necessarily indicative of the results of operations that would have been achieved had the
acquisition occurred on the dates noted.



|                                           |  | Years ended December 31, |            
|------------------------------------------ |  | ------------------------ | -----------
|Unaudited pro forma results:               |  | 2011                     |            
|Product sales                              |  | $                        | 19,382,391 
|(Loss) income from continuing operations   |  | $                        | (6,997,495 
|(Loss) income per common share:            |  |                          |            
|Basic                                      |  | $                        | (0.04      
|Diluted                                    |  | $                        | (0.04      
|Shares for (loss) income per common share: |  |                          |            
|Basic                                      |  |                          | 177,922,001
|Diluted                                    |  |                          | 177,922,001



44







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 5 – Dispositions and discontinued
operations:



Our management has been engaged in strategic
initiatives focused on alleviating our ongoing operating and cash flow losses, coupled with an intensified focus on the reorganization
of the Company as a consumer products company that builds and markets brands internationally through multiple direct-to-consumer
channels of distribution. As a result of these efforts, during the year ended December 31, 2010 management, with the support of
our Board of Directors, concluded that the continuing losses from our holdings in the former Fashion Goods and eCommerce Segments
(the “Discontinued Segments”) and the associated drain on our limited capital resources warranted discontinuance of
the businesses and disposal of the assets comprising the Discontinued Segments.



We accounted for and reported our disposals
of the Discontinued Segments as discontinued operations pursuant to ASC 205-20 Presentation of Financial Statements. Under
ASC 205–20, a component of an entity that can be clearly distinguished operationally and for financial reporting purposes
from the rest of the entity is reported in discontinued operations if both (a) the operations and cash flows have been or will
be eliminated from the ongoing operations and (b) the continuing entity will have no significant ongoing involvement or obligations
associated with the components disposed. The Discontinued Segments meet these criteria for purposes of presentation of discontinued
operations.



Operating activities of the Discontinued
Segments are presented as one-line captions in our consolidated statements of operations. The composition of the operations of
the Discontinued Segments for the year ended December 31, 2010 is as follows:



|Revenues of discontinued segments |  | $ | 6,859,602   |  
|--------------------------------- |  | - | ----------- | -
|Cost of revenues                  |  |   | 7,757,634   |  
|                                  |  |   | (898,032    | )
|Costs and operating expenses:     |  |   |             |  
|Impairments of long-lived assets  |  |   | 19,091,392  |  
|General and administrative        |  |   | 1,602,181   |  
|Depreciation and amortization     |  |   | 485,797     |  
|Total costs and expenses          |  |   | 21,179,370  |  
|Loss from operations              |  |   | (22,077,402 | )
|Other expenses:                   |  |   |             |  
|Impairment of investments         |  |   | (2,405,339  | )
|Equity in income of investees     |  |   | 540,078     |  
|Interest expense                  |  |   | (10,082     | )
|Net loss                          |  |   | (23,952,745 | )
|Loss on disposals                 |  |   | (279,070    | )
|Loss from discontinued operations |  | $ | (24,231,815 | )



45







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 6 – Investments:



Our former eCommerce Business Segment previously
made investments in certain Internet retail and other business ventures. As more fully discussed in Note 5, the eCommerce Business
Segment was discontinued. Activity with the equity method and cost type investments for the year ended December 31, 2010 is as
follows:



|                                                  |  | Voting Ownership |       |  | January 1, 2010 |   |           | Additions and Other |  |   | Equity in Earnings |   |  | Impairment |            |   | December 31, 2010 |  
|------------------------------------------------- |  | ---------------- | ----- |  | --------------- | - | --------- | ------------------- |  | - | ------------------ | - |  | ---------- | ---------- | - | ----------------- | -
|Equity method investees:                          |  |                  |       |  |                 |   |           |                     |  |   |                    |   |  |            |            |   |                   |  
|Zurvita Holdings                                  |  |                  | 23.0% |  |                 | $ | 1,331,984 |                     |  | $ | —                  |   |  | $          | (1,331,984 | ) |                   | $
|Cellular Blowout                                  |  |                  | 45.0% |  |                 |   | 1,372,731 |                     |  |   | 70,000             |   |  |            | —          |   |                   |  
|A Perfect Pear                                    |  |                  | 49.5% |  |                 |   | —         |                     |  |   | 10,000             |   |  |            | 1,084      |   |                   |  
|Webcarnation                                      |  |                  | 40.0% |  |                 |   | 230,410   |                     |  |   | 105,750            |   |  |            | (54,312    | ) |                   |  
|Wineharvest                                       |  |                  | 40.0% |  |                 |   | 240,053   |                     |  |   | (220,440           | ) |  |            | (19,613    | ) |                   |  
|For Your Imagination                              |  |                  | 20.0% |  |                 |   | 260,290   |                     |  |   | —                  |   |  |            | (1,264     | ) |                   |  
|                                                  |  |                  |       |  |                 |   | 3,435,468 |                     |  |   | (34,690            | ) |  |            | (1,406,089 | ) |                   |  
|Cost method investees:                            |  |                  |       |  |                 |   |           |                     |  |   |                    |   |  |            |            |   |                   |  
|Nested Media                                      |  |                  | —     |  |                 |   | 250,000   |                     |  |   | (62,500            | ) |  |            | —          |   |                   |  
|Total non-marketable and other equity investments |  |                  |       |  |                 | $ | 3,685,468 |                     |  | $ | (97,190            | ) |  | $          | (1,406,089 | ) |                   | $



Additions and Other consists of cash payments
for investments amounting to $200,750 less (i) the carrying cost of Wineharvest of $235,440 on the date that it was consolidated
and (ii) the carrying amount of a portion of the Nested Media amounting to $62,500 that was transferred to a separated officer
in connection with his separation agreement.



Our former eCommerce and Business Segment
also owned certain available for sale type investments that were impaired and disposed of during the year ended December 31, 2010,
as follows:



|Available for sale investees: |  | Impairment |         
|----------------------------- |  | ---------- | --------
|Net Talk.com                  |  | $          | (125,000
|Valcom Inc.                   |  |            | (102,336
|                              |  | $          | (227,336



Note 7 – Property and equipment:



Our property and equipment consisted of
the following as of December 31, 2011 and 2010:



|                                          |  | 2011 |           |   | 2010 |  
|----------------------------------------- |  | ---- | --------- | - | ---- | -
|Land                                      |  | $    | 634,112   |   |      | $
|Buildings and improvements                |  |      | 1,794,954 |   |      |  
|Office equipment                          |  |      | 1,039,476 |   |      |  
|Leasehold improvements                    |  |      | 15,390    |   |      |  
|                                          |  |      | 3,483,932 |   |      |  
|Accumulated depreciation and amortization |  |      | (732,570  | ) |      |  
|                                          |  | $    | 2,751,362 |   |      | $



Land, buildings and building improvements
serve as security under mortgage loan agreements with lending institutions. All of our assets serve as security for our obligations
under the redeemable preferred stock. Property and equipment with a carrying cost of $481,831 at December 31, 2011 are physically
located in Europe at our HSE subsidiary.



46







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 8 – Accounts payable and accrued
expenses:



Our accounts payable and accrued expenses consisted of the following
as of December 31, 2011 and 2010:



|                                            |  | 2011 |           |  | 2010 |  
|------------------------------------------- |  | ---- | --------- |  | ---- | -
|Accounts payable                            |  | $    | 3,045,063 |  |      | $
|Accrued expenses:                           |  |      |           |  |      |  
|Dividends on Series G Preferred Stock       |  |      | 1,576,972 |  |      |  
|Professional service fees                   |  |      | 200,095   |  |      |  
|Foreign income taxes                        |  |      | 73,436    |  |      |  
|Employment related                          |  |      | 44,654    |  |      |  
|Warranty                                    |  |      | 37,947    |  |      |  
|Interest                                    |  |      | 8,008     |  |      |  
|Customer deposits                           |  |      | —         |  |      |  
|Other accrued expenses                      |  |      | 174,236   |  |      |  
|Total accrued expenses                      |  |      | 2,121,858 |  |      |  
|Total accounts payable and accrued expenses |  | $    | 5,166,921 |  |      | $



(1) Accounts payable and accrued expenses
with a carrying value of $927,678 at December 31, 2011 related to the HSE operations which are based in Spain.



(2) On March 2, 2011, we entered into a
media funding arrangement with a financial institution that provides for the financing of certain of our defined media and marketing
material expenditures. The borrowing facility does not have a stated maximum, although borrowings are limited to certain defined
account receivable levels. The facility has an initial term of one year with consecutive one year renewal terms unless terminated
by either party. It provides for fees to the lender equal to 2.5% of the qualified amounts paid plus deferred payment arrangements
that provide for interest at an approximate rate of 8.7% per annum. The lender has a first creditor’s secured priority interest
in certain accounts receivable and inventories that are specific to the direct-response marketing campaign they finance.



Note 9 – Derivative financial instruments:



Our derivative financial instruments (liabilities)
consisted of warrants and compound embedded derivatives that originated in connection with our financing arrangements. On December
17, 2010, we modified the warrant agreements and the Series G Preferred Stock Certificate of Designation to eliminate the down-round
anti-dilution protection features that prevented equity classification of the financial instruments. Modifications to the Series
G Preferred Stock, which is an akin-to-liability type financial instrument, as more fully discussed in Note 13, did not rise to
a substantial level for purposes of extinguishment accounting. Accordingly, on the modification date, we adjusted these financial
instruments to fair value and reclassified the balance, amounting to $3,584,182, to paid-in capital.



47







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 9 – Derivative financial instruments
(continued):



The following table summarizes the components
of derivative liabilities (at fair value) as of December 17, 2010 (immediately before reclassification to paid-in capital) by financing
transaction from which they originated and by category:



|                                                       |  | December 17 |          
|------------------------------------------------------ |  | ----------- | ---------
|Financing—Financial Instrument                         |  | 2010        |          
|Freestanding Warrants:                                 |  |             |          
|Series B Preferred Financing—Investor warrants         |  | $           | 10,128   
|Series C Preferred Financing—Investor warrants         |  |             | 65,140   
|Series F Preferred Financing—Placement agent warrants  |  |             | 94,167   
|Series G Preferred Financing-Investor warrants         |  |             | 1,160,000
|Warrant financing Transaction—Investor warrants        |  |             | 1,673,000
|Warrant Financing Transaction—Placement agent warrants |  |             | 31,747   
|Total derivative warrants                              |  |             | 3,034,182
|Embedded Derivatives:                                  |  |             |          
|Series G Preferred Financing—Conversion option         |  |             | 550,000  
|Total embedded derivatives                             |  |             | 550,000  
|Derivative liabilities                                 |  | $           | 3,584,182



The following table summarizes the number
of common shares indexed to derivative financial instruments:



|Financing—Financial Instrument                         |  | December 17, 2010 |            
|------------------------------------------------------ |  | ----------------- | -----------
|Freestanding Warrants:                                 |  |                   |            
|Series B Preferred Financing—Investor warrants         |  |                   | 480,000    
|Series C Preferred Financing—Investor warrants         |  |                   | 2,731,228  
|Series F Preferred Financing—Placement agent warrants  |  |                   | 4,166,666  
|Series G Preferred Financing—Investor warrants         |  |                   | 50,000,000 
|Warrant Financing Transaction—Investor warrants        |  |                   | 70,000,000 
|Warrant Financing Transaction—Placement agent warrants |  |                   | 1,380,314  
|Total derivative warrants                              |  |                   | 128,758,208
|Embedded Derivative:                                   |  |                   |            
|Series G Preferred Financing—Conversion options        |  |                   | 50,000,000 
|                                                       |  |                   | 178,758,208



The following tables summarize the components
of derivative income (expense) arising from fair value adjustments during the year ended December 31, 2010:



|Financing—Financial Instrument |  | Embedded Derivatives |         |  | Warrant 
Derivatives |   |            | Total | 
|------------------------------ |  | -------------------- | ------- |  | -------------------- | - | ---------- | ----- | 
|Warrant Financing              |  | $                    | —       |  |                      | $ | 19,631,167 |       | 
|Series B Preferred Financing   |  |                      | —       |  |                      |   | 201,362    |       | 
|Series C Preferred Financing   |  |                      | 15,305  |  |                      |   | 658,499    |       | 
|Series F Preferred Financing   |  |                      | —       |  |                      |   | 10,000     |       | 
|Series G Preferred Financing   |  |                      | 250,000 |  |                      |   | 170,000    |       | 
|Derivative income (expense)    |  | $                    | 265,305 |  |                      | $ | 20,671,028 |       | 



48







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 9 – Derivative financial instruments
(continued):



The following table represents a reconciliation
of the changes in our derivatives and the related changes in fair value on a recurring basis using significant unobservable inputs
(Level 3) during the six months ended December 31, 2010:



|                                                          |  | 2010 |            
|--------------------------------------------------------- |  | ---- | -----------
|Balances at January 1, 2010                               |  | $    | 22,390,515 
|Issuances under Series G Preferred and Warrant Financing: |  |      |            
|Warrants                                                  |  |      | 1,330,000  
|Embedded derivative                                       |  |      | 800,000    
|Total issuances                                           |  |      | 2,130,000  
|Reclassifications                                         |  |      | (3,584,181 
|Fair value adjustments (income)                           |  |      | (20,936,333
|Balances at December 31, 2010                             |  | $    | —          



Estimating fair values of derivative financial
instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration
of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly
volatile and sensitive to changes in the trading market price of our common stock, which has a high estimated volatility. Since
derivative financial instruments are initially and subsequently carried at fair values, our income will reflect the volatility
in these estimate and assumption changes.



The warrants were valued using Black-Scholes-Merton (“BSM”).
Significant assumptions underlying the BSM calculations are as follows as of December 17, 2010:



|December 17, 2010:             |  | Indexed Shares |            |  | Exercise Price |   |      | Remaining Term |  |  | Expected Volatility |  |  | Risk-Free Rate |       
|------------------------------ |  | -------------- | ---------- |  | -------------- | - | ---- | -------------- |  |  | ------------------- |  |  | -------------- | ------
|Warrant Financing:             |  |                |            |  |                |   |      |                |  |  |                     |  |  |                |       
|Investor Warrants              |  |                | 70,000,000 |  |                | $ | 0.10 |                |  |  | 8.55                |  |  |                | 95.56 
|Placement agent warrants       |  |                | 1,380,314  |  |                | $ | 0.10 |                |  |  | 8.75                |  |  |                | 91.04 
|Series B Preferred Financing:  |  |                |            |  |                |   |      |                |  |  |                     |  |  |                |       
|B-2 Investor Warrants          |  |                | 480,000    |  |                | $ | 0.10 |                |  |  | 1.40                |  |  |                | 227.03
|Series C Preferred Financing:  |  |                |            |  |                |   |      |                |  |  |                     |  |  |                |       
|C-1 Investor Warrants          |  |                | 1,365,614  |  |                | $ | 0.10 |                |  |  | 1.80                |  |  |                | 220.30
|C-2 Investor Warrants          |  |                | 1,365,614  |  |                | $ | 0.10 |                |  |  | 6.80                |  |  |                | 105.77
|Series F Preferred Financing:  |  |                |            |  |                |   |      |                |  |  |                     |  |  |                |       
|BD-12 Placement agent warrants |  |                | 833,333    |  |                | $ | 0.10 |                |  |  | 8.12                |  |  |                | 94.55 
|BD-13 Placement agent warrants |  |                | 3,333,333  |  |                | $ | 0.10 |                |  |  | 8.12                |  |  |                | 94.55 
|Series G Investor Warrants     |  |                | 50,000,000 |  |                | $ | 0.10 |                |  |  | 9.50                |  |  |                | 87.47 



The remaining term of our warrants was
used as our term input. Since our trading history does not cover a period sufficient for computing volatility in all instances,
we use a weighted average of our historical volatility based upon days of trading history over the days of the remaining term,
coupled with the trading history of a peer group. For purposes of the risk-free rate, we use the published yields on zero-coupon
Treasury Securities with maturities consistent with the remaining term of the warrant.



49







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 9 – Derivative financial instruments
(continued):



Our embedded conversion option derivative
represents the conversion option, certain redemption and put features in our Series G Preferred Stock. These embedded features
(i) met the definition of derivatives individually and (ii) were not clearly and closely related to the host preferred stock based
upon risks. This is because the Series G Preferred Stock, being both redeemable for cash on a specific future date, coupled with
a periodic return (i.e. cumulative dividend) that was consistent with returns for debt, caused us to conclude that the Series G
Preferred Stock bore risks more closely associated with debt-type financial instruments. Accordingly, when comparing the risks
of the debt-type host contract with the risks of the equity-type embedded features, they were not clearly and closely related.



The features embedded in the Series G Preferred
Stock were combined into one compound embedded derivative that we fair valued using the Monte Carlo valuation technique. Monte
Carlo was believed by our management to be the best available technique for this compound derivative because, in addition to providing
for inputs such as trading market values, volatilities and risk free rates, Monte Carlo also embodies assumptions that provide
for credit risk, interest risk and redemption behaviors (i.e. assumptions market participants exchanging debt-type instruments
would also consider). Monte Carlo simulates multiple outcomes over the period to maturity using multiple assumption inputs also
over the period to maturity. The following table sets forth (i) the range of inputs for each significant assumption and (ii) the
equivalent, or averages, of each significant assumption as of December 17, 2010:



|                               |  | Range |       |   |      | 
|------------------------------ |  | ----- | ----- | - | ---- | 
|December 17, 2010 Assumptions: |  | Low   |       |   | High | 
|Volatility                     |  |       | 67.28 | % |      | 
|Market adjusted interest rates |  |       | 4.66  | % |      | 
|Credit risk adjusted rates     |  |       | 11.81 | % |      | 
|Implied expected life (years)  |  |       | —     |   |      | 



Our embedded put derivatives represent
features embedded in the Series C and Series D Preferred Stock that (i) met the definition of a derivative and (ii) were not clearly
and closely related to the host preferred contract. Accordingly, we were required to bifurcate these derivatives from our Series
C and Series D Preferred Stock, classify them in liabilities and carry them at fair value. The put derivative fair values are estimated
based upon a multiple, probability-weighted outcomes, cash flow model that is present valued using risk-adjusted market interest
rates. We use publicly available bond-rate curves for companies that we estimate have credit ratings similar to what ours may be
based upon Standard & Poors and Moody’s rating scales. Those ratings generally fall in the highly speculative to in-poor-standing
categories of these ratings, and ranged from 8.07% to 10.29% for periods from one to five years, respectively, as of December 17,
2010.



50







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note
10 — Long-term debt and accounts receivable financing:



Long-term
debt consisted of the following at December 31, 2011 and 2010:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | 2011 |           |   | 2010 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | -
|Initial $2,000,000 six-year, variable rate mortgage note, with interest at the Wall Street Prime Rate, plus 1.5%, with a floor of 6.5% and a cap 7.75% during the first three years and a floor of 6.75% and a cap of 8.75% during the second three years; principal and interest payments of $13,507 are payable over the six year term based upon a twenty-five year amortization schedule, with $1,775,557 payable at maturity; secured by real estate; guaranteed by related parties. |  | $    | 1,891,542 |   |      | $
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |           |   |      |  
|4.25% bank loan, payable monthly at $2,500, plus interest through September 2013, with a balloon payment of $192,798 at maturity.                                                                                                                                                                                                                                                                                                                                                         |  |      | 242,105   |   |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |           |   |      |  
|4.6% — 11.7% bank loans, payable monthly in principal amounts of $518 to $2,515.                                                                                                                                                                                                                                                                                                                                                                                                          |  |      | 213,790   |   |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      | 2,347,437 |   |      |  
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      | (115,651  | ) |      |  
|Long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $    | 2,231,786 |   |      | $
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |           |   |      |  
|Maturities of long-term for each year ended December 31 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |           |   |      |  
|2012                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | $    | 115,651   |   |      |  
|2013                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      | 293,426   |   |      |  
|2014                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      | 1,827,775 |   |      |  
|2015                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      | 17,152    |   |      |  
|2016                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      | 13,011    |   |      |  
|Thereafter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      | 80,423    |   |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $    | 2,347,437 |   |      |  



Accounts Receivable Financing Arrangement:



On January 28, 2011, we entered into an
accounts receivable sales and financing arrangement that provides for the assignment and sale of certain qualified accounts receivable
to a financial institution. The facility has an initial term of one year and provides for cash advances in amounts of 75% of qualified
accounts receivable balances assigned up to an amount of $1,000,000. The initial term may be extended in one year periods upon
the mutual agreement of the Company and the lender. The lender receives an initial discount of 1.75% of the net realizable value
of the qualified receivable for purchased receivables outstanding from 1-30 days. Subsequently, the lender receives an additional
1.0% discount for each 15 day period that the qualified receivable has not been collected. Further, the lender has a secured priority
interest in the accounts receivable that they finance. This arrangement does not qualify for sales accounting under current accounting
standards and is, therefore, subject to accounting as a financing arrangement wherein we will carry the assigned receivables in
our accounts until they are settled and advances that we receive from the lender will be reflected as liabilities. The discounts
will be classified as interest expense. There was $1,025,330 outstanding under this arrangement as of December 31, 2011.



51







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note
10 — Long-term debt and accounts receivable financing (continued):



We have concluded that the interest rate
collar on the variable rate mortgage note is clearly and closely related to the host debt instrument and, accordingly, it does
not require bifurcation and recognition at fair value. The interest rate in effect during the current quarterly period was at the
6.5% floor.



Note 11 – Redeemable preferred stock:



Redeemable preferred stock consists of
the following as of December 31, 2011 and 2010:



|                                                                                                                                                                                        |  | 2011 |            |  | 2010 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- |  | ---- | -
|Series G Convertible Preferred Stock, 11,500,000 and 5,000,000 shares issued and outstanding at December 31, 2011 and 2010; liquidation value $11,500,000 and $5,000,000, respectively. |  | $    | 20,471,818 |  |      | $
|Series C Convertible Preferred Stock, 1,024,210 at December 31,  2010, liquidation value $1,024,210 (See Note 12).                                                                      |  |      | —          |  |      |  
|                                                                                                                                                                                        |  | $    | 20,471,818 |  |      | $



Redeemable preferred stock represents preferred
stock that is either redeemable for cash on a specific date or contingently redeemable for cash for events that are not within
the control of management. Preferred stock where redemption for cash is certain to occur is classified in liabilities. We currently
have no preferred stock classified in liabilities. Redeemable preferred stock is required to be classified outside of stockholders’
equity (in the mezzanine section).



On June 30, 2010, we sold 5,000,000 shares
of Series G Convertible Preferred Stock for proceeds of $5,000,000. The financing included the issuance of warrants to the investors
to purchase 50,000,000 shares of our common stock for $0.10 per share. Pursuant to the financing arrangement, we extended a secured
priority interest in substantially all of our assets to the investor. Subsequently, pursuant to inter-creditor agreements, the
investor subordinated their interest in the assets that secure the media funding finance agreement that is described in Note 8
and the accounts receivable financing agreement that is described in Note 10. On March 16, 2011 and
April 6, 2011, we entered into oral agreements with a certain accredited investor (the “Investor”) to sell the Investor,
subject to the filing of an amendment to the Certificate of Designation of its Series G Convertible Stock 1,000,000 and 2,000,000
shares of its Preferred Stock, respectively, and Series G Warrants to purchase an aggregate of 10,000,000 and 20,000,000 shares
of the common stock, respectively. The purchase prices of $1,000,000 and $2,000,000 were received from the Investor in the form
of advances on March 16, 2011 and April 6, 2011, respectively. The Preferred Stock purchase agreements and other related transaction
documents (the “Transaction Documents”) were executed on July 8, 2011. On September 1, 2011, September 22, 2011 and
October 20, 2011, we entered into oral agreements with the Investor to sell the Investor, subject to the filing of an amendment
to the Certificate of Designation of its Series G Convertible Stock 1,000,000, 1,500,000 and 1,000,000 shares of its Preferred
Stock, respectively, and Series G Warrants to purchase an aggregate of 10,000,000, 15,000,000 and 10,000,000 shares of the common
stock, respectively. The purchase prices of $1,000,000, $1,500,000 and $1,000,000, respectively were received from the Investor
in the form of advances on September 1, 2011, September 22, 2011 and October 20, 2011, respectively. The Preferred Stock purchase
agreements and other related transaction documents (the “Transaction Documents”) were executed on December 14, 2011.



52







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 11 – Redeemable preferred stock
(continued):



Terms, Features and Conditions of our Series
G Redeemable Preferred Stock are as follows:



|Series |  | Date of Designation |           |  | Number of Shares |  |           | Par Value |  |   | Stated Value |  |  | Liquidation Value |      |  | Dividend Rate |   |      | Initial Conversion |  |  | Current Conversion |  
|------ |  | ------------------- | --------- |  | ---------------- |  | --------- | --------- |  | - | ------------ |  |  | ----------------- | ---- |  | ------------- | - | ---- | ------------------ |  |  | ------------------ | -
|G      |  |                     | 6/30/2010 |  |                  |  | 8,000,000 |           |  | $ | 0.00001      |  |  | $                 | 1.00 |  |               | $ | 1.00 |                    |  |  | 8.0                | %



The conversion price is subject to adjustment
solely for traditional capital restructurings, such as splits, stock dividends and reorganizations (traditional restructuring events).
The Certificate of Designation also provides for voting rights equal to the if-converted number of common shares. Dividends are
cumulative and payable quarterly whether or not declared by our Board of Directors. Accordingly, we accrue dividends payable as
they are earned by the investors.



The outstanding 11,500,000 shares of Series
G Preferred are mandatorily redeemable for cash of $70,099,651, which is payable on June 30, 2013 as follows:



| | · | The stated value of $11,500,000 is payable
on June 30, 2013.
| | - | ------------------------------------------------------------

| | · | An additional dividend equal to $1.00
per share of Series G Preferred was payable on June 30, 2011 if the special preferred distribution discussed in the next bullet
point has not been paid before that date (aggregate redemption value $11,500,000). The investor waived payment of this additional
dividend on the payment date, but it will continue to accrue dividends as provided in the Certificate of Designation at a rate
of 8.0%. That is, the original face value of the Series G Preferred accrues dividends at 8% from the issuance date and the unpaid
additional dividend amount accrues dividends at 8% from June 30, 2011.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A special preferred distribution equal
to $4.096 per share of Series G Preferred is payable on June 30, 2013 or earlier at our option (aggregate redemption value of $47,099,651).
This special preferred distribution could have been reduced by the amount of the additional dividend discussed in the preceding
bullet point if the additional dividend was paid on the June 30, 2011.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the years ended December 31, 2011
and 2010, dividends of $1,371,068 and $205,905, respectively were accrued and recorded as reductions in paid-in capital in the
absence of accumulated earnings. No dividends have been paid. The unpaid dividends are included in caption accounts payable and
accrued expenses in the accompanying balance sheet.



The mandatory redemption feature embodied
in the Series G Preferred Stock is probable of payment. Accordingly, we are required to accrete the carrying value of the Series
G Preferred Stock to its redemption value by charges to paid-in capital using the effective interest method. The following summarizes
the annual accretion for each fiscal year ending December 31:



|                                                    |  | Accretion Table |           
|--------------------------------------------------- |  | --------------- | ----------
|Carrying value on December 31, 2011                 |  | $               | 20,471,818
|Future accretion (charges to stockholders’ equity): |  |                 |           
|Year ending December 31, 2012                       |  |                 | 26,036,365
|Year ending December 31, 2013                       |  |                 | 23,591,467
|Redemption value                                    |  | $               | 70,099,651



53







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 11 – Redeemable preferred stock
(continued):



Series G Preferred



The Series G Preferred, under its original
terms and conditions, embodied a conversion option which (i) meets the definition of a derivative and (ii) is not considered clearly
and closely related to the host preferred stock based upon economic risks. Establishing a clear and close relationship between
the host preferred contract and the embedded feature is necessary to avoid bifurcation, liability classification and fair value
measurement of the embedded feature. In order to establish a clear and close relationship, we were first required to establish
the nature of the host preferred instrument as either an akin to equity or an akin to debt type instrument. Because the Series
G Preferred Stock is both redeemable for cash on a specific future date and embodies a periodic return (i.e. cumulative dividend)
that was consistent with returns for debt we concluded that the Series G Preferred Stock bore risks more closely associated with
debt-type financial instruments. The risks of the equity linked conversion option, not being clearly and closely related to the
risks of the debt-type preferred host contract, required us to bifurcate the embedded conversion feature at its fair value and
classify such amount in liabilities because there were no exemptions available based on the terms.



The Series G Warrants were evaluated for
classification in either liabilities or equity. Generally, a freestanding warrant agreement must both (i) be indexed to the Company’s
own stock and (ii) meet certain explicit criteria in order to be classified in stockholders’ equity. Because the Series G
Warrants embodied anti-dilution features that would adjust the exercise price in the event of a sale of securities below the $0.10
exercise price, the Series G Warrants do not meet the indexed test; and, therefore, the explicit criteria does not require evaluation.
As a result, the Series G Warrants require liability classification at their fair value both on the inception date of the financing
arrangement and subsequently.



On December 17, 2010, we amended the Certificate
of Designation and the Warrants were amended to exclude adjustment to the conversion and exercise prices in the event that we sell
common shares or share linked contracts for per share amounts that are less. By eliminating this feature, the Series G Preferred
Stock became a conventional convertible financial instrument which is exempt from bifurcation of its embedded conversion option.
Similarly, the elimination of this feature in the warrants resulted in them becoming indexed to our own stock and, therefore, exempt
for derivative classification.



The following table summarizes the allocation
of the proceeds from the Series G Preferred Stock and Warrant Financing Arrangements:



|Classification             |  | June 30, 2010 |           |  | July 8, 2011 |   |           | December 14, 2011 |  |   | Total     | 
|-------------------------- |  | ------------- | --------- |  | ------------ | - | --------- | ----------------- |  | - | --------- | 
|Redeemable preferred stock |  | $             | 2,870,000 |  |              | $ | 2,948,129 |                   |  | $ | 3,366,946 | 
|Warrants                   |  |               | 1,330,000 |  |              |   | 51,871,   |                   |  |   | 133,054   | 
|Embedded derivatives       |  |               | 800,000   |  |              |   | —         |                   |  |   | —         | 
|                           |  | $             | 5,000,000 |  |              | $ | 3,000,000 |                   |  | $ | 3,500,000 | 



Our allocation methodology related to the
June 30, 2011 financing provided that the proceeds were allocated first to the Series G Warrants at their fair value, second to
the Embedded Conversion Feature at its fair value and, lastly, the residual to the Series G Preferred. Subsequent allocations wherein
no derivative classification resulted were allocated based upon the relative fair values of the Series G Preferred and the Series
G Warrants. We are accreting the Series G Preferred to its redemption value with charges to stockholders’ equity over the
term to its mandatory redemption date using the effective interest method.



54







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 11 – Redeemable preferred stock
(continued):



Series C Preferred Stock



On March 31, 2011, the Certificate of Designation
governing the Series C Convertible Preferred Stock was amended to remove a provision that, while improbable of occurrence, could
result in redemption in cash. The provision required redemption in the event of a change in control. Since the removed provision
was the only term that caused the Series C Preferred to be classified outside of stockholders’ equity, upon removal of that
provision, the carrying value was reclassified to stockholders’ equity. See Note 12.



Note 12 – Stockholders’ equity (deficit):



Series C Convertible Preferred Stock:



On March 31, 2011, the Certificate of Designation
governing the Series C Convertible Preferred Stock was amended to remove a provision that, while improbable of occurrence, could
result in redemption in cash. Upon removal of that provision, the carrying value was reclassified to stockholders’ equity.
Terms, Features and Conditions of our Series C Preferred Stock are as follows:



|Series |  | Date of Designation |            |  | Shares Outstanding |  |           | Par Value |  |   | Stated Value |  |  | Liquidation Value |      |  | Dividend Rate |   |      | Initial Conversion |  |  | Current Conversion | 
|------ |  | ------------------- | ---------- |  | ------------------ |  | --------- | --------- |  | - | ------------ |  |  | ----------------- | ---- |  | ------------- | - | ---- | ------------------ |  |  | ------------------ | 
|C      |  |                     | 10/18/2007 |  |                    |  | 1,024,210 |           |  | $ | 0.00001      |  |  | $                 | 1.00 |  |               | $ | 1.00 |                    |  |  | —                  | 



The conversion price is subject to adjustment
for anti-dilution protection for (i) traditional capital restructurings, such as splits, stock dividends and reorganizations (traditional
restructuring events), and (ii) sales or issuances of common shares or contracts to which common shares are indexed at less than
the stated conversion prices (down-round protections). As it relates to adjustments to conversion prices arising from down-round
financing triggering events, we account for the incremental value to convertible preferred stock classified as liabilities by charging
earnings. For convertible preferred stock classified in stockholders’ equity or redeemable preferred stock (mezzanine classification)
we charge the incremental value to paid-in capital or accumulated deficit, if paid-in capital is exhausted, as a deemed dividend.



The Series C Preferred has voting rights
equal to the if-converted number of common shares and is redeemable for cash in an amount representing the stated value only in
the event of a redemption triggering event as discussed below:



| | · | The Corporation shall fail to have available
a sufficient number of authorized and unreserved shares of Common Stock to issue to such Holder upon a conversion hereunder;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Unless specifically addressed elsewhere
in the Certificate of Designation as a Triggering Event, the Corporation shall fail to observe or perform any other covenant, agreement
or warranty contained in the Certificate of Designation, and such failure or breach shall not, if subject to the possibility of
a cure by the Corporation, have been cured within 20 calendar days after the date on which written notice of such failure or breach
shall have been delivered;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | There shall have occurred a Bankruptcy
Event or Material Monetary Judgment;
| | - | ---------------------------------------------------------------------------



If the Company fails to pay the Series
C Preferred Triggering Redemption amount on the date it is due, interest will accrue at a rate equal to the lesser of 18% per year,
or the maximum rate permitted by applicable law, accruing daily from the date of the Triggering event until the amount is paid
in full.



55







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 12 – Stockholders’ equity (deficit) (continued):



Series E Convertible Preferred Stock:



On December 3, 2008, we designated 13,001,000
shares of our newly designated $0.00001 par value, $1.00 stated value, Series E Convertible Preferred Stock (the “Series
E Preferred Stock”) of which 13,000,000 were issued on August 27, 2009 in connection with a business acquisition. The Series
E Preferred Stock votes with the common shareholders on a share-for-vote. The Series E Preferred Stock does not provide for either
a liquidation preference or a dividend right. The Series E Preferred Stock was initially convertible into common stock at $0.84
for one. The Series E Preferred Stock provides for down-round price protection with a floor of $0.50. Due to financings below that
floor, the current conversion price is $0.50. The Series E Preferred Stock conversion price is otherwise subject to adjustment
for traditional reorganizations, such as stock splits, stock dividends and similar restructuring of equity.



The following table reflects the activity
in our Series E Convertible Preferred Stock during the years ended December 31, 2011 and 2010:



|                                               |  | Shares |           |   | Amount |  
|---------------------------------------------- |  | ------ | --------- | - | ------ | -
|Balances at January 1, 2010                    |  |        | 2,884,601 |   |        | $
|Conversion into 966,731 shares of common stock |  |        | (357,825  | ) |        |  
|Balances at December 31, 2010                  |  |        | 2,526,776 |   |        |  
|Conversions                                    |  |        | —         |   |        |  
|Balances at December 31, 2011                  |  |        | 2,526,776 |   |        | $



As of December 31, 2011, the remaining
shares of Series E Preferred are convertible into 6,064,262 shares of common stock.



56







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 12 – Equity (deficit) (continued):



Stock Options and Warrants:



The following table summarizes the activity
related to warrants and stock options for the years ended December 31, 2011 and 2010:



|                                                                                                |  | Linked Common
    Shares |             |   | Exercise Prices
    Per Share |   |            | Weighted Average
    Exercise Prices Per Share | 
|----------------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | - | ----------------------------- | - | ---------- | ---------------------------------------------- | 
|                                                                                                |  | Warrants                 |             |   | Stock Options                 |   |            | Warrants                                       | 
|Outstanding at January 1, 2010                                                                  |  |                          | 80,238,208  |   |                               |   | 4,536,666  |                                                | 
|Granted                                                                                         |  |                          | 50,000,000  |   |                               |   | 34,068,671 |                                                | 
|Exercised                                                                                       |  |                          | —           |   |                               |   | —          |                                                | 
|Cancelled or expired                                                                            |  |                          | (1,480,000  | ) |                               |   | (5,635,000 | )                                              | 
|Outstanding at December 31, 2010                                                                |  |                          | 128,758,208 |   |                               |   | 32,970,337 |                                                | 
|Granted                                                                                         |  |                          | 65,000,000  |   |                               |   | —          |                                                | 
|Exercised                                                                                       |  |                          | —           |   |                               |   | —          |                                                | 
|Cancelled or expired                                                                            |  |                          | —           |   |                               |   | (2,271,666 | )                                              | 
|Outstanding at December
    31, 2011                                                            |  |                          | 193,758,209 |   |                               |   | 30,698,671 |                                                | 
|                                                                                                |  |                          |             |   |                               |   |            |                                                | 
|Exerciseable at December
    31, 2010                                                           |  |                          | 126,758,209 |   |                               |   | —          |                                                | 
|Exerciseable at December
    31, 2011                                                           |  |                          | 106,464,170 |   |                               |   | —          |                                                | 
|                                                                                                |  |                          |             |   |                               |   |            |                                                | 
|Compensation expense:                                                                           |  |                          |             |   |                               |   |            |                                                | 
|Grant date fair values:                                                                         |  |                          |             |   |                               |   |            |                                                | 
|Year ended December 31, 2010                                                                    |  |                          |             |   |                               | $ | 1,723,890  |                                                | 
|Year ended December 31, 2011                                                                    |  |                          |             |   |                               | $ | —          |                                                | 
|Compensation expense recorded:                                                                  |  |                          |             |   |                               |   |            |                                                | 
|Year ended December 31, 2010                                                                    |  |                          |             |   |                               | $ | 790,792    |                                                | 
|Year ended December 31, 2011                                                                    |  |                          |             |   |                               | $ | 322,844    |                                                | 
|Compensation
    subject to amortization in future periods as options vest at December 31, 2011 |  |                          |             |   |                               | $ | 1,307,133  |                                                | 



Employee share-based payment expense is
included in the caption employment costs in the statements of operations. During the year ended December 31, 2011, compensation
of $41,071 was recorded related to a restricted stock issuance which amount is additional to the amount above.



57







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 12 – Equity (deficit) (continued):



Grant date fair values of stock options are calculated using
the Binomial Lattice Valuation Technique. The term to expiry was used for the term; the volatility inputs ranged from 95.2% to
211.1%; and, the risk free rates ranged from 0.22% to 1.79%.



Common stock issued under a consulting
agreement:



On February 8, 2011, we granted 20,162,448
shares of common stock to a consumer product development consultant as partial consideration under a consultancy agreement. The
balance of the contract is payable in monthly cash installments of $25,000 through January 1, 2012, subject to renewal at the Company’s
option for subsequent six month intervals. The common shares that we issued vest monthly, on a pro-rata basis over twelve months,
as the services are rendered. We are expensing the costs associated with these shares and related services monthly, based upon
the trading market price of our shares at the vesting dates, which is the measurement date for the share-based payment.



In addition to the shares above, we also
agree to issue common shares to the consultant equaling 5.0% of our outstanding common stock after we redeem our Series G Convertible
Preferred Stock. Current accounting standards provide that when the quantity of shares issuable in a share-based arrangement are
dependent upon the achievement of a condition, the lowest possible value of all possible outcomes should be used to value the shares.
The lowest possible value under this condition is zero provided for under a scenario where we are unable to pay the redemption
on our Series G Convertible Preferred Stock.



Note 13 – Income taxes:



The following table reflects the amounts
of income tax provisions and (benefits) reflected in our operations for the years ended December 31, 2011 and 2010:



|                         |  | 2011 |        |  | 2010 |  
|------------------------ |  | ---- | ------ |  | ---- | -
|Continuing operations:   |  | $    | —      |  |      | $
|United States of America |  |      | —      |  |      |  
|Foreign income taxes     |  |      | 73,436 |  |      |  
|Discontinued operations  |  |      | —      |  |      |  
|                         |  | $    | 73,436 |  |      | $



Income tax benefit resulting from applying
statutory rates in jurisdictions in which we are taxed (Federal and State of Florida) differs from the income tax provision (benefit)
in our consolidated financial statements. The following table reflects the reconciliation for the years ended December 31, 2011
and 2010:



|                                          |  | 2011 |        |    | 2010 | 
|----------------------------------------- |  | ---- | ------ | -- | ---- | 
|Benefit at federal statutory rate         |  |      | (34.00 | )% |      | 
|State, net of federal deduction           |  |      | (3.63  | )% |      | 
|Foreign income taxes                      |  |      | 1.07   | %  |      | 
|Fair value adjustments to our derivatives |  |      | —      | %  |      | 
|Change in valuation allowance             |  |      | 37.63  | %  |      | 
|Effective tax rate                        |  |      | 1.07   | %  |      | 



58







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 13 – Income taxes (continued):



Deferred income taxes arise from temporary
differences in the recognition of certain items for income tax and financial reporting purposes. The approximate tax effects of
significant temporary differences which comprise the deferred tax assets and liabilities are as follows at December 31, 2011 and
2010:



|                                           |  | 2011 |             |   | 2010 |  
|------------------------------------------ |  | ---- | ----------- | - | ---- | -
|Net operating losses                       |  | $    | 11,391,007  |   |      | $
|Bad debts and other reserves               |  |      | 110,626     |   |      |  
|Deferred gain                              |  |      | (66,618     | ) |      |  
|Investment impairments                     |  |      | —           |   |      |  
|Impairment charges                         |  |      | —           |   |      |  
|Share-based payment                        |  |      |             |   |      |  
|Unconsolidated investee                    |  |      | —           |   |      |  
|Inventory reserves                         |  |      | —           |   |      |  
|Intangible assets                          |  |      | —           |   |      |  
|Net deferred tax assets, before allowances |  |      | 11,435,015  |   |      |  
|Less: Valuation allowances                 |  |      | (11,435,015 | ) |      |  
|                                           |  | $    | —           |   |      | $



As of December 31, 2011, the Company had
federal net operating loss carryforwards of approximately $30.3 million, which are available to reduce future taxable income. The
Company had federal tax credits of $294,000, which may be used to offset future tax liabilities. The net operating loss ("NOL")
and tax credit carryforwards will expire at various dates through 2031. The NOL and tax credit carryforwards are subject to review
and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards
may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant
shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively,
as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future
taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately
prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.



ASC 740 requires a valuation allowance
to reduce the deferred tax assets reported, if based on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative,
the Company has recorded a valuation allowance against its deferred tax assets at December 31, 2011 and 2010, respectively because
the Company's management has determined that is it more likely than not that these assets will not be fully realized. The increase
in the valuation allowance in 2011 primarily relates to the net loss incurred by the Company.



The amount of income taxes and related
income tax positions taken are subject to audits by federal and state tax authorities. As of December 31, 2011, the Company’s
most recently filed income tax return dates are as of December 31, 2010, and generally three years of income tax returns commencing
with that date are subject to audit by these authorities. Our estimate of the potential outcome of any uncertain tax positions
is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time require a more-likely-than-not
threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The
Company’s policy is to record a liability for the difference between the benefit recognized and measured and tax position
taken or expected to be taken on the tax return. Then, to the extent that the assessment of such tax positions changes, the change
in estimate is recorded in the period in which the determination is made. The Company reports tax-related interest and penalties
as a component of income tax expense. During the periods reported, management of the Company has concluded that no significant
tax position requires recognition.



59







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 14 – Geographic areas:



Commencing May 9, 2011 with our acquisition
of Spain-based HSE, we operate and sell retail products to consumers in Europe. The following tables summarize the composition
of our operations, assets, liabilities, redeemable preferred stock and (deficit) by geographic area:



|                                         |  | Year ended December 31, 2011 |           
|---------------------------------------- |  | ---------------------------- | ----------
|                                         |  | United States                |           
|Product sales                            |  | $                            | 15,129,907
|(Loss) income from continuing operations |  | $                            | (7,048,652



|                                                    |  | December 31, 2011 |            
|--------------------------------------------------- |  | ----------------- | -----------
|                                                    |  | United States     |            
|Assets:                                             |  |                   |            
|Current assets                                      |  | $                 | 5,520,008  
|Long-lived and other assets                         |  |                   | 2,261,134  
|                                                    |  | $                 | 7,781,142  
|Liabilities, redeemable preferred stock and equity: |  |                   |            
|Current liabilities                                 |  | $                 | 5,402,221  
|Debt and other                                      |  |                   | 2,440,222  
|Redeemable preferred stock                          |  |                   | 20,471,818 
|(Deficit) equity                                    |  |                   | (19,168,544
|                                                    |  | $                 | 9,145,717  



Note 15 – Commitments and contingencies:



Consulting Agreements:



On June 30, 2010, we entered into consulting
agreements with two former members of our Board of Directors. One agreement provides for a one year term and the other a two year
term. Each provides for annual compensation of $125,000 and a one-time stock option for 1.5% of our fully-diluted common ownership
as calculated on the date of the agreement to each former member. The agreements provide for extension solely for cash compensation.
The aggregate number of common shares linked to both stock options was 12,097,468 and the aggregate grant date fair value amounted
to $689,556 using the Binomial Lattice Technique. The stock options have a strike price of $0.01, vest over two years and expire
in ten years. However, exercise of the stock options is restricted to periods following the payment of the special dividends on
our Series G Preferred Stock. We will record the annual compensation as the services are earned, which is expected to be ratably
over the term of the agreements. We will record the compensation expense associated with the stock options over the vesting period.



On January 12, 2012, the consulting agreement
was terminated and the stock options were cancelled.



60







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 15 – Commitments and contingencies
(continued):



Litigation, claims and assessments:



We are involved in the following matters:



Mediaxposure Limited (Cayman) v. Kevin
Harrington, Timothy Harrington, Infusion Brands International, Inc. (f/k/a OminReliant Holdings, Inc.), Vicis Capital Master Fund
and Vicis Capital LLC:



United States District Court, Middle District
of Florida, Case No. 11-CV-410



On February 28, 2011, Mediaxposure Limited
(Cayman) (“Mediaxposure”) as purported assignee of claims of ResponzeTV, Ltd (“RETV”) commenced an action
in the United States District Court, Middle District of Florida against certain individuals alleging a single case of action for
breach of fiduciary duty arising from an alleged misconduct of former board members. On October 7, 2011, Mediaxposure filed an
amended complaint naming the Company and alleging that the Company breached a purported fiduciary duty to RETV. The amended complaint
seeks unspecified money damages as against all defendants.



The Company moved to dismiss the complaint
on December 6, 2011, and oral argument of the Company’s motion is scheduled for March 27, 2012. The Company disputes the
allegations of the amended complaint and intends to vigorously defend the action.



As of December 31, 2011, the Company was
subject to the various legal proceedings and claims discussed above, as well as certain other legal proceedings and claims that
have not been fully resolved and that have arisen in the ordinary course of business. In the opinion of management, the Company
does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate
materially adversely affect its financial condition or operating results. However, the results of legal proceedings cannot be predicted
with certainty. Should the Company fail to prevail in these legal matters, the operating results of a particular reporting period
could be materially adversely affected.



Other contingencies:



In connection with our business, we enter
into other arrangements from time to time that are routine and customary for the operation of our business that include commitments,
typically of a short duration. These arrangements include, among other things, infomercial development and production arrangements
and royalty or contingent consideration to product manufacturers or infomercial hosts. As of December 31, 2011, we do not believe
that our routine and customary business arrangements are material for reporting purposes.



61







Infusion Brands International, Inc. and
Subsidiaries

Notes to Consolidated Financial Statements





Note 16 – Related party
transactions (continued):



Redemption of Shares – During
the year ended December 31, 2010, we redeemed 1,000,000 shares of our common stock for $100,000 (an amount equal to the trading
market of the shares) from a company that is owned by a family member of a former director.



Separation of Officer—On January
21, 2010, we entered into a Severance, Release and Confidentiality Agreement with our former President and Chief Executive Officer.
The agreement provided for, among other things, severance as follows:



| | 1. | Cash severance of $225,000, payable $75,000 within 10 days of the agreement and $12,500 monthly
for a period of twelve months.
| | -- | ------------------------------------------------------------------------------------------------------------------------------

| | 2. | Cash of $50,000 to redeem 1,500,000 stock options and 300,000 shares of the Company’s common
stock. Our stock options do not provide for such redemption; rather, this provision was negotiated between the parties in the settlement.
The payment was recorded in employment costs.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Cash of $49,000 for the former officer’s expenses.
| | -- | --------------------------------------------------

| | 4. | A company-owned automobile with a carrying and estimated fair value of $13,509.
| | -- | -------------------------------------------------------------------------------

| | 5. | An exchange of investments, wherein we will deliver 50 common shares in Strathmore Investments
and 625,000 preferred shares in Nested Media (collectively, our Cellular Blowout investment) for 1,000,000 shares in Wineharvest
owned by the separated officer. The aggregate carrying value and fair value of investments transferred to the former officer amounted
to $62,500.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Termination benefits amounting to $400,009
were recorded as a component of employment costs in the period on the basis that such benefits were formally established and communicated
with the separated employee.



Significant Ownership – Vicis,
which has provided significant funding, is the beneficial owner of 91.1% of our fully-diluted equity.



Note 17 – Subsequent events:



We have evaluated subsequent events arising
following the balance sheet date of December 31, 2010 through the date of March 23, 2012. There have been no material subsequent
events not provided elsewhere herein or in filings on Form 8-K.



Agreement Termination



As more fully discussed in Note 14, on
June 30, 2010, the Company entered into consulting agreements with two then Board Members providing for cash compensation of $125,000
to each and stock options linked to an aggregate 12,097,468 shares of common stock. On January 12, 2012, the consulting agreement
was terminated and the stock options were cancelled.



62













ITEM 9 – CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A – CONTROLS AND PROCEDURES
COMPANY CONFIRM INEFFECTIVENESS OF PROCEDURES



Evaluation of
Disclosure Controls and Procedures



Under the supervision
and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period
covered by this Annual Report on Form 10-K (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such
that the information relating to us, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange
Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in
SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



Management’s
Annual Report on Internal Control Over Financial Reporting



Our management
is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. With
the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2011 based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based upon such
evaluation, our management concluded that we did maintain effective internal control over financial reporting as of December 31,
2011 based on the COSO framework criteria.



This Annual Report
on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to a permanent
exemption for non-accelerated filers from the internal control audit requirements of Section 404(b) of the Sarbanes-Oxley Act of
2002.



Changes
in Internal Control Over Financial Reporting



There
have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2011
that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.



ITEM 9B - Other Information



None.





63









PART III



ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNACE



The following table sets forth certain
information with respect to our directors and executive officers.



Below are the names and certain information
regarding the Company's executive officers, directors and director nominees. Officers are elected annually by the Board of Directors.



|Name                |  | Age |  | Position                                                                                                      
|------------------- |  | --- |  | --------------------------------------------------------------------------------------------------------------
|                    |  |     |  |                                                                                                               
|Robert DeCecco*     |  | 43  |  | Chief Executive Officer, Chief Financial Officer, President, Treasurer, and Chairman of the Board of Directors
|Mary B. Mather**    |  | 51  |  | Chief Financial Officer and Secretary                                                                         
|Shadron Stastney*** |  | 41  |  | Director                                                                                                      
|Keith Hughes***     |  | 54  |  | Director                                                                                                      



* Appointed as Chief Executive Officer
and President on January 21, 2010

**Appointed as Chief Financial Officer
and Secretary July 12, 2011

***Appointed on September 7, 2010



Background of Executive Officers and Directors



Robert DeCecco.



On September 21, 2009, the Board of Directors
of the Company approved the appointment of Robert John DeCecco III as Chief Financial Officer and on January 21, 2010 approved
his appointment as Chief Executive Officer, President, Secretary (resigned July 12, 2011) and Treasurer. Prior to his current role
as CEO of Infusion Brands, Mr. DeCecco spent 3 years as President and CEO of a holding company which owned and operated companies
with a specific focus on internet marketing, network marketing, affiliate marketing and social media marketing. Prior to that,
Mr. DeCecco held the position of President and CEO of a Mortgage Bank, Aclarian Mortgage, which was eventually acquired by Opteum
Inc. a publicly traded company on the NYSE; OPX (now BNMN). Prior to Aclarian, Mr. DeCecco was the CFO of two venture backed 'enterprise
software' companies; Skyway Software, a rapid application development suite, and Q-Link Technologies, a business process management
software company which was sold to Adobe Systems for more than $20 million. In addition, he was the corporate controller and interim
CFO for Peak Performance Coach and Speaker Anthony Robbins in La Jolla, Calif., heading a finance department of more than 35 finance
professionals and managing nearly $100 million in revenue at Robbins Research International. As a CPA, Mr. DeCecco worked for PricewaterhouseCoopers
- Boston in the Assurance and Business Advisory services practice, assisting high-tech and financial services clients through the
audit and due diligence process; participating in Initial Public Offerings, and Secondary Market Offerings. Mr. DeCecco is
a Certified Public Accountant and holds a B.S. in Accounting from Franklin Pierce College in Rindge, N.H. He is also a founding
member and past chairman of the Lakewood Ranch Business Alliance (www.lwrba.org) and served on the Mortgage Technology Advisory
Board. Mr. DeCecco was chosen to be a director of the Company based on his general knowledge of the industry.



64







Mary B. Mather



On July 12, 2011, the Board of Directors
of the Company approved the appointment of Mary B. Mather as Chief Financial Officer and Secretary of the Company. Ms. Mather has
served as the Company’s VP of Finance since December 2010. Ms. Mather held the position of Associate with Kenneth Jarvis
LLC, from August 2010 to November 2010. Prior to that, from 2006-2009, she was Chief Financial Officer of City Lights Productions,
Inc. a television, film and post production company in New York that created and produced the HGTV series “Don’t Sweat
It”, the Food Network series “Chopped” and the movie “The Ten”. Prior to that she held the position
of Chief Financial Officer for Howard Schwartz Recording, Inc. Prior to that she was Treasurer for Hanseatic Corporation, a private
equity company that takes an active role on the boards of its portfolio companies until these companies have reached the size and
maturity necessary to be accepted by the public market. Prior to that, Ms. Mather spent thirteen years in public accounting with
Moore Stephens CPAs in New York and Houston and Deloitte & Touche in Houston. Ms. Mather is a CPA licensed in Texas and New
York and holds a BBA in Accounting from University of Texas at Austin and an MBA from Columbia Business School in New York.



Shadron Stastney.



On September 7, 2010, the Company appointed
Mr. Stastney as a member of its board of directors. Mr. Stastney is a founding partner of Vicis
Capital LL (”Vicis”).  He graduated from the University of North Dakota
in 1990 with a B.A. in Political Theory and History, and from Yale Law School in 1994 with a J.D. focusing on corporate and tax
law.  From 1994 to 1997, he worked as an associate at Cravath, Swaine and Moore in New York, where he worked in the tax group
and in the corporate group, focusing on derivatives.  In 1997, he joined CSFB’s then-combined convertible/equity derivative
origination desk.  From 1998 through 2001, he worked in CSFB’s corporate equity derivatives origination group, eventually
becoming a Director and Head of the Hedging and Monetization Group, a joint venture between derivatives and equity capital markets. 
In 2001, he jointly founded Victus Capital Management, LP, and in 2004, he jointly founded
Vicis. Mr. Stastney also jointly founded Vicis Capital Management LLC in 2001. Mr. Stastney
has been a director of Quality Health Plans since February 2010, China Hydro since January 2010, Master Silicone Carbide since
September 2008, Amacore Holdings, Inc. since August 2008, Care Media since April 2007, China New Energy since August 2008, Zurvita
Holdings, Inc. since March 2010, Age of Learning since March 2010 and OptimizeRX Corporation since July 2010. Mr. Stastney was
a director of Medical Solutions Management from October 2007 to January 2009 and MDWerks from May 2008 to August 2009. Mr. Stastney
was chosen to be a director of the Company based on his general knowledge of the industry.



Keith Hughes.



On September 7, 2010, the Company appointed
Mr. Hughesas a member of its board of directors. Mr. Hughes has served as the Chief Financial Officer and Chief Compliance Officer
of Vicis since 2006.  Mr. Hughes is a Certified Public Accountant and graduated from St. John’s University in 1978
with a B.A. in Accounting. He joined Vicis in January 2006 from International Fund Services, the fund’s
administrator, where he was a Managing Director of Operations since 2001. From 1998 to 2001, he has held various financial roles
with hedge funds including Treasurer, Controller and Chief Financial Officer. From 1986 to 1998 he worked at UBS where he was a
Managing Director and the Equity Controller for North America. Previous to UBS he worked at Dean Witter, Merrill Lynch and McGladery
& Pullen, C.P.A.s. Mr. Hughes has been a director of Quality Health Plans since February 2009, Amacore Holdings, Inc.
since February 2010 and Zurvita Holdings, Inc. since March 2010. Mr. Hughes was chosen to be a director of the Company based on
his general knowledge of the industry.



Family Relationships



None.



65







Conflicts of Interest



Certain potential conflicts of interest
are inherent in the relationships between the Company’s officers and directors and the Company.



From time to time, one or more of the Company’s
affiliates may form or hold an ownership interest in and/or manage other businesses both related and unrelated to the type of business
that the Company own and operate. These persons expect to continue to form, hold an ownership interest in and/or manage additional
other businesses which may compete with the Company’s business with respect to operations, including financing and marketing,
management time and services and potential customers. These activities may give rise to conflicts between or among the interests
of us and other businesses with which the Company’s affiliates are associated. The Company’s affiliates are in no way
prohibited from undertaking such activities, and neither the Company nor the Company’s shareholders will have any right to
require participation in such other activities.



Further, because the Company intends to
transact and has transacted business with some of the Company’s officers, directors and affiliates, as well as with firms
in which some of the Company’s officers, directors or affiliates have a material interest, potential conflicts may arise
between the respective interests of us and these related persons or entities. The Company believes that such transactions will
be effected on terms at least as favorable to us as those available from unrelated third parties.



With respect to transactions involving
real or apparent conflicts of interest, the Company has adopted policies and procedures which require that: (i) the fact of the
relationship or interest giving rise to the potential conflict be disclosed or known to the directors who authorize or approve
the transaction prior to such authorization or approval, (ii) the transaction be approved by a majority of the Company’s
disinterested outside directors, and (iii) the transaction be fair and reasonable to us at the time it is authorized or approved
by the Company’s directors.



The Company’s policies and procedures
regarding transactions involving potential conflicts of interest are not in writing.  The Company understands that it
will be difficult to enforce the Company’s policies and procedures and will rely and trust the Company’s officers and
directors to follow the Company’s policies and procedures.  The Company will implement the Company’s policies
and procedures by requiring the officer or director who is not in compliance with the Company’s policies and procedures to
remove himself and the other officers and directors will decide how to implement the policies and procedures, accordingly.



Involvement in Certain Legal Proceedings



To the Company’s knowledge, during
the past ten (10) years, none of the Company’s directors, executive officers, promoters, control persons, or nominees has
been:



| ̈ | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;                                                                             
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                  
| ̈ | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                  
| ̈ | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or





66







| ̈ | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Employment Agreements



On June 30, 2010, we entered into an employment
agreement with Robert DeCecco, our Chief Executive Officer, pursuant to which Mr. DeCecco will serve as Chief Executive Officer,
and President for the Company for a period of three years, subject to renewal.  In consideration for his services, Mr.
DeCecco will receive an annual base salary of $225,000 and options to purchase (i) that number of shares of common stock of the
Company equal to 4.5% of the issued and outstanding common stock of the Company on a fully diluted basis; (ii) that number of shares
of Designer equal to 4.5% of the issued and outstanding shares of Designer Liquidator’s common stock on a fully diluted basis
and (iii) that number of shares of Infusion Brands, Inc. , the Company’s wholly owned subsidiary (“OmniResponse”)
equal to 4.5% of the issued and outstanding shares of Infusion Brand’s common stock on a fully diluted basis (collectively,
the “Stock Options”).  The Stock Options of the Company are calculated and issued as of the date of the Employment
Agreement.  The Stock Options of Infusion Brandsand Designer, will be calculated and issued upon the consummation
of a Spin-Off Transaction whereby the Company will spin-out certain subsidiaries, assets, brands, and/or lines of business of the
Company into a separate company.  Notwithstanding the foregoing, none of the Stock Options shall become exercisable,
whether or not vested, until the Company has paid in full to holders of its Series G Convertible Preferred Stock the Special Preferred
Distribution, as described in the Series G Preferred Stock Certificate of Designation.



Director Independence



Our board of directors has determined that
currently none of it members  qualify as “independent” as the term is used in Item 407 of Regulation S-K
as promulgated by the SEC and in the listing standards of The Nasdaq Stock Market, Inc. - Marketplace Rule 4200.



Board Leadership Structure and Role in
Risk Oversight



Although we have not adopted a formal policy
on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined
that it is in the best interests of the Company and its shareholders to partially combine these roles. Due to the small size of
the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions partially combined.



The Company currently has three full directors,
including Robert DeCecco, its Chairman, who also serves as the Company's Chief Executive Officer. The Chairman and the Board are
actively involved in oversight of the Company's day to day activities.



Meetings and Committees of the Board of
Directors



Our board of directors held no formal meetings
during the most recently completed fiscal year. All proceedings of the board of directors were conducted by resolutions consented
to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to
in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the corporate laws
of the State of Nevada and our bylaws, as valid and effective as if they had been passed at a meeting of the directors duly called
and held.



67







Committees



Our business, property and affairs are
managed by or under the direction of the board of directors. Members of the board are kept informed of our business through discussion
with the chief executive and financial officers and other officers, by reviewing materials provided to them and by participating
at meetings of the board and its committees. We presently do not have any committees of our board of directors, however, our board
of directors intends to establish various committees at some point in the near future.



Compliance with Section 16(a) of the Exchange
Act



Section 16(a) of the Securities Exchange
Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered
class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock
and other equity securities of our company. Officers, directors and greater than ten percent stockholders are required by SEC regulations
to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to us under Rule 16a-3(e) during the fiscal years ended December 31, 2011 and 2010, and Forms 5 and amendments thereto
furnished to us with respect to the year ended December 31, 2011, we believe that our executive officers, directors and all persons
who own more than ten percent of a registered class of our equity securities have complied with all Section 16(a) filing requirements.



Code of Ethics



We have not yet adopted a code of business
conduct and ethics that applied to all directors, officers and employers because it is not yet completed.



68







ITEM 11 – EXECUTIVE COMPENSATION



The following table sets forth information
concerning the annual and long-term compensation earned by or paid to our Chief Executive Officer and to other persons who served
as executive officers and/or employees who have key roles in our operations as at and/or during the years ended December 31, 2011
and 2010 who earned compensation exceeding $100,000 during 2011 or, in the case of key employees amounts that are less, (the “named
executive officers”) for services as executive officers or other positions for the last two fiscal years.



Summary Compensation Table



|Name and Principal
    Position       |  | Year |      |  | Salary ($) |   |         | Bonus ($) |  |   | Stock Awards
     ($) |  |  | Stock Options
($) |   |  | Non-Equity Incentive
    Compensation |   |           | Non-Qualified
    Deferred Compensation |  |  | All Other
    Compensation |  |  | Total |  
|------------------------------------- |  | ---- | ---- |  | ---------- | - | ------- | --------- |  | - | --------------------- |  |  | ----------------- | - |  | ------------------------------------- | - | --------- | --------------------------------------- |  |  | -------------------------- |  |  | ----- | -
|Robert DeCecco, III CEO,
    Director |  |      | 2011 |  |            | $ | 225,000 |           |  |   | —                     |  |  |                   | — |  |                                       |   | —         |                                         |  |  | —                          |  |  |       | —
|                                      |  |      | 2010 |  |            | $ | 214,167 |           |  |   | —                     |  |  |                   | — |  |                                       | $ | 1,034,334 |                                         |  |  | —                          |  |  |       | —
|Mary Mather, CFO                      |  |      | 2011 |  |            | $ | 125,000 |           |  | $ | 3,750                 |  |  |                   | — |  |                                       |   | —         |                                         |  |  | —                          |  |  |       | —
|                                      |  |      | 2010 |  |            | $ | 10,417  |           |  |   | —                     |  |  |                   | — |  |                                       |   | —         |                                         |  |  | —                          |  |  |       | —
|Greg Allen Clary, COO                 |  |      | 2011 |  |            | $ | 73,864  |           |  |   | —                     |  |  |                   | — |  |                                       |   | —         |                                         |  |  | —                          |  |  |       | —
|                                      |  |      | 2010 |  |            | $ | 39,583  |           |  |   | —                     |  |  |                   | — |  |                                       |   | —         |                                         |  |  | —                          |  |  |       | —
|Greg Sarnow, President                |  |      | 2011 |  |            | $ | 168,000 |           |  |   | —                     |  |  |                   | — |  |                                       |   | —         |                                         |  |  | —                          |  |  |       | —
|of Direct Response                    |  |      | 2010 |  |            | $ | 50,909  |           |  |   | —                     |  |  |                   | — |  |                                       |   | —         |                                         |  |  | —                          |  |  |       | —



Outstanding Equity Awards at Fiscal Year-End
Table



|Name and Principal  |  | Stock Option Awards: Number of
    Securities Underlying Unexercised Stock Options |   |  | Equity
    Incentive Plan Awards |  |            | Stock Option |  |  | Stock Option   |  |  | Stock Awards |   |  | Equity Incentive Plan Awards | 
|------------------- |  | ---------------------------------------------------------------------------------- | - |  | -------------------------------- |  | ---------- | ------------ |  |  | -------------- |  |  | ------------ | - |  | ---------------------------- | 
|Position            |  | Exercisable                                                                        |   |  | Unexercisable                    |  |            | Number       |  |  | Exercise Price |  |  | Expiration   |   |  | Number                       | 
|Robert DeCecco, III |  |                                                                                    |   |  |                                  |  |            |              |  |  |                |  |  |              |   |  |                              | 
|CEO, Director       |  |                                                                                    | — |  |                                  |  | 18,146,203 |              |  |  | —              |  |  |              | — |  |                              | 



69







Directors’ Compensation



There were $-0- and $61,067 directors’
fees paid during the years ended December 31, 2011 and 2010, respectively.



Audit Committee



We do not have an audit committee at this
time.



Certain Relationships and Related Transactions



The Company will present all possible transactions
between us and the Company’s officers, directors or 5% shareholders, and the Company’s affiliates to the Board of Directors
for their consideration and approval. Any such transaction will require approval by a majority of the disinterested directors and
such transactions will be on terms no less favorable than those available to disinterested third parties



Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The following table sets forth certain
information, as of March 23, 2012 with respect to the beneficial ownership of the Company’s outstanding common stock by (i)
any holder of more than five (5%) percent; (ii) each of the named executive officers, directors and director nominees; and (iii)
our directors, director nominees and named executive officers as a group. Except as otherwise indicated, each of the stockholders
listed below has sole voting and investment power over the shares beneficially owned.



|Name of Beneficial Owner(1)                       |  | Common Stock Beneficially Owned |             |     | Percentage of Common  Stock
    Beneficially Owned (2) | 
|------------------------------------------------- |  | ------------------------------- | ----------- | --- | ------------------------------------------------------ | 
|                                                  |  |                                 |             |     |                                                        | 
|Robert DeCecco                                    |  |                                 |             | (3) |                                                        | 
|                                                  |  |                                 |             |     |                                                        | 
|Vicis Capital, LLC (5)                            |  |                                 | 438,502,441 | (6) |                                                        | 
|                                                  |  |                                 |             |     |                                                        | 
|Keith Hughes (4)                                  |  |                                 | —           |     |                                                        | 
|                                                  |  |                                 |             |     |                                                        | 
|Shadron Stastney (7)                              |  |                                 | —           |     |                                                        | 
|                                                  |  |                                 |             |     |                                                        | 
|Mary B. Mather (8)                                |  |                                 | —           |     |                                                        | 
|All officers and directors as a group (3 persons) |  |                                 |             |     |                                                        | 



(1) Except as otherwise indicated, the
address of each beneficial owner is c/o Infusion Brands International, Inc. 14375 Myerlake Circle, Clearwater, FL 33760.



(2) Applicable percentage ownership of
common stock has been calculated by dividing the common stock beneficially owned as reflected in the table above, by the sum of
the number of common shares outstanding at March 30, 2012, which amount to 181,457,508 and the common stock beneficially owned.



(3) Mr.
DeCecco is the Chief Executive Officer and a director of the Company. Mr. DeCecco holds 18,146,203 stock options granted on June
30, 2010 with an exercise price of $0.01, which will become fully vested on June 30, 2012 and expire in ten years.



70







(4) Mr. Hughes is a director of the Company.



(5) Vicis
Capital LLC has voting and investment power over the shares of the Company held by Vicis Capital Master Fund..



(6) Includes as the numerator (i) 138,502,441
shares of Infusion Brand’s common stock, plus (ii) warrants to purchases 185,000,000 shares of Infusion Brand’s common
stock with an exercise price of $0.10 per share plus, (iii) 115,000,000 common shares that are linked to the Series G Preferred
Stock Conversion Feature. The total numerator is 438,502,411. The denominator includes (i) 181,457,508 shares of common stock outstanding,
plus (ii) warrants to purchases 185,000,000 shares of Infusion Brand’s common stock with an exercise price of $0.10 per share
plus, (iii) 115,000,000 common shares that are linked to the Series G Preferred Stock Conversion Feature. The denominator is 481,507,508.



(7) Mr. Statsney is a director of the Company.



(8) Ms. Mather is the Chief Financial Officer
of the Company.



ITEM 13 – CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



Except as set forth below, there were no
transactions during the years ended December 31, 2011 and 2010, and there are no proposed transactions, to which the Company was
or is to become a party in which any director, executive officer, director nominee, beneficial owner of more than five percent
(5%) of any class of our stock, or members of their immediate families had, or is to have, a direct or indirect material interest:



On December 14, 2011 we issued and sold
3,500,000 shares of our Series G Convertible Preferred Stock and Series G Warrants to purchase an aggregate of 35,000,000 shares
of our common stock at a per share exercise price of $0.10 for an aggregate purchase price value of $3,500,000 in cash Vicis is
a beneficial owner of 91.1% of our outstanding capital stock.



On July 8, 2011 we issued and sold 3,000,000
shares of our Series G Convertible Preferred Stock and Series G Warrants to purchase an aggregate of 30,000,000 shares of our common
stock at a per share exercise price of $0.10 for an aggregate purchase price value of $3,000,000 in cash Vicis is a beneficial
owner of 91.1% of our outstanding capital stock.



On February 8, 2011, we issued 20,162,448
shares of common stock to a consulting organization as partial consideration in connection with a consulting agreement. We are
obligated to issue such number of additional common shares that represent 5.0% of our post-issuance outstanding shares after fulfillment
of our redemption obligations under the Series G Preferred Stock.



On June 30, 2010, we issued and sold 5,000,000
shares of our Series G Convertible Preferred Stock and Series G Warrants to purchase an aggregate of 50,000,000 shares of our common
stock at a per share exercise price of $0.10 for an aggregate purchase price value of $5,000,000 consisting of (1) $3,500,000 in
cash and (2) the return and cancellation of the note in the principal amount of $1,500,000 issued to Vicis Capital Master Fund
pursuant to a Note Purchase Agreement dated June 4, 2010 between Vicis and the Company. Vicis is a beneficial owner of 91.1% of
our outstanding capital stock.



On June 4, 2010, we entered into a Note
Purchase Agreement with Vicis Capital Master Fund pursuant to which we sold an 8% convertible promissory note in the principal
amount of $1,500,000 for an aggregate purchase price of $1,500,000 (the “Note”). The Note is due on demand in the holder’s
discretion.  The Note is convertible into securities offered by the Company in a future financing pursuant to the terms
of the Note Purchase Agreement. Vicis is a beneficial owner of 91.1% of our outstanding capital stock.



71







ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES



The Company's board of directors reviews
and approves audit and permissible non-audit services performed by its independent accountants, as well as the fees charged for
such services. In its review of non-audit service fees and its appointment of Meeks International LLP as the Company's independent
accountants, the board of directors considered whether the provision of such services is compatible with maintaining independence.
All of the services provided and fees charged by Meeks International LLC were approved by the board of directors.



Fees are as follows:



Meeks International LLC Fees



The aggregate fees billed for professional
services for the audit of the annual financial statements of the Company and the reviews of the financial statements included in
the Company's quarterly reports on Form 10-Q for 2011 and 2010 were $167,004 and $50,000, respectively, net of expenses.



Other Securities Exchange Commission services
for registration and related services were $67,144 in 2011 and $7,400 in 2010.



Tax Fees



Tax fees for tax filings were $16,970 in
2011 and $2,000 in 2010.



There were no other fees billed during
the last two fiscal years for products and services provided.



Policy on Audit Committee Pre-Approval
of Audit and Permissible Non-Audit Services of Independent Auditors



We do not currently have an Audit Committee.
The policy of our Board of Directors, which acts as our Audit Committee, is to pre-approve all audit and permissible non-audit
services provided by the independent auditors. These services may include audit services, audit-related services, tax services
and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular
service or category of services and is generally subject to a specific budget. The independent auditors and management are required
to periodically report to our Board of Directors regarding the extent of services provided by the independent auditors in accordance
with this pre-approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular
services on a case-by-case basis.



72







ITEM 15 – EXHIBITS, FINANCIAL STATEMENT
SCHEDULES



(a)(2) Financial Statement Schedules



We do not have any financial statement
schedules required to be supplied under this Item.



(a)(3)   Exhibits



|3.1  | Certificate of Incorporation of Willowtree Advisors (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission on August 2, 2004 (File No. 333-117840)                                           
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2  | Bylaws of Willowtree Advisors(Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission on August 2, 2004 (File No. 333-117840)                                                                  
|3.3  | Amendment to Articles of Incorporation (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 1, 2012)                                                                                                      
|4.1  | Certificate of Designation Series F Convertible Preferred Stock (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on February 17, 2009)                                                                            
|4.2  | Form of Series E Common Stock Purchase Warrant (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on February 17, 2009)                                                                                             
|4.3  | Form of Series BD Common Stock Purchase Warrant (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on February 17, 2009)                                                                                            
|4.4  | Form of Senior Secured Working Capital (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on May 5, 2009)                                                                                                           
|4.5  | Form of Series E Preferred Stock Certificate of Designation (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on September 24, 2009)                                                                                         
|4.6  | Form of Vicis Capital Master Fund Warrant (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on October 13, 2009)                                                                                                             
|4.7  | Form of Midtown Partners & Co, LLC Warrant (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on October 13, 2009)                                                                                                            
|4.8  | Amendment No.1 to Promissory Note (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on December 28, 2010)                                                                                                                    
|10.1 | Form of Securities Purchase Agreement by and between OmniReliant Holdings, Inc., Abazias, Inc. and Abazias.com, Inc. dated December 3, 2008 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 9, 2008).
|10.2 | Form of Note issued by Abazias, Inc. to OmniReliant Holdings, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 9, 2008).                                                                         
|10.3 | Form of Employment Agreement between Abazias.com, Inc and Oscar Rodriguez attached as Exhibit D-1 to Exhibit Number 10.1 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 9, 2008).                   
|10.4 | Form of Employment Agreement between Abazias.com, Inc and Jesus Diaz   attached as Exhibit D-1 to Exhibit Number 10.1 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 9, 2008).                      
|10.5 | Form of Note Purchase Agreement dated January 6, 2009 by and between Valcom, Inc. and Omnireliant Holdings, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 8, 2009)                             
|10.6 | Form of 10% Secured Promissory Note dated January 6, 2009 by and between Valcom, Inc. and Omnireliant Holdings, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 8, 2009)                         
|10.7 | Form of Warrant dated January 6, 2009 by and between Valcom, Inc. and Omnireliant Holdings, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 8, 2009)                                             



73







|10.8  | Form of Security Agreement dated January 6, 2009 by and between Valcom, Inc. and Omnireliant Holdings, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 8, 2009)                                                                                                           
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9  | Amended Stock Purchase Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on February 17, 2009)                                                                                                                                                                                    
|10.10 | Form of Securities Purchase Agreement dated July 20, 2009 by and between Omnireliant Holdings, Inc. and Vicis Capital Master Fund (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 21, 2009).                                                                                      
|10.11 | Form of Warrant dated July 20, 2009 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 21, 2009).                                                                                                                                                                                    
|10.12 | Form of Kathy Hilton License Agreement (Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on August 13, 2009).                                                                                                                                                                              
|10.13 | Form of Merger Agreement (Incorporated by reference to the company’s Current Report on Form 8-K, filed with the SEC on September 24, 2009)                                                                                                                                                                                          
|10.14 | Form of Employment Agreement between the Company and Paul Morrison (Incorporated by reference to the company’s Current Report on Form 8-K, filed with the SEC on September 24, 2009)                                                                                                                                                
|10.15 | Securities Purchase Agreement, dated February 12, 2009, by and between OmniReliant Holdings, Inc. and Vicis Capital Master Fund (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 17, 2009)                                                                                     
|10.16 | First Amendment to the Registration Rights Agreement, dated February 12, 2009, between OmniReliant Holdings, Inc. and Midtown Partners & Co., LLC(Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on February 17, 2009)                                                                    
|10.17 | Second Amendment to the Amended and Restated Registration Rights Agreement, dated February 12, 2009, by and among OmniReliant Holdings, Inc., Vicis Capital Master Fund and Dynamic Decisions Strategic Opportunities(Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on February 17, 2009)
|10.18 | Securities Purchase Agreement between Strathmore Investments, Inc. and OmniReliant Holdings, Inc. (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on May 5, 2009)                                                                                                                         
|10.19 | Security Agreement between OmniReliant Holdings, Inc. and Strathmore Investments, Inc. (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on May 5, 2009)                                                                                                                                    
|10.20 | Form of Kathy Hilton Agreement (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on August 13, 2009)                                                                                                                                                                                                  
|10.21 | Securities Purchase Agreement (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on September 11, 2009)                                                                                                                                                                                                
|10.22 | Form of Debenture (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on September 11, 2009)                                                                                                                                                                                                            
|10.23 | Form of Warrant (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on September 11, 2009)                                                                                                                                                                                                              
|10.24 | Security Interest and Pledge Agreement (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on September 11, 2009)                                                                                                                                                                                       
|10.25 | Form of Merger Agreement (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on September 24, 2009)                                                                                                                                                                                                     
|10.26 | Form of Employment Agreement (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on September 24, 2009)                                                                                                                                                                                                 
|10.27 | Asset Purchase Agreement, dated October 9, 2009 (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on October 16, 2009)                                                                                                                                                                      



74







|10.28 | License Agreement, dated October 9, 2009 (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on October 16, 2009)                                                                                                                 
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.29 | Promissory Note, dated October 9, 2009 (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on October 16, 2009)                                                                                                                   
|10.30 | Note Purchase agreement dated June 4, 2010 (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on June 7, 2010)                                                                                                                   
|10.31 | Securities Purchase Agreement dated June 30, 2010 (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 6, 2010)                                                                                                            
|10.32 | Series G Convertible Preferred Stock Certificate of Designations (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 6, 2010)                                                                                             
|10.33 | Series G Warrant (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 6, 2010)                                                                                                                                             
|10.34 | Registration Rights Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 6, 2010)                                                                                                                                
|10.35 | Security Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 6, 2010)                                                                                                                                           
|10.36 | Subsidiary Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 6, 2010)                                                                                                                                         
|10.37 | Guarantor Security Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 6, 2010)                                                                                                                                 
|10.38 | Employment Agreement with Robert DeCecco (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on June 6, 2010)                                                                                                                     
|10.39 | Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 3, 2010)                                                                 
|10.40 | Security Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 3, 2010)                                                                                                                                       
|10.41 | Merger Agreement between the Company and Infusion Brands International, Inc. (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 28, 2010)                                                                            
|10.42 | Articles of Merger filed on December 16, 2010 (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 28, 2010)                                                                                                           
|10.43 | Amended and Restated Series G Convertible Preferred Stock (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 28, 2010)                                                                                               
|10.44 | Stock Purchase Agreement between the Company and Jesus Diaz and Oscar Rodriguez (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 28, 2010)                                                                         
|10.45 | Stock Purchase Agreement between the Company and Webcarnation LLC (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 28, 2010)                                                                                       
|10.46 | Agreement to Settle and Release all Actions and Extinguish all Debts (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on March 4, 2011)                                                                                        
|10.47 | Stock Purchase Agreement dated as of May 9, 2011 between Infusion Brands International, Inc., Home Shopping Express SA and the Shareholders signatory thereto (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on May 13, 2011)
|10.48 | Employment Agreement dated as of May 9, 2011 between Infusion Brands International, Inc., Home Shopping Express SA and Fred Sciamma (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on May 13, 2011)                          
|10.49 | Securities Purchase Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 14, 2011)                                                                                                                               
|10.50 | Amendment to Series G Convertible Preferred Stock Certificate of Designations (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 14, 2011)                                                                               



75







|10.51 | Form of Series G Warrant (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 14, 2011)                                                                                                                                                                                                                                                                              
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.52 | Registration Rights Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 14, 2011)                                                                                                                                                                                                                                                                         
|10.53 | Amended and Restated Security Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 14, 2011)                                                                                                                                                                                                                                                               
|10.54 | Amended and Restated Subsidiary Guarantee (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 14, 2011)                                                                                                                                                                                                                                                             
|10.55 | Amended and Restated Guarantor Security Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on July 14, 2011)                                                                                                                                                                                                                                                     
|10.56 | Securities Purchase Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 20, 2011)                                                                                                                                                                                                                                                                     
|10.57 | Amendment to Series G Convertible Preferred Stock Certificate of Designations (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 20, 2011)                                                                                                                                                                                                                     
|10.58 | Form of Series G Warrant (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 20, 2011)                                                                                                                                                                                                                                                                          
|10.59 | Registration Rights Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 20, 2011)                                                                                                                                                                                                                                                                     
|10.60 | Second Amended and Restated Security Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 20, 2011)                                                                                                                                                                                                                                                    
|10.61 | Second Amended and Restated Subsidiary Guaranty (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 20, 2011)                                                                                                                                                                                                                                                   
|10.62 | Second Amended and Restated Guarantor Security Agreement (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 20, 2011)                                                                                                                                                                                                                                          
|31.1  | Certification of Periodic Financial Reports by Robert John DeCecco III in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                           
|31.2  | Certification of Periodic Financial Reports by Mary Mather in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                       
|32.1  | Certification of Periodic Financial Reports by Robert John DeCecco III in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350                                                                                                                                                                                                                                                
|32.2  | Certification of Periodic Financial Reports by Mary Mather in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350                                                                                                                                                                                                                                                            
|101** | The following materials from Infusion Brands International, Inc.’s Annual  Report on Form 10-K for the year ended December 31, 2011 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Cash Flow, (iii) the Consolidated Balance Sheets, and (iv) Notes to Consolidated Financial Statements tagged as blocks of text.



**  In
accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall
not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of
that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities
Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.



76







SIGNATURES



In accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |     | INFUSION BRANDS INTERNATIONAL, INC.                                 
|--------------------- | --- | --------------------------------------------------------------------
|                      |     |                                                                     
|Date: August 21, 2012 | By: | /s/ Robert DeCecco III                                              
|                      |     | President and Chief Executive Officer (Principal Executive Officer) 
|                      |     |                                                                     
|Date: August 21, 2012 | By: | /s/ Mary B. Mather                                                  
|                      |     | Chief Financial Officer (Principal Financial and Accounting Officer)
|                      |     |                                                                     



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



|Name                   |  | Position                                               |  | Date           
|---------------------- |  | ------------------------------------------------------ |  | ---------------
|                       |  |                                                        |  |                
|/s/ Robert DeCecco III |  | President, Chief Executive Officer and Chairman of the |  |                
|Robert DeCecco III     |  | Board of Directors (Principal Executive Officer)       |  | August 21, 2012
|                       |  |                                                        |  |                
|/s/ Mary B. Mather     |  | Chief Financial Officer (Principal Financial and       |  |                
|Mary B. Mather         |  | Accounting Officer)                                    |  | August 21, 2012
|                       |  |                                                        |  |                
|/s/ Shadron Statsney   |  | Director                                               |  | August 21, 2012
|Shadron Statsney       |  |                                                        |  |                
|                       |  |                                                        |  |                
|/s/ Keith Hughes       |  | Director                                               |  | August 21, 2012
|Keith Hughes           |  |                                                        |  |                



77