**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-KSB**




**x** **ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**




For
      year
      ended June 30, 2008




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


**SECURITIES
      EXCHANGE ACT OF 1934**




For
      the
      transition period from _____ to _____




**OmniReliant
      Holdings, Inc.**




(Exact
      name of registrant as specified in its charter)




Nevada
            
            000-51599
            
            54-2153837(State
                or other jurisdiction
              of incorporation)
            
            (Commission
                File Number)
            
            (I.R.S
                Employer Identification No.)





14375
      Myerlake Circle


Clearwater,
      FL 33760


(Address
      of principal executive offices)





**(813)
      885-5998**


(Issuer's
      telephone number, including area code)





4902
      Eisenhower Blvd., Suite 185


Tampa,
      FL
      33634


(Former
      name or former address, if changed since last report)




**Securities
      registered pursuant to Section 12(g) of the Act: Not
      Applicable**




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. x Yes o No




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (ss.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. o




Indicate
      by check mark whether the registrant is a shell company (as defined in Exchange
      Act Rule 12b-2). Yes o No x





State
      issuer's revenues for its most recent fiscal year. $ 967,730





The
      aggregate market value of the voting and non-voting equity held by
      non-affiliates computed by reference to the price at which common equity was
      sold, or the average bid and asked price of such common equity (i.e., does
      not
      include directors, executive officers or ten percent stockholders identified
      in
      Item 11 hereof) of the issuer as of October 14, 2008 was approximately
      $5,903,774.82, computed by referenced to the average of the high and low sale
      price on October 14, 2008 which was $1.18.




As
      of
      October 14, 2008, there were 14,475,892 shares of common stock
      outstanding.





Transitional
      Small Business Disclosure Format (check one) Yes o No x








·
            **OmniReliant
                Holdings, Inc.**




**FORM
      10-KSB**




**For
      the Fiscal Year Ended June 30, 2008**





**Page****Part
                  I**Item
                1.
            
            Description
                of Business.
            
            4Item
                2.
            
            Description
                of Property.
            
            13Item
                3.
            
            Legal
                Proceedings.
            
            13Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders.
            
            13**Part
                II**Item
                5.
            
            Market
                for Common Equity and Related Stockholder Matters.
            
            14Item
                6.
            
            Management's
                Discussion and Analysis or Plan of Operation.
            
            15Item
                7.
            
            Financial
                Statements
            
            22Item
                8.
            
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure.
            
            74Item
                8A.
            
            Controls
                and Procedures.
            
            75Item
                8B.
            
            Other
                Information.
            
            77Item
                9.
            
            Directors,
              Executive
              Officers, Promoters and Control Persons; Compilance With
              16(a) of the Exchange Act
            
            78**Part
                III**Item
                10.
            
            Executive
                Compensation.
            
            78Item
                11.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            80Item
                12.
            
            Certain
                Relationships and Related Transactions.
            
            82Item
                13.
            
            Exhibits.
            
            85Item
                14.
            
            Principal
                Accountant Fees and Services.
            
            87Signatures.
            
            
            
            88




2


**PART
      I**





**FORWARD-LOOKING
      STATEMENTS:**





This
      Annual Report on Form 10-KSB (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-KSB.
      Additionally, statements concerning future matters are forward-looking
      statements.





Although
      forward-looking statements in this Annual Report on Form 10-KSB 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-KSB.
      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-KSB. 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-KSB. 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.


3


**Item
      1. DESCRIPTION OF BUSINESS**




**Organizational
      History**





OmniReliant
      Holdings, Inc. fka Willowtree Advisor, Inc. (the “Company”) engages in the
      creation, design, distribution, and sale of affordable luxury products. The
      Company plans to make these products available to U.S. and international
      consumers through direct response infomercials, live shopping networks,
      ecommerce, direct mail and traditional retail channels.  The Company will
      first focus on bringing the Kathy Hilton “Private Beauty Spa” product line to
      market, after which the Company plans to develop other personalities and
      designer licenses. Ms. Hilton, who is the wife of Rick Hilton, the grandson
      of
      the Hilton Hotel founder, has agreed to appear in television segments and
      infomercials.





On
      November 22, 2006, the Company fka Willowtree Advisor, Inc. entered into a
      Securities Purchase Agreement (the “Common Stock Purchase Agreement”) with
      OmniReliant Corporation and Cynthia Allison, pursuant to which OmniReliant
      Corporation purchased 5,000,000 shares of the Company’s common stock from Ms.
      Allison. Also on November 22, 2006, the Company entered into an exchange
      agreement (the “Exchange Agreement”) pursuant to which the Company acquired one
      hundred percent (100%) of the equity of OmniReliant Corporation from, the
      stockholders of OmniReliant Corporation. Contemporaneously, the Company entered
      into a securities purchase agreement with an accredited investor for the sale
      of
      convertible preferred stock and warrants for an aggregate purchase price of
      $3,000,000 (the “Preferred Stock Purchase Agreement”).




The
      aforementioned transactions resulted in a change in control of the Company.
      As a
      result of the Exchange Agreement, (i) OmniReliant Corporation became a
      wholly-owned subsidiary of the Company and (ii) the Company succeeded to the
      business of OmniReliant Corporation as its sole business. As a result of the
      foregoing transactions, Willowtree changed its name to OmniReliant Holdings,
      Inc.




**Overview
      of Business**





OmniReliant
      engages in the creation, design, distribution, and sale of affordable luxury
      products. OmniReliant plans to make these products available to U.S. and
      international consumers through direct response infomercials, live shopping
      networks, ecommerce, direct mail and traditional retail channels.  
OmniReliant will first focus on bringing the Kathy Hilton “Private Beauty Spa”
product line to market, after which OmniReliant plans to develop other
      personalities and designer licenses. Ms. Hilton, who is the wife of Rick Hilton,
      the grandson of the Hilton Hotel founder, has agreed to appear in television
      segments and infomercials.





**Industry
      Overview**





The
      global market for anti-aging beauty care products is estimated to be worth
      approximately $50 billion dollars in 2006 and is expected to hit $56 billion
      in
      2007, according to the www.CosmeticsDesign-Europe.com website.





Beauty
      care products are sold through direct response marketing such as infomercials,
      as well as on established home shopping television channels such as the Home
      Shopping Network (HSN) and QVC. Over the last several years, the trend for
      direct response marketing of beauty-related products has been to use celebrity
      spokespersons. Successfully launched brands include “Bare Essentials”, Victoria
      Principal’s “Principal Secrets Anti-Aging System”, and Susan Lucci’s “Youthful
      Essence”.





**Products**





The
      Kathy
      Hilton line of products is expected to include the following items:





Skincare


Perfumes


Spa
      wellness


Cosmetics


Fragrances
      and related products


Scented
      candles




4





The
      retail prices for the Kathy Hilton line of products are expected to range from
      $15.00 to $295.00.





OmniReliant’s
      first product, the “Kathy Hilton Personal Beauty Spa Collection” is
      expected to be used as a lead-in item to a planned product line of essential
      skin care  items.   The Kathy
      Hilton  Personal Beauty Spa Collection is a  collection
      of   innovative spa treatments for the
      skin featuring  an exclusive HOT-COLD TCT (Thermal
      Cosmetic Treatment)(R) formula developed by  the Transvital private beauty
      laboratories.  This HOT-COLD SPA (R) formula is designed to self-heat
      and self-cool rapidly before use.




OmniReliant
      has obtained from Guaber S.P.A., the parent company of Transvital, the exclusive
      right to market and distribute the HOT-COLD SPA (R) formula, under its own
      brand
      name. The exclusive rights are limited to the United States and Canada.
      OmniReliant has also obtained a non-exclusive right to market and distribute
      the
      Kathy Hilton Personal Beauty Spa Collection in other countries.





The
      Company is working on securing the rights to purchase additional
      Guaber/Transvital skincare and beauty products that will be branded under the
      Kathy Hilton name and sold throughout the world. These products are intended
      to
      be high-end products with only the best ingredients and proven
      results.





It
      is the
      Company’s intention to design, manufacture, market and distribute prestige
      fragrances and related products. The Company plans to engage contract packagers
      and professionals in the field. In the United States, our plan is to enter
      into
      agreements to distribute our products through a targeted group of department
      and
      specialty stores, such as Macy's, Foley's, Marshall Fields, Famous Barr, Belks,
      Elder Beerman, Carson Pirie Scott, and Filenes. In international markets, we
      plan to distribute our products through established prestige distribution
      channels.





*Salicylic
      Acid Product*





On
      June
      18, 2007, we entered into an Agreement for Acquisition of a Patent Application
      with Product & Technology Partners LLC (“Seller”). Pursuant to the
      Agreement, the Company acquired from Seller the rights to a patent-pending
      self-warming topical pharmaceutical product capable of delivering salicylic
      acid
      in a foam suitable for consumer use (the “Product”). In consideration for the
      Product, the Company agreed to pay Seller in the following manner:





a)
            Upon
                execution of the Agreement, the Company paid Seller (i) an aggregate
                of
                Twenty Five Thousand dollars ($25,000) and (ii) issued to the Seller
                Two
                Hundred Thousand (200,000) shares of the Company’s common
                stock.





b)
            Following
                the completion of due diligence (which shall be six months from the
                date
                of the Agreement), if the Company is satisfied with the Product and
                intends to offer Product for sale, the Company shall pay to Seller
                Twenty
                Five Thousand dollars ($25,000).





c)
            The
                Company shall also pay Seller installment payments of up to a maximum
                of
                Four Hundred Thousand Dollars ($400,000), payable over a period of
                4 years
                beginning six months from the date of the Agreement. If no revenues
                are
                generated from the sale of the Product, no installment payments shall
                be
                due hereunder.




**Marketing
      and Distribution**





OmniReliant
      plans to initially distribute its product lines via direct response television
      programming.





On
      October 13, 2006, OmniReliant has entered into a license agreement with KRH
      Licensing Company LLC, which is the owner of the Kathy Hilton Class III
      Cosmetics Trademark License (the “Kathy Hilton Trademark”). Pursuant to the
      License Agreement, OmniReliant has obtained the exclusive right to use the
      Kathy
      Hilton Trademark and to sell products bearing the Kathy Hilton Trademark. In
      addition, OmniReliant has obtained the personal services of Ms. Hilton in
      connection with the promotion and sale of products bearing the Kathy Hilton
      Trademark. In exchange, KRH Licensing will receive royalty payments in 2007
      and
      2008.




5





On
      October 19, 2007, our wholly-owned subsidiary OmniReliant Corp. (“ORC”) entered
      into and closed a share exchange agreement with ResponzeTV (the “Exchange
      Agreement”). Pursuant to the terms of the Exchange Agreement, ResponzeTV
      acquired all of the issued and outstanding shares of capital stock of KHL
      Holdings, Inc., a newly formed Florida corporation and wholly-owned subsidiary
      of ORC (“KHL”), in exchange for 9,500,000 ordinary shares of stock of
      ResponzeTV. On October 12, 2007, ORC entered into an exclusive sublicense
      agreement with KHL, pursuant to which ORC granted KHL the exclusive right and
      license to our rights to use the Kathy Hilton Trademark and to sell products
      bearing the Kathy Hilton Trademark exclusive of fragrance. The initial term
      of
      this sublicense agreement shall terminate on June 30, 2012. ORC shall have
      the
      option to renew this Agreement for an additional five year period. Kevin
      Harrington and Tim Harrington, who are directors of the Company, are officers
      and directors of ResponzeTV.





OmniReliant
      has also entered into a consulting agreement with Harrington Business
      Development LLC (“HBD”) pursuant to which HBD will oversee marketing of  
OmniReliant’s brands, including visual and audio productions. The principals of
      HBD, Kevin and Tim Harrington, are veterans of the infomercial industry and
      have
      previously launched successful products via infomercials. Pursuant to the
      consulting agreement with HBD, OmniReliant will pay HBD a fee of $15,000 per
      month for a term of six (6) months beginning on October 1, 2006. On April 1,
      2007, the Company verbally agreed to extend the consulting agreement for a
      term
      of three (3) months.





The
      Kathy
      Hilton Personal Beauty Spa Collection and Cosmetics are sold on live shopping
      networks. Kathy Hilton has agreed to personally appear in most of the live
      shopping network programming and all of the infomercial programming. In
      addition, Kathy Hilton has agreed to personally promote the brand by making
      personal appearances in various talk shows and industry related
      events.





The
      media
      exposure and subsequent branding which is expected to result from the planned
      marketing of OmniReliant’s products on live shopping networks and infomercials
      is expected to generate opportunities for retail distribution as well.
      OmniReliant plans to seek distribution arrangements with large retailers in
      the
      U.S. and abroad.





OmniReliant
      also expects that its products will be sold through web sites operated by the
      live shopping networks which agree to carry our products. In addition,
      OmniReliant plans to establish a proprietary website to sell its products at
      www.omnireliant.com. The information contained on OmniReliant's website is
      not a
      part of this Report, nor is it incorporated by reference into this
      Report.





OmniReliant
      will not directly manufacture any product, nor take large positions in
      inventory. Margins will vary depending on sales venue. Net profit margins for
      products sold on live shopping networks are estimated to be approximately 25%,
      while net profit margins for products sold in infomercials are estimated to
      be
      approximately 10%. In both cases, the margins are expected to increase as sales
      volume increases.




**Competition**





Other
      companies have had success selling beauty care products via direct response
      marketing as well as through established home shopping television
      channels.





Competition
      in the retailing industry is intense and may be expected to intensify. There
      are
      other, larger and well-established retailers with whom OmniReliant must compete.
      OmniReliant competes directly with several companies which generate sales from
      infomercials. OmniReliant also competes with a large number of consumer product
      companies and retailers which have substantially greater financial, marketing
      and other resources than OmniReliant, some of which have recently commenced,
      or
      indicated their intent to conduct, direct response marketing. OmniReliant also
      competes with companies that make imitations of OmniReliant's products at
      substantially lower prices. Products similar to OmniReliant's products may
      be
      sold in department stores, pharmacies, general merchandise stores and through
      magazines, newspapers, direct mail advertising and catalogs. It is management's
      opinion that all 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 OmniReliant does
      currently. As a new entrant into this marketing industry, OmniReliant relies
      on
      the skill, experience and innovative discernment of management in the hope
      that
      superior judgment will provide its only competitive advantage. OmniReliant's
      major competitors include Thane International, Inc.; Fitness Quest, Inc.;
      Telebrands Advertising Corporation; Tristar; Idea Village; Media Enterprises,
      Inc. and Guthy-Renker Corp. Other competitors in the direct response market
      include Avon Products, Inc. (NYSE: AVP), Nu Skin (NYSE: NUS), BeautiControl,
      Inc., Parlux, Bare Essentials, and Mary Kay Cosmetics.




6




**Investment
      in ResponseTV**





On
      October 19, 2007, we entered into a subscription agreement with ResponzeTV
      PLC
      (“ResponzeTV”) (the “Subscription Agreement”) pursuant to which we purchased
      8,500,000 ordinary shares of ResponzeTV and received warrants to purchase
      17,000,000 ordinary shares of ResponzeTV for an aggregate purchase price of
      US$5,100,000. The warrants are to be issued in the following manner: (i) a
      warrant to purchase 8,500,000 common shares with an exercise price of £37p, (ii)
      a warrant to purchase 4,250,000 common shares with an exercise price of £50p and
      (iii) 4,250,000 common shares with an exercise price of £100p. Each warrant
      shall have a term of five years from the date of issuance. Kevin Harrington
      and
      Tim Harrington, who are directors of the Company, are officers and directors
      of
      ResponzeTV.





It
      was
      concluded that it is unlikely that the Company would be in a position to repay
      the loan, and accordingly, a loan loss reserve in the amount of 2M plus accrued
      interest was created as of June 30, 2008. Refer to Note 11 for further
      details.




**Vicis
        Capial Master Fund Convertible Stock Purchase**
 
 On
        April
        30, 2008, OmniReliant Holdings, Inc. entered into securities purchase agreement
        with Vicis Capital Master Fund pursuant to which Vicis purchased 7,000,000
        shares of our series D convertible preferred stock, respectively for an
        aggregate purchase price of $7,000,000. The Series D Preferred Stock has
        a
        conversion price of $0.50 and is convertible into an aggregate amount of
        14,000,000 shares of common stock. The Series D Preferred stock does not
        pay
        annual dividends but each holder of Series D Preferred Stock shall have the
        right to such number of votes equal to the number of shares of common stock
        that
        the Series D Preferred Stock shall be converted into, subject to the beneficial
        ownership limitation described below.
 
 In
        connection with the Agreement, Vicis received a series D warrant to purchase
        28,000,000 shares of common stock of the Company. The Series D Warrants is
        exercisable for a period of seven years from the date of issuance at an initial
        exercise price of $0.75. Vicis may exercise the Series D Warrants on a cashless
        basis if the shares of common stock underlying the Series D Warrants are
        not
        then registered pursuant to an effective registration statement. In the event
        Vicis exercises the Series D Warrants on a cashless basis, then we will not
        receive any proceeds.
 
 **Responze
        TV Loan Agreement**
  On
        May 7,
        2008, OmniReliant Holdings, Inc. entered into loan agreement with ResponzeTV,
        PLC, a corporation incorporated under the laws of England and Wales pursuant
        to
        which the Company purchased a 10% Promissory Note from RETV for an aggregate
        purchase price of $2,000,000. The Note bears interest at 10% per annum and
        matured on June 21, 2008, forty-five days from the date of
        issuance.


**Government
      Regulation**





Various
      aspects of the Company's 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.





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




**EMPLOYEES:**





As
      of
      June 30, 2008, we have 1 employee (Paul Morrison), which works full-time. We
      consider our relation with him to be good.





**RISK
      FACTORS**





This
      investment has a high degree of risk. Before you invest you should carefully
      consider the risks and uncertainties described below and the other information
      in this prospectus. If any of the following risks actually occur, our business,
      operating results and financial condition could be harmed and the value of
      our
      stock could go down. This means you could lose all or a part of your
      investment.





**RISKS
      RELATED TO OUR BUSINESS:**





**WE
      ARE A DEVELOPMENT STAGE COMPANY AND WE HAVE A LIMITED OPERATING HISTORY UPON
      WHICH YOU CAN BASE AN INVESTMENT DECISION.**





We
      have a
      limited operating history upon which you can make an investment decision, or
      upon which we can accurately forecast future sales. You should, therefore,
      consider us subject to the business risks associated with a new business. The
      likelihood of our success must be considered in light of the expenses,
      difficulties and delays frequently encountered in connection with the formation
      and initial operations of a new business.




7




**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 year ended
      June
      30, 2008 was ($15,403,790) resulting in an accumulated deficit of ($67,173,952).
      We had revenue of $967,730 for the fiscal year ended June 30, 2008. 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 the expansion
      of
      our business. 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 October 14, 2008, KBL LLP stated that our financial statements
      for
      the fiscal year ended June 30, 2008, were prepared assuming that we would
      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.





**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 fundraising 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.





**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 administrative, operational and financial resources. If we are
      unable to successfully manage our future growth, establish and continue to
      upgrade our operating and financial control systems, recruit and hire necessary
      personnel or effectively manage unexpected expansion difficulties, 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
      quarterly 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
      OFFICERS AND DIRECTORS ARE INVOLVED IN OTHER BUSINESSES WHICH MAY CAUSE THEM
      TO
      DEVOTE LESS TIME TO OUR BUSINESS.**





Our
      officers' and directors' involvement with other businesses may cause them to
      allocate their time and services between us and other entities. Consequently,
      they may give priority to other matters over our needs which may materially
      cause us to lose their services temporarily which could affect our operations
      and profitability.




8




**WE
      LACK SALES, MARKETING AND DISTRIBUTION CAPABILITIES AND DEPEND ON THIRD PARTIES
      TO MARKET OUR SERVICES.**





We
      have
      minimal personnel dedicated solely to sales and marketing of our services and
      therefore we must rely primarily upon third party distributors to market and
      sell our services. These third parties may not be able to market our product
      successfully or may not devote the time and resources to marketing our services
      that we require. We also rely upon third party carriers to distribute and
      deliver our services. As such, our deliveries are to a certain extent out of
      our
      control. If we choose to develop our own sales, marketing or distribution
      capabilities, we will need to build a marketing and sales force with technical
      expertise and with supporting distribution capabilities, which will require
      a
      substantial amount of management and financial resources that may not be
      available. If we or a third party are not able to adequately sell and distribute
      our product, our business will be materially harmed.




**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
      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.





**OUR
      BUSINESS IS CONDUCTED WORLDWIDE PRIMARILY IN ONE CHANNEL, DIRECT
      SELLING** .





We
      plan
      to market our products primarily through home shopping television channels
      and
      infomercials. If consumers change their purchasing habits, such as by reducing
      purchases of beauty and related products through home shopping television
      channels and infomercials, this could reduce our sales and have a material
      adverse effect on our business, financial condition and results of
      operations.





**RISKS
      RELATING TO OUR CURRENT FINANCING ARRANGEMENT:**





**THERE
      ARE A LARGE NUMBER OF SHARES UNDERLYING OUR SERIE** **S
      C AND SERIES D** **CONVERTIBLE PREFERRED STOCK AND WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE
      AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON
      STOCK.**





On
      November 22, 2006, we entered into a Securities Purchase Agreement with Vicis
      Capital Master Fund pursuant to which Vicis purchased 3,000 shares of the
      Company’s series A 10% convertible preferred stock and 6,000,000 common stock
      purchase warrants. The Preferred Stock has a conversion price of $1.00 and
      is
      convertible into an aggregate of 3,000,000 shares of the Company’s common stock.
      The series A-1 warrants have an exercise price of $1.50, and the series A-2
      warrants have an exercise price of $3.00. **** The
      conversion price of the Preferred Stock and the exercise price of the Warrants
      are subject to adjustment in certain instances, including the issuance by the
      Company of securities with a lower conversion or exercise price. In addition,
      in
      connection with the Securities Purchase Agreement, the Company issued an
      aggregate of 900,000 common stock purchase warrants to Midtown Partners &
Co., LLC, which served as the Company’s placement agent. The warrants are
      exercisable at prices which are below the current market price of our common
      stock, as follows: one-third of the warrants issued to Midtown are exercisable
      at $1.00 per share, one-third are exercisable at $1.50 per share, and the
      remaining one-third are exercisable at $3.00 per share.




9




We
      entered into a Securities Purchase Agreement on May 25, 2007 with Dynamic
      Decisions Strategic Opportunities pursuant to which Dynamic Decisions purchased
      600 shares of the Company’s series A 10% convertible preferred stock (the
“Preferred Stock”) and 960,000 common stock purchase warrants. The Preferred
      Stock has a conversion price of $1.25 and is convertible into an aggregate
      of
      600,000 shares of the Company’s common stock. The series B-1 warrants have an
      exercise price of $1.87, and the series B-2 warrants have an exercise price
      of
      $3.75. **** The
      conversion price of the Preferred Stock and the exercise price of the Warrants
      are subject to adjustment in certain instances, including the issuance by the
      Company of securities with a lower conversion or exercise price. In addition,
      in
      connection with the Securities Purchase Agreement, the Company issued an
      aggregate of 144,000 common stock purchase warrants to Midtown Partners &
Co., LLC, which served as the Company’s placement agent. The warrants are
      exercisable at prices which are below the current market price of our common
      stock, as follows: one-third of the warrants issued to Midtown are exercisable
      at $1.25 per share, one-third are exercisable at $1.87 per share, and the
      remaining one-third are exercisable at $3.75 per share.




On
      October 18, 2007, we entered into securities purchase agreements (the “Purchase
      Agreements”) with Vicis Capital Master Fund (“Vicis”) and Dynamic Decisions
      Strategic Opportunities (“Dynamic Decisions”) pursuant to which Vicis and
      Dynamic Decisions purchased 6,000,000 and 400,000, shares of our series C
      convertible preferred stock (“Series C Preferred Stock”), respectively for an
      aggregate purchase price of $6,400,000. In connection with the purchase of
      the
      Series C Preferred Stock, Vicis and Dynamic Decisions received an aggregate
      amount of 16,000,000 and 1,066,668 common stock purchase warrants, respectively.
      Vicis and Dynamic Decisions received a Series C-1 warrant to purchase 8,000,000
      and 533,334 shares of common stock, respectively, at an exercise price of $1.50
      (the “C-1 Warrant”) as well as a Series C-2 warrant to purchase 8,000,000 and
      533,334 shares of common stock, respectively, at an exercise price of $2.00
      (the
“C-2 Warrant”). The C-1 Warrant shall be valid for five years from the date of
      issuance and the C-2 Warrant shall be valid for ten years from the date of
      issuance. The Series C Preferred Stock has a conversion price of $0.75 and
      is
      convertible into an aggregate amount of 8,000,000 and 533,334 shares of common
      stock, respectively. The Series C Preferred stock does not pay annual dividends
      but each holder of Series C Preferred Stock shall have the right to such number
      of votes equal to the number of shares of common stock that the Series C
      Preferred Stock shall be converted into.




Furthermore,
      pursuant to the terms of the Purchase Agreements, Vicis and Dynamic Decisions
      exchanged their 3,000 shares of series A preferred stock and 600 shares of
      series B preferred stock, respectively, for 3,285,354 and 624,210 shares of
      Series C Preferred Stock, respectively. In connection with the exchange
      Agreements, Vicis and Dynamic Decisions received a Series C-1 Warrant to
      purchase 4,380,472 and 832,280 shares of common stock, respectively and a
      series C-2 Warrant to purchase 4,380,472 and 832,280 and shares of common
      stock, respectively. The Series C-1 Warrant and the Series C-2 Warrant shall
      have an exercise price of $1.50 and $2.00, respectively, and shall be valid
      for
      five year and ten years from the date of issuance, respectively.





Midtown
      Partners & Co., LLC, which served as the Company’s placement agent in
      connection with the Purchase Agreements, received aggregate placement agent
      fees
      of approximately $340,000, as well as the following common stock purchase
      warrants: (a) series BD-7 common stock purchase warrants entitling Midtown
      Partners to purchase 853,333 shares of the Company's common stock at an exercise
      price of seventy-five cents ($0.75) per share, and (b) series BD-8 common stock
      purchase warrants entitling Midtown Partners to purchase 853,333 shares of
      the
      Company's common stock at an exercise price of one dollar and fifty cents
      ($1.50) per share and (c) series BD-9 common stock purchase warrants entitling
      Midtown Partners to purchase 853,333 shares of the Company's common stock at
      an
      exercise price of two dollars ($2.00) per share. The Series BD warrants have
      a
      term of ten years. Midtown Partners & Co., LLC is a FINRA registered
      broker-dealer.





On
      April
      30, 2008, we entered into securities purchase agreement (the “Purchase
      Agreement”) with Vicis Capital Master Fund (“Vicis”) pursuant to which Vicis
      purchased 7,000,000 shares of our Series D Convertible Preferred Stock (“Series
      D Preferred Stock”), respectively for an aggregate purchase price of $7,000,000.
      The Series D Preferred Stock has a conversion price of $0.50 and is convertible
      into an aggregate amount of 14,000,000 shares of common stock. The Series D
      Preferred Stock does not pay annual dividends but each holder of Series D
      Preferred Stock has the right to such number of votes equal to the number of
      shares of common stock that the Series D Preferred Stock may be converted into,
      subject to the beneficial ownership limitation described below.





In
      connection with the Agreement, Vicis received a Series D warrant to purchase
      28,000,000 shares of common stock of the Company (“Series D Warrants”). The
      Series D Warrants are exercisable for a period of seven years from the date
      of
      issuance at an initial exercise price of $0.75. Vicis may exercise the Series
      D
      Warrants on a cashless basis if the shares of common stock underlying the Series
      D Warrants are not then registered pursuant to an effective registration
      statement. In the event Vicis exercises the Series D Warrants on a cashless
      basis, then we will not receive any proceeds.




10




The
      conversion price of the Series D Preferred Stock and the exercise price of
      the
      Series D Warrants are subject to full ratchet and anti-dilution adjustment
      for
      subsequent lower price issuances by the Company, as well as customary adjustment
      provisions for stock splits, stock dividends, and recapitalizations.





In
      addition, the Company, Vicis and Dynamic Decisions Strategic Opportunities
      (“Dynamic Decisions”) have entered into Amendment No. 1 to its amended and
      restated registration rights agreement (“Amended Registration Rights Agreement”)
      pursuant to which if at any time after the date of the Amended Registration
      Rights Agreement we shall decide to prepare and file with the Commission a
      registration statement relating to an offering for our own account or the
      account of others under the Securities Act of any of its equity securities,
      other than on Form S-4 or Form S-8 (each as promulgated under the Securities
      Act) or their then equivalents relating to equity securities to be issued solely
      in connection with any acquisition of any entity or business or equity
      securities issuable in connection with the stock option or other employee
      benefit plans, then we will send to each holder a written notice of such
      determination and, if within fifteen days after the date of such notice, any
      such holder shall so request in writing, we will include in the registration
      statement, all or any part of such Registrable Securities (as defined in Amended
      Registration Rights Agreement) such holders request to be
      registered.





The
      sale
      of these shares underlying the Preferred Stock and Warrants may adversely affect
      the market price of our common stock.





**RISKS
      RELATING TO 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.**





Companies
      trading on the OTC Bulletin Board, such as us, 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.





**OUR
      DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWN APPROXIMATELY 57% OF OUR
      COMMON STOCK; THEIR INTERESTS COULD CONFLICT WITH YOURS; SIGNIFICANT SALES
      OF
      STOCK HELD BY THEM COULD HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE; STOCKHOLDERS
      MAY BE UNABLE TO EXERCISE CONTROL.**





As
      of
      June 30, 2008, our executive officers, directors and affiliated persons
      beneficially owned approximately 57% of our common stock. As a result, our
      executive officers, directors and affiliated persons 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





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





As
      a
      result of their ownership and positions, our directors and executive officers
      collectively are 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 our directors and executive officers, or the prospect of these
      sales, could adversely affect the market price of our common stock. Management's
      stock ownership may discourage a potential acquirer from making a tender offer
      or otherwise attempting to obtain control of us, which in turn could reduce
      our
      stock price or prevent our stockholders from realizing a premium over our stock
      price.




11




**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.





**FAILURE
      TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION
      404 OF THE SARBANES-OXLEY ACT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
      BUSINESS AND OPERATING RESULTS AND STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR
      FINANCIAL REPORTING.**





Effective
      internal controls are necessary for us to provide reliable financial reports
      and
      effectively prevent fraud. If we cannot provide reliable financial reports
      or
      prevent fraud, our operating results could be harmed. We may be required in
      the
      future to document and test our internal control procedures in order to satisfy
      the requirements of Section 404 of the Sarbanes-Oxley Act, which requires
      increased control over financial reporting requirements, including annual
      management assessments of the effectiveness of such internal controls and a
      report by our independent certified public accounting firm addressing these
      assessments. Failure to achieve and maintain an effective internal control
      environment, regardless of whether we are required to maintain such controls
      could also cause investors to lose confidence in our reported financial
      information, which could have a material adverse effect on our stock
      price.




12




**Item
      2. DESCRIPTION OF PROPERTY:**





OmniReliant’s
      principal offices are located at 14375 Myerlake Circle, Clearwater, FL 33760
      and
      are provided at no cost to the Company by one of our officers. It is anticipated
      that the Company will lease office space in the near future however no current
      lease has been negotiated.





**Item
      3. LEGAL PROCEEDINGS**





We
      are
      not a party to any pending legal proceeding, nor is its property the subject
      of
      a pending legal proceeding, that is not in the ordinary course of business
      or
      otherwise material to the financial condition of our business.





**Item
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





**None**


13


**PART
      II**





**Item
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





Shares
      of
      the Company’s common stock are quoted on the Over the Counter Bulletin Board
      ("OTCBB") under the symbol ORHI. Our shares were listed for trading in July,
      2006. The following table sets forth, since July, 2006, the 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
                ($)June
                30, 2008
            
            
            3.05
            
            
            1.50March
                31, 2008
            
            
            3.95
            
            
            2.00December
                31, 2007
            
            
            4.75
            
            
            2.20September
                30, 2007
            
            
            3.40
            
            
            2.10June
                30, 2007
            
            
            3.60
            
            
            2.50March
                31, 2007
            
            
            3.875
            
            
            2.50December
                31, 2006
            
            
            3.00
            
            
            0.10September
                30, 2006
            
            
            0.10
            
            
            0.10





**Holders:**





As
      of
      June 30, 2008, we had approximately 12 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 Register 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.





The
      series A preferred stock pays an annual dividend of 10% which is payable
      quarterly, at the option of OmniReliant, either in cash or in shares of
      registered common stock at a 10% discount to the Company’s stock price. On
      October 18, 2007, we exchanged all of the outstanding shares of series A
      preferred stock outstanding for 3,285,354 shares of series C preferred
      stock.





The
      series B preferred stock pays an annual dividend of 10% which is payable
      quarterly, at the option of OmniReliant, either in cash or in shares of
      registered common stock at a 10% discount to the Company’s stock price. On
      October 18, 2007, we exchanged all of the outstanding shares of series B
      preferred stock outstanding for 624,210 shares of series C preferred
      stock.





The
      series C & D preferred stock does not pay an annual dividend.




14





***Equity
      Compensation Plan Information***





The
      following table summarizes the equity compensation plans under which our
      securities may be issued as of June 30, 2008.





*Plan Category*
            
            Number of securities
              to be issued upon
              exercise of
              outstanding options
              and warrants
            
            Weighted-average
              exercise price of
              outstanding
              options and
              warrants
            
            Number of securities
              remaining available
              for future issuance
              under equity
              compensation plansEquity compensation
                plans approved by security holders
            
            
            -0-
            
            
            -0-
            
            
            -0-Equity
                compensation plan not approved by security holders
            
            
            -0-
            
            
            -0-
            
            
            -0-





**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
      OPERATION**





Some
      of
      the information in this Form 10-KSB contains forward-looking statements that
      involve substantial risks and uncertainties. You can identify these statements
      by forward-looking words such as "may," "will," "expect," "anticipate,"
      "believe," "estimate" and "continue," or similar words. You should read
      statements that contain these words carefully because they:





·
            discuss
                our future expectations;


·
            contain
                projections of our future results of operations or of our financial
                condition; and


·
            state
                other "forward-looking"
                information.





We
      believe it is important to communicate our expectations. However, there may
      be
      events in the future that we are not able to accurately predict or over which
      we
      have no control. Our actual results and the timing of certain events could
      differ materially from those anticipated in these forward-looking statements
      as
      a result of certain factors, including those set forth under "Risk Factors,"
      "Business" and elsewhere in this Form 10-KSB. See "Risk Factors."





**Reverse
      Acquisition**





OmniReliant
      Corporation was incorporated on August 21, 2006 under the laws of the State
      of
      Florida. On November 22, 2006, Willowtree Advisor, Inc., an entity which was
      incorporated on June 16, 2004 under the laws of the State of Nevada, entered
      into an exchange agreement with the stockholders of OmniReliant Corporation
      (the
“Exchange Transaction”).





As
      a
      result of the Exchange Transaction, OmniReliant Corporation became a
      wholly-owned subsidiary of Willowtree Advisor, Inc. and succeeded to the
      business of OmniReliant Corporation as its sole business. The Exchange
      Transaction is deemed to be a reverse acquisition for accounting purposes.
      As a
      result, in accordance with the Accounting and Financial Reporting
      Interpretations and Guidance provided by the staff of the U.S. Securities and
      Exchange Commission, Willowtree Advisor, Inc. (the legal acquirer) is considered
      the accounting acquiree and OmniReliant Corporation (the legal acquiree) is
      considered the accounting acquirer. The discussions below, and the consolidated
      financial statements attached hereto, will in substance be those of OmniReliant
      Corporation, with the assets and liabilities, and revenues and expenses, of
      Willowtree Advisor, Inc. being included effective from the date of consummation
      of the Exchange Transaction.





**Plan
      of Operation - Development Stage Company**





The
      Company is a development stage company with limited revenues and limited
      historical information upon which to base an evaluation of its
      performance.





The
      Company engages in the creation, design, distribution, and sale of affordable
      luxury products. The Company plans to make these products available to U.S.
      and
      international consumers through direct response infomercials, live shopping
      networks, ecommerce, direct mail and traditional retail channels. The Company
      will first focus on bringing the Kathy Hilton fragrance product line to market,
      after which OmniReliant plans to develop other personalities and designer
      licenses. Ms. Hilton, who is the wife of Rick Hilton, the grandson of the Hilton
      Hotel founder, has agreed to appear in television segments and infomercials.
      We
      have entered into a license agreement with KRH Licensing Company, LLC, an
      affiliate of Rick and Kathy Hilton.




15





It
      is the
      Company’s intention to design, manufacture, market and distribute prestige
      fragrances and related products. In addition, the Company has an agreement
      to
      market and distribute hair straightening irons. The Company plans to engage
      contract packagers and professionals in the field. In the United States, our
      plan is to enter into agreements to distribute our products through a targeted
      group of department and specialty stores, such as Macy's, Foley's, Marshall
      Fields, Famous Barr, Belks, Elder Beerman, Carson Pirie Scott, and Filenes.
      In
      international markets, we plan to distribute our products through established
      prestige distribution channels. We hope to sell products under private label
      that have already reached its market entry point.





As
      a
      development stage company, we may not be successful in implementing our plan
      to
      manufacture, market and distribute prestige fragrances and related products.
      Until our products are successfully manufactured and marketed on a live shopping
      network or via infomercials, we will not generate significant revenues and
      may
      not be successful. If we cannot generate sufficient revenues to continue
      operations, we will be forced to suspend or cease operations, and may forfeit
      our rights under license agreements.





We
      do not
      expect to make any significant purchases of equipment nor do we expect a
      significant change in the number of our employees.





Our
      officers and directors will handle our administrative duties with the help
      of a
      consultant, TotalCFO, LLC.





We
      cannot
      guarantee that we will be successful in our business operations. Our business
      is
      subject to risks inherent in the establishment of a new business enterprise.





**Results
      of Operations**





The
      following discussion of the financial condition and results of operations should
      be read in conjunction with the financial statements included herewith. This
      discussion should not be construed to imply that the results discussed herein
      will necessarily continue into the future, or that any conclusion reached herein
      will necessarily be indicative of actual operating results in the
      future.





**Fiscal
      years ended June 30, 2008 and June 30, 2007**





***Net
      Revenues*** *–* We had
      revenues for ****** the
      years
      ended June 30, 2008 and 2007 of $967,730 and $2,640, respectively. These levels
      of revenues reflect our current status as a development stage enterprise.
      However, we have certain valuable revenue producing assets, such as our license
      agreement, for which our management is actively developing sales channels and
      other uses. If we are unable to implement our plan to manufacture, market and
      distribute, or license, our products and rights, our revenues will not
      significantly increase during the upcoming fiscal year.





***Cost
      of Sale –*** Cost
      of
      goods sold for the years ended June 30, 2008 and 2007 amounted to
      $287,038  and
      $1,320, respectively. If, as described under revenues, we are successful in
      implementing our plan to increase manufacturing and distribution of our
      products, our cost of goods sold will significantly increase during the upcoming
      fiscal year. If we are unable to implement our plan to manufacture, market
      and
      distribute, or license, our products and rights, our revenues will not
      significantly increase during the upcoming fiscal year.





***Professional
      and Consulting*** –
      Our professional and consulting expenses amounted to $ 540,779 and
      $2,824,082 for the years ended June 30, 2008 and June 30, 2007, respectively.
      This caption includes share-based payments in the form of warrants to a public
      relations firm that had a fair value, using the Black-Scholes-Merton technique,
      of $2,490,151 for the period August 21, 2006 (inception) to June 30, 2007.
      The
      remainder represents our payments to outside financial and other consultants
      and
      payments for legal services. We expect to continue to compensate consultants
      to
      perform accounting, reporting and back office services until we establish those
      operations internally. We do not currently expect to incur further expenses
      for
      public relations at the current period levels for the foreseeable
      future.




16





***Amortization –*** Amortization
      expense related to our intangible assets amounted to $681 ,616  and
      $411,965 for the years ended June 30, 2008 and June 30, 2007, respectively.
      We
      amortize our intangible assets using the straight-line method over periods
      of
      future benefit. We also consider our intangible assets for impairment when
      circumstances, if any, arise that indicates that we may not recover these assets
      through future revenue streams. During the period from August 21, 2006
      (inception) through June 30, 2007, and through the date of this report, we
      concluded that our intangible assets were recoverable and that our estimated
      useful lives continued to be appropriate. However, given the developmental
      nature of our operations, we will continue to evaluate these assets as of each
      future reporting period. Our operations will continued to reflect amortization
      of these intangible assets over the remaining estimated useful lives.





***Salaries
      and Wages –*** Salaries
      and wages paid to our two employees amounted to $ 1,211,569 and
      $154,894 for the years ended June 30, 2008 and June 30, 2007, respectively.
      We
      may incur additional salaries and wages in future periods as we build our
      internal resources. In these circumstances, we would expect our consulting
      expenses, as discussed above, to decrease. In addition, we intend to use
      share-based payments to compensate employees in the future. We are required
      to
      recognize share-based payments, when and if they are made, at their fair values
      on the grant date over the vesting period of the related awards.





***General
      and Administrative –*** Our
      general and administrative expenses ****** amounted
      to $ 2,583,225  and
      $155,551 for the years ended June 30, 2008 and June 30, 2007, respectively.
      Of
      the 2008 general and administrative expenses, $ 2,051,714 is
      related to the write-off of the ResponzeTV note receivable. We may incur higher
      levels of general and administrative expenses when our operations become
      established and increase.





***Derivative
      Fair Value Adjustments*** **–** Our
      derivative fair value adjustments **** amounted
      to ($21,694,426)  and
      ($20,156,269) for the years ended June 30, 2008 and June 30, 2007, respectively. Derivative
      financial instruments, as defined in Financial Accounting Standard No. 133
      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.





Because
      we are required to carry our derivative financial instruments at fair value,
      our
      income will continue to reflect the volatility in the value of these financial
      instruments until they are settled or, if ever, modified to achieve equity
      classification. Further, changes in fair value are largely predicated in the
      changes in the assumptions underlying the valuation techniques and changes
      in
      our trading market prices (as to share-indexed derivatives), such as the
      warrants.





We
      note
      that all share-indexed financial instruments previously and subsequently issued
      will require derivative liability classification, unless otherwise exempted
      under Statement 133.





***Preferred
      Fair Value Adjustments –*** Preferred fair value adjustments are based upon estimates of the fair value
      of
      our Series A and Series B Preferred that are carried as liabilities. While
      there
      were no fair value adjustments during the short period that these instruments
      were classified in liabilities, future adjustments will require recognition
      in
      our income. The fair values are significantly influenced by changes in our
      trading stock prices. Our income will reflect the changes in fair value of
      our
      Series A, Series B, Series C, and Series D Preferred Stock until these financial
      instruments are settled or otherwise reclassified to stockholders’
equity.





***Finance
      Costs –*** Finance
      costs, which represent amortization of asset-classified finance costs arising
      from our Preferred Stock and Warrant financing transactions **** amounted
      to $ 190,730  and
      $229,519 for the years ended June 30, 2008 and June 30, 2007, respectively.
      We
      will continue to amortize deferred financing costs over the terms of the
      liability classified financial instruments.




17





***Registration
      Payments –*** Registration
      payments represent the liquidated damages that arose when we failed to achieve
      the requirements of our registration rights agreement underlying the Series
      A
      Preferred Stock and Warrant Financing Arrangement. ****** Registration
      payments amount to $ 309,137  and
      $232,943 for years ended June 30, 2008 and June 30, 2007, respectively, and
      may
      continue to accrue and increase if we are not able to satisfy our requirements
      under the registration rights agreements.





***Net
      Loss –*** Our
      net
      loss amounted to ($ 15,403,790 )
      and for
      the year ended June 30, 2008 and gives effect to the components of our
      operational income and costs and expenses and our other income and expense
      categories as discussed above. Our net loss amounted to ($24,163,903) for the
      period from August 21, 2006 (inception) to June 30, 2007 and gives effect to
      the
      components of our operational income and costs and expenses and our other income
      and expense categories as discussed above.





***Loss
      Applicable to Common Shareholders –*** Loss
      applicable to common stockholders represents our net loss as adjusted for
      cumulative dividends and accretions of discounts on our Preferred Stock. Our
      loss applicable to common shareholders and our loss per common share (basic
      and
      diluted) amounted to ($ 38,317,062 )
      and
      ($2.71), respectively, for the year ended June 30, 2008. Our loss applicable
      to
      common shareholders and our loss per common share (basic and diluted) amounted
      to ($27,358,371) and ($2.57), respectively, for the period August 21, 2006
      (inception) through June 30, 2007.





**Liquidity
      and Capital Resources**





***Liquidity***  ***and
      Going Concern*** –
Cash
      and cash equivalents amounted to $4,435,814 as of June 30, 2008. The Company
      has
      a working capital deficiency of ($1,685,811). Included in the working capital
      deficiency is $6,361,100 of derivative financial instruments because net cash
      settlement is assumed with respect to certain share-indexed financial
      instruments, principally warrants.





The
      Company has suffered recurring losses while devoting substantially all of its
      efforts to raising capital, identifying and pursuing businesses opportunities.
      Moreover, the Company's total liabilities exceed its total assets and the
      Company's liquidity is substantially dependent on raising capital. Currently
      the
      Company does not generate significant revenues from its operations, and the
      Company will require additional cash to develop its business plan and to pay
      ongoing operating expenses, including licensing fees.





These
      factors raise substantial doubt about the Company's ability to continue as
      a
      going concern. The accompanying consolidated financial statements have been
      prepared on a going concern basis, which contemplates continuing operations,
      realization of assets and liquidation of liabilities in the ordinary course
      of
      business. The Company's ability to continue as a going concern is dependent
      upon
      its ability to raise sufficient capital to implement a successful business
      plan
      and to generate profits sufficient to become financially viable.





To
      the
      extent that it becomes necessary to raise additional cash in the future as
      our
      current cash and working capital resources are depleted, we will seek to raise
      it through the public or private sale of debt or equity securities, the
      procurement of advances on contracts or licenses, funding from joint-venture
      or
      strategic partners, debt financing or short-term loans, or a combination of
      the
      foregoing. We also may seek to satisfy indebtedness without any cash outlay
      through the private issuance of debt or equity securities.





We
      have
      no assurance that future financings will be available to us on acceptable terms.
      If financing is not available to us on acceptable terms, we may be unable to
      continue our operations.





***Cash
      Flow from Operating Activities*** –
We
      used
      cash of ($6,471,481) in our operating activities during the year
      ended June 30, 2008, respectively. Our cash flow gives effect to our net loss,
      as adjusted for non-cash charges and credits to income, including fair value
      adjustments to derivatives, share-based payments and amortization. Our net
      operating liabilities increased to ($ 536,774 )
      during
      the year ended June 30, 2008, which gives effect to, among other things, our
      purchase of inventories and increases in our payables and accrued expenses.




18




We
      used
      cash of ($776,695) in our operating activities during the period
      from August 21, 2006 (inception) to June 30, 2007. Our net operating liabilities
      increased to ($33,131,077) during the period from August 21, 2006 (inception)
      to
      June 30, 2007, which gives effect to, among other things, our purchase of
      inventories and increases in our payables and accrued expenses.





***Cash
      Flow from Investing Activities*** – For
      the
      year ended June 30, 2008, we
      used
      cash of ($7,581,811) in our investing activities to purchase intangible assets
      including our license agreement and patents. Our investments were primarily
      related to the securities of ResponzeTV. For the year ended June 30, 2008 we
      invested $5,100,000 in equity securities and loaned an additional
      $2,000,000.





For
      the
      period from August
      21, 2006 (inception) to June 30, 2007, we
      used
      cash of ($1,031,010) in our investing activities to purchase intangible assets
      including our license agreement and patents. Our license agreement requires
      guaranteed minimum payments to the licensor amounting to approximately
      $1,000,000 annually, less royalty payments for sales of licensed product. We
      otherwise have no commitment to purchase long-lived assets.





***Cash
      Flow from Financing Activities*** –
For
      the
      year ended June 30,
      2008, we
      received $12,339,078 in cash from our financing activities that principally
      relate to the sale of Preferred Stock and Warrants.





For
      the
      year ended June 30, 2007 we received $2,519,189 in cash from our financing
      activities that principally relates to the sale of our Preferred Stock and
      Warrants.





**Critical
      Accounting Policies**





Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our 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. For a description of those estimates, see Note 3, Summary of
      Significant Accounting Policies, contained in the explanatory notes to our
      audited financial statements for the year June 30, 2008 attached to this Form
      10-KSB. 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 equity instruments issued to consultants for
      services and estimates of costs to complete contracts. 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.





**Recent
      Accounting Pronouncements**





In
      June
      2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in
      Income Taxes-an interpretation of FASB Statement No. 109" ("FIN 48"), which
      clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes
      a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. The Interpretation requires that the Company recognize in the
      financial statements the impact of tax position, if that position is more likely
      than not of being sustained on audit, based on the technical merits of the
      position. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods and disclosure. The
      provisions of FIN
      48
      are effective for fiscal years beginning after December 15, 2006 with the
      cumulative effect of the change in accounting principle recorded as an
      adjustment to beginning retained earnings. The adoption of this statement did
      not have a material impact on the Company's consolidated financial position
      or
      results of operations.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This
      standard defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. This statement is effective for financial statements issued
      for fiscal years beginning after November 15, 2007. The adoption of this
      accounting pronouncement is not expected to have a material effect on our
      consolidated financial statements..




19





In
      September 2006, the Securities and Exchange Commission issued SAB No. 108
      "Considering the Effects of Prior Year Misstatements When Quantifying
      Misstatements in Current Year Financial Statements", which provides interpretive
      guidance on how the effects of the carryover or reversal of prior year
      misstatements should be considered in quantifying a current year misstatement.
      The guidance is applicable beginning fiscal 2008. The adoption of this statement
      did not have a material impact on the Company's consolidated financial position
      or results of operations.





In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      160, “Noncontrolling Interests in Consolidated Financial Statements - An
      amendment of ARB No. 51”.SFAS 160 requires companies with noncontrolling
      interests to disclose such interests clearly as a portion of equity but separate
      from the parent’s equity. The noncontrolling interest’s portion of net income
      must also be clearly presented on the Income Statement. SFAS 160 is effective
      for financial statements issued for fiscal years beginning after December 15,
      2008. The adoption of this statement did not have a material effect on the
      Company's future financial position or results of operations.





In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      141,(revised 2007), “Business Combinations”. SFAS 141 (R) applies the
      acquisition method of accounting for business combinations established in SFAS
      141 to all acquisitions where the acquirer gains a controlling interest,
      regardless of whether consideration was exchanged. Consistent with SFAS 141,
      SFAS 141 (R) requires the acquirer to fair value the assets and liabilities
      of
      the acquiree and record goodwill on bargain purchases, with main difference
      the
      application to all acquisitions where control is achieved. SFAS 141 (R) is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2008. The adoption of this statement did not have a material effect
      on the Company's future financial position or results of
      operations.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to
      choose to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair value. The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. SFAS No. 159 also establishes presentation and disclosure
      requirements designed to facilitate comparisons between entities that choose
      different measurement attributes for similar types of assets and liabilities.
      SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.
      The adoption of this statement did not have a material effect on the Company's
      future financial position or results of operations.





In
      March
      2008, the FASB issued FASB Statement No. 161 ("SFAS 161"), "Disclosures about
      Derivative Instruments and Hedging Activities". SFAS 161 requires companies
      with
      derivative instruments to disclose information that should enable
      financial-statement users to understand how and why a company uses derivative
      instruments, how derivative instruments and related hedged items are accounted
      for under FASB Statement No. 133 "Accounting for Derivative Instruments and
      Hedging Activities" and how derivative instruments and related hedged items
      affect a company's financial position, financial performance and cash flows.
      SFAS 161 is effective for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008. The adoption of this
      statement did not have a material effect on the Company's future financial
      position or results of operations.





**Accounting
      for Stock-Based Compensation**





On
      November 21, 2007 the Company established a Long Term Incentive (the “2007
      Incentive Plan”) plan for the purposes of advancing the interests of the Company
      and our shareholders by providing incentives to certain of our employees and
      other key individuals who perform services for us, including those who
      contribute significantly to the strategic and long-term performance objectives
      and growth of the Company. The 2007 Incentive Plan is administered by a
      committee (the “Committee”) appointed by the Board of Directors. Currently, the
      Committee is comprised of all members of the Board of Directors acting as a
      group. The Committee has the power to interpret the 2007 Incentive Plan and
      to
      prescribe rules, regulations and procedures in connection with the operations
      of
      the 2007 Incentive Plan. The Committee may delegate administrative
      responsibilities under the 2007 Incentive Plan to any one or more of its members
      or other persons, except as may otherwise be required under applicable law
      or
      listing standards for an exchange on which the Company’s common stock may be
      listed. The 2007 Incentive Plan provides for the granting of several types
      of
      awards, including stock options, performance grants and other awards deemed
      by
      the Committee to be consistent with the purposes of the 2007 Incentive Plan.
      Awards may be granted alone, or in conjunction with one or more other awards,
      as
      determined by the Committee.




20





The
      2007
      Incentive Plan was effective as of November 21, 2007, and was approved by the
      Company’s board of directors. The Company’s shareholders have not voted on
      approval of the 2007 Incentive Plan. A maximum of two million shares (2,000,000)
      shares of common stock has been authorized to be issued under the 2007 Incentive
      Plan in connection with the grant of awards, subject to adjustment for corporate
      transactions, including, without limitation, any stock dividend, forward stock
      split, reverse stock split, merger or recapitalization. Of this amount, no
      more
      than two million (2,000,000) shares of common stock may be issued as incentive
      stock options. Common stock issued under the 2007 Incentive Plan may be either
      newly issued shares, treasury shares, reacquired shares or any combination
      thereof. If common stock issued as restricted stock, restricted stock units
      or
      otherwise subject to repurchase or forfeiture rights is reacquired by us
      pursuant to such rights, or if any award is cancelled, terminates, or expires
      unexercised, the common stock which would otherwise have been issuable pursuant
      to such awards will be available for issuance under new awards. All awards
      under
      the 2007 Incentive Plan shall be granted within 10 years of the date the plan
      was adopted.





The
      Committee has exclusive discretion to select to whom awards will be granted;
      to
      determine the type, size, terms and conditions of each award; to modify or
      waive, within certain limits, the terms and conditions of any award; to
      determine the time when awards will be granted; to establish performance
      objectives; to prescribe the form of documents representing awards under the
      2007 Incentive Plan; and to make all other determinations which it deems
      necessary, advisable or desirable in the interpretation and administration
      of
      the 2007 Incentive Plan. At the discretion of the Committee, awards may be
      made
      under the 2007 Incentive Plan in assumption of, or in substitution for,
      outstanding awards previously granted by the Company, any predecessor or a
      company acquired by the Company or with which it combines. The Committee has
      the
      authority to administer and interpret the 2007 Incentive Plan, and its decisions
      are final, conclusive and binding. We anticipate that all of our employees
      and
      directors will be eligible to participate in the 2007 Incentive
      Plan.





On
      December 7, 2007 pursuant to the Long Term Incentive Plan the Company awarded
      certain employees 350,000 stock options with an exercise price of $1.00 and
      a
      term of 5 years. All of the options issued were fully vested on the grant date.
      The Company has recognized $607,605 of expense related to issuances in the
      Consolidated Statement of Operations for the twelve month period ended June
      30,
      2008.





**Off
      Balance Sheet Arrangements**





None.




21


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 To
        the Board of Directors and Stockholders of
 OmniReliant
        Holdings, Inc. and Subsidiary
 Tampa,
        Florida
 
 We
        have audited the accompanying consolidated balance sheet of OmniReliant
        Holdings, Inc and subsidiary as of June 30, 2008 and 2007 and the related
        consolidated statement of operations, stockholders’ deficit, and cash flows for
        the year ended June 30, 2008 and for the period from August 21, 2006 (inception)
        to June 30, 2008 and 2007. 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 audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit 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 audit 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 audit provide a reasonable
        basis for our opinion.
 
 In
        our opinion, the consolidated financial statements referred to above present
        fairly, in all material respects, the financial position of OmniReliant
        Holdings, Inc. and subsidiary as of June 30, 2008 and 2007, and the results
        of their operations, changes in their stockholders deficit and their cash
        flows
        for the year ended June 30, 2008 and period from August 21, 2006 (inception)
        to
        June 30, 2008 and 2007, 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 shown in the financial statements and discussed in Note 1 of
        the
        accompanying financial statements, the Company has incurred significant
        recurring losses from operations since inception and is dependent on outside
        sources of financing for continuation of its operations. These factors raise
        substantial doubt about the Company's ability to continue as a going concern.
 
 As
        more fully discussed in Note 13, the accompanying financial statements for
        the
        for the period from August 1, 2006 (inception) to June 30, 2007 have been
        restated to give effect to the correction of the errors discussed
        therein.
 
  /s/
        KBL, LLP
  Tampa,
        Florida
 October
        14, 2008


22


**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**CONSOLIDATED
      BALANCE SHEET**





**June 30, 2008**
            
            **June 30, 2007****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            4,435,814
            
            $
            711,484Accounts
                receivable, net of allowance for bad debt of $48,914
            
            
            48,231
            
            
            —Inventory
            
            
            232,425
            
            
            120,624Note
                receivable
            
            
            2,051,714
            
            
            —Allowance
                for doubtful note
            
            
            (2,051,714
            )
            
            —Prepaid
                expenses
            
            
            69,200
            
            
            33,999Total
                current assets
            
            
            4,785,670
            
            
            866,107Other
                assets:Investment
                available for sale securities
            
            
            426,558
            
            
            —Equity-method
                investment in ResponzeTV
            
            
            —
            
            
            —Intangible
                assets, net of accumulated amortization of $623,804 and $411,965,
                respectively
            
            
            1,278,512
            
            
            1,691,543Deferred
                finance costs, net of accumulated amortization of $30,287 and $229,519,
                respectively
            
            
            1,078,237
            
            
            2,148,389Total
                other assets
            
            
            2,783,307
            
            
            3,839,932**Total
                assets**
            
            **$**
            **7,568,977**
            
            **$**
            **4,706,039****LIABILITIES
                AND STOCKHOLDERS' (DEFICIT)**Current
                liabilities:Accounts
                payable
            
            $
            96,381
            
            $
            24,734Accrued
                expenses
            
            
            14,000
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            194,468Registration
                payments
            
            
            —
            
            
            232,943Redeemable
                preferred stock
            
            
            —
            
            
            5,980,000Derivative
                liabilities
            
            
            6,361,100
            
            
            26,698,932Deferred
                revenue
            
            
            —
            
            
            —Total
                current liabilities
            
            
            6,471,481
            
            
            33,131,077Deferred
                revenue, net of current portion
            
            
            —
            
            
            —Total
                liabilities
            
            
            6,471,481
            
            
            33,131,077Redeemable
                preferred stock (mezznine)
            
            
            35,969,634
            
            
            —Stockholders'
                (deficit):Common
                stock, $0.00001 par value; 100,000,000 shares authorized; 14,475,892
                shares issued and outstanding.
            
            
            145
            
            
            140Additional
                paid-in capital
            
            
            32,332,804
            
            
            —Accumulated
                comprehensive income (loss)
            
            
            (31,135
            )
            
            —Deficit
                accumulated during development stage
            
            
            (67,173,952
            )
            
            (28,425,178
            )Total
                shareholders' (deficit)
            
            
            (34,872,138
            )
            
            (28,425,038
            )**Total
                liabilities and shareholders' (deficit)**
            
            **$**
            **7,568,977**
            
            **$**
            **4,706,039**





The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.


23





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENT OF OPERATIONS**





Twelve months
              ended June 30,
              2008
            
            Period from August
              21, 2006 (inception)
              to June 30, 2007
              (Restated)
            
            Period from
              August 21, 2006
              (inception) to
              June 30, 2008License revenue
            
            $
            546,917
            
            $
            2,640
            
            $
            546,917Product
                sales
            
            
            420,813
            
            
            —
            
            
            423,453Net
                sales
            
            
            967,730
            
            
            2,640
            
            
            970,370Cost
                of other product sales
            
            
            287,038
            
            
            1,320
            
            
            288,358Gross
                Profit
            
            
            680,692
            
            
            1,320
            
            
            682,012Operating
                expenses:Amortization
            
            
            681,616
            
            
            411,965
            
            
            1,093,581Professional
                fees
            
            
            540,779
            
            
            2,824,082
            
            
            3,364,861Salaries
                and wages
            
            
            1,211,569
            
            
            154,894
            
            
            1,366,463General
                and administrative
            
            
            2,583,225
            
            
            155,551
            
            
            2,738,776Total
                operating expenses
            
            
            5,017,189
            
            
            3,546,492
            
            
            8,563,681Operating
                loss
            
            
            (4,336,497
            )
            
            (3,545,172
            )
            
            (7,881,669
            )Other
                income (expense):Impairment
                in investment in ResponzeTV
            
            
            5,776,917
            
            
            —
            
            
            5,776,917Extinguishment
                of redeemable preferred
            
            
            (26,247,007
            )
            
            —
            
            
            (26,247,007
            )Derivative
                fair value adjustments
            
            
            21,694,426
            
            
            (20,156,269
            )
            
            1,538,157Extinguishment
                of other liabilities
            
            
            (271,109
            )
            
            —
            
            
            (271,109
            )Registration
                payments
            
            
            (309,137
            )
            
            (232,943
            )
            
            (542,080
            )Interest
                income
            
            
            33,181
            
            
            —
            
            
            33,181Interest
                expense
            
            
            (190,730
            )
            
            (229,519
            )
            
            (420,249
            )Total
                other income (expense)
            
            
            (11,067,293
            )
            
            (20,618,731
            )
            
            (31,686,024
            )Loss
                before provision for income taxes
            
            
            (15,403,790
            )
            
            (24,163,903
            )
            
            (39,567,693
            )Provision
                for income taxes
            
            
            —
            
            
            —
            
            
            —**Net
                loss**
            
            $
            (15,403,790
            )
            $
            (24,163,903
            )
            $
            (39,567,693
            )**Reconciliation
                of net loss to loss applicable to common
                shareholders:**Accretion
                of preferred stock to redemption value
            
            
            (22,913,272
            )
            
            (3,000,000
            )
            
            (25,913,272
            )Preferred
                stock dividends
            
            
            —
            
            
            (194,468
            )
            
            (194,468
            )**Loss
                applicable to common shareholders**
            
            $
            (38,317,062
            )
            $
            (27,358,371
            )
            $
            (65,675,433
            )**Loss
                per common share (basic)**
            
            $
            (2.71
            )
            $
            (2.57
            )**Loss
                per common share (diluted)**
            
            $
            (2.71
            )
            $
            (2.57
            )**Weighted
                average common shares outstanding**
            
            
            14,165,245
            
            
            10,652,363**Weighted
                average common and common equivalent shares
                outstanding**
            
            
            14,165,245
            
            
            10,652,363





The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.


24




**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Twelve**
              **months ended**
              **June 30, 2008**
            
            **Period from August**
              **21, 2006 (inception)**
              **to June 30, 2007**
            
            **Period from August 21,**
              **2006 (inception) to**
              **June 30, 2008****Cash
                flows from operating activities:**Net
                loss
            
            $
            (15,403,790
            )
            $
            (24,163,903
            )
            $
            (39,567,693
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Impairment
                on investment in ResponzeTV
            
            
            5,776,917
            
            
            —
            
            
            877,661Allowance
                on Note Receivable-ResponzeTV
            
            
            2,051,714
            
            
            —
            
            
            2,051,714Loss
                on exchange of preferred stock
            
            
            26,247,007
            
            
            —
            
            
            26,247,007Derivative
                fair value adjustments
            
            
            (21,694,426
            )
            
            20,156,269
            
            
            (1,538,157
            )Share-based
                payments
            
            
            1,164,205
            
            
            2,486,401
            
            
            3,650,606Extinguishment
                of liabilities
            
            
            271,109
            
            
            —
            
            
            271,109Amortization
                of intangible assets
            
            
            900,371
            
            
            411,965
            
            
            1,312,336Amortization
                of deferred finance costs
            
            
            190,730
            
            
            229,519
            
            
            420,249Changes
                in operating assets and liabilities:Accounts
                receivables
            
            
            (48,231
            )
            
            —
            
            
            (48,231
            )Inventory
            
            
            (241,801
            )
            
            (120,624
            )
            
            (362,425
            )Prepaid
                expenses
            
            
            (35,201
            )
            
            (33,999
            )
            
            (69,200
            )Accrued
                interest on loans
            
            
            (59,408
            )
            
            —
            
            
            (59,408
            )Accounts
                payable
            
            
            71,647
            
            
            24,734
            
            
            96,381Accrued
                expenses
            
            
            14,000
            
            
            —
            
            
            14,000Accrued
                registration payments
            
            
            309,137
            
            
            232,943
            
            
            542,080Deferred
                revenue
            
            
            (546,917
            )
            
            —
            
            
            (546,917
            )Net
                cash flow from operating activities
            
            
            (1,032,937
            )
            
            (776,695
            )
            
            (1,809,632
            )**Cash
                flows from investing activities:**
            
            
            
            
            
            —****Investment
                in ResponzeTV
            
            
            (5,100,000
            )
            
            —
            
            
            (5,100,000
            )Loan
                receivable
            
            
            (2,000,000
            )
            
            —
            
            
            (2,000,000
            )Payments
                for licenses
            
            
            —
            
            
            (1,006,010
            )
            
            (1,006,010
            )Payments
                for patents
            
            
            (31,811
            )
            
            (25,000
            )
            
            (56,811
            )Investment
                in securities
            
            
            (450,000
            )
            
            —
            
            
            (450,000
            )Net
                cash flow from investing activities
            
            
            (7,581,811
            )
            
            (1,031,010
            )
            
            (8,612,821
            )**Cash
                flows from financing activities:**Net
                proceeds from sales of preferred stock
            
            
            12,339,078
            
            
            2,995,000
            
            
            15,334,078Purchase
                and retirement of common shares
            
            
            
            
            
            (475,811
            )
            
            (475,811
            )Net
                cash flow from financing activities
            
            
            12,339,078
            
            
            2,519,189
            
            
            14,858,267Net
                increase in cash and cash equivalents
            
            
            3,724,330
            
            
            711,484
            
            
            4,435,814Cash
                and cash equivalents at beginning of year
            
            
            711,484
            
            
            —
            
            
            —**Cash
                and cash equivalents at end of year**
            
            **$**
            **4,435,814**
            
            **$**
            **711,484**
            
            **$**
            **4,435,814****Supplemental
                cash flow information:**Series
                C Preferred and warrants issued in exchange
            
            
            33,404,543
            
            
            —
            
            
            33,404,543Investment
                in ResponzeTV
            
            
            (330,744
            )
            
            —
            
            
            (330,744
            )Transfer
                of inventory as part of investment in securities
            
            
            130,000
            
            
            —
            
            
            130,000Transfer
                of sublicense as part of investment in securities
            
            
            198,914
            
            
            —
            
            
            198,914Dividends
                paid in the form of Series C Preferred
            
            
            309,564
            
            
            —
            
            
            309,564Common
                stock issued for patent, at fair value
            
            
            420,000
            
            
            720,000
            
            
            1,140,000Common
                stock issued for license, at fair value
            
            
            —
            
            
            352,500
            
            
            352,500Series
                D Preferred and warrants issued in exchange
            
            
            14,047,580
            
            
            —
            
            
            14,047,580





The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.


25


**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ (DEFICIT)**


**Period
      from August 21, 2006 (inception) to** **June
      30, 2008**





Common Stock
            
            Paid-in
            
            Other
              Comprehensive
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            Income (Loss)
            
            Deficit
            
            TotalBalance,
                November 22, 2006 (unaudited)
            
            
            6,485,000
            
            $
            65
            
            $
            254,264
            
            $
            —
            
            $
            (254,329
            )
            $
            —Recapitalization
            
            
            7,300,000
            
            
            73
            
            
            (400,215
            )
            
            —
            
            
            254,329
            
            
            (145,813
            )Beneficial
                conversion on Series A Preferred offering (1)
            
            
            —
            
            
            —
            
            
            1,173,510
            
            
            —
            
            
            —
            
            
            1,173,510Allocation
                of deferred finance costs (2), (1)
            
            
            —
            
            
            —
            
            
            (911,135
            )
            
            —
            
            
            (157,303
            )
            
            (1,068,438
            )Placement
                agent warrants (1)
            
            
            —
            
            
            —
            
            
            2,492,312
            
            
            —
            
            
            —
            
            
            2,492,312Accretion
                to redemption value (1)
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,000,000
            )
            
            (3,000,000
            )Accrual
                of dividends on Series A Preferred
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (34,167
            )
            
            (34,167
            )Net
                loss for the three months ended December 31, 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (17,857,636
            )
            
            (17,857,636
            )Balance,
                December 31, 2006
            
            
            13,785,000
            
            $
            138
            
            $
            2,608,736
            
            $
            —
            
            $
            (21,049,106
            )
            $
            (18,440,232
            )Issuance
                related to license agreement
            
            
            15,000
            
            
            -
            
            
            52,500
            
            
            —
            
            
            —
            
            
            52,500Accrual
                of Series A Preferred dividends
            
            
            —
            
            
            -
            
            
            —
            
            
            —
            
            
            (41,687
            )
            
            (41,687
            )Net
                income for the three months ended March 31, 2007
            
            
            —
            
            
            -
            
            
            —
            
            
            —
            
            
            1,884,327
            
            
            1,884,327Balance,
                March 31, 2007
            
            
            13,800,000
            
            $
            138
            
            $
            2,661,236
            
            $
            —
            
            $
            (19,206,466
            )
            $
            (16,545,092
            )Reclassification
                of amount out additional paid in capital
            
            
            —
            
            
            —
            
            
            (49,999
            )
            
            —
            
            
            —
            
            
            (49,999
            )Reclassification
                of Series A to a liability (3), (1)
            
            
            —
            
            
            —
            
            
            (1,600,270
            )
            
            —
            
            
            —
            
            
            (1,600,270
            )Reclassification
                of warrants to liability-Series A (4)
            
            
            —
            
            
            —
            
            
            (4,202,366
            )
            
            —
            
            
            (909,504
            )
            
            (5,111,870
            )Accrual
                of Series A Preferred dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (112,781
            )
            
            (112,781
            )Accrual
                of Series B Preferred dividends
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (5,833
            )
            
            (5,833
            )Issuance
                of 1,000,000 warrants to consultant
            
            
            —
            
            
            —
            
            
            2,471,401
            
            
            —
            
            
            —
            
            
            2,471,401Issuance
                related to patent agreement
            
            
            200,000
            
            
            2
            
            
            719,998
            
            
            —
            
            
            —
            
            
            720,000Net
                loss for the three months ended June 30, 2007
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (8,190,594
            )
            
            (8,190,594
            )Balance,
                June 30, 2007
            
            
            14,000,000
            
            $
            140
            
            $
            —
            
            $
            —
            
            $
            (28,425,178
            )
            $
            (28,425,038
            )Net
                income for the three month period ended September 30, 2007
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,725,814
            
            
            2,725,814Balance,
                September 30, 2007
            
            
            14,000,000
            
            $
            140
            
            $
            —
            
            $
            —
            
            $
            (25,699,364
            )
            $
            (25,699,224
            )





The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.


26





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ (DEFICIT) (continued)**


**Period
      from August 21, 2006 (inception) to June 30, 2008**





Beneficial
                conversion on Series C Preferred-Stock Financing (5)
            
            
            —
            
            
            —
            
            
            2,766,833
            
            
            —
            
            
            —
            
            
            2,766,833Allocation
                of deferred finance costs associated with Series C Preferred-Stock
                Financing (6), (5)
            
            
            —
            
            
            —
            
            
            (5,231,442
            )
            
            —
            
            
            —
            
            
            (5,231,442
            )Placement
                agent warrants on Series C Preferred-Stock Financing (5)
            
            
            —
            
            
            —
            
            
            5,198,797
            
            
            —
            
            
            —
            
            
            5,198,797Investor
                warrants on Series C Preferred-Stock Financing (5)
            
            
            —
            
            
            —
            
            
            3,633,167
            
            
            —
            
            
            —
            
            
            3,633,167Accretion
                to redemption value on Series C Preferred-Stock Exchange
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (6,400,000
            )
            
            (6,400,000
            )Investor
                warrants-Stock Exchange
            
            
            —
            
            
            —
            
            
            17,796,834
            
            
            —
            
            
            —
            
            
            17,796,834Registration
                payments net of dividends rolled into financing
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Reclassification
                of warrants to equity (7)
            
            
            —
            
            
            —
            
            
            4,008,912
            
            
            —
            
            
            —
            
            
            4,008,912Employee
                stock compensation
            
            
            —
            
            
            —
            
            
            450,000
            
            
            —
            
            
            —
            
            
            450,000Employee
                stock option compensation
            
            
            —
            
            
            —
            
            
            607,705
            
            
            —
            
            
            —
            
            
            607,705Employee
                exercise of stock options
            
            
            27,778
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                issued for legal work associated with Preferred C and SB2
            
            
            35,334
            
            
            —
            
            
            77,000
            
            
            —
            
            
            —
            
            
            77,000Net
                loss for the three month period ended December 31, 2007
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (38,392,805
            )
            
            (38,392,805
            )Balance,
                December 31, 2007
            
            
            14,063,112
            
            $
            140
            
            $
            29,307,806
            
            $
            —
            
            $
            (70,492,169
            )
            $
            (41,184,223
            )Cashless
                exercise of warrants
            
            
            38,400
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                issued for patent
            
            
            200,000
            
            
            2
            
            
            419,998
            
            
            —
            
            
            —
            
            
            420,000Net
                loss for the three month period ended March 31, 2008
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            11,802,971
            
            
            11,802,971Balance,
                March 31, 2008
            
            
            14,301,512
            
            $
            142
            
            $
            29,727,804
            
            $
            —
            
            $
            (58,689,198
            )
            $
            (28,961,252
            )Preferred
                Series D issuance
            
            
            —
            
            
            —
            
            
            2,553,378
            
            
            —
            
            
            (316,615
            )
            
            2,236,763Accretion
                of Series C Preferred
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (9,513,273
            )
            
            (9,513,273
            )Accretion
                of Series D Preferred
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (7,000,000
            )
            
            (7,000,000
            )Cashless
                exercise of warrants
            
            
            131,880
            
            
            2
            
            
            (2
            )
            
            —
            
            
            —
            
            
            —Stock
                issued as compensation for services
            
            
            42,500
            
            
            1
            
            
            51,624
            
            
            —
            
            
            —
            
            
            51,625Fair
                value adjustment on available for sale securities
            
            
            —
            
            
            —
            
            
            —
            
            $
            (31,135
            )
            
            —
            
            
            (31,135
            )Net
                income for the three month period ended June 30, 2008
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            8,345,134
            
            
            8,345,134Balance,
                June 30, 2008
            
            
            14,475,892
            
            $
            145
            
            $
            32,332,804
            
            $
            (31,135
            )
            $
            (67,173,952
            )
            $
            (34,872,138
            )




The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.


27





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ (DEFICIT) (continued)**


**Period
      from August 21, 2006 (inception) to June 30, 2008**





Explanatory
      Notes:


(1)
            The
                initial classification of the Series A Preferred Stock was in the
                mezzanine section of the balance sheet, outside of stockholders’ equity.
                These amounts reflect the effects of the financing on stockholders’
                equity. See Note 10 for details of the
                allocation.


(2)
            Aggregate
                financing costs were allocated to deferred financing costs and paid-in
                capital based upon the relative fair values of the financial instruments
                issued in the financing. Since, as discussed in Note 9, no amount
                was
                initially allocated to the mezzanine classification, the amount associated
                with that financial instrument was recorded as a deemed
                dividend.


(3)
            As
                discussed in Note 10, the Series A Preferred fell within the scope
                of
                Statement 150 on May 22, 2007 and was re-classed to liabilities
                accordingly.


(4)
            Also,
                as discussed in Note 10, share settlement of share-indexed financial
                instruments was no longer within the Company’s control as a result of the
                variable-conversion rate in the Series A Preferred triggered on May
                22,
                2007. Warrants previously classified in stockholders’ equity required
                reclassification to derivative liabilities on that date, based upon
                their
                fair value. Amounts in excess of paid-in capital were classified
                as
                charges to accumulated deficit.


(5)
            The
                classification of the Series C Preferred Stock is in the Mezzanine
                section
                of the balance sheet outside of stockholders’ equity.


(6)
            Aggregate
                financing costs were allocated to deferred financing costs, paid
                in
                capital and Series C Preferred (Mezzanine) based upon the relative
                fair
                values of the financial instruments issued in the financing.


(7)
            Upon
                the exchange of the Series A and B Preferred Stock for Series C Preferred
                stock, there was no longer a variable conversion rate associated
                with the
                Preferred stock financings. Accordingly, share settlement was once
                again
                determined to be within the Company’s control and the warrants were
                reclassified from liabilities to stockholders’ equity.





The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.


28





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      1 - ORGANIZATION AND NATURE OF BUSINESS:**





***Organization***





Willowtree
      Advisor, Inc. ("the Company" or “OmniReliant Holdings, Inc”) was incorporated on
      June 16, 2004 under the laws of the State of Nevada to offer landscape advisory
      services. On November 22, 2006, Willowtree Advisor, Inc. entered into a
      Securities Purchase Agreement with OmniReliant Corporation (“OmniReliant”) and
      Cynthia Allison, pursuant to which OmniReliant purchased 5,000,000 shares of
      the
      Company's common stock from Ms. Allison for $475,811. Pursuant to the Common
      Stock Purchase Agreement, OmniReliant transferred the 5,000,000 shares to the
      Company for cancellation. The transaction with Ms. Allison was accounted for
      as
      a reduction of additional paid in capital.





Also
      on
      November 22, 2006, Willowtree entered into an exchange agreement pursuant to
      which the Company acquired one hundred percent (100%) of the equity of
      OmniReliant from, the stockholders of OmniReliant. Contemporaneously, the
      Company entered into to a securities purchase agreement with an accredited
      investor for the sale of convertible preferred stock and warrants for an
      aggregate purchase price of $3,000,000. As a result of the Exchange Agreement,
      OmniReliant became a wholly-owned subsidiary of the Company and the Company
      succeeded to the business of OmniReliant as its sole business.





The
      Exchange Transaction is deemed to be a reverse acquisition. In accordance with
      the Accounting and Financial Reporting Interpretations and Guidance provided
      by
      the staff of the U.S. Securities and Exchange Commission, WillowTree (the legal
      acquirer) is considered the accounting acquiree and OmniReliant (the legal
      acquiree) is considered the accounting acquirer. A reverse merger is accounted
      for as the issuance of shares of the accounting acquirer for the net-monetary
      assets or liabilities of the accounting acquire, accompanied by a
      recapitalization of stockholders’ equity. The consolidated financial statements
      of the combined entity will, in substance, be those of the accounting acquire,
      OmniReliant, which, as discussed below, was organized on August 21, 2006.





Effective
      December 29, 2006, the Registrant’s name changed from Willowtree Advisor, Inc.
      to OmniReliant Holdings, Inc. ("the Company").





***Nature
      of Business***





OmniReliant
      Corporation was incorporated on August 21, 2006 under the laws of the State
      of
      Florida. The Company is in the development stage and has realized only minor
      revenues from its planned operations. OmniReliant Corporation (“OmniReliant”)
      engages in the creation, design, distribution, and sale of affordable luxury
      products. OmniReliant plans to make these products available to U.S. and
      international consumers through direct response infomercials, live shopping
      networks, ecommerce, direct mail and traditional retail
      channels. OmniReliant will first focus on bringing the Kathy Hilton
“Private Beauty Spa” product line to market, after which OmniReliant plans to
      develop other personalities and designer licenses. Ms. Hilton, who is the wife
      of Rick Hilton, the grandson of the Hilton Hotel founder, has agreed to appear
      in television segments and infomercials.





Until
      the
      Company’s products are successfully marketed on a live shopping network or via
      infomercials, we will not generate significant revenues and may not be
      successful. If we cannot generate sufficient revenues to continue operations,
      we
      will be forced to suspend or cease operations.





***Going*** ***Concern***





The
      Company is in its development stage and has incurred losses and has used cash
      in
      its operating activities while devoting substantially all of its efforts to
      raising capital and identifying and pursuing businesses opportunities. The
      Company's total liabilities exceed its total assets and the Company's liquidity
      is substantially dependent on raising capital. These factors raise substantial
      doubt about the Company's ability to continue as a going concern.
      The accompanying consolidated financial statements have been prepared on a going concern
      basis, which contemplates


29


**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      1 - ORGANIZATION AND NATURE OF BUSINESS (CONTINUED):**





***Going
      Concern - continued***





continuing
      operations, realization of assets and liquidation of liabilities in the ordinary
      course of business. The Company's ability to continue as a going concern
      is dependent upon its ability to raise sufficient capital to implement a
      successful business plan and to generate profits sufficient to become
      financially viable. The consolidated financial statements do not include
      adjustments relating to the recoverability of recorded assets or liabilities
      that might be necessary should the Company be unable to continue as a going concern.





**NOTE
      2- BASIS OF PRESENTATION:**





This
      summary of significant accounting policies is presented to assist in
      understanding the financial statements. The financial statements and notes
      are
      representations of the Company’s management, which is responsible for their
      integrity and objectivity. These accounting policies conform to accounting
      principles generally accepted in the United States of America and have been
      consistently applied in the preparation of the financial
      statements.





**NOTE
      3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:**





***Revenue
      Recognition —*** Revenue
      is recognized when the product is shipped to a customer, or in the limited
      circumstances, at destination, when terms provide that title passes at
      destination. Estimated amounts for sales returns and allowances are recorded
      at
      the time of sale.





***Principles
      of Consolidation —*** The
      Consolidated Financial Statements include the accounts of the Company and its
      wholly-owned subsidiary.  All significant intercompany accounts, profits
      and transactions have been eliminated in consolidation.





***Use
      of Estimates*** —
      The process of preparing financial statements in conformity with accounting
      principles generally accepted in the United States of America requires the
      use
      of management estimates and assumptions regarding certain types of assets,
      liabilities, revenues, and expenses. Such estimates primarily relate to
      unsettled transactions and events as of the date of the financial statements.
      Accordingly, upon settlement, actual results may differ from estimated
      amounts.





***Investments*** ****** ***in
      Debt Securities*** ****** ***—*** The
      Company accounts for its investment in debt securities in accordance with SFAS
      115, “Accounting for Certain Investments in Debt and Equity Securities,” and
      accordingly, classifies them as held-to-maturity, available-for-sale, or
      trading. Currently, the Company holds available-for-sale debt securities which
      are recorded at fair value.  Interest income is recognized when
      earned. Changes in Fair Value of an available-for-sale security are recorded
      as
      unrealized gains and losses as a component of stockholders equity.





***Cash
      and Equivalents***  ***—*** Cash
      equivalents are comprised of certain highly liquid investments with maturity
      of
      three months or less when purchased.





***Merchandise
      Inventories —*** ******Merchandise
      inventories are recorded at the lower of average cost or market. 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.





***Intangible
      Assets —*** Trademarks and licenses are recorded at cost and those with finite lives are
      amortized over the estimated periods of benefit. Amortization expense for the
      year ended June 30, 2008 and June 30, 2007 was $211,839 and $411,965,
      respectively. See Note 7.


30





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED):**





***Equity
      Method Investment—*** Investee
      companies that are not consolidated, but over which the Company exercises
      significant influence, are accounted for under the equity method of accounting.
      Whether or not the Company exercises significant influence with respect to
      an
      Investee depends on an evaluation of several factors including, among others,
      representation on the investee company’s board of directors and ownership level,
      which is generally a 20% to 50% interest in the voting securities of the
      Investee company. Under the equity method of accounting, an Investee company’s
      accounts are not reflected within the Company’s Consolidated Balance Sheets and
      Statements of Operations; however, the Company’s share of earnings or losses of
      the Investee company is reflected in the caption “Impairment in investment in
      ResponzeTV” in the Consolidated Statements of Operations. The Company’s carrying
      value in an equity method Investee company is reflected in the caption
“Equity-method investment in ResponzeTV” in the Company’s Consolidated Balance
      Sheets.





The
      Company reviews for the impairment of investments accounted for under the equity
      method whenever events or changes in circumstances indicate that the carrying
      amount of an asset may not be recoverable. An impairment loss would be
      recognized when the investee’s operations cannot sustain an earnings capacity
      which would justify the carrying amount of the investment pursuant to the
      guidance in paragraph 19(h) of APB 18 “The Equity Method of Accounting for
      Investments in Common Stock”.





***Income
      Taxes—*** Deferred
      income taxes result primarily from temporary differences between financial
      and
      tax reporting and operating loss carry forwards. Deferred tax assets and
      liabilities are determined based on the difference between the financial
      statement basis and tax basis of assets and liabilities using enacted tax rates.
      A valuation allowance is recorded to reduce the deferred tax asset for the
      portion that is not expected to be realized.





***Advertising-*** Advertising costs are charged to operations when incurred and are included
      in
      operating expenses. Advertising costs for the year ended June 30, 2008 and
      June
      30, 2007 were $253,782 and $29,744, respectively.





***Loss
      Per Common Share*** — The
      Company applies SFAS No. 128, “ *Earnings
      Per Share* ”
for
      calculating the basic and diluted loss per share. Basic loss per share is
      computed by dividing loss attributable to common shareholders by the weighted
      average number of common shares outstanding. Diluted loss per share is computed
      similar to basic loss per share except that the denominator is increased to
      include the number of additional common shares that would have been outstanding
      if the potential shares had been issued and if the additional shares were
      dilutive. Common equivalent shares are excluded from the computation of net
      loss
      per share as they would be anti-dilutive.





***Stock
      Based Compensation -*** In
      December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
      Payment". SFAS 123(R) will provide investors and other users of financial
      statements with more complete and neutral financial information by requiring
      that the compensation cost relating to share-based payment transactions be
      recognized in financial statements. That cost will be measured based on the
      fair
      value of the equity or liability instruments issued. SFAS 123(R) covers a wide
      range of share-based compensation arrangements including share options,
      restricted share plans, performance-based awards, share appreciation rights,
      and
      employee share purchase plans. SFAS 123(R) replaces FASB Statement No. 123,
      "Accounting for Stock-Based Compensation", and supersedes APB Opinion No. 25,
      "Accounting for Stock Issued to Employees". SFAS 123, as originally issued
      in
      1995, established as preferable a fair-value-based method of accounting for
      share-based payment transactions with employees. However, that statement
      permitted entities the option of continuing to apply the guidance in Opinion
      25,
      as long as the footnotes to financial statements disclosed what net income
      would
      have been had the preferable fair-value-based method been used. Public entities
      (other than those filing as small business issuers) were required to apply
      SFAS
      123(R) as of the first interim or annual reporting period that begins after
      June
      15, 2005. For public entities that file as small business issuers, SFAS 123(R)
      was applicable as of the beginning of the first interim or annual reporting
      period that begins after December 15, 2005.


31





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED):**





*2007
      Long Term Incentive Plan*





On
      November 21, 2007 the Company established a Long Term Incentive (the “2007
      Incentive Plan”) plan for the purposes of advancing the interests of the Company
      and our shareholders by providing incentives to certain of our employees and
      other key individuals who perform services for us, including those who
      contribute significantly to the strategic and long-term performance objectives
      and growth of the Company. The 2007 Incentive Plan is administered by a
      committee (the “Committee”) appointed by the Board of Directors. Currently, the
      Committee is comprised of all members of the Board of Directors acting as a
      group. The Committee has the power to interpret the 2007 Incentive Plan and
      to
      prescribe rules, regulations and procedures in connection with the operations
      of
      the 2007 Incentive Plan. The Committee may delegate administrative
      responsibilities under the 2007 Incentive Plan to any one or more of its members
      or other persons, except as may otherwise be required under applicable law
      or
      listing standards for an exchange on which the Company’s common stock may be
      listed. The 2007 Incentive Plan provides for the granting of several types
      of
      awards, including stock options, performance grants and other awards deemed
      by
      the Committee to be consistent with the purposes of the 2007 Incentive Plan.
      Awards may be granted alone, or in conjunction with one or more other awards,
      as
      determined by the Committee.





The
      2007
      Incentive Plan was effective as of November 21, 2007, and was approved by the
      Company’s board of directors. The Company’s shareholders have not voted on
      approval of the 2007 Incentive Plan. A maximum of two million shares (2,000,000)
      shares of common stock has been authorized to be issued under the 2007 Incentive
      Plan in connection with the grant of awards, subject to adjustment for corporate
      transactions, including, without limitation, any stock dividend, forward stock
      split, reverse stock split, merger or recapitalization. Of this amount, no
      more
      than two million (2,000,000) shares of common stock may be issued as incentive
      stock options. Common stock issued under the 2007 Incentive Plan may be either
      newly issued shares, treasury shares, reacquired shares or any combination
      thereof. If common stock issued as restricted stock, restricted stock units
      or
      otherwise subject to repurchase or forfeiture rights is reacquired by us
      pursuant to such rights, or if any award is cancelled, terminates, or expires
      unexercised, the common stock which would otherwise have been issuable pursuant
      to such awards will be available for issuance under new awards. All awards
      under
      the 2007 Incentive Plan shall be granted within 10 years of the date the plan
      was adopted.





The
      Committee has exclusive discretion to select to whom awards will be granted;
      to
      determine the type, size, terms and conditions of each award; to modify or
      waive, within certain limits, the terms and conditions of any award; to
      determine the time when awards will be granted; to establish performance
      objectives; to prescribe the form of documents representing awards under the
      2007 Incentive Plan; and to make all other determinations which it deems
      necessary, advisable or desirable in the interpretation and administration
      of
      the 2007 Incentive Plan. At the discretion of the Committee, awards may be
      made
      under the 2007 Incentive Plan in assumption of, or in substitution for,
      outstanding awards previously granted by the Company, any predecessor or a
      company acquired by the Company or with which it combines. The Committee has
      the
      authority to administer and interpret the 2007 Incentive Plan, and its decisions
      are final, conclusive and binding. We anticipate that all of our employees
      and
      directors will be eligible to participate in the 2007 Incentive
      Plan.





On
      December 7, 2007 pursuant to the Long Term Incentive Plan the Company awarded
      certain employees 350,000 stock options with an exercise price of $1.00 and
      a
      term of 5 years. All of the options issued were fully vested on the grant date.
      The Company has recognized $450,000 of expense related to issuances in the
      Consolidated Statement of Operations for the twelve month period ended June
      30,
      2008.


32





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED):**





***Financial
      Instruments –*** Financial
      instruments, as defined in Financial Accounting Standard No. 107 Disclosures
      about Fair Value of Financial Instruments (Statement 107), 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, and redeemable preferred stock that we have concluded is more
      akin
      to equity than debt.





We
      carry
      cash and cash equivalents, accounts payable and accrued liabilities at
      historical costs; their respective estimated fair values approximate carrying
      values due to their current nature. We carry derivative financial instruments
      at
      fair value in accordance with Financial Accounting Standard No. 133 Accounting
      for Derivative Financial Instruments and Hedging Activities (Statement 133). 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
      Statement 133 and Financial Accounting Standard No. 150 Financial
      Instruments with Characteristics of both Equity and Liabilities (Statement 150).





***Derivative
      Financial Instruments*** –
      Derivative financial instruments, as defined in Statement 133 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.





***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 under Statement 150. 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 under Statement 133. In all instances, the
      classification of the redeemable preferred stock host contract that does not
      require liability classification is evaluated for equity classification 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. See Note 10 for further
      disclosures about our redeemable preferred stock.


33





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED):**





***Registration
      Payment Arrangements*** **-** Certain
      financial instruments, including convertible preferred stock and the related
      freestanding warrants issued in connection with those convertible instruments,
      are subject to registration rights agreements, which impose penalties for our
      failure to register the underlying common stock by a defined date. These
      potential cash penalties, which are referred to as registration payment
      arrangements, are recorded when payments are both probable and reasonably
      estimable, in accordance with FAS No. 5, Accounting
      for Contingencies *.* These
      liquidated damages were included in the liabilities that were exchanged for
      the
      Series C Preferred Stock. Accordingly, we no longer have an obligation to pay
      registration payments. See Note 10 for additional information related to the
      exchange.





***Recent
      Accounting Pronouncements***





In
      June
      2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in
      Income Taxes-an interpretation of FASB Statement No. 109" ("FIN 48"), which
      clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes
      a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. The Interpretation requires that the Company recognize in the
      financial statements the impact of tax position, if that position is more likely
      than not of being sustained on audit, based on the technical merits of the
      position. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods and disclosure. The
      provisions of FIN
      48
      are effective for fiscal years beginning after December 15, 2006 with the
      cumulative effect of the change in accounting principle recorded as an
      adjustment to beginning retained earnings. The adoption of this statement did
      not have a material impact on the Company's consolidated financial position
      or
      results of operations.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". This
      standard defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. This statement is effective for financial statements issued
      for fiscal years beginning after November 15, 2007. Earlier application is
      encouraged. The adoption of this accounting pronouncement is being evaluated
      by
      management.





In
      September 2006, the Securities and Exchange Commission issued SAB No. 108
      "Considering the Effects of Prior Year Misstatements When Quantifying
      Misstatements in Current Year Financial Statements", which provides interpretive
      guidance on how the effects of the carryover or reversal of prior year
      misstatements should be considered in quantifying a current year misstatement.
      The guidance is applicable beginning fiscal 2008. The adoption of this statement
      did not have a material impact on the Company's consolidated financial position
      or results of operations.





In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      160, “Noncontrolling Interests in Consolidated Financial Statements - An
      amendment of ARB No. 51”.SFAS 160 requires companies with noncontrolling
      interests to disclose such interests clearly as a portion of equity but separate
      from the parent’s equity. The noncontrolling interest’s portion of net income
      must also be clearly presented on the Income Statement. SFAS 160 is effective
      for financial statements issued for fiscal years beginning after December 15,
      2008. The adoption of this statement is did have a material effect on the
      Company's future financial position or results of operations.





In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      141,(revised 2007), “Business Combinations”. SFAS 141 (R) applies the
      acquisition method of accounting for business combinations established in SFAS
      141 to all acquisitions where the acquirer gains a controlling interest,
      regardless of whether consideration was exchanged. Consistent with SFAS 141,
      SFAS 141 (R) requires the acquirer to fair value the assets and liabilities
      of
      the acquiree and record goodwill on bargain purchases, with main difference
      the
      application to all acquisitions where control is achieved. SFAS 141 (R) is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2008. The adoption of this statement did have a material effect
      on
      the Company's future financial position or results of
      operations.


34


**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED):**





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to
      choose to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair value. The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. SFAS No. 159 also establishes presentation and disclosure
      requirements designed to facilitate comparisons between entities that choose
      different measurement attributes for similar types of assets and liabilities.
      SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.
      The adoption of this statement did not have a material effect on the Company's
      future financial position or results of operations.





In
      March
      2008, the FASB issued FASB Statement No. 161 ("SFAS 161"), "Disclosures about
      Derivative Instruments and Hedging Activities". SFAS 161 requires companies
      with
      derivative instruments to disclose information that should enable
      financial-statement users to understand how and why a company uses derivative
      instruments, how derivative instruments and related hedged items are accounted
      for under FASB Statement No. 133 "Accounting for Derivative Instruments and
      Hedging Activities" and how derivative instruments and related hedged items
      affect a company's financial position, financial performance and cash flows.
      SFAS 161 is effective for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008. The adoption of this
      statement did not have a material effect on the Company's future financial
      position or results of operations.





**NOTE
      4 - ACCOUNTING FOR STOCK BASED COMPENSATION:**





Prior
      to
      January 1, 2006, the Company accounted for Stock Options and Stock Based
      Compensation under the recognition and measurement provisions of APB Opinion
      No.
      25, “Accounting for Stock Issued to Employees”, and related Interpretations, as
      permitted by FASB Statement No. 123, “Accounting for Stock-Based Compensation”.
      Effective January 1, 2006, the Company adopted the fair value recognition
      provisions of SFAS No. 123(R), Share-Based Payment, using the
      modified-prospective-transition method. Under that transition method,
      compensation cost for all share-based payments granted prior to, but not yet
      vested as of January 1, 2006 are based on (a) the grant date fair value
      estimated in accordance with the original provisions of SFAS No. 123, and (b)
      compensation cost for all share-based payments granted subsequent to January
      1,
      2006 are based on the grant-date fair value estimated in accordance with the
      provisions of SFAS No.123(R). Results for prior periods have not been
      restated.





As
      a
      result of adopting SFAS No.123(R) on January 1, 2006, the Company has recognized
      $450,000 of expense related to issuances in the Consolidated Statement of
      Operations for the twelve month period ended June 30, 2008.


35





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      4 - ACCOUNTING FOR STOCK BASED COMPENSATION
      (CONTINUED):**





***Stock
      Options and Warrants:***





The
      following table summarizes the activity related to all Company stock options
      and
      warrants for the period from August 21, 2006 (inception) to June 30,
      2008:





Weighted
                AverageExercise
                Price
            
            Exercise
                PriceStock
            
            Per
                Share
            
            Per
                ShareWarrants
            
            Options
            
            Warrants
            
            Options
            
            Warrants
            
            Options**Balances
                at August 21, 2006 (inception)**
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —Outstanding
                at June 30, 2006
            
            
            —
            
            
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Granted
            
            
            9,004,000
            
            
            —
            
            
            1.00-3.75
            
            
            —
            
            
            2.13
            
            
            —Exercised
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cancelled
                or expired
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Outstanding
                at June 30, 2007
            
            
            9,004,000
            
            
            —
            
            $
            1.00-3.75
            
            $
            —
            
            $
            2.13
            
            $
            —Exercisable
                at June 30, 2007
            
            
            9,004,000
            
            
            —
            
            $
            1.00-3.75
            
            $
            —
            
            $
            2.13
            
            $
            —Granted
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Expired
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Outstanding
                at September 30, 2007
            
            
            9,004,000
            
            
            —
            
            $
            1.00-3.75
            
            $
            —
            
            $
            2.13
            
            $
            —Granted
            
            
            23,092,171
            
            
            350,000
            
            $
            0.75-2.00
            
            $
            1.00
            
            $
            1.72
            
            $
            1.00Exercised
            
            
            —
            
            
            (50,000
            )
            
            —
            
            
            (1.00
            )
            
            —
            
            
            (1.00
            )Outstanding
                at December 31, 2007
            
            
            32,096,171
            
            
            300,000
            
            $
            0.75-3.75
            
            $
            1.00
            
            $
            1.70
            
            $
            1.00Granted
            
            
            —
            
            
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Exercised
            
            
            (38,400
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Outstanding
                at March 31, 2008
            
            
            32,057,771
            
            
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Granted
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —Exercised
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —Cancelled
                or expired
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —Outstanding
                at June 30, 2008
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —Exercisable
                at June 30, 2008
            
            
            32,057,771
            
            
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —





The
      warrants expire at various dates ranging from April 2010 through March
      2016.


36





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      5 - LOSS PER SHARE** **:**





Components
      of loss per share for the twelve months ended June 30, 2008 are as
      follows:





Net
                loss available to common shareholders
            
            $
            (38,317,062
            )Weighted
                average shares outstanding:Basic
            
            
            14,165,245Diluted
            
            
            14,165,245Loss
                per share:Basic
            
            $
            (2.71
            )Diluted*
            
            $
            (2.71
            )





*Diluted
      weighted average per share outstanding for the year ended June 30, 2007 does
      not
      include the effect of dilutive Series A and B Preferred Stock and Series A-1,
      A-2, B-1, B-2, BD-1, BD-2, BD-3, BD-4, BD-5, BD-6, BD-7, BD-8, BD-9, BD-10,
      BD-11, C-1, C-2, D-1 and consultant warrants because to do so would have been
      anti-dilutive (see detailed list of anti-diluted shares below). Accordingly,
      basic and diluted net loss per share for this period is the same.





Components
      of loss per share for the period from August 21, 2006 (inception) to June 30,
      2007 are as follows:





Net
                loss available to common shareholders
            
            $
            (27,358,371
            )Weighted
                average shares outstanding:Basic
            
            
            10,652,363Diluted
            
            
            10,652,363Loss
                per share:Basic
            
            $
            (2.57
            )Diluted*
            
            $
            (2.57
            )





*Diluted
      weighted average per share outstanding for the year ended June 30, 2007 does
      not
      include the effect of dilutive Series A and B Preferred Stock and Series A-1,
      A-2, B-1, B-2, BD-1, BD-2, BD-3, BD-4, BD-5, BD-6 and consultant warrants
      because to do so would have been anti-dilutive (see detailed list of
      anti-diluted shares below). Accordingly, basic and diluted net loss per share
      for this period is the same.


37





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      5 - LOSS PER SHARE (CONTINUED):**


Below
        is
        a detailed list of the Company’s common stock equivalents:


CommonEquivalents**Securities**Series
                C Preferred
            
            
            20,619,128Series
                D Preferred
            
            
            14,000,000***Warrants:***Class
                A-1 Warrants
            
            
            3,000,000Class
                A-2 Warrants
            
            
            3,000,000Class
                B-1 Warrants
            
            
            480,000Class
                B-2 Warrants
            
            
            480,000Class
                BD-1 Warrants
            
            
            300,000Class
                BD-2 Warrants
            
            
            300,000Class
                BD-3 Warrants
            
            
            300,000Class
                BD-4 Warrants
            
            
            1,600Class
                BD-5 Warrants
            
            
            1,600Class
                BD-6 Warrants
            
            
            1,600Class
                BD-7 Warrants
            
            
            821,333Class
                BD-8 Warrants
            
            
            821,333Class
                BD-9 Warrants
            
            
            821,333Class
                BD-10 Warrants
            
            
            700,000Class
                BD-11 Warrants
            
            
            1,400,000Warrant
                issued to consultants
            
            
            1,000,000Paul
                Morrison Options
            
            
            300,000Class
                C-1 Warrants
            
            
            10,266,086Class
                C-2 Warrants
            
            
            10,266,086Class
                D-1 Warrants
            
            
            28,000,000Total
                common stock equivalent shares
            
            
            96,880,099




38





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      6 - INVESTMENT IN DEBT SECURITIES:**





On
      February 12, 2008, we purchased a face-value $150,000, 6.0% per annum,
      Convertible Promissory Note from an early-stage, Member-Managed Limited
      Liability Company in the Media Sector. Principal and interest are payable on
      February 12, 2010. The Convertible Promissory Note is convertible at our option
      into Member Units representing an aggregate of 2.0% of the investee’s aggregate
      member units.





Investments
      in these debt securities are carried as available-for-sale securities under
      Statement’s on Financial Accounting Standards No. 115. Debt securities
      classified as *available-for-sale
      securities* are
      reported at fair value, with unrealized gains and losses excluded from earnings
      and reported in a separate component of shareholders’ equity.





Fair
      value is based upon the present value of the forward cash-flows, discounted
      at a
      credit-risk adjusted rate for similar instruments. The conversion option is
      considered a fair-value enhancement when such amount is readily convertible
      into
      cash, which, as a private, closely held company, it is not currently. Changes
      in
      the fair value of available-for-sale debt securities arise from changes in
      market interest rates for similar instruments and the period remaining to
      maturity.





*Subsequent
      considerations:*





On
      April
      3, 2008, we amended the Convertible Promissory Note to add full-ratchet
      anti-dilution protection and a “Most Favored Nation” provision which would allow
      us to exchange the promissory note for any securities issued by the Investee
      in
      a subsequent financing on a dollar by dollar basis.





On
      April
      4, 2008, we invested an additional $300,000 and received a Convertible
      Promissory Note which accrues interest at 6% per year and is due and payable
      on
      February 12, 2010. We have the option to convert the note anytime prior to
      maturity and we would receive Membership Interests equal to the principle
      balance on the note divided by $10,000,000. This note contains full ratchet
      anti-dilution protection and a “Most Favored Nation” provision.


39





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      7 - INTANGIBLE ASSETS:**





Our
      intangible assets consist of the following at June 30, 2008:




**Carrying**
            
            **Accumulated****Amount**
            
            **Amortization****Intangible
                Assets:**License
                agreement
            
            $
            105,269
            
            $
            (547,736
            )Patent
                costs
            
            
            1,169,412
            
            
            —Other
            
            
            3,334
            
            
            —Straightening
                iron agreement
            
            
            —
            
            
            (76,068
            )Total
            
            $
            1,278,015
            
            $
            (623,804
            )**Aggregate
                Amortization Expense**For
                the year ended June 30, 2008
            
            $
            623,804**Estimated
                Amortization Expense**Year
                ending June 30:2009
            
            $
            75,7292010
            
            
            75,7292011
            
            
            95,0212012
            
            
            114,3962013
            
            
            88,0782014
            
            
            88,078Thereafter
            
            $
            740,9841,278,015





***Licensing
      Agreement*** *-* On
      October 13, 2006, the Company entered into an agreement with a related party.
      This agreement was subsequently amended on November 20, 2006. Under the terms
      of
      the Licensing Agreement the Company obtained the exclusive right and license
      to
      certain licensed products through December 31, 2011 with an option to renew
      for
      an additional five year period provided all the minimum royalty payments have
      been paid during the initial term. In consideration of the license granted
      and
      the services to be performed, the Company will compensate the other party an
      annual guaranteed minimum (payable semi-annually) royalty as
      follows:





**Annual**
            
            
            
            **Minimum****Period**
            
            **Dates**
            
            **Royalty**1
            
            
            Effective
                Date to 12/31/07
            
            $
            1,000,0002
            
            
            1/1/08
                to 12/31/08
            
            $
            400,0003
            
            
            1/1/09
                to 12/31/09
            
            $
            400,0004
            
            
            1/1/10
                to 12/31/10
            
            $
            400,0005
            
            
            1/1/11
                to 12/31/11
            
            $
            400,000





In
      addition to the minimum royalty payment the Company will also compensate the
      other party a sales royalty of eight percent (8%) on each annual period's net
      sales made in all venues other than infomercials; a minimum of three percent
      (3%) on each annual period's net sales made through infomercials and four
      percent (4%) should the revenues exceed media expenditures by a three to one
      media ratio. The sales royalty is payable on a quarterly basis within forty-five
      (45) days after the close of the prior quarter's sales. The payment of sales
      royalties are credited against the guaranteed minimum royalty payment for any
      annual period.


40


**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      7 - INTANGIBLE ASSETS (CONTINUED)** :





In
      addition to the sales royalties and guaranteed minimum royalties being paid
      the
      Company also delivered three million (3,000,000) shares of the Company's common
      stock, which represented 25% of the issued and outstanding common stock on
      that
      date.





On
      November 20, 2006 the Licensing Agreement was amended to change the date of
      the
      first annual Guaranteed Minimum Royalty payment from thirty (30) days following
      the effective date to January 3, 2007. In addition, the amendment revised
      subsequent payments to occur on January 1 st and July
      1 st of each
      annual period. On November 22, 2006 the Company made a payment of $850,000
      pursuant to this agreement. On January 10, 2007 the Company made a payment
      of
      $150,000 pursuant to the licensing agreement. The payment was the final payment
      of the $1,000,000 initial installment due under the agreement.





For
      the
      year ended June 30, 2008 and June 30, 2007 the Company recognized $162,021
      and
      $385,715 of expenses related to this agreement.





***Straightening
      Irons Agreement -*** **** On
      February 12, 2007, the Company entered into an agreement with a manufacturer
      of
      straightening irons. Pursuant to the terms of the contract the Company **** agrees
      to
      pay Licensor a Royalty payment of one percent (1.0%) of the Adjusted Gross
      Collected Revenues (“AGCR”), defined below, on all revenues generated from the
      sale of the Product and up-sells of like category sold in connection with the
      Product and through the inbound call. The Royalties shall be paid quarterly,
      along with sufficient reports justifying the calculation of the Royalty
      payments. Should the Infomercial’s performance exceeds a two
      point two five (2.25X) times the media ratio, meaning the revenues generated
      by
      the Infomercial, less returns and charge backs exceed two and one quarter times
      the expenditures on the media ratio (the “Media Ratio”), the Royalty shall
      increase to two and one half percent (2.5%) of the AGCR. Should the Media Ratio
      exceeds three times (3X) Media Ratio the Royalty shall be bumped to three and
      one half percent (3.5%) and if the Media Ratio exceeds three and one half times
      (3.5X) the Royalty shall be four percent (4%) and in the event the Media Ratio
      exceeds four times Media Ratio the Royalty shall be boosted to five percent
      (5%). The Royalty on sales in all other channels of distribution except Live
      Shopping shall be five percent (5%) of the wholesale revenues. Licensor shall
      receive six percent (6%) Royalty for Live Shopping on wholesale revenues less
      returns. Upon the execution of this Agreement, ORH shall issue Licensor 15,000
      common shares of OmniReliant Holdings, Inc. (ORHI) which shall be restricted
      stock and subject to the SEC 144 Rules.





Adjusted
      Gross Collected Revenues. “AGCR”
      shall mean ORH’s Gross Revenue from sales of the Products, less all of the
      following:





(a)
            Shipping
                & Handling, credit card fees, refunds, credits or other allowances
                on
                business, as actually incurred and as reserved for
                (“Returns”);not





(b)
            Sales,
                excise, use, value added or any like
                taxes;





(c)
            Cost
                of goods for purposes of liquidation or closeout (“Liquidation Sales”).
                Licensor shall have the first right of refusal to purchase the liquidation
                inventory at a penny above ORH’s best
                offer.





The
      reserve for Returns and un-collectibles shall initially be ten percent (10%)
      of
      Adjusted Gross Revenues, and shall be adjusted periodically based upon actual
      experience.


41





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      7 - INTANGIBLE ASSETS (CONTINUED):**





The
      Company shall have the right to sell and distribute the Products at such prices,
      and on such terms and conditions (including shipping and handling charges)
      as
      ORH may establish. In the event that ORH fails, during the one-year period
      commencing upon Rollout and continuing thereafter, to generate $2,000,000 in
      Product sales per year (“Minimum Quantities”), Licensor may provide 30 days
      prior written notice to ORH make ORH’s rights hereunder non-exclusive. For the
      life of the Product, ORH or a designated third party, such as the manufacturer,
      on behalf of ORH will maintain and keep in force product liability insurance
      with an insurer approved by Licensor in the amounts not less than $2,000,000
      per
      occurrence and $5,000,000 in the aggregate covering all Products licensed by





ORH
      from
      Licensor. ORH, Licensor and, upon ORH’s request, any of ORH’s subsidiaries,
      affiliates or sub-licensees who are involved with the marketing and distribution
      of the Products) shall be named as additional insured on all such insurance
      policies, each of which shall be endorsed so as to provide at least 30 days
      notice to ORH of its cancellation, termination or non-renewal.





For
      the
      year ended June 30, 2008 the Company recognized $26,249 of amortization expense
      related to this agreement. For the year ended June 30, 2007 the Company
      recognized $26,251 of amortization expense related to this
      agreement.





***Patent
      Application Agreement -*** On June
      18, 2007, OmniReliant Holdings, Inc. (“the Company”) entered into an Agreement
      for Acquisition of a Patent Application with Product & Technology Partners
      LLC. Pursuant to the Agreement, the Company acquired from Seller the rights
      to a
      patent-pending self-warming topical pharmaceutical product capable of delivering
      salicylic acid in a foam suitable for consumer use. In consideration for the
      rights to the product, the Company agreed to pay Seller in the following manner:





a)
            Upon
                execution of the Agreement, the Company paid Seller (i) an aggregate
                of
                Twenty Five Thousand dollars ($25,000) and (ii) issued to the Seller
                Two
                Hundred Thousand (200,000) shares of the Company’s common
                stock.




b)
            Following
                the completion of due diligence (which shall be six months from the
                date
                of the Agreement), if the Company is satisfied with the Product and
                intends to offer Product for sale, the Company shall pay to Seller
                Twenty
                Five Thousand dollars ($25,000).




c)
            The
                Company shall also pay Seller installment payments of up to a maximum
                of
                Four Hundred Thousand Dollars ($400,000), payable over a period of
                4 years
                beginning six months from the date of the Agreement. If no revenues
                are
                generated from the sale of the Product, no installment payments shall
                be
                due.




On
      January 22, 2008 the Company paid the additional $25,000 pursuant to the terms
      listed above.





The
      Company has received a written opinion issued by the USPTO as International
      Search Authority and a response was filed as entering Chapter ii of the PCT
      designating the USPTO as International Examining Authority. The Company has
      consulted with the scientist regarding the application and we believe the
      technology has many future uses. Once approved, the Company plans to market
      and
      sell products using the technology acquired.





The
      Company estimates the patent pending application will take up to 3 years to
      go
      through the approval process. At such time the Company will begin amortizing
      the
      cost over 20 years, the useful life of the asset.





In
      the
      event additional assistance is required with the patent pending application
      or
      development of a product the members of Product & Technology Partners, LLC
      have agreed to work with the Company on a consulting basis.





For
      the
      year ended June 30, 2008 and 2007 the Company did not recognize any expense
      related to this agreement.


42


**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      7 – INTANGIBLE ASSETS (CONTINUED):**





The
      Company entered into a patent agreement on January 24, 2008. Amortization
      expense related to the agreement for the year ended June 30, 2008 was 23,569.
      In
      addition, 200,000 shares were issued in connection with this
      agreement.





**NOTE
      8 - COMMITMENTS & CONTINGENCIES:**




***Consulting
      Agreement*** *-* On
      October 1, 2006 the Company entered into a six (6) month consulting agreement
      with Harrington Business Development, LLC (“HBD”) to provide services related to
      the creation, production, and editing of infomercials and also to consult the
      Company on marketing and distribution of its products. In consideration for
      the
      services performed the Company will compensate HBD $15,000 per month. On April
      1, 2007 the Company verbally extended the term of the Harrington Business
      Development, LLC consulting agreement for an additional 3 months. The
      shareholders of HBD are also shareholders of the Company. For the year ended
      June 30, 2008 and 2007 the Company recognized $-0- and $135,000 of expense
      related to this agreement.





***Employment
      Agreement*** *-* On
      October 31, 2006 the Company entered into an employment agreement with Paul
      Morrison to act as its Chief Operating Officer and President. Under the terms
      of
      the agreement Mr. Morrison's contract will be for a term of two (2) years with
      automatic successive two (2) year term renewals subject to a notice of
      non-renewal. In consideration for the services he is to receive a base salary
      of
      $120,000 per year with annual pay increases of ten percent (10%); incentive
      bonus of one and half percent (1.5%) of pretax profits on the sales of certain
      products payable the day after the Company's 10-KSB annual report is filed
      with
      the SEC; the issuance of 300,000 shares the Company's restricted common stock
      payable as follows: 150,000 shares upon execution of the agreement and 150,000
      shares on the first anniversary of employment with the Company. On October
      31,
      2006, prior to the recapitalization, OmniReliant Corporation issued Mr. Morrison
      150,000 shares and recorded $15,000 of stock compensation expense related to
      this agreement.





***Assignment
      of Contract -*** On
      November 10, 2006 the Company entered into an agreement with Reliant
      International Media, LLC (“RIM”) to assume a marketing and distribution
      agreement RIM had with a third party manufacturer of spa related products.
      The
      original agreement was entered into on September 25, 2006 for a term of twelve
      (12) months. The agreement gives the Company exclusive rights to market and
      distribute the product in the United States and Canada. The Company also
      received the non-exclusive right to all other countries. The shareholders of
      RIM
      are also shareholders of the Company.





***International
      Distribution Agreement -*** On March
      19, 2007, the Company entered into an International Distribution Agreement
      with
      Reliant International Media LLC. Pursuant to the Agreement, the Company has
      granted Reliant the exclusive right to represent the Company with respect to
      sales of certain products through retail distribution channels in the United
      Kingdom, Japan and Korea. The products covered by the agreement include any
      and
      all products marketed by the Company under the Kathy Hilton name, likeness
      or
      brand, excluding all perfume and perfume related products. In consideration
      for
      Reliant’s marketing services, the Company has agreed to pay to Reliant a royalty
      equal to ten percent of the Company’s gross revenues. The shareholders of
      Reliant International Media are also shareholders of the Company. For the year
      ended June 30, 2008 and 2007 the Company has not recognized any expense related
      to this agreement.


43





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      8 - COMMITMENTS & CONTINGENCIES (CONTINUED):**




***Public
      Relations Agreement -*** On
      April
      27, 2007 the Company entered into a three year consulting agreement with a
      public relations firm. Pursuant to the terms of the agreement the Company will
      pay the following as compensation for services: $7,500 payable each month;
      1,000,000 warrants with a term of 3 years, issued at the onset, entitling the
      holder to purchase shares of the Company’s common stock at an exercise price of
      $1.00 per share; exclusive rights to all future public relation contracts
      awarded to the Company for Kathy Hilton licenses; and compensation at the rate
      of 3% of projected gross wholesale sales per year on all future Kathy Hilton
      licenses awarded to the Company. For the year ended June 30, 2008 and 2007
      the
      Company recognized $90,000 and $2,490,151 of expenses related to this agreement.
      No warrants were issued for the twelve months ended June 30, 2008. For the
      year
      ended 2007 $2,471,401 was associated with the 1,000,000 warrants which were
      issued.





**NOTE
      9 – STOCKHOLDERS’ EQUITY**




***Common
      Stock Purchase Agreement***





On
      November 22, 2006 the Company and OmniReliant entered into a securities purchase
      agreement with the Company's then principal stockholder, Cynthia Allison,
      pursuant to which OmniReliant purchased 5,000,000 shares of the Company's common
      stock from Ms. Allison for a purchase price of $475,811. Pursuant to the Common
      Stock Purchase Agreement, OmniReliant transferred the 5,000,000 shares to the
      Company for cancellation. The transaction with Ms. Allison was accounted for
      as
      a reduction of additional paid in capital.





***Exchange
      Agreement***





Pursuant
      to the Exchange Agreement, dated November 22, 2006, the Company issued
      12,300,000 shares of common stock to the OmniReliant stockholders. The common
      stock was issued to the following stockholders pursuant to the Exchange
      Agreement:





**Number
                of****Name**
            
            **Shares**Apogee
                Financial Investments, Inc.
            
            
            3,000,000ZTZ
                Trust Inc.
            
            
            3,000,000Kevin
                Harrington
            
            
            1,500,000Tim
                Harrington
            
            
            1,500,000KRH
                Licensing Company, LLC
            
            
            3,000,000Paul
                Morrison
            
            
            300,000**Total**
            
            
            12,300,000





***Public
      Relations Agreement -*** On
      April
      27, 2007 the Company entered into a three year consulting agreement with a
      public relations firm. Pursuant to the terms of the agreement the Company issued
      1,000,000 warrants with a term of 3 years, issued at the onset, entitling the
      holder to purchase shares of the Company’s common stock at an exercise price of
      $1.00 per share. For the year ended June 30, 2008 and 2007 the Company
      recognized expense of $2,490,151 and $2,490,151, respectively, associated with
      the 1,000,000 warrants which were issued. The value of the warrants was
      determined by using the Black-Scholes option pricing model. For the year ended
      June 30, 2008, the Company used a volatility percentage of 23.6%, a risk free
      interest rate of 5.00%, and an expected life of 1 1⁄2 years in calculating the
      fair value. See *“Public
      Relations Agreement”* above
      for additional details. For the year ended June 30,
      2007,
      the Company used a volatility percentage of 23.6%, a risk free interest rate
      of
      5.00%, and an expected life of 1 1⁄2 years in calculating the fair value. See“Public
      Relations Agreement”above
      for additional details.


44





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      9 - STOCKHOLDERS’ EQUITY** **(CONTINUED):**





As
      more
      fully discussed in Note 10, these warrants were reclassified to liabilities
      on
      May 22, 2007, and are carried at their fair values, with adjustments to
      income.





***Patent
      Application Agreement -*** On June
      18, 2007, the Company entered into an Agreement for Acquisition of a Patent
      Application. The Company upon execution of the Agreement issued to the Seller
      Two Hundred Thousand (200,000) shares of the Company’s common stock. For the
      year ended June 30, 2008 and June 30, 2007 the Company did not recognize any
      expense related to this agreement. See *“Patent
      Application Agreement”* above
      for additional details.





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS:**




This
      footnote includes (i) the details of our redeemable preferred stock, (ii) our
      accounting for the Series A, Series B, Series C, and Series D Financing
      Transactions both on the inception dates and thereafter, (iii) our consideration
      related to and accounting for warrants issued in these transactions and (iv)
      registration payment arrangements extended to the investors.





***Series
      A, Series B, Series C, and Series D Convertible Preferred
      Stock:***





The
      Company is authorized to sell or issue 100,000,000 shares of preferred stock.





On
      November 22, 2006, we designated 3,000 shares of our preferred stock as Series
      A
      10% Convertible Preferred Stock (“Series A Preferred”). On May 25, 2007, we
      designated 1,000 shares of our preferred stock as Series B 10% Convertible
      Preferred Stock (“Series B Preferred”). On October 18, 2007, we designated
      10,620,000 shares of our preferred stock as Series C Convertible Preferred
      Stock
      (“Series C Preferred”). On April 30, 2008, we designated 7,000,000 shares of our
      preferred stock as Series D Convertible Preferred Stock (“Series D
      Preferred”).The Series A has a par value of $0.0001, a stated value of $1,000
      and a liquidation preference of $1,000, plus accrued dividends, if any. The
      Series B has a par value of $0.0001, a stated value of $1,000 and a liquidation
      preference of $1,000. The Series C has a par value of $0.0001, a stated value
      of
      $1.00 and a liquidation preference of $1.00. The Series D has a par value of
      $0.0001, a stated value of $1.00 and a liquidation preference of $1,000. The
      Series A Preferred, Series B Preferred, Series C Preferred and Series D
      Preferred were convertible into our common stock at stated conversion prices
      of
      $1.00, $1.25, $0.75, and $0.50 respectively, based upon the stated value. The
      conversion prices are subject to anti-dilution protection for (i) traditional
      capital restructurings, such as splits, stock dividends and reorganizations
      and
      (ii) sales or issuances of common shares or contracts to which common shares
      are
      indexed at less than the stated conversion prices.





Holders
      of the Company’s Series C and D Preferred are not entitled to dividends. Holders
      of the Company’s Series A Preferred and the Series B Preferred (collectively the
“Series A and B Preferred”) were entitled to cumulative dividends at the rate
      per share of 10% per annum, payable quarterly on January 1, April 1, July 1
      and
      October 1. Dividends were payable in cash or common stock, as follows: (a)
      if
      funds were legally available and certain equity conditions, described below,
      have not been met during the preceding five consecutive trading days payment
      must be in cash; (b) if funds were available and the equity conditions have
      been
      met during the five preceding trading days the payment may be made, at the
      sole
      election of the Company, in either cash or common shares (at a 10% discount
      to
      the trading market price, as defined in the Certificate of Designation).


45





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**




The
      Certificate of Designation provided that dividends were cumulative and
      unconditionally payable, even in the absence of a Board declaration.
      Accordingly, we accrued dividends as they were earned. As of October 18, 2007,
      (the date the Series A and B Preferred were exchanged for Series C Preferred),
      we had accrued $285,355 and $24,209 in dividends related to the Series A and
      B
      Preferred shares, respectively. Preferred stock dividends are recorded as a
      reduction of stockholders’ equity. However, we also reflect preferred stock
      dividends as a reduction of our net loss for purposes of calculating income
      (loss) applicable to common stockholders and our net loss per common
      share.





As
      discussed in more detail in this footnote, the Series A and B Preferred Stock
      were exchanged for Series C Preferred Stock and Warrants.





The
      Series C and Series D Preferred are redeemable for cash in an amount
      representing the stated value. The following events give rise to a redemption
      triggering event:





·
            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 this 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;





·
            The
                Corporation shall be party to a Change of Control Transaction;





·
            There
                shall have occurred a Bankruptcy Event;





·
            Any
                monetary judgment, writ or similar final process shall be entered
                or filed
                against the Corporation, any Subsidiary or any of their respective
                property or other assets for greater than
                $100,000.


46





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





If
      the
      Company fails to pay the 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 it is paid in full.





***Sales
      of Series A and Series B Preferred Stock and
      Warrants:***





On
      November 22, 2006 and May 25, 2007, we sold 3,000 Series A Preferred shares
      and
      600 Series B Preferred shares, respectively, plus two tranches of warrants
      with
      each financing. We also issued warrants to placement agents. The following
      table
      illustrates details of the sales of these financial instruments:





Series
                A
            
            Series
                B
            
            TotalGross
                proceeds
            
            $
            3,000,000
            
            $
            600,000
            
            $
            3,600,000Financing
                costs paid in cash
            
            
            (475,000
            )
            
            (95,000
            )
            
            (570,000
            )Net
                proceeds
            
            $
            2,525,000
            
            $
            505,000
            
            $
            3,030,000Common
                shares indexed to financial instruments:Series
                A and B Preferred
            
            
            3,000,000
            
            
            480,000
            
            
            3,480,000Investor
                warrants:Tranche
                A/B-1
            
            
            3,000,000
            
            
            480,000
            
            
            3,480,000Tranche
                A/B-2
            
            
            3,000,000
            
            
            480,000
            
            
            3,480,000Placement
                agent warrants
            
            
            900,000
            
            
            144,000
            
            
            1,044,0009,900,000
            
            
            1,584,000
            
            
            11,484,000





Apogee
      Financial Investments, Inc., a company owned by certain of our stockholders,
      received cash fees of $125,000 for consulting and due diligence services
      rendered in connection with the transactions, which amount is included in the
      financing costs paid in cash in the table above.





The
      following table illustrates the terms of the warrants issued in connection
      with
      the Series A and B Preferred Financings:




Strike
                  Price
              
              TermWarrant
                  terms:Tranche
                  A-1
              
              $1.50
              
              5
                  yearsTranche
                  A-2
              
              $3.00
              
              10
                  yearsTranche
                  B-1
              
              $1.87
              
              3
                  yearsTranche
                  B-2
              
              $3.75
              
              5
                  yearsPlacement
                  agents:Series
                  A Financing
              
              $1.00—$3.00
              
              10
                  yearsSeries
                  B Financing
              
              $1.25—$3.75
              
              10
                  years




47





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





The
      following tables illustrate (i) how the net proceeds arising from each of the
      Series A Preferred and Series B Preferred financing was allocated on
      the
      financing inception dates and (ii)
      how the aggregate financing costs (both cash and warrant consideration) were
      allocated on
      the
      inception dates :





Classification
            
            Series
                A
            
            Series
                B
            
            TotalRedeemable
                preferred stock (mezz)
            
            $
            —
            
            $
            —
            
            $
            —Redeemable
                preferred stock (liability)
            
            
            —
            
            
            (780,000
            )
            
            (780,000
            )Derivative
                warrants (investor warrants)
            
            
            (16,342,550
            )
            
            (1,655,567
            )
            
            (17,998,117
            )Beneficial
                conversion feature
            
            
            (1,173,510
            )
            
            —
            
            
            (1,173,510
            )Derivative
                put liability
            
            
            (834,826
            )
            
            —
            
            
            (834,826
            )Day-one
                derivative loss
            
            
            15,350,886
            
            
            1,835,567
            
            
            17,186,453Gross
                proceeds
            
            $
            3,000,000
            
            $
            600,000
            
            $
            3,600,000





The
      accounting and reporting for complex financing transactions that embody multiple
      financial instruments, some of which are features embedded within financial
      instruments, can best be described as a step-by-step process where the terms
      and
      features of the financial instruments are compared to multiple standards in
      a
      hierarchy of decision making. The following summarizes this process and
      conclusions during the process.





As
      an
      initial consideration, we are required to consider whether the Series A and
      B
      Preferred Stock are, by their terms, financial instruments that require
      liability classification under Statements on Financial Accounting Standards
      No.
      150 Accounting
      for Certain Financial Instruments with Characteristics of both Equity and
      Liability .
      Statement 150 generally provides that financial instruments that are issued
      in
      the form of shares that are mandatorily redeemable on a fixed or determinable
      date or upon an event certain to occur be classified as liabilities. Neither
      the
      Series A Preferred nor the Series B Preferred provide for their redemption
      on
      fixed or determinable date. In addition, events that could give rise to cash
      redemption are conditional and not certain to occur.





·
            Series
                A Preferred—November 22, 2006—The Series A Preferred did not require
                liability classification onthe
                inception date because the contract did not provide for a fixed or
                determinable redemption (an unconditional payment requirement) and
                events
                that could give rise to cash redemption were conditional and not
                certain
                to occur on the inception date. However, other standards exist that
                provide for classification of redeemable securities outside of
                stockholders’ equity when, irrespective of probability, contingent
                redemption events are outside of the issuer’s control. As a result, the
                Series A Preferred required classification outside of stockholders’ equity
                on the inception date.





·
            Series
                B Preferred—May 25, 2007—The Series B Preferred has terms and features
                consistent with those embodied in the Series A Preferred. However,
                as more
                fully discussed below, on the issuance date the Company’s ability to share
                settle any of its share-indexed financial instruments was not within
                its
                control, due to the triggering of the variable-share-indexed conversion
                feature in the Series A Preferred. Because share settlement was not
                within
                the Company’s control, net cash settlement was assumed and the Series B
                Preferred was initially classified in liabilities, at fair
                value.


48





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





The
      terms
      and conditions of the Series A Preferred were also subject to evaluation under
      Statement 133. Derivative financial instruments, as defined in Statement 133
      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.





In
      considering the application of Statement 133, we identified those specific
      terms
      and features embedded in the contracts that possess the characteristics of
      derivative financial instruments. Those features included the conversion option,
      redemption features and other equity-indexed terms and conditions. In evaluating
      the respective classification of these embedded derivatives, we are required
      to
      determine whether the host contract (the Series A and B Preferred) is more
      akin
      to a debt or equity instrument in regards to the risks. This determination
      is
      subjective. However, in complying with the guidance provided in EITF D-109
      Determining the Nature of a Host Contract Related to a Hybrid Financial
      Instrument Issued in the Form of a Share under Statement No. 133 we concluded,
      based upon the preponderance and weight of all terms, conditions and features of
      the host contracts, that the Series A Preferred was more akin to an equity
      instrument for purposes of considering the clear and close relation of the
      embedded feature to the host contract. Based upon this conclusion, we further
      concluded that (i) the equity indexed and settled embedded features did require
      derivative liability classification and (ii) certain redemption features (that
      is, features that afford the investor the right to put the instruments for
      cash)
      required bifurcation and classification as compound embedded derivative
      liabilities, at fair value on the inception date. These amounts are reflected
      in
      the table above as derivative put liabilities and are valued using multiple,
      probability-weighted cash flow outcomes and market discount rates that are
      commensurate with our estimated credit risk.





Although,
      as described above, the embedded conversion feature did not require liability
      classification under Statement 133, we were required to consider if the hybrid
      preferred contracts embodied beneficial conversion features (“BCF”). A BCF is
      present when the “effective” conversion price ascribed to the conversion feature
      has intrinsic value. Further, a BCF is accounted for as a component of paid-in
      capital on the inception date. As reflected in the tables above, the Series
      A
      Preferred was found to have a BCF. The aggregate BCF at its intrinsic value
      amounted to $9,326,490. This amount gives effect to the (i) the trading market
      price on the contract dates and (ii) the effective conversion price of each
      preferred issuance after allocation of proceeds to all financial instruments
      sold based upon their relative fair values. Notwithstanding, BCF was limited
      to
      the value ascribed to the remaining hybrid contract (using the relative fair
      value approach). Accordingly, the BCF allocated to paid-in capital amounted
      to
      $1,173,510.




In
      determining how the basis of the hybrid instruments would be allocated to the
      host contracts, detachable warrants, and the embedded conversion features,
      we
      utilized the guidance of Statement 133 Implementation Issue No. B-6 (“DIG Issue
      B6”) provided by the Derivatives Implementation Group. DIG Issue B6 provides
      that the initial carrying values of the host contract component and the embedded
      derivative components of a hybrid instrument should be determined by recording
      the embedded derivative at fair value and determining the initial carrying
      value
      assigned to the host contract as the difference between the basis of the hybrid
      instrument and the fair value of the embedded derivatives (a “with and without”
method based on the fair value of the embedded derivative). Since there were
      warrants issued concurrently with the host instrument and a BCF calculated
      upon
      inception, these components also needed to be considered when calculating the
      value to be assigned to the host instrument. When we evaluated the warrants,
      we
      concluded that equity classification was not appropriate for the investor
      warrants under EITF 00-19, “ Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock ”.
      Accordingly the proceeds from the issuance of the debt and the detachable
      warrants was first allocated to the debt and the warrants based on their
      relative fair values as described in APB 14. The embedded derivatives in the debt
      instrument that required bifurcation (put liability) were then bifurcated at
      their fair values from the proceeds allocated to the debt under APB 14 and
      then
      the BCF was calculated. After the allocation process, any residual proceeds
      would be allocated to the debt host, however, the aggregate fair values of
      the
      warrants, put and BCF exceeded the gross proceeds so we recognized a day-one
      derivative loss as indicated.




49





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





As
      discussed above, the initial allocation of the basis in the Series A Preferred
      Financing transaction resulted in no basis ascribed to the redeemable preferred
      stock. According to EITF D-98 Classification
      and Measurement of Redeemable Securities ,
      if the
      security is not currently redeemable and it is not probable that the security
      will be become redeemable, accretion to face value is not necessary. The Series
      A Preferred is convertible upon inception and there was no persuasive evidence
      that the Preferred Stock would not be redeemed. Based on this information,
      redemption could not be considered “not probable” of occurring and accretion was
      necessary. Redeemable preferred stock is required to be accreted to its
      redemption values through periodic charges to retained earnings or, if no term
      of redemption is embodied in the contract, as is the case of the Series A
      Preferred, on the date of issuance. As a result, a day-one deemed dividend
      of
      $3,000,000 was recorded to accrete the Series A Preferred to its redemption
      value.





The
      allocation of the basis of the Series A and Series B Financing transactions
      required the allocation to certain financial instruments at their respective
      fair values, and these fair values in each instance exceeded the cash proceeds
      obtained from the transactions. As a result, we were required to record day-one
      derivative losses in connection with these transactions because fair value
      was
      the required standard.





***Subsequent
      and Ongoing Classification Considerations:***





The
      evaluation of the classification of the Series A and B Preferred was required
      at
      each reporting date. Statement 150 requires reclassification of financial
      instruments otherwise classified in stockholders’ equity or redeemable preferred
      stock to liabilities when the conditional redemption becomes certain of
      occurrence. On May 21, 2007 and thereafter we were in default under the terms
      and conditions of the Series A Preferred due to non-registration of the
      underlying common shares (also see registration rights, below). On that date,
      the Series A Preferred Stock became redeemable for cash at 130% of the stated
      value, or $3,900,000, or, at the holder’s option, in the number of common shares
      equal to the cash redemption price divided by the 75% of the trading market
      price. The operation of the feature related to the holder’s rights to redeem in
      common shares has rendered the number of shares necessary to share-settle the
      contract (and our other share-indexed financial instruments) indeterminate.
      Therefore, share settlement of the Series A Preferred, and all other of our
      share-indexed financial instruments was presumed to no longer to be within
      our
      control. The triggering of the redemption and the share-settlement feature
      of
      the Series A Preferred had the following financial effects:





·
            The
                Series A Preferred required reclassification from its mezzanine
                classification to liabilities, at fair value, because the redemption
                is no
                longer conditional. This reclassification was accomplished by transferring
                the fair value from the mezzanine classification and joining the
                put
                derivative (that was fair valued on the date of the redemption triggering
                event with a charge to income).





·
            The
                Series B Preferred Stock, although possessing terms and conditions
                similar
                to those of the Series A Preferred was not afforded equity classification
                because share-settlement is presumed not to be within the Company’s
                control. In addition, investor and placement agent warrants issued
                with
                the Series B Preferred did not achieve equity classification for
                this same
                reason.


50





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





·
            Other
                share-indexed financial instruments, such as warrants, required
                reclassification to liabilities because our ability to share-settle
                those
                instruments was no longer within our control. Thisreclassificationwas accomplished by transferring the fair value of these instruments
                from
                stockholders’ equity to liabilities at their fair values. They require
                ongoing fair value measurement. See “Warrant Considerations,”
                below.





The
      following table illustrates the activity with respect to each of the Series
      A
      and Series B Preferred from their respective inception dates to June 30,
      2008:


Series
                  A
              
              Series
                  B
              
              TotalMezzanineInitial
                  allocation of Series A Preferred in the mezzanine
              
              $
              —
              
              $
              —
              
              $
              —Accretion
                  to redemption value
              
              
              3,000,000
              
              
              —
              
              
              3,000,000Reclassification
                  to liabilities
              
              
              (3,000,000
              )
              
              —
              
              
              (3,000,000
              )Redeemable
                  preferred stock
              
              $
              —
              
              $
              —
              
              $
              —LiabilitiesReclassification
                  from mezzanine
              
              $
              3,000,000
              
              $
              —
              
              $
              3,000,000Reclassification
                  from paid-in capital
              
              
              1,600,270
              
              
              —
              
              
              1,600,270Reclassification
                  from derivative
              
              
              599,730
              
              
              —
              
              
              599,730Initial
                  allocation of Series B Preferred in liabilities
              
              
              —
              
              
              780,000
              
              
              780,000Redeemable
                  preferred stock (liabilities)
              
              
              5,200,000
              
              
              780,000
              
              
              5,980,000Exchanged
                  for Series C Preferred
              
              
              (5,200,000
              )
              
              (780,000
              )
              
              (5,980,000
              )$
              —
              
              $
              —
              
              $
              —





When
      the
      redeemable preferred stock was reflected in liabilities, the value was based
      upon the redemption values calculated as follows:





·
            Series
                A—This amount represents the common stock equivalent value associated
                with
                the holders’ redemption alternative to require the Company to settle the
                debt in common stock, in the number of shares equal to the cash redemption
                amount (130% of the stated value) divided by 75.0% of the trading
                market
                value.





·
            Series
                B—This amount represents only the cash redemption value because, unlike
                the Series A Preferred holders, the Series B Preferred holders did
                not
                have the right to require redemption in common
                stock.





·
            The
                shares underlying the investor warrants were subject to firm registration
                rights. That is, we were required to deliver registered shares, and
                the
                Registration Rights Agreement did not specify how the warrant contract
                would be settled in the event that we are unable to deliver registered
                shares. As a result, net-cash settlement was assumed under the standard.
                That ultimate assumption required us to classify the warrants as
                derivative liabilities at their fair values and account for the warrants
                at fair value with changes recognized in
                income.




51





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





·
            The
                shares underlying the placement agent warrants are not subject to
                the
                registration rights. Accordingly, the placement agent warrants issued
                with
                the Series A Preferred Financing were afforded equity classification.
                On
                May 21, 2007, however, our ability to share-settle our share-indexed
                financial instruments was placed out of our control because the number
                of
                shares necessary to share-settle the Series A Preferred became
                indeterminate and we potentially could have insufficient authorized
                shares
                to settle all of our share-indexed financial instruments. On that
                date,
                the warrants issued with the Series A Preferred required reclassification
                to liabilities. Subsequently, on May 25, 2007, the placement agent
                warrants issued with the Series B Preferred Financing did not achieve
                equity classification for this reason.The Series A and Series B Preferred Stock were exchanged for Series
                C
                Preferred Stock and warrants on October 18, 2007, as discussed in
                the
                following section.Upon
                the exchange of the Series A and B Preferred Stock for Series C Preferred
                Stock, there was no longer a variable conversion rate associated
                with the
                Preferred Stock Financings. Accordingly, share settlement was again
                determined to be within the Company’s control and the placement agent
                warrants from the Series A and B Financings were reclassed to equity.





Note:
      In
      accordance with SFAS 150, the carrying amount of the Series A and B Preferred
      Stock were measured at fair value when the instruments were classified as
      liabilities. Certain provisions in the Preferred Stock were considered when
      determining the fair value of the instrument. There was no right to participate
      in earnings, the liquidation preference of the Preferred Stock was the same
      as
      the stated rate, there were no voting rights and the Preferred Stock was not
      redeemable by the Company, so no value was ascribed to these provisions. There
      was also no value ascribed to the cumulative dividend feature since the Company
      was unable to pay its dividend from earnings. Accordingly, the fair value
      approximates the redemption value of the Preferred Stock which is calculated
      as
      a common stock equivalent value based upon observable market prices.


52





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





***Sale
      and Exchange of Series C Preferred Stock:***





On
      October 18, 2007, we sold 6,400,000 Series C Preferred shares plus two tranches
      of warrants. We also issued warrants to placement agents. On October 18, 2007,
      we also exchanged all outstanding Series A Preferred, and Series B Preferred,
      for 3,909,564 shares of Series C Preferred and two tranches of warrants. The
      following table illustrates details of the sales of these financial
      instruments:





Series
                C
              Financing
            
            Series
                C
              Exchange
            
            TotalGross
                proceeds
            
            $
            6,400,000
            
            $
            —
            
            $
            6,400,000Financing
                costs paid in cash
            
            
            (340,000
            )
            
            —
            
            
            (340,000
            )Net
                proceeds
            
            $
            6,060,000
            
            $
            —
            
            $
            6,060,000Common
                shares indexed to financial instruments:Series
                C Preferred
            
            
            8,533,333
            
            
            5,212,752
            
            
            13,746,085Investor
                warrants:Tranche
                C-1
            
            
            8,533,334
            
            
            5,212,752
            
            
            13,746,086Tranche
                C-2
            
            
            8,533,334
            
            
            5,212,752
            
            
            13,746,086Placement
                agent warrants
            
            
            2,559,999
            
            
            —
            
            
            2,559,99928,160,000
            
            
            15,638,256
            
            
            43,798,256





Apogee
      Financial Investments, Inc., a company owned by certain of our stockholders,
      and
      Midtown Partners & Company LLC, a related company, received cash fees of
      $340,000 for consulting and due diligence services rendered in connection with
      the transactions, which amount is included in the financing costs paid in cash
      in the table above.





The
      following table illustrates the terms of the warrants issued in connection
      with
      the Series C Preferred Financing:


Strike
                  Price
              
              TermWarrant
                  terms:Tranche
                  C-1
              
              $1.50
              
              5
                  yearsTranche
                  C-2
              
              $2.00
              
              10
                  yearsPlacement
                  agents
              
              $0.75-$2.00
              
              10
                  years




53





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





The
      following tables illustrate how the net proceeds arising from each of the Series
      C Preferred Financing and Exchange was allocated on the inception
      dates:





Series C
              Financing
            
            Series C
              Exchange
            
            TotalRedeemable
                preferred stock (mezzanine)
            
            $
            —
            
            $
            (13,553,155
            )
            $
            (13,553,155
            )Beneficial
                conversion feature (paid-in capital)
            
            
            (2,766,833
            )
            
            —
            
            
            (2,766,833
            )Derivative
                put liability
            
            
            (399,150
            )
            
            —
            
            
            (399,150
            )Sub-total
                redeemable preferred
            
            
            (3,165,983
            )
            
            (13,553,155
            )
            
            (16,719,138
            )Paid-in
                capital (investor warrants)
            
            
            (3,633,167
            )
            
            (17,796,834
            )
            
            (21,430,001
            )Loss
                on extinguishment of redeemable preferred stock
            
            
            —
            
            
            26,247,006
            
            
            26,247,006Day-one
                derivative loss
            
            
            399,150
            
            
            —
            
            
            399,150Loss
                on extinguishment of other liabilities
            
            
            —
            
            
            271,109
            
            
            271,109Gross
                proceeds (financing) basis (exchange)
            
            $
            (6,400,000
            )
            $
            (4,831,874
            )
            $
            (11,231,874
            )





The
      Exchange of Series A and B Preferred for Series C Preferred and related
      warrants, was accounted for as the settlement of the former financial
      instruments resulting in (i) an extinguishment loss, to the extent that the
      fair
      value of the Series C Preferred and related warrants exceeded the carrying
      values of the Series A and B Preferred (included in liabilities). The following
      table illustrates the calculations related to the Exchange.





Fair
                value of Series C Preferred
            
            $
            13,553,155Fair
                value of Series C investor warrants
            
            
            17,796,83431,349,989Carrying
                values of financial instruments exchanged:Series
                A Preferred
            
            
            (5,200,000
            )Series
                B Preferred
            
            
            (780,000
            )Accrued
                dividends
            
            
            (309,564
            )Accrued
                damages
            
            
            (542,080
            )Unamortized
                finance costs
            
            
            1,999,771Total
                carrying values
            
            
            (4,831,873
            )Excess
                of fair values over carrying values
            
            $
            26,518,116Allocation
                of excess:Extinguishment
                of redeemable preferred
            
            $
            26,247,007Extinguishment
                of other liabilities
            
            
            271,109Excess
                of fair values over carrying values
            
            $
            26,518,116


54





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





The
      investor warrants were valued using BSM. Significant assumptions underlying
      the
      BSM calculations are as follows:





Financing
                Inception Dates:
            
            A-1
            
            A-2
            
            B-1
            
            B-2Trading
                market price
            
            $
            3.50
            
            $
            3.50
            
            $
            3.50
            
            $
            3.50Strike
                or exercise price
            
            $
            1.50
            
            $
            3.00
            
            $
            1.87
            
            $
            3.75Expected
                term in years
            
            
            5yrs
            
            
            10yrs
            
            
            3yrs
            
            
            5yrsVolatility
            
            
            43.91
            %
            
            51.15
            %
            
            39.86
            %
            
            42.19
            %Risk-free
                rate
            
            
            4.57
            %
            
            4.57
            %
            
            4.81
            %
            
            4.80
            %Expected
                dividend rate
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00





October
                18, 2007:
            
            A-1
            
            A-2
            
            B-1
            
            B-2Trading
                market price
            
            $
            3.25
            
            $
            3.25
            
            $
            3.25
            
            $
            3.25Strike
                or exercise price:Contract
                price
            
            $
            1.50
            
            $
            3.00
            
            $
            1.87
            
            $
            3.75Repriced
            
            $
            0.75
            
            $
            0.75
            
            $
            0.75
            
            $
            0.75Expected
                term in years
            
            
            4.15yrs
            
            
            9.10yrs
            
            
            2.65yrs
            
            
            4.65yrsVolatility
            
            
            39.60
            %
            
            52.07
            %
            
            34.97
            %
            
            40.03
            %Risk-free
                rate
            
            
            4.23
            %
            
            4.59
            %
            
            4.03
            %
            
            4.23
            %Expected
                dividend rate
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00





On
      October 18, 2007, certain warrants were repriced from their original exercise
      price to $0.75 in connection with the Series C Preferred financing. On April
      30,
      2008 certain warrants were repriced to $0.50 in connection with the Series
      D
      Preferred Financing. We recorded an expense of approximately $3.2 million
      resulting from repricing of warrants.





The
      fair
      value of the warrants issued to placement agents in connection with the Series
      A
      Preferred and Series B Preferred financing transactions amounted to $2,492,312
      and $384,034, respectively; $2,876,346 in the aggregate. The fair values were
      calculated using the Black-Scholes-Merton (“BSM”) valuation
      technique.





Notes
      to
      BSM: We did not have a historical trading history sufficient to develop an
      internal volatility rate for use in BSM. As a result, we have used a peer
      approach wherein the historical trading volatilities of certain companies with
      similar characteristics as ours and who had a sufficient trading history were
      used as an estimate of our volatility. In developing this model, no one company
      was weighted more heavily. We do not have a history to develop the expected
      term
      for our warrants. Accordingly, we have used the contractual remaining term
      in
      our calculations. Finally, for purposes of our risk-free rate, we have used
      the
      publicly-available yields on zero-coupon Treasury securities with remaining
      terms to maturity consistent with the remaining contractual term of the
      warrants. These assumptions are estimates of future trends. Actual results
      during the periods that the warrants are outstanding will most likely be
      different.


55




**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





***Sales
      of Series D Preferred Stock and Warrants:***





On
      April
      30, 2008, we entered into securities purchase agreement (the “Purchase
      Agreement”) with Vicis Capital Master Fund (“Vicis”) pursuant to which Vicis
      purchased 7,000,000 shares of our Series D Convertible Preferred Stock (“Series
      D Preferred Stock”), respectively for an aggregate purchase price of $7,000,000.
      The Series D Preferred Stock has a conversion price of $0.50 and is convertible
      into an aggregate amount of 14,000,000 shares of common stock. The Series D
      Preferred Stock does not pay annual dividends but each holder of Series D
      Preferred Stock has the right to such number of votes equal to the number of
      shares of common stock that the Series D Preferred Stock may be converted into,
      subject to the beneficial ownership limitation described below.





In
      connection with the Agreement, Vicis received a Series D warrant to purchase
      28,000,000 shares of common stock of the Company (“Series D Warrants”). The
      Series D Warrants are exercisable for a period of seven years from the date
      of
      issuance at an initial exercise price of $0.75. Vicis may exercise the Series
      D
      Warrants on a cashless basis if the shares of common stock underlying the Series
      D Warrants are not then registered pursuant to an effective registration
      statement. In the event Vicis exercises the Series D Warrants on a cashless
      basis, then we will not receive any proceeds.





The
      conversion price of the Series D Preferred Stock and the exercise price of
      the
      Series D Warrants are subject to full ratchet and anti-dilution adjustment
      for
      subsequent lower price issuances by the Company, as well as customary adjustment
      provisions for stock splits, stock dividends, and recapitalizations.





In
      addition, the Company, Vicis and Dynamic Decisions Strategic Opportunities
      (“Dynamic Decisions”) have entered into Amendment No. 1 to its amended and
      restated registration rights agreement (“Amended Registration Rights Agreement”)
      pursuant to which if at any time after the date of the Amended Registration
      Rights Agreement we shall decide to prepare and file with the Commission a
      registration statement relating to an offering for our own account or the
      account of others under the Securities Act of any of its equity securities,
      other than on Form S-4 or Form S-8 (each as promulgated under the Securities
      Act) or their then equivalents relating to equity securities to be issued solely
      in connection with any acquisition of any entity or business or equity
      securities issuable in connection with the stock option or other employee
      benefit plans, then we will send to each holder a written notice of such
      determination and, if within fifteen days after the date of such notice, any
      such holder shall so request in writing, we will include in the registration
      statement, all or any part of such Registrable Securities (as defined in Amended
      Registration Rights Agreement) such holders request to be
      registered.





Vicis
      has
      contractually agreed to restrict their ability to convert the Series D Preferred
      Stock and exercise the Series D Warrants and receive shares of our common stock
      such that the number of shares of the Company common stock held by them and
      their affiliates after such conversion or exercise does not exceed 4.99% of
      our
      issued and outstanding shares of common stock.





At
      any
      time before the one year anniversary of the date we initially issued the shares
      of Series D Preferred Stock, we may, upon written notice, redeem the outstanding
      shares of Series D Preferred Stock in cash at a price equal to 110% of Stated
      Value (as such term is defined in the Certificate of
      Designations).


56





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





The
      following table illustrates (i) how the net proceeds arising from the Series
      D
      Preferred financing were allocated on
      the
      financing inception date and (ii)
      how the aggregate financing costs (both cash and warrant consideration) were
      allocated on
      the
      inception date :





Classification
            
            Series DRedeemable
                Preferred Stock (Mezzanine)
            
            $
            -Derivative
                warrants (investor warrants)
            
            
            (18,174,800
            )Derivative
                warrants (agent warrants)
            
            
            (1,131,620
            )Beneficial
                conversion feature
            
            
            (2,839,864
            )Derivative
                put liability
            
            
            (1,024,605
            )Deferred
                financing costs
            
            
            1,077,268Retained
                earnings (financing fees)
            
            
            316,615Paid
                in capital (financing fees)
            
            
            286,487Day-one
                derivative loss
            
            
            14,965,519Net
                proceeds
            
            $
            6,525,000





The
      accounting and reporting for complex financing transactions that embody multiple
      financial instruments, some of which are features embedded within financial
      instruments, can best be described as a step-by-step process where the terms
      and
      features of the financial instruments are compared to multiple standards in
      a
      hierarchy of decision making. The following summarizes this process and
      conclusions during the process.





As
      an
      initial consideration, we are required to consider whether the Series D
      Preferred Stock is, by its terms, financial instruments that require liability
      classification under Statements on Financial Accounting Standards No. 150 Accounting
      for Certain Financial Instruments with Characteristics of both Equity and
      Liability .
      Statement 150 generally provides that financial instruments that are issued
      in
      the form of shares that are mandatorily redeemable on a fixed or determinable
      date or upon an event certain to occur be classified as liabilities.





·
            The
                Series D Preferred did not require liability classification on the
                inception date because the contract did not provide for a fixed or
                determinable redemption (an unconditional payment requirement) and
                events
                that could give rise to cash redemption were conditional and not
                certain
                to occur on the inception date. However, other standards exist that
                provide for classification of redeemable securities outside of
                stockholders’ equity when, irrespective of probability, contingent
                redemption events are outside of the issuer’s control. As a result, the
                Series D Preferred required classification outside of stockholders’ equity
                on the inception date.





The
      terms
      and conditions of the Series D Preferred were also subject to evaluation under
      Statement 133. Derivative financial instruments, as defined in Statement 133
      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.


57





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





In
      considering the application of Statement 133, we identified those specific
      terms
      and features embedded in the contracts that possess the characteristics of
      derivative financial instruments. Those features included the conversion option,
      redemption features and other equity-indexed terms and conditions. In evaluating
      the respective classification of these embedded derivatives, we are required
      to
      determine whether the host contract (the Series D Preferred) is more akin to
      a
      debt or equity instrument in regards to the risks. This determination is
      subjective. However, in complying with the guidance provided in EITF D-109 Determining
      the Nature of a Host Contract Related to a Hybrid Financial Instrument Issued
      in
      the Form of a Share under Statement No. 133 we
      concluded, based upon the preponderance and weight of all terms, conditions
      and
      features of the host contracts, that the Series D Preferred was more akin to
      an
      equity instrument for purposes of considering the clear and close relation
      of
      the embedded feature to the host contract. Based upon this conclusion, we
      further concluded that (i) the equity indexed and settled embedded features
      did
      not require derivative liability classification and (ii) certain redemption
      features (that is, features that afford the investor the right to put the
      instruments for cash) required bifurcation and classification as compound
      embedded derivative liabilities, at fair value on the inception date. These
      amounts are reflected in the table above as derivative put liabilities and
      are
      valued using multiple, probability-weighted cash flow outcomes and market
      discount rates that are commensurate with our estimated credit
      risk.





Although,
      as described above, the embedded conversion feature did not require liability
      classification under Statement 133, we were required to consider if the hybrid
      preferred contracts embodied beneficial conversion features (“BCF”). A BCF is
      present when the “effective” conversion price ascribed to the conversion feature
      has intrinsic value. Further, a BCF is accounted for as a component of paid-in
      capital on the inception date. As reflected in the tables above, the Series
      D
      Preferred was found to have a BCF. The aggregate BCF at its intrinsic value
      amounted to $38,460,136. This amount gives effect to the (i) the trading market
      price on the contract dates and (ii) the effective conversion price of each
      preferred issuance after allocation of proceeds to all financial instruments
      sold based upon their relative fair values. Notwithstanding, BCF was limited
      to
      the value ascribed to the remaining hybrid contract (using the relative fair
      value approach). Accordingly, the BCF allocated to paid-in capital amounted
      to
      $2,839,864.





As
      discussed above, the initial allocation of the basis in the Series D Preferred
      Financing transaction resulted in no basis ascribed to the redeemable preferred
      stock. According to EITF D-98 Classification
      and Measurement of Redeemable Securities ,
      if the
      security is not currently redeemable and it is not probable that the security
      will be become redeemable, accretion to face value is not necessary. The Series
      D Preferred is convertible upon inception and there was no persuasive evidence
      that the Preferred Stock would not be redeemed. Based on this information,
      redemption could not be considered “not probable” of occurring and accretion was
      necessary. Redeemable preferred stock is required to be accreted to its
      redemption values through periodic charges to retained earnings or, if no term
      of redemption is embodied in the contract, as is the case of the Series D
      Preferred, on the date of issuance. As a result, a day-one deemed dividend
      of
      $7,000,000 was recorded to accrete the Series D Preferred to its redemption
      value.





The
      allocation of the basis of the Series D Financing transaction required the
      allocation to certain financial instruments at their respective fair values,
      and
      these fair values in each instance exceeded the cash proceeds obtained from
      the
      transactions. As a result, we were required to record a day-one derivative
      loss
      in connection with this transaction because fair value was the required
      standard.


58





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





*Subsequent
      and Ongoing Classification Considerations:*





The
      evaluation of the classification of the Series D Preferred is required at each
      reporting date. Statement 150 requires reclassification of financial instruments
      otherwise classified in stockholders’ equity or redeemable preferred stock to
      liabilities when the conditional redemption becomes certain of occurrence.
      As of
      June 30, 2008, the conditional redemption was not considered certain to occur
      and the Series D Preferred continued to be recorded in the mezzanine
      section.





Midtown
      Partners & Co., LLC, (“Midtown”), which served as the Company’s placement
      agent in connection with the Purchase Agreement, received aggregate placement
      agent fees of approximately $350,000, as well as the following common stock
      purchase warrants: (a) a Series BD-10 warrant entitling Midtown to purchase
      700,000 shares of the Company's common stock at an exercise price of fifty
      cents
      ($0.50) per share, and (b) a Series BD-11 warrant entitling Midtown to purchase
      1,400,000 shares of our common stock at an exercise price of seventy-five cents
      ($0.75) per share. The Series BD-10 and BD-11 warrants have a term of five
      years
      from the date of issuance. Midtown is a FINRA registered broker-dealer. Pursuant
      to the terms of the Registration Rights Agreement by and between the Company
      and
      Midtown, if at any time after the date of the Registration Rights Agreement
      the
      Company decides to prepare and file with the Commission a registration statement
      relating to an offering for its own account or the account of others under
      the
      Securities Act of any of its equity securities, other than on Form S-4 or Form
      S-8 (each as promulgated under the Securities Act) or their then equivalents
      relating to equity securities to be issued solely in connection with any
      acquisition of any entity or business or equity securities issuable in
      connection with the stock option or other employee benefit plans, then the
      Company shall send to each holder a written notice of such determination and,
      if
      within fifteen days after the date of notice, the holder requests in writing,
      the Company will include in such registration statement, all or any part of
      such
      Registrable Securities (as defined in Registration Rights Agreement) the holders
      request to be registered.





The
      Series D Preferred Stock is convertible into shares of common stock at a
      conversion price of $0.50.  Any previously issued and outstanding financial
      instruments afforded full ratchet protection with a conversion price greater
      than $0.50 automatically had their conversion price ratcheted down to the lower
      conversion price. These financial instruments included the Series C Preferred
      Financing and the investor and placement agent warrants related to the Series
      A,
      Series B, and Series C Financings.





The
      investor warrants were valued using BSM. Significant assumptions underlying
      the
      BSM calculations are as follows:





April
                30, 2008 (inception):
            
            Series DTrading
                market price
            
            $
            2.95Strike
                or exercise price:
            
            $
            0.75Expected
                term in years
            
            
            7yrsVolatility
            
            
            43.82
            %Risk-free
                rate
            
            
            3.34
            %Expected
                dividend rate
            
            $
            0.00


59





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





***Warrant
      Considerations***





The
      overall accounting for the Series A, B, C, and D Preferred Financings required
      consideration regarding the classification of the investor and placement agent
      warrants. Warrants are derivative financial instruments that are indexed to
      the
      Company’s own stock and, accordingly, equity classification of the warrants is
      dependent upon meeting eight specific conditions for equity classification
      provided in EITF 00-19 Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock .
      In
      evaluating the warrants under EITF 00-19, we noted that there were no explicit
      conditions that required net cash settlement. However, equity classification
      is
      permissible only in instances where the contract permits us to settle in
      unregistered shares.





·
            The
                shares underlying the Series A and B investor warrants were subject
                to
                firm registration rights. That is, we were required to deliver registered
                shares, and the Registration Rights Agreement did not specify how
                the
                warrant contract would be settled in the event that we are unable
                to
                deliver registered shares. As a result, net-cash settlement was assumed
                under the standard. That ultimate assumption requires us to classify
                the
                warrants as derivative liabilities at their fair values and account
                for
                the warrants at fair value each reporting period with changes recognized
                in income. The series c investor warrants are not subject to firm
                registration rights and they meet the criteria in EITF 00-19 paragraphs
                12-32 for equity classification. The Series D warrants are redeemable
                for
                cash upon certain events not considered within our control, as such,
                they
                require liability classification under SFAS 150, and must by classified
                as
                liabilities and adjusted to fair value each reporting period with
                changes
                in fair value recognized in income.





·
            The
                shares underlying the placement agent warrants are not subject to
                the
                registration rights. Accordingly, the placement agent warrants issued
                with
                the Series A Preferred Financing were afforded equity classification.
                On
                May 21, 2007, however, our ability to share-settle our share-indexed
                financial instruments was placed out of our control because the number
                of
                shares necessary to share-settle the Series A Preferred became
                indeterminate and we potentially could had insufficient authorized
                shares
                to settle all of our share-indexed financial instruments. On that
                date,
                the warrants issued with the Series A Preferred required reclassification
                to liabilities. Subsequently, on May 25, 2007, the placement agent
                warrants issued with the Series B Preferred Financing did not achieve
                equity classification for this reason. Upon the exchange of the Series
                A
                and B Preferred Stock for Series C Preferred Stock, there was no
                longer a
                variable conversion rate associated with the Preferred Stock Financings.
                Accordingly, share settlement was again determined to be within the
                Company’s control and the placement agent warrants from the Series A and B
                Preferred Financings were reclassed to equity. The placement agent
                warrants issued with the Series C Preferred were afforded equity
                classification. The placement agent warrants issued with the Series
                D
                Preferred were redeemable for cash upon the occurrence of certain
                events
                not considered within our control, as such, they require liability
                classification under SFAS 150, and must be classified as liabilities
                and
                adjusted to fair value each reporting period with changes in fair
                value
                recognized in income.





The
      warrants were valued using BSM. Significant assumptions underlying the BSM
      calculations are as follows at June 30, 2008:





A-1
            
            A-2
            
            B-1
            
            B-2
            
            BD-10
            
            BD-11
            
            DTrading
                market price
            
            $
            1.50
            
            $
            1.50
            
            $
            1.50
            
            $
            1.50
            
            $
            1.50
            
            $
            1.50
            
            $
            1.50Strike
                or exercise price
            
            $
            0.50
            
            $
            0.50
            
            $
            0.50
            
            $
            0.50
            
            $
            0.50
            
            $
            0.75
            
            $
            0.75Expected
                term in years
            
            
            3.4yrs
            
            
            8.4yrs
            
            
            1.9yrs
            
            
            3.9yrs
            
            
            4.8yrs
            
            
            4.8yrs
            
            
            6.83yrsVolatility
            
            
            38.55
            %
            
            45.64
            %
            
            38.91
            %
            
            38.91
            %
            
            41.33
            %
            
            41.33
            %
            
            44.29
            %Risk-free
                rate
            
            
            2.91
            %
            
            3.61
            %
            
            1.63
            %
            
            2.91
            %
            
            3.34
            %
            
            3.34
            %
            
            3.61
            %Expected
                dividend rate
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00


60


**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





The
      investor warrants were valued using BSM. Significant assumptions underlying
      the
      BSM calculations are as follows for year ended June 30, 2007:





June
                30, 2007:
            
            A-1
            
            A-2
            
            B-1
            
            B-2
            
            BD-1
            
            BD-2
            
            BD-3Trading
                market price
            
            $
            3.60
            
            $
            3.60
            
            $
            3.60
            
            $
            3.60
            
            $
            3.60
            
            $
            3.60
            
            $
            3.60Strike
                or exercise price
            
            $
            1.50
            
            $
            1.00
            
            $
            1.87
            
            $
            3.75
            
            $
            1.00
            
            $
            1.50
            
            $
            3.00Expected
                term in years
            
            
            4.4yrs
            
            
            9.4yrs
            
            
            2.9yrs
            
            
            4.9yrs
            
            
            9.4yrs
            
            
            9.4yrs
            
            
            9.4yrsVolatility
            
            
            40.26
            %
            
            51.69
            %
            
            36.00
            %
            
            41.30
            %
            
            51.69
            %
            
            51.69
            %
            
            51.69
            %Risk-free
                rate
            
            
            4.92
            %
            
            5.03
            %
            
            4.89
            %
            
            4.92
            %
            
            5.03
            %
            
            5.03
            %
            
            5.03
            %Expected
                dividend rate
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00





***Direct
      Financing Costs:***





Aggregate
      financing costs arising from the Series A, Series B, Series C, and Series D
      Preferred financings amounted to $2,967,313, $479,034, $5,538,797, and
      $1,680,370 respectively. As noted in the tables below, these financing
      costs were allocated among deferred financing costs, paid-in capital and
      retained earnings based upon the relative fair values of the components of
      the
      financing. That is, liability classified financial instruments (i.e.
      derivatives), mezzanine financial instruments and equity classified financial
      instruments (i.e. BCF). Since, as previously discussed, no basis was ascribed
      to
      the redeemable preferred stock, the amount of financing costs allocated to
      this
      category were reflected as a charge to retained earnings.





The
      following table illustrates the allocation of financing costs associated with
      the Series A, Series B, and Series D Financing Transactions:





Classification
            
            Series A
            
            Series B
            
            Series C
            
            Series D
            
            TotalDeferred
                financing costs (asset)
            
            $
            1,898,875
            
            $
            479,034
            
            $
            43,079
            
            $
            1,077,268
            
            $
            3,498,256Paid-in
                capital
            
            
            911,135
            
            
            —
            
            
            4,998,925
            
            
            286,487
            
            
            6,196,547Series
                C preferred mezzanine
            
            
            —
            
            
            —
            
            
            496,793
            
            
            —
            
            
            496,793Accumulated
                deficit (deemed dividend)
            
            
            157,303
            
            
            —
            
            
            —
            
            
            316,615
            
            
            473,918Aggregate
                finance costs
            
            $
            2,967,313
            
            $
            479,034
            
            $
            5,538,797
            
            $
            1,680,370
            
            $
            10,665,514





***Derivative
      Financial Instruments***





The
      following table summarizes the components of derivative liabilities as of June
      30, 2008:





Financing
                Transaction:Series
                A Convertible Preferred Financing- Investor warrants
            
            $
            (1,093,500
            )Series
                B Convertible Preferred Financing- Investor warrants
            
            
            (42,384
            )Series
                C Convertible Preferred Financing- Put liability
            
            
            (733,144
            )Series
                D Convertible Preferred Financing- Investor warrants
            
            
            (3,329,200
            )Series
                D Convertible Preferred Financing- Placement agent
                warrants
            
            
            (148,509
            )Series
                D Convertible Preferred Financing- Put liability
            
            
            (1,014,363
            )$
            (6,362,100
            )Common
                shares indexed to warrants recorded as derivative
                liabilities
            
            
            37,060,000


61





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





The
      following table summarizes the components of derivative income (expense) arising
      from fair value adjustments during the twelve month period ending June 30,
      2008:





Financing
                Transactions:
            
            Embedded
              Derivatives
            
            Warrant
              Derivatives
            
            TotalSeries
                A Financing
            
            $
            —
            
            $
            18,208,598
            
            $
            18,208,598Series
                B Financing
            
            
            —
            
            
            1,733,309
            
            
            1,733,309Series
                C Financing
            
            
            (333,994
            )
            
            —
            
            
            (333,994
            )Series
                D Financing
            
            
            10,242
            
            
            15,826,580
            
            
            15,836,822Other
                warrants, reclassified
            
            
            —
            
            
            1,614,360
            
            
            1,614,360Day-one
                derivative losses
            
            
            (15,364,669
            )
            
            —
            
            
            (15,364,669
            )Total
                derivative income (expense)
            
            $
            (15,688,421
            )
            $
            37,382,847
            
            $
            21,694,426





The
      following table summarizes the components of derivative income (expense) arising
      from fair value adjustments during the period from the financing inception
      dates
      to June 30, 2007:





Financing
                Transactions:
            
            Embedded
              Derivatives
            
            Warrants
              Derivatives
            
            TotalSeries
                A Financing
            
            $
            235,096
            
            $
            (2,957,418
            )
            $
            (2,722,322
            )Series
                B Financing
            
            
            —
            
            
            (56,332
            )
            
            (56,332
            )Other
                warrants, reclassified
            
            
            —
            
            
            (191,160
            )
            
            (191,160
            )Day-one
                derivative losses
            
            
            (17,186,455
            )
            
            —
            
            
            (17,186,455
            )Total
                derivative income (expense)
            
            $
            (16,951,359
            )
            $
            (3,204,910
            )
            $
            (20,156,269
            )





The
      following table summarizes the components of derivative income (expense) arising
      from fair value adjustments during the period from the financing inception
      dates
      to June 30, 2008:





Financing
                Transactions:
            
            Embedded
              Derivatives
            
            Warrants
              Derivatives
            
            TotalSeries
                A Financing
            
            $
            235,096
            
            $
            15,251,180
            
            $
            15,486,276Series
                B Financing
            
            
            —
            
            
            1,676,977
            
            
            1,676,977Series
                C Financing
            
            
            (333,994
            )
            
            —
            
            
            (333,994
            )Series
                D Financing
            
            
            10,242
            
            
            15,826,580
            
            
            15,836,822Other
                warrants, reclassified
            
            
            —
            
            
            1,423,200
            
            
            1,423,200Day-one
                derivative losses
            
            
            (32,551,124
            )
            
            —
            
            
            (32,551,124
            )Total
                derivative income (expense)
            
            $
            (32,639,780
            )
            $
            34,177,937
            
            $
            1,538,157


62





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





We
      estimate fair values of derivative financial instruments using various
      techniques (and combinations thereof) that are considered to be consistent
      with
      the objective measuring fair values. In selecting the appropriate technique,
      we
      consider, among other factors, the nature of the instrument, the market risks
      that it embodies and the expected means of settlement. For less complex
      derivative instruments, such as free-standing warrants, we generally use the
      Black-Scholes-Merton option valuation technique because it embodies all of
      the
      requisite assumptions (including  trading
      volatility, estimated terms and risk free rates) necessary to fair value these
      instruments. For forward contracts that contingently require net-cash settlement
      as the principal means of settlement, we project and discount future cash flows
      applying probability-weightage to multiple possible outcomes. 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 historical 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.





***Registration
      Rights Agreements***





In
      connection with the Series A and B Preferred financings, the Company and the
      Investors entered into a registration rights agreement pursuant to which the
      Company agreed to file, within 90 days after the closing (the Filing Date),
      a
      registration statement covering the common stock issuable upon conversion of
      the
      Preferred Stock and exercise of the Warrants. If (i) a Registration Statement
      is
      not filed on or prior to its Filing Date (if the Company files a Registration
      Statement without affording the Holders the opportunity to review and comment
      on
      the same as required or (ii) the Company fails to file with the Commission
      a
      request for acceleration in accordance with Rule 461 promulgated under the
      Securities Act, within five Trading Days of the date that the Company is
      notified (orally or in writing, whichever is earlier) by the Commission that
      a
      Registration Statement will not be “reviewed,” or not subject to further review,
      or (iii) prior to its Effectiveness Date, the Company fails to file a
      pre-effective amendment and otherwise respond in  writing
      to comments made by the Commission in respect of such Registration Statement
      within 10 calendar days after the receipt of comments by or notice from the
      Commission that such amendment is required in order for a Registration Statement
      to be declared effective, or (iv) a Registration Statement filed or required
      to
      be filed hereunder is not declared effective by the Commission by its
“Effectiveness Date” (the 150th calendar day following the date the  agreement
      was entered into or the 180th calendar day in the event of a “full review” of
      the initial Registration Statement by the Commission), or (v) after the
      Effectiveness Date, a Registration Statement ceases for any reason to remain
      continuously effective as to all Registrable Securities, for which it is
      required to be effective, or the Holders are otherwise not permitted to utilize
      the Prospectus therein to resell such Registrable Securities for more than
      10
      consecutive calendar days or more than an aggregate of 15 calendar days during
      any 12-month period (which need not be consecutive calendar days) then, in
      addition to any other rights the Holders may have hereunder or under applicable
      law, on each such Event Date and on each monthly anniversary of each such Event
      Date (if the applicable Event shall not have been cured by such date) until
      the
      applicable Event is cured, the Company shall pay to each Holder an amount in
      cash or shares of Common Stock, or combination thereof, as partial liquidated
      damages and not as a penalty, equal to 1.5% of the aggregate purchase price
      paid
      by such Holder pursuant to the Purchase Agreement for any Registrable Securities
      then held by such Holder (calculated as if all convertible securities had been
      fully converted.)


63





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      10 – REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND
      REGISTRATION PAYMENT ARRANGEMENTS (CONTINUED):**





The
      parties agree that (1) the Company will not be liable for liquidated damages
      under this Agreement with respect to any Warrants or Warrant Shares, (2) in
      no
      event will the Company be liable for liquidated damages under this Agreement
      in
      excess of 1.5% of the aggregate Subscription Amount of the Holders in any 30-day
      period and (3) the maximum aggregate liquidated damages payable to a Holder
      under this Agreement shall be 9% of the aggregate Subscription Amount paid
      by
      such Holder pursuant to the Purchase Agreement. The price at which shares of
      Common Stock issuable in lieu of cash hereunder shall be equal to the lesser
      of
      (x) [90% of the average of the 5 consecutive VWAPs immediately prior to the
      applicable Event Date, (y) [90% of the average of the 5 consecutive VWAPs
      immediately prior to the date such damages are due or (z) the then applicable
      Conversion Price. Notwithstanding anything herein to the contrary, payment
      in
      shares of Common Stock may only occur if during the period from the applicable
      Event Date until such issuance is made in full all of the Equity Conditions
      (as
      defined above-“Convertible Preferred Stock Rights and Preferences”) have been
      met and the Company shall have given the Holder written irrevocable notice
      within 2 Trading Days of the Event Date. Subject to the terms and conditions
      described above, the decision whether to pay partial liquidated damages in
      shares of Common Stock or cash shall be at the discretion of the Company.
      Subject to the aforementioned conditions, failure to timely provide such written
      notice shall be deemed an election by the Company to pay the partial liquidated
      damages on such Event Date in cash. Except as otherwise provided, if at any
      time
      the Company pays partial liquidated damages partially in cash and partially
      in
      shares of Common Stock, then such payment shall be distributed ratably among
      the
      Holders based upon the subscription amount paid by each Holder. If the Company
      fails to pay any partial liquidated damages in full within seven days after
      the
      date payable, the Company will pay interest thereon at a rate of 18% per annum
      (or such lesser maximum amount that is permitted to be paid by applicable law)
      to the Holder, accruing daily from the date such partial liquidated damages
      are
      due until such amounts, plus all such interest thereon, are paid in full. The
      partial liquidated damages pursuant to the terms hereof shall apply on a daily
      pro-rata basis for any portion of a month prior to the cure of an
      Event.





On
      October 18, 2007, when the Series A and B Preferred were exchanged for the
      Series C Preferred, the Registration Rights Agreement was amended. The Amended
      Registration Rights Agreement calls for piggy-back registration rights only
      and
      the Company’s best efforts at obtaining and maintaining effectiveness. There are
      no stipulations or damages if the registration does not occur.





**NOTE
      11 -** **NOTE RECEIVABLE:**





On
      May 7,
      2008, the Company entered into loan agreement (the “Purchase Agreement”) with
      ResponzeTV, PLC, a corporation incorporated under the laws of England and Wales
      (“RETV”) pursuant to which the Company purchased a 10% Promissory Note from RETV
      for an aggregate purchase price of $2,000,000 (the “Note”). The Note bears
      interest at 10% per annum and matures on June 21, 2008, forty-five days from
      the
      date of issuance (the “Maturity Date”).




On
      the
      Maturity Date, the Company, at its sole discretion, may either (i) apply the
      principal amount of the Note, and any interest accrued thereon, towards the
      purchase price of a strategic transaction entered into with the RETV for the
      acquisition of the capital stock and/or assets  of any of RETV’s
      subsidiaries and/or divisions (the “Strategic Transaction”) or (ii) convert the
      principal amount of the Note, and any interest accrued thereon, into (x) the
      Specified Number of New RETV Shares at a price of 25.75p per share plus (y)
      New
      RETV Warrants (the “New RETV Securities”). If the Company does not make any such
      express election, the Company will be deemed to have elected to convert the
      principal amount of the Note, and any accrued interest thereon, on the Maturity
      Date, in accordance with (ii) above. If the Company converts the Note in
      accordance with the provisions set forth above, the Company will hereby forgive
      RETV of its obligation to repay the principal amount of the Note and any
      interest accrued but unpaid thereunder and the Note shall become null and void
      as of the Maturity Date.


64





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      11 -** **NOTE RECEIVABLE:**





For
      purposes of the New RETV Securities, “New RETV Shares” means new ordinary shares
      of 16p par value in the capital of RETV, credited as fully paid up, “New RETV
      Warrants” means new unlisted warrants to subscribe for New RETV Shares which
      will be issued and granted to the Company pursuant to a warrant instrument
      in
      substantially the same form as the warrant instrument granted to the Company
      in
      October 2007, in the following manner: (x) warrants equal to the Specified
      Number, which shall be exercisable at 37p; (y) warrants equal to 50% of the
      Specified Number, which shall be exercisable at 50p; and (z) warrants equal
      to
      50% of the Specified Number, which shall be exercisable at 100p. For purposes
      of
      this Section, “Specified Number” means the principal amount of the Note, and any
      interest accrued thereon, in Pounds Sterling (calculated at an agreed exchange
      rate of £1:US$1.98) divided by 25.75p (being the agreed price for each New RETV
      Share).





Following
      a review of the financial reporting systems, certain accounting discrepancies
      have emerged within the Company's US operations Reliant International Media.
      The
      board is currently investigating these discrepancies however there can be no
      guarantee, at this stage, that the Company will be able to continue trading
      following clarification of its financial position.





It
      is
      unlikely that the Company will be able to publish its audited results for the
      year ended 31 December 2007 by 30 June 2008 as it’s required under the AIM
      Rules. A further announcement will be made in this regard in due course.





The
      Board
      of Directors is discussing the Company's financial position with its accountants
      and funders.





In
      may of
      2008, the Company was delisted from the AIM exchange. After considering the
      impact of this action, we under took an analysis of the Company’s operating
      performance to determine whether it could sustain the required level of cash
      flows from operations to repay the debt. We concluded that it was unlikely
      that
      the Company would be in a position to repay the loan, and accordingly, we
      established a loan loss reserve in the amount of 2M plus accrued interest as
      of
      June 30, 2008.





**NOTE
      12 - INCOME TAXES:**





The
      income tax provision (benefit) consists of the following for the year ended
      June
      30, 2008:




**Income
                Taxes:**The
                components of the provision for income taxes are as
                follows:
            
            **2008**Current
                taxes
            
            $
            —Deferred
                taxes
            
            
            —Provision
                for income taxes
            
            $
            —





The
      income tax provision (benefit) consists of the following for the year ended
      June
      30, 2007:




**Income
                Taxes:**The
                components of the provision for income taxes are as
                follows:
            
            **2007**Current
                taxes
            
            $
            —Deferred
                taxes
            
            
            —Provision
                for income taxes
            
            $
            —


65





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      12 - INCOME TAXES** **(CONTINUED)** **:**





The
      items
      accounting for the difference between income taxes computed at the federal
      statutory rate and the provision for income taxes are as follows for the year
      ended June 30, 2008:





**Rate**Income
                tax at federal statutory rate
            
            
            (34.00)
            %State
                tax, net of federal effect
            
            
            (3.96)
            %Non-deductible
                expenses, principally valuation adjustments on financial
                instruments
            
            
            31.66
            %Valuation
                Allowance
            
            
            6.30
            %Effective
                rate
            
            
            0.00
            %





The
      items
      accounting for the difference between income taxes computed at the federal
      statutory rate and the provision for income taxes are as follows for the year
      ended June 30, 2007:





**Rate**Income
                tax at federal statutory rate
            
            
            (34.00)
            %State
                tax, net of federal effect
            
            
            (3.96)
            %Non-deductible
                expenses, principally valuation adjustments on financial
                instruments
            
            
            31.66
            %Valuation
                Allowance
            
            
            6.30
            %Effective
                rate
            
            
            0.00
            %





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amount of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. Significant components of the
      Company's net deferred income taxes are as follows:





**June 30, 2008**Deferred
                tax assets (liabilities):Net
                operating loss carry forward
            
            $
            1,336,571Amortization
                of intangible assets over lives different for income tax
                purposes
            
            
            96,822Amortization
                of finance costs associated with equity-indexed financial
                instruments
            
            
            87,125Valuation
                allowance
            
            
            (1,520,518
            )$
            —





As
      of
      June 30, 2008, the Company has an estimated net tax operating loss of
      ($3,521,000) that is available to offset future taxable income if any in future
      periods, subject to expiration and other limitations imposed by the Internal
      Revenue Service, if any.





**June
                30, 2007**Deferred
                tax assets (liabilities):Net
                operating loss carry forward
            
            $
            1,336,571Amortization
                of intangible assets over lives different for income tax
                purposes
            
            
            96,822Amortization
                of finance costs associated with equity-indexed financial
                instruments
            
            
            87,125Valuation
                allowance
            
            
            (1,520,518
            )$
            —





As
      of
      June 30, 2007, the Company has an estimated net tax operating loss of
      ($3,521,000) that is available to offset future taxable income if any in future
      periods, subject to expiration and other limitations imposed by the Internal
      Revenue Service, if any.


66





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      13 - RELATED PARTY TRANSACTIONS:**





***Consulting
      Agreement*** *-* On
      October 1, 2006 the Company entered into a six (6) month consulting agreement
      with Harrington Business Development, LLC (“HBD”). The shareholders of HBD are
      also shareholders of the Company. The Company has recognized expense related
      to
      this agreement in the amount of $-0- for the year ended June 30, 2008 and
      $135,000 for the year ended June 30, 2007. Refer to Note 8, “ *Consulting
      Agreement,* ”
above
      for further details.





***Licensing
      Agreement*** *-* On
      October 13, 2006, the Company entered into a licensing agreement with a
      shareholder of the Company. On November 22, 2006 the Company made a payment
      of
      $850,000 pursuant to the agreement. On January 10, 2007, pursuant to the
      agreement, the Company paid the remaining balance due of $150,000. The Company
      has recognized expense related to this agreement in the amount of $600,903
      for
      the year ended June 30, 2008 and $600,903 for the year ended June 30, 2007.
      Refer to Note 8, *“Licensing
      agreement,”* above
      for further details.




***Assignment
      of Contract -*** On
      November 10, 2006 the Company entered into an agreement with Reliant
      International Media, LLC (“RIM”). The members of RIM are also shareholders of
      the Company. Refer to NOTE 8, “ *Assignment
      of Contract,* ”
above
      for further details.





***Preferred
      Stock Purchase Agreement-*** Midtown
      Partner & Co. LLC, served as the Company's placement agent in
      connection with the Series A and B Preferred Stock Purchase Agreements. Midtown
      Partners & Co. LLC received an aggregate placement agent fee related to
      Series A Preferred Stock Purchase agreement of approximately $300,000, as well
      as the following common stock purchase warrants: (a) series BD-1 common stock
      purchase warrants entitling Midtown Partners to purchase 300,000 shares of
      the
      Company's common stock at an exercise price of one dollar ($1.00) per share,
      (b)
      series BD-2 common stock purchase warrants entitling Midtown Partners to
      purchase 300,000 shares of the Company's common stock at an exercise price
      of
      one dollar and fifty cents ($1.50) per share, and (c) series BD-3 common stock
      purchase warrants entitling Midtown Partners to purchase 300,000 shares of
      the
      Company's common stock at an exercise price of three dollars ($3.00) per share.
      The Series BD warrants have a term of ten years.





In
      addition, Midtown Partner & Co. LLC received an aggregate placement
      agent related to the Series B Preferred Stock Purchase agreement of
      approximately $60,000, as well as the following common stock purchase warrants:
      (a) series BD-4 common stock purchase warrants entitling Midtown Partners to
      purchase 48,000 shares of the Company's common stock at an exercise price of
      one
      dollar and eighty-seven cents ($1.87) per share, and (b) series BD-5 common
      stock purchase warrants entitling Midtown Partners to purchase 48,000 shares
      of
      the Company's common stock at an exercise price of three dollars and
      seventy-five cents ($3.75) per share and (c) series BD-6 common stock purchase
      warrants entitling Midtown Partners to purchase 48,000 shares of the Company's
      common stock at an exercise price of one dollar and twenty five cents ($1.25)
      per share. The Series BD warrants have a term of ten years. The member’s of
      Midtown Partners & Co. LLC are also shareholders of the Company. Refer
      to Note 8, “ *Preferred
      Stock Purchase Agreement,”* above
      for further details.


67





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      13 - RELATED PARTY TRANSACTIONS (CONTINUED):**





Midtown
      Partners & Co., LLC also received aggregate placement agent fees of
      approximately $340,000, as well as the following common stock purchase warrants:
      (a) series BD-7 common stock purchase warrants entitling Midtown Partners to
      purchase 853,333 shares of the Company's common stock at an exercise price
      of
      seventy-five cents ($0.75) per share, and (b) series BD-8 common stock purchase
      warrants entitling Midtown Partners to purchase 853,333 shares of the Company's
      common stock at an exercise price of one dollar and fifty cents ($1.50) per
      share and (c) series BD-9 common stock purchase warrants entitling Midtown
      Partners to purchase 853,333 shares of the Company's common stock at an exercise
      price of two dollars ($2.00) per share. The Series BD warrants have a term
      of
      ten years. Midtown Partners & Co., LLC is a FINRA registered broker-dealer.
      Chris Phillips, who is the Company’s CEO, CFO, Secretary, Treasurer and a
      director, is also the Manager and sole member of FAMALOM, LLC which is a 50%
      owner of Apogee Financial Investments, Inc., a merchant bank (“Apogee”). Apogee
      owns 100% of Midtown Partners & Co., LLC, a FINRA licensed
      broker-dealer.





Midtown
      Partners & Co., lastly received aggregate placement agent fees of
      approximately $350,000, as well as the following common stock purchase warrants:
      (a) a series BD-10 warrant entitling Midtown Partners to purchase 700,000 shares
      of the Company's common stock at an exercise price of fifty cents ($0.50) per
      share, and (b) a series BD-11 warrant entitling Midtown Partners to purchase
      1,400,000 shares of the Company's common stock at an exercise price of
      seventy-five cents ($0.75) per share. The Series BD-10 and BD-11 warrants have
      a
      term of five years from the date of issuance. Midtown Partners & Co., LLC is
      a FINRA registered broker-dealer. Pursuant to the terms of a Registration Rights
      Agreement by and between the Company and Midtown, pursuant to which if at any
      time after the date of the Registration Rights Agreement the Company shall
      decide to prepare and file with the Commission a registration statement relating
      to an offering for its own account or the account of others under the Securities
      Act of any of its equity securities, other than on Form S-4 or Form S-8 (each
      as
      promulgated under the Securities Act) or their then equivalents relating to
      equity securities to be issued solely in connection with any acquisition of
      any
      entity or business or equity securities issuable in connection with the stock
      option or other employee benefit plans, then the Company shall send to each
      holder a written notice of such determination and, if within fifteen days after
      the date of such notice, any such holder shall so request in writing, the
      Company shall include in such registration statement, all or any part of such
      Registrable Securities (as defined in Registration Rights Agreement) such
      holders request to be registered.





***Preferred
      Stock Purchase Agreement -*** ** Pursuant
      to a verbal agreement, Apogee Financial Investments, Inc., a merchant bank,
      received a cash fee of $125,000 for consulting and due diligence services
      rendered in connection with the Preferred Stock Purchase Agreement, Exchange
      Agreement and the Common Stock Purchase Agreement. Apogee Financial Investments,
      Inc. is owned by shareholders of the Company. Refer to Note 8, “ *Preferred
      Stock Purchase Agreement,”* above
      for further details.





***Consulting
      Agreement*** *-* On
      December 8, 2006 the Company entered into a verbal agreement with TotalCFO,
      LLC.
      TotalCFO, LLC is owned by a shareholder of the Company. The Company has
      recognized $84,000 and $45,310 of expense related to this agreement for the
      year
      ended June 30, 2008 and June 30, 2007, respectively.





***International
      Distribution Agreement -*** On March
      19, 2007, the Company entered into an International Distribution Agreement
      with
      Reliant International Media LLC. The shareholders of Reliant International
      Media, LLC are also shareholders of the Company. Refer to Note 8, “ *International
      Distribution Agreement,* ”
above
      for further details.





68





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      14 –** **EQUITY
      METHOD INVESTMENTS:**





The
      Company’s has a 17% interest in ResponzeTV, PLC which is accounted for on the
      equity method because the Company exercises significant influence over
      ResponzeTV’s operating and financial activities. Therefore, the Company’s
      investment in ResponzeTV is adjusted annually for the Company’s proportionate
      share of ResponzeTV’s earnings or losses.





In
      May of
      2008, directors Kevin and Tim Harrington resigned from the board of ResponzeTV,
      PLC. Additionally, ResponzeTV delisted from the AIM stock exchange.




These
      triggering events resulted in the Company analyzing their equity investment
      in
      ResponzeTV, PLC for the purpose of determining whether the investment was
      impaired, as defined in paragraph 19(h) of APB 18 “The Equity Method of
      Accounting for Investments in Common Stock”.  It was determined that the
      investment in ResponzeTV, PLC was fully impaired (through the use of the present
      value technique as described in paragraphs 39-54 of FASB Concepts Statement
      No.
      7, "Using Cash Flaw Information and Present Value in Accounting Measurements).
      Accordingly, the Company has written this investment off and taken an impairment
      charge of $5,776,917 related to this investment for the year ended June 30,
      2008. The impairment charge reduced the Company’s investment in ResponzeTv to
      zero and, as a consequence, the Company’s future financial results will not be
      negatively affected by ResponzeTV, Inc.’s ongoing operations. The Company has no
      obligation to fund future operating losses of ResponzeTv, PLC.


69





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      15 – RESTATEMENTS:**





The
      June
      30, 2007 10-KSB financial statements have been restated to give effect to the
      following:





·
            The
                amortization expense associated with intangible assets was revised
                to
                provide for amortization over the contractual terms of the assets
                and an
                intangible asset was included which had been omitted in the original
                filing.


·
            The
                Series A and Series B Preferred Stock and related warrants were restated
                to reflect the accounting required under Statements 133 and 150 and
                other
                related pronouncements and standards. The financial instruments associated
                with the financings were revalued using reasonable techniques and
                correct
                assumptions.





In
      addition to the above restatements, certain reclassifications and expanded
      details have been provided in the June 30, 2007 restated 10-KSB/A financial
      statements.





The
      following table illustrates the effects of the restatements on our balance
      sheet
      as of June 30, 2007 and our statement of operations for the period August 21,
      2006 (inception) to June 30, 2007, each as originally filed and as
      restated.





As Originally
              Filed
            
            Adjustments
            
            As Restated**Balance
                sheet:**Current
                assets
            
            $
            866,107
            
            
            —
            
            $
            866,107License
            
            
            581,357
            
            
            365,186
            a
            
            946,543Patents
            
            
            745,000
            
            
            —
            
            
            745,000Deferred
                financing costs
            
            
            —
            
            
            2,148,389
            b
            
            2,148,389Total
                assets
            
            $
            2,192,464
            
            
            2,513,575
            
            $
            4,706,039Accounts
                payable and accrued expenses
            
            $
            24,735
            
            
            (1
            )
            $
            24,734Dividends
                and penalties
            
            
            427,411
            
            
            —
            
            
            427,411Derivative
                liabilities
            
            
            —
            
            
            26,698,932
            c
            
            26,698,932Redeemable
                preferred stock
            
            
            23,757,499
            
            
            (17,777,499
            )d
            
            5,980,000Total
                liabilities
            
            
            24,209,645
            
            
            8,921,432
            
            
            33,131,077Common
                stock
            
            
            140
            
            
            —
            
            
            140Additional
                paid in capital
            
            
            2,283,480
            
            
            (2,283,480
            )e
            
            —Stockholders’
                deficit
            
            
            (24,300,803
            )
            
            (4,124,375
            )f
            
            (28,425,178
            )Total
                stockholders’ deficit
            
            
            (22,017,183
            )
            
            (6,407,855
            )
            
            (28,425,038
            )Liabilities
                and stockholders’ deficit
            
            $
            2,192,462
            
            
            2,513,577
            
            $
            4,706,039


70





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      15 – RESTATEMENTS (CONTINUED):**





As Originally
              Filed
            
            Adjustments
            
            As Restated**Statement
                of operations:**Revenues
            
            $
            2,640
            
            
            —
            
            $
            2,640Costs
                and expenses
            
            
            3,913,001
            
            
            (365,189
            )a
            
            3,547,812Other
                expenses:Derivative
                fair value adjustments
            
            
            —
            
            
            (20,156,269
            )c
            
            (20,156,269
            )Preferred
                fair value adjustments
            
            
            (20,157,499
            )
            
            20,157,499
            d
            
            —Interest
                expense
            
            
            —
            
            
            (229,519
            )b
            
            (229,519
            )Registration
                payments
            
            
            (232,943
            )
            
            —
            
            
            (232,943
            )Total
                other expenses
            
            
            (20,390,442
            )
            
            (228,289
            )
            
            (20,618,731
            )Net
                loss
            
            $
            (24,300,803
            )
            
            136,900
            
            $
            (24,163,903
            )Loss
                applicable to common shareholders:Net
                income (loss)
            
            $
            (24,300,803
            )
            
            136,900
            
            $
            (24,163,903
            )Accretion
                of preferred
            
            
            (3,600,000
            )
            
            600,000
            
            
            (3,000,000
            )Preferred
                stock dividends
            
            
            (194,468
            )
            
            —
            
            
            (194,468
            )Loss
                applicable to common shareholders
            
            $
            (28,095,271
            )
            
            736,900
            
            $
            (27,358,371
            )Loss
                per common share:Basic
            
            $
            (2.64
            )
            
            0.07
            
            $
            (2.57
            )Diluted
            
            $
            (2.64
            )
            
            0.07
            
            $
            (2.57
            )





Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $777,154 to $411,966
                due to amortization expense related to a licensing fee for Kathy
                Hilton
                which had been omitted from the original amortization and a correction
                of
                the remaining estimated life of the Licensing Agreements from 15
                months to
                20 months due to an amendment of the terms of the agreement. See
                Note 6
                for additional information related to this amendment. The correction
                of
                estimated lives of these assets and additional amortization related
                to the
                Kathy Hilton licensing fee gave rise to a debit to licenses and a
                credit
                to amortization expense in the amount of
                $365,189.


b.
            Our
                previously filed financial statements did not give effect to finance
                charges. Finance costs arise from the Series A and Series B Preferred
                Financing Transactions. As more fully disclosed in Note 9, the financing
                costs were allocated to deferred assets, mezzanine and stockholders’
                equity based upon the relative fair values of the related financial
                instruments. Total financing costs allocated to deferred finance
                costs
                amounted to $2,377,909. Amortization of the deferred financing costs
                was
                recorded as a debit to interest expense and a credit to deferred
                financing
                costs of $229,519.


c.
            Our
                previously filed financial statements did not separately disclose
                our
                derivative financial instruments. Derivative financial instruments
                represent derivative warrants that are carried at fair value. See
                Note 9
                for a summarization of the components of the derivative liability
                account.
                Changes in the fair value of derivative liabilities are reflected
                in our
                income. The following table summarizes the components of derivative
                income
                (expense) arising from fair value adjustments during the periods
                from the
                financing inception dates to June 30,
                2007:





71





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      15 – RESTATEMENTS (** **CONTINUED** **):**





**Financing Transactions**
            
            **Embedded Derivatives**
            
            
            **Warrant Derivatives**
            
            
            **Total**Series
                A Financing
            
            $
            235,096
            
            
            $
            (2,957,418
            )
            
            $
            (2,722,322
            )Series
                B Financing
            
            
            —
            
            
            
            (56,332
            )
            
            
            (56,332
            )Other
                Warrants Reclassified
            
            
            —
            
            
            
            (191,160
            )
            
            
            (191,160
            )Day-one
                derivative loss
            
            
            (17,186,455
            )
            
            
            —
            
            
            
            (17,186,455
            )Total
                derivative income (expense)
            
            $
            (16,951,359
            )
            
            $
            (3,204,910
            )
            
            $
            (20,156,269
            )





The
      following table summarizes the components of derivative liabilities as of June
      30, 2007:





**Financing
                Transactions**
            
            **Derivative Liabilities**Series
                A Financing – Investor Warrants
            
            $
            (19,299,969
            )Series
                B Financing – Investor Warrants
            
            
            (1,703,232
            )Series
                A and B Warrants reclassified to liabilities
            
            
            (2,963,431
            )Consultant
                Warrants
            
            
            (2,732,300
            )Total
                Derivative Liabilities
            
            $
            (26,698,932
            )





d.
            Our
                previous financial statements combined our derivative warrants with
                the
                redeemable preferred stock. In addition, the values of the warrants
                and
                the redeemable preferred stock required revision. This entry gives
                effect
                to the reclassification of derivatives to their proper classification
                and
                the revaluation using proper assumptions and techniques. See the
                table in
                Note 9 which represents the activity in the Redeemable Preferred
                Stock
                account related to the $5,980,000 balance at June 30,
                2007.





e.
            The
                entry to correct additional paid in capital included the following
                amounts:





To
                reverse incorrect entry to record deferred finance costs
            
            $
            570,000To
                properly record finance costs allocated to Additional paid in
                capital
            
            
            2,754,687Entry
                to record the difference between the fair value of the FAS150 liability
                and the carrying value of the Series A Redeemable Preferred upon
                event of
                default
            
            
            (1,600,270
            )To
                reclass warrants from equity to a liability upon tainting
                event
            
            
            (5,111,870
            )To
                reclass amounts charged to additional paid in capital which are above
                the
                amounts available in that category
            
            
            909,504To
                reclass dividends on preferred stock from additional paid in capital
                to
                Accumulated deficit
            
            
            194,467Net
                effect of restatement entries for additional paid in
                capital
            
            $
            (
                2,283,480
            )





f.
            The
                entry to correct the accumulated deficit included the following
                amounts:





To
                reverse incorrect entry for fair value adjustments on preferred stock
                and
                other impact on net loss due to the restatement entries
            
            $
            (967,074
            )Entry
                to record finance costs allocated to accumulated deficit
            
            
            (157,302
            )Entry
                to record the accretion of the Series A Preferred Stock
            
            
            (3,000,000
            )Net
                effect of restatement entries for accumulated deficit
            
            $
            (
                4,124,376
            )





72





**OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      16 - SUBSEQUENT EVENTS:**





On
      July
      24, 2008, OmniComm Studios, LLC, a Florida limited liability company
      (“OmniComm”) and majority owned subsidiary of OmniReliant Holdings, Inc. (the
“Company”), entered into an Assignment of Purchase and Sale Agreement (the
“Agreement”) with Mr. Frankie “Buddy” Winsett and Mr. Vince Vellarida
      (collectively the “Assignors”), pursuant to which the Assignors assigned all
      rights title and interest to that certain purchase agreement dated April 22,
      2008, by and between Assignors and Daktronics, Inc. (the “Purchase Agreement”).
      A form of the Agreement is attached hereto as Exhibit 99.1 and the Purchase
      Agreement dated April 22, 2008 is attached hereto as Exhibit 99.2. Under the
      Agreement, OmniComm, for a purchase price of Ten Dollars ($10.00) was assigned
      all right, title and interest in the Purchase Agreement, including all rights
      to
      the Deposit (as defined in the Purchase Agreement which is currently in the
      amount of $115,000.00). OmniComm shall assume all of Assignor's obligations
      as
      the Buyer (as defined in the Purchase Agreement) under the Purchase Agreement,
      including, without limitation, payment in full of the purchase price which
      is in
      the amount of $2,695,000 and all of Buyer's closing expenses thereunder pursuant
      to the terms of the Purchase Agreement. Pursuant to the Purchase Agreement,
      Assignors as the Buyer, entered into the Purchase Agreement to purchase a
      portion of Lot 10 in RUBIN ICOT CENTER located in Pinellas County, Florida,
      as
      more particularly described in the Purchase Agreement. Under the Agreement
      all
      rights, title and interest to the portion of Lot 10 purchased under the Purchase
      Agreement are now owned by OmniComm.





OmniReliant
      Holdings, Inc. has also relocated its corporate headquarters to the new
      purchased area. The new address for OmniReliant will be 14375 Myerlake Circle,
      Clearwater, FL 33760.





On
      August
      18, 2008, the Company entered into an agreement to extend the maturity date
      of
      the 10% Promissory Note due from ResponzeTV PLC, dated May 7, 2008, from August
      20, 2008 to September 30, 2008, or such later date as the Company and Holder
      may
      agree to in writing.





On
      August
      25, 2008, the Company filed with the Secretary of the State of Nevada to amend
      its articles of incorporation for the purposes of increasing its authorized
      shares to Four Hundred Million (400,000,000) common shares having a par value
      of
      $0.00001 per share and One Hundred Million (100,000,000) preferred shares having
      a par value of $0.00001 per share.





On
      September 23, 2008, the Company entered into a securities purchase agreement
      to
      acquire 300,000 shares of common stock of For Your Imagination, Inc., a Delaware
      Corporation, along with warrants to acquire an additional 10% of the company’s
      issued and outstanding Common Stock on a fully diluted basis (which aggregate
      amount shall be Warrants covering 300,000 shares of Common Stock) for an
      aggregate purchase price of $100,000.


73


**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





On
      December 15, 2006, the Registrant notified Williams & Webster, P.S.
      ("Williams & Webster") that it was dismissing Williams & Webster as its
      certifying accountant, effective immediately. The decision to dismiss the
      accountants was recommended and approved by the Registrant's Board of
      Directors.





During
      the two fiscal years ended June 30, 2006 and 2005, and any subsequent period
      through December 15, 2006, (i) there were no disagreements between Registrant
      and Williams & Webster on any matter of accounting principles or practices,
      financial statement disclosure or auditing scope or procedure which, if not
      resolved to the satisfaction of Williams & Webster would have caused
      Williams & Webster to make reference to the matter in its reports on
      Registrant's financial statements, and (ii) except for Williams & Webster’s
      report on Registrant's financial statements for the years ended June 30, 2006
      and 2005 which included an explanatory paragraph wherein they expressed
      substantial doubt about Registrant's ability to continue as a going concern,
      Williams & Webster's reports on Registrant's financial statements did not
      contain an adverse opinion or disclaimer of opinion, and was not modified as
      to
      uncertainty, audit scope or accounting principles. During the two fiscal years
      ended June 30, 2006 and 2005 and through December 15, 2006, there were no
      reportable events as the term described in Item 304(a)(1)(iv) of Regulation
      S-B.





On
      December 15, 2006, Registrant engaged the firm of Wheeler, Herman, Hopkins
&
Lagor, P.A., now known as Herman, Lagor, Hopkins & Meeks, P.A., to serve as
      its independent registered public accountants for the fiscal year ending June
      30, 2007.





During
      the two fiscal years ended June 30, 2006 and 2005, and through December 15,
      2006, the Company has not consulted with Herman, Lagor, Hopkins &
Meeks, P.A. regarding either:




1.
      The
      application of accounting principles to any specific transaction, either
      completed or proposed, or the type of audit opinion that might be rendered
      on
      Registrants' financial statements, and neither a written report was provided
      to
      Herman, Lagor, Hopkins & Meeks, P.A. nor oral advice was provided that
      Herman, Lagor, Hopkins & Meeks, P.A. concluded was an important factor
      considered by Registrant in reaching a decision as to the accounting, auditing
      or financial reporting issue; or





2.
      Any
      matter that was either subject of disagreement or event, as defined in Item
      304(a)(1)(iv) of Regulation S-B and the related instruction to Item 304 of
      Regulation S-B, or a reportable event, as that term is explained in Item
      304(a)(1)(iv) of Regulation S-B.





On
      December 15, 2006, the Company provided Williams & Webster with a copy of
      the disclosures and has requested that Williams & Webster furnish it with a
      letter addressed to the Securities and Exchange Commission stating whether
      it
      agrees with the above statements. Such letter is filed herewith as Exhibit
      16.1
      and incorporated herein by reference.





On
      July
      20, 2007, Herman, Lagor, Hopkins & Meeks, P.A. (“HLHM”) resigned as the
      independent auditors of OmniReliant Holdings, Inc. (the "Company") and its
      subsidiaries.





Since
      HLHM did not issue a report on the Company's financial statements for the fiscal
      years ended June 30, 2006 and 2005 or for any other relevant period, no report
      of HLHM on the financial statements of the Company for either of the past two
      years contained an adverse opinion or disclaimer of opinion, and were not
      qualified or modified as to uncertainty, audit scope or accounting principles.





From
      the
      date of HLHM’s engagement, December 15, 2006 through the date of their
      resignation, July 20, 2007: (i) there have been no disagreements with HLHM
      on
      any matter of accounting principles or practices, financial statement disclosure
      or auditing scope or procedure, which disagreements, if not resolved to the
      satisfaction of HLHM, would have caused it to make reference to the subject
      matter of the disagreement in connection with its reports and (ii) HLHM did
      not
      advise the Company of any of the events requiring reporting in this Current
      Report on Form 8-K under Item 304(a)(1)(iv)(B) of Regulation S-B.




74




The
      Company provided to HLHM the disclosure contained in this Form 8-K and requested
      HLHM to furnish a letter addressed to the Commission stating whether it agrees
      with the statements made by the Company herein and, if not, stating the respects
      in which it does not agree. A letter from HLHM is attached as Exhibit 16.2
      and
      incorporated herein by reference.





On
      July
      20, 2007, the Board of Directors approved the Company's engagement of KBL,
      LLP
      ("KBL") as independent auditors for the Company and its subsidiary. The Company
      engaged KBL on July 20, 2007.





Neither
      the Company nor anyone on its behalf consulted KBL regarding (i) the application
      of accounting principles to a specific completed or contemplated transaction,
      (ii) the type of audit opinion that might be rendered on the Company's financial
      statements, or (iii) any matter that was the subject of a disagreement or event
      identified in response to Item 304(a)(1)(iv) of Regulation S-B (there being
      none).





**ITEM
      8A. CONTROLS AND PROCEDURES**





**(a)
      Disclosure Controls and Procedures**





Our
      principal executive and principal financial officer has evaluated the
      effectiveness 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.  He has concluded that, based on such evaluation, our
      disclosure controls and procedures were not effective due to the material
      weaknesses in our internal control over financial reporting as of June 30,
      2008,
      as further described below.





**(b)
      Management’s Annual Report on Internal Control Over Financial
      Reporting**





***Overview***





Internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      refers to the process designed by, or under the supervision of, our principal
      executive officer and principal financial officer, and effected by our board
      of
      directors, management and other personnel, to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles.  Management is responsible for establishing and
      maintaining adequate internal control over financial reporting for
      OmniReliant.





Internal
      control over financial reporting cannot provide absolute assurance of achieving
      financial reporting objectives because of its inherent
      limitations.  Internal control over financial reporting is a process
      that involves human diligence and compliance and is subject to lapses in
      judgment and breakdowns resulting from human failures.  Internal
      control over financial reporting also can be circumvented by collusion or
      improper management override.  Because of such limitations, there is a
      risk that material misstatements may not be prevented or detected on a timely
      basis by internal control over financial reporting.  However, these
      inherent limitations are known features of the financial reporting
      process.  Therefore, it is possible to design into the process
      safeguards to reduce, though not eliminate, this risk.





Management
      has used the framework set forth in the report entitled “Internal Control —
Integrated Framework” published by the Committee of Sponsoring Organizations
      (“COSO”) of the Treadway Commission to evaluate the effectiveness of
      OmniReliant’s internal control over financial reporting.  As a result
      of the material weaknesses described below, management has concluded that the
      Company’s internal control over financial reporting was not effective as of June
      30, 2008.





***Management’s
      Assessment***





Management
      has determined that, as of the June 30, 2008 measurement date, there were
      material weaknesses in both the design and effectiveness of our internal control
      over financial reporting.  Management has assessed these deficiencies
      and has determined that there were four general categories of material
      weaknesses in OmniReliant’s internal control over financial
      reporting.  As a result of our assessment that material weaknesses in
      our internal control over financial reporting existed as of June 30, 2008,
      management has concluded that our internal control over financial reporting
      was
      not effective as of June 30, 2008.  A material weakness is a
      deficiency, or a combination of deficiencies, in internal control over financial
      reporting such that there is a reasonable possibility that a material
      misstatement of our annual or interim financial statements will not be prevented
      or detected on a timely basis.




75





In
      management’s opinion, our assessment as of June 30, 2008 regarding the existence
      of material weaknesses in our internal control over financial reporting relates
      to (1) the absence of adequate staffing, (2) the lack of controls or
      ineffectively designed controls, (3) the failure in design and operating
      effectiveness of information technology controls over financial reporting,
      and
      (4) failures in operating control effectiveness identified during the testing
      of
      the internal control over financial reporting.  Management and our
      Board of Directros have assigned a high priority to the short-term and long-term
      improvement of our internal control over financial reporting.





The
      material weaknesses we have identified include:





*Deficiencies
      pertaining to a lack of human resources within our finance and accounting
      functions* .  We
      currently only have one employee. The lack of appropriately skilled
      personnel and less effective monitoring activities could result in material
      misstatements to financial statements not being detected in a timely
      manner.





*Deficiencies
      pertaining to the lack of controls or ineffectively designed
      controls.* Our
      control design analysis and process walk-throughs disclosed a number of
      instances where review approvals were undocumented, where established policies
      and procedures were not defined, and controls were not in place.




*Deficiencies
      related to information technology control design and operating effectiveness
      weaknesses.* This
      material weakness resulted from the absence of key formalized information
      technology policies and procedures and could result in (1) unauthorized system
      access, (2) application changes being implemented without adequate reliability
      testing, (3) inconsistent investigation of system errors and the absence of
      timely or properly considered remedial actions, and  (4) over reliance
      on spreadsheet applications without quality control assurances.  These
      factors could lead to material errors and misstatements to financial statements
      occurring without timely detection.





*Deficiencies
      related to failures in operating effectiveness of the internal control over
      financial reporting.* Certain
      internal control procedures were developed during the latter part of
      2007.  When testing occurred to confirm the effectiveness of the
      internal control over financial reporting, controls were not operating
      effectively.  Insufficient time remained to remediate these material
      weaknesses prior to year-end.





This
      annual report does not include an attestation report of the Company’s registered
      accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission





**(c)
      Changes in Internal Control over Financial Reporting**





There
      has
      been no change in our internal control over financial reporting, as defined
      in
      Rules 13a-15(f) of the Exchange Act, during our most recent fiscal quarter
      that
      has materially affected, or is reasonably likely to materially affect, our
      internal control over financial reporting.  However, we have initiated
      or intend to initiate a number of remediation measures to address the control
      deficiencies and material weaknesses identified above.  The
      remediation measures include or are expected to include the
      following:




·
            Hiring
                of an outside consultant to evaluate the derivatives and fair value
                accounting.





·
            Hiring
                of more qualified and experienced accounting personnel to perform
                month-end reviews and closing processes as well as to allow additional
                oversight and supervision.





·
            Reassigning
                and altering functional responsibilities among new and existing employees
                to provide appropriate segregation of duties among functional groups
                within the Company.




76




·
            Updating
                of our policies and procedures along with control matrices and
                implementing testing procedures to ensure ongoing
                compliance.





·
            Establishing
                programs to provide ongoing training and professional education and
                development plans for accounting department
                personnel.





·
            Adding
                additional information technology staffing and implementing information
                technology policies and procedures to ensure adequate system controls
                are
                in place and compliance testing occurs on a regular
                basis.





·
            Restoring
                our executive management team with qualified and experienced business
                leaders to provide day-to-day management oversight and strategic
                direction.





We
      intend
      to adopt additional remediation measures related to the identified control
      deficiencies as necessary as well as to continue to evaluate our internal
      controls on an ongoing basis in order to upgrade and enhance when
      appropriate.  Our Board of Directors has taken an active role in
      reviewing and discussing the internal control deficiencies with our auditors
      and
      financial management.  Our management and the Board of Directors will
      actively monitor the implementation and effectiveness of the remediation efforts
      undertaken by our financial management.





**ITEM
      8B - Other Information**





None.




77




**Item
        9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH
        16(a) OF THE EXCHANGE ACT**
 
 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
              
              PositionChristopher
                  D. Phillips
              
              37
              
              Secretary,
                  Treasurer, DirectorPaul
                  Morrison
              
              41
              
              Chief
                  Executive Officer, Chief Financial OfficerRichard
                  Diamond
              
              45
              
              Director
 
 **Background
        of Executive Officers and Directors**
 
 **Paul
        Morrison** .
        On
        January 24, 2008, Mr. Morrison was appointed Chief Executive Officer and
        Chief
        Financial Officer of the Company On November 22, 2006 Mr. Morrison was elected
        Chief Operating Officer, President and Assistant Secretary of the Company.
        Mr.
        Morrison has served as the President, Chief Operating Officer and Assistant
        Secretary of OmniReliant Corporation since October 31, 2006. From October
        2005
        until October 2006, Mr. Morrison was the COO of WG Products, a cosmetic company,
        where he directed all facets of operations including production, customer
        service, planning, scheduling, maintenance, warehousing, distribution,
        purchasing, sales, and strategic initiatives. From 2001 through 2005 he managed
        various operations at Wyeth Pharmaceuticals. Mr. Morrison started his career
        working for Calvin Klein Cosmetics, and has accumulated sixteen years of
        experience serving in cosmetic and pharmaceutical operations management roles
        for Fortune 100 companies. He received a Bachelor’s of Science degree in
        Business Management from the Rutgers University and an Honorable discharge
        from
        the United States Air Force.
  **Christopher
        D. Phillips** .
        On
        November 22, 2006 Mr. Phillips was named as a Director and elected Chief
        Executive Officer, Chief Financial Officer, Secretary and Treasurer of the
        Company. Mr. Phillips has served as the Chief Executive Officer of OmniReliant
        Corporation from October 31, 2006 until he resigned as Chief Executive Officer,
        Chief Financial Officer, Secretary and Treasurer of the Company, but remained
        with the Company as a Director.. He has also served as its Chief Financial
        Officer since October 13, 2006. From its inception in August 2006 till October
        31, 2006 Mr. Phillips held the position of President of OmniReliant Corporation.
        Mr. Phillips also currently is the Secretary and Treasurer of OmniReliant
        Corporation positions he has held since its inception in August 2006. Since
        October 2004, Chris Phillips has been the President and CEO of Apogee Financial
        Investments, Inc. a merchant bank which owns 100% of Midtown Partners & Co.,
        LLC, a FINRA licensed broker-dealer.   Mr. Phillips holds a Bachelors
        of Science Degree in Accounting and Finance and a Masters of Accountancy
        with a concentration in Tax from the University of Florida. Mr. Phillips
        is a
        Florida licensed Certified Public Accountant. ****
 
 **Richard
        Diamond** .
        On
        November 30, 2006 Mr. Diamond was named as a Director of the Company. Mr.
        Diamond has served as a Director of OmniReliant Corporation since its inception
        in August 2006. Since October 2004, Mr. Diamond has served as the Senior
        Vice
        President of Apogee Financial Investments, Inc. (“Apogee”) a private merchant
        bank incorporated in Florida. His areas of responsibility include
        administration, due diligence, document preparation and review, and assisting
        clients with corporate filings and compliance. Apogee owns 100% of Midtown
        Partners & Co., LLC, a FINRA licensed broker-dealer. From April 2000 until
        December 2005, Mr. Diamond served as Managing Member and Vice President of
        Apogee Business Consultants, LLC, a Nevada limited liability corporation
        specializing in reverse mergers and acquisitions. From October 2001 until
        December 2005, Mr. Diamond served as founder, President and sole director
        of RJ
        Diamond Consulting, Inc., a privately owned Florida corporation specializing
        in
        financial and public company consulting. From July 2003 until December 2003,
        Mr.
        Diamond served as a Director of Sabre Marketing, Inc. a private Florida
        corporation. From August 2001 until August 2002, Mr. Diamond served as the
        sole
        officer and director of Conus Holdings, Inc., a publicly reporting Nevada
        shell
        corporation.
 
 **Employment
        Agreements**
 
 On
        October 31, 2006, OmniReliant and Paul Morrison entered into an executive
        employment agreement pursuant to which Mr. Morrison will serve as OmniReliant’s
        President and Chief Operating Officer for a term of two years. The agreement
        provides for the following compensation: (i) a base annual salary of $120,000;
        (ii) a one-time grant of 300,000 shares of common stock; (iii) an incentive
        bonus equal to 1.5% of pretax profits on the sale of all Hilton related
        products, (iv) an option to purchase 300,000 shares of common stock at an
        conversion price of $1.00.
 
 **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.
 
 The
        total
        number of meetings of the Board of Directors during the fiscal year ended
        June
        30, 2008 was three. The Board of Directors decided matters by written consent
        on
        fifteen occasions. Each of the incumbent directors attended a majority of
        (i)
        the meetings of the Board during the year and (ii) the total number of meetings
        of all committees of the Board on which the incumbent directors
        served.


**PART
      III**





**Item
      10. 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 as at and/or during the fiscal year
      ended June 30, 2007 who earned compensation exceeding $100,000 during 2006
      (the
“named executive officers”), for services as executive officers for the last two
      fiscal years.





**Summary
      Compensation Table**





Name &
              Principal
              Position
            
            Year
            
            Salary ($)
            
            Bonus
              ($)
            
            Stock
              Awards
              ($)
            
            Option
              Awards
              ($)
            
            Non-Equity
              Incentive Plan
              Compensation
              ($)
            
            Change in Pension Value and
              Non-Qualified Deferred
              Compensation Earnings
              ($)
            
            All Other
              Compensation
              ($)
            
            Total
              ($)Christopher
                Phillips, CEO (1)
            
            
            2008
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            02007
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Paul
                Morrison, President (2)
            
            
            2008
            
            
            120,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            02007
            
            
            90,000
            
            
            0
            
            $
            15,000
            (3)
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            $
            105,000Cynthia
                Allison, Former CEO
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0




(1)
            Chris
                Phillips was named to the Board and elected CEO, CFO, Secretary and
                Treasurer on November 22, 2006. Mr. Phillips resigned as CEO, CFO,
                Secretary and Treasurer on January 23, 2008.(2)
            Represents
                the market value of 150,000 shares of common stock granted to Mr.
                Morrison
                granted on October 19, 2006 (based on a $.10 per share, the closing
                price
                of the Company’s common stock on the Over-the-Counter Bulletin Board on
                the day of grant).




78




**Outstanding
      Equity Awards at Fiscal Year-End Table**




Option Awards
            
            Stock AwardsName
            
            Number of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            
            Number of
              Securities
              Underlying
              Unexercised
              Options
              (#) Unexercisable
            
            Equity Incentive
              Plan Awards:
              Number of
              Securities
              Underlying
              Unexercised
              Unearned Options
              (#)
            
            Option
              Exercise
              Price
              ($)
            
            Option
              Expiration
              Date
            
            Number
              of Shares
              or Units
              of Stock
              That
              Have Not
              Vested
              (#)
            
            Market
              Value of
              Shares or
              Units of
              Stock That
              Have Not
              Vested
              ($)
            
            Equity Incentive
              Plan Awards:
              Number Of
              Unearned Shares,
              Units or Other
              Rights That Have
              Not Vested
              (#)
            
            Equity Incentive
              Plan Awards: Market
              or Payout Value Of
              Unearned Shares,
              Units or Other Rights
              That Have Not
              Vested
              ($)Chris
                Phillips, CEO
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Paul
                Morrison, President (1)
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            150,000
            
            $
            225,000
            (2)
            
            0
            
            
            0




(1)
      Pursuant to the terms of his employment agreement, Mr. Morrison is to receive
      300,000 shares of common stock, of which 50% was granted immediately and the
      remaining 50% is to be given to Mr. Morrison on the one year anniversary of
      his
      employment with the Company. The market value of the 150,000 shares of common
      stock granted to Mr. Morrison is based on $.10 per share, the closing price
      of
      the Company’s common stock on the Over-the-Counter Bulletin Board on the day of
      grant.


(2)
      Represents the market value of 150,000 shares of common stock (based on $1.50
      per share, the closing price of the Company's common stock on the
      Over-the-Counter Bulletin Board on October 14, 2008)





**Directors’
      Compensation**





For
      the
      fiscal year ended June 30, 2008, directors did not receive any remuneration
      in
      their capacity as a director.


79


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





The
      following table sets forth certain information, as of October 14, 2008 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)Paul Morrison (3)
            
            
            600,000
            
            
            4.14
            %Deecembra Diamond (5)
            
            
            3,300,000
            
            
            22.80
            %Kevin
                Harrington
            
            
            1,500,000
            
            
            10.36
            %Tim Harrington
            
            
            1,500,000
            
            
            10.36
            %Richard Diamond (4)
            
            
            3,300,000
            
            
            22.80
            %KRH Licensing Company, LLC
                (6)
            
            
            3,000,000
            
            
            20.72
            %All officers and directors as a group (6 persons)
            
            
            9,000,000
            
            
            62.17
            %





*
      Less
      than 1%





(1)
      Except as otherwise indicated, the address of each beneficial owner is c/o
      OmniReliant Corporation 4902 Eisenhower Blvd., Suite 185, Tampa, FL
      33634.





(2)
      Applicable percentage ownership of common stock is based on 14,475,892 shares
      of
      common stock outstanding as of October 19, 2007, together with securities
      exercisable or convertible into shares of common stock within 60 days of October
      19, 2007 for each stockholder. Beneficial ownership is determined in accordance
      with the rules of the Securities and Exchange Commission and generally includes
      voting or investment power with respect to securities. Shares of common stock
      underlying convertible securities that are currently exercisable or exercisable
      within 60 days of October 19, 2007 are deemed to be beneficially owned by the
      person holding such securities for the purpose of computing the percentage
      of
      ownership of such person, but are not treated as outstanding for the purpose
      of
      computing the percentage ownership of any other person.





(3)
      Represents (i) 300,000 shares of common stock, and (ii) an option to purchase
      300,000 shares of common stock at a conversion price of $1.00.




80





(4)
      Represents 1,200,000 shares of the Registrant’s common stock owned by Deecembra
      Diamond,, (ii) 700,000 common stock purchase warrants owned by Midtown Partners
      & Co., LLC exercisable at $.50 (iii) 1,400,000 common stock purchase
      warrants owned by Midtown Partners & Co., LLC exercisable at $.75. Mr.
      Diamond’s spouse, Deecembra Diamond, owns 36% of Apogee Financial Investments,
      Inc., which owns 100% of Midtown Partners & Co., LLC, a FINRA licensed
      broker-dealer. Mr. Diamond specifically disclaims beneficial ownership of these
      shares except to the extent of his pecuniary interests therein.





(5)
      Represents 1,200,000 shares of the Registrant’s common stock owned by Deecembra
      Diamond, (ii) 700,000 common stock purchase warrants owned by Midtown Partners
      & Co., LLC, exercisable at $.50 (iii) 1,400,000 common stock purchase
      warrants owned by Midtown Partners & Co., LLC exercisable at $.75. Mr.
      Diamond’s spouse, Deecembra Diamond, owns 36% of Apogee Financial Investments,
      Inc., which owns 100% of Midtown Partners & Co., LLC, a FINRA licensed
      broker-dealer.





(6)
      Richard Hilton has sole voting and dispositive power over the shares of common
      stock held by KRH Licensing Company, LLC.


81


**Item
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




Except
      as
      set forth below, there were no transactions during the last two   fiscal
      years, 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:





Chris
      Phillips, who is the Company’s CEO, CFO, Secretary, Treasurer and a director, is
      also the Manager and sole member of FAMALOM, LLC which is a 50% owner of Apogee
      Financial Investments, Inc., a merchant bank (“Apogee”). Apogee received a cash
      fee of $125,000 for consulting and due diligence services rendered in connection
      with the transactions. Apogee owns 100% of Midtown Partners & Co., LLC, a
      FINRA licensed broker-dealer. Midtown Partners was the placement agent for
      the
      Company’s convertible preferred stock and warrant financing, described above.
 Midtown received aggregate placement agent fees of approximately $300,000,
      as well as the following common stock purchase warrants: (a) series BD-1 common
      stock purchase warrants entitling Midtown Partners to purchase 300,000 shares
      of
      the Company's common stock at an exercise price of one dollar ($1.00) per share,
      (b) series BD-2 common stock purchase warrants entitling Midtown Partners to
      purchase 300,000 shares of the Company's common stock at an exercise price
      of
      one dollar and fifty cents ($1.50) per share, and (c) series BD-3 common stock
      purchase warrants entitling Midtown Partners to purchase 300,000 shares of
      the
      Company's common stock at an exercise price of three dollars ($3.00) per share.
      The Series BD warrants have a term of ten years.




OmniReliant
      has entered into a consulting agreement with Harrington Business Development
      LLC
      (“HBD”) pursuant to which HBD will oversee marketing of OmniReliant’s brands,
      including visual and audio productions. Pursuant to the consulting agreement
      with HBD, OmniReliant will pay HBD a fee of $15,000 per month for a term of
      six
      (6) months beginning on October 1, 2006. The principals of HBD, Kevin and Tim
      Harrington, own an aggregate of 3,000,000 shares, or 21.6% of the outstanding
      stock, of the Company. On April 1, 2007, the Company verbally agreed to extend
      the consulting agreement for a term of three (3) months.





Pursuant
      to the terms of the Kathy Hilton License Agreement between OmniReliant Corp.
      and
      KRH Licensing Company, LLC dated as of October 13, 2006, OmniReliant made an
      advance royalty payment in the amount of $150,000 to Lucien Lallouz in January
      2007.





On
      November 22, 2006 OmniReliant entered into a verbal agreement with TotalCFO,
      LLC
      (“TotalCFO”) pursuant to which TotalCFO will perform accounting services
      including accounting services in connection with Securities & Exchange
      Commission filings. Pursuant to the agreement with TotalCFO, OmniReliant will
      pay TotalCFO a fee of $15,000 per quarter based on a calendar year end plus
      related expenses. The Managing Member of TotalCFO, Christopher Phillips, is
      the
      CEO and CFO of OmniReliant Holdings and beneficially owns 5,003,119 shares,
      or
      28.58% of the outstanding stock of the Company. Christopher Phillips is not
      paid
      a salary by the Company.





On
      May
      25, 2007, the Company entered into the Preferred Stock Purchase Agreement with
      Dynamic Decisions Strategic Opportunities (the “Investor”), pursuant to which
      the Investor purchased 600 shares of the Company’s series B 10% convertible
      preferred stock (the “Preferred Stock”), 480,000 Series B-1 warrants, and
      480,000 series B-2 common stock purchase warrants (collectively, the “Warrants”)
      for an aggregate purchase price of $600,000. Midtown Partners LLC, which served
      as the Company’s placement agent in connection with the Preferred Stock Purchase
      Agreement, received placement agent fees of approximately $60,000, as well
      as
      the following common stock purchase warrants: (a) series BD-4 common stock
      purchase warrants entitling Midtown Partners to purchase 48,000 shares of the
      Company's common stock at an exercise price of one dollar and eighty-seven
      cents
      ($1.87) per share, and (b) series BD-5 common stock purchase warrants entitling
      Midtown Partners to purchase 48,000 shares of the Company's common stock at
      an
      exercise price of three dollars and seventy-five cents ($3.75) per share and
      (c)
      series BD-6 common stock purchase warrants entitling Midtown Partners to
      purchase 48,000 shares of the Company's common stock at an exercise price of
      one
      dollar and twenty five cents ($1.25) per share. The Series BD warrants have
      a
      term of ten years. Midtown Partners & Co., LLC is an FINRA registered
      broker-dealer. Chris Phillips, who is the Company’s CEO, CFO, Secretary,
      Treasurer and a director, is also the Manager and sole member of FAMALOM, LLC
      which is a 50% owner of Apogee Financial Investments, Inc., a merchant bank
      (“Apogee”). Apogee owns 100% of Midtown Partners & Co., LLC, a FINRA
      licensed broker-dealer.


82





On
      October 18, 2007, the Company entered into securities purchase agreements (the
      “Purchase Agreements”) with Vicis Capital Master Fund (“Vicis”) and Dynamic
      Decisions Strategic Opportunities (“Dynamic Decisions”) pursuant to which Vicis
      and Dynamic Decisions purchased 6,000,000 and 400,000, shares of our series
      C
      convertible preferred stock (“Series C Preferred Stock”), respectively for an
      aggregate purchase price of $6,400,000. In connection with the purchase of
      the
      Series C Preferred Stock, Vicis and Dynamic Decisions received an aggregate
      amount of 16,000,000 and 1,066,668 common stock purchase warrants, respectively.
      Vicis and Dynamic Decisions received a Series C-1 warrant to purchase 8,000,000
      and 533,334 shares of common stock, respectively, at an exercise price of $1.50
      (the “C-1 Warrant”) as well as a Series C-2 warrant to purchase 8,000,000 and
      533,334 shares of common stock, respectively, at an exercise price of $2.00
      (the
“C-2 Warrant”). The C-1 Warrant shall be valid for five years from the date of
      issuance and the C-2 Warrant shall be valid for ten years from the date of
      issuance. The Series C Preferred Stock has a conversion price of $0.75 and
      is
      convertible into an aggregate amount of 8,000,000 and 533,334 shares of common
      stock, respectively. The Series C Preferred stock does not pay annual dividends
      but each holder of Series C Preferred Stock shall have the right to such number
      of votes equal to the number of shares of common stock that the Series C
      Preferred Stock shall be converted into. Furthermore, pursuant to the terms
      of
      the Purchase Agreements, Vicis and Dynamic Decisions exchanged their 3,000
      shares of series A preferred stock and 600 shares of series B preferred stock,
      respectively, for 3,285,354 and 624,210 shares of Series C Preferred Stock,
      respectively. In connection with the Purchase Agreements, Vicis and Dynamic
      Decisions received a Series C-1 Warrant to purchase 4,380,472 and
      832,280 shares of common stock, respectively and a series C-2 Warrant to
      purchase 4,380,472 and 832,280 and shares of common stock, respectively.
      The Series C-1 Warrant and the Series C-2 Warrant shall have an exercise price
      of $1.50 and $2.00, respectively, and shall be valid for five year and ten
      years
      from the date of issuance, respectively.





Midtown
      Partners & Co., LLC, which served as the Company’s placement agent in
      connection with the Purchase Agreements, received aggregate placement agent
      fees
      of approximately $340,000, as well as the following common stock purchase
      warrants: (a) series BD-7 common stock purchase warrants entitling Midtown
      Partners to purchase 853,333 shares of the Company's common stock at an exercise
      price of seventy-five cents ($0.75) per share, and (b) series BD-8 common stock
      purchase warrants entitling Midtown Partners to purchase 853,333 shares of
      the
      Company's common stock at an exercise price of one dollar and fifty cents
      ($1.50) per share and (c) series BD-9 common stock purchase warrants entitling
      Midtown Partners to purchase 853,333 shares of the Company's common stock at
      an
      exercise price of two dollars ($2.00) per share. The Series BD warrants have
      a
      term of ten years. Midtown Partners & Co., LLC is a FINRA registered
      broker-dealer. Chris Phillips, who is the Company’s CEO, CFO, Secretary,
      Treasurer and a director, is also the Manager and sole member of FAMALOM, LLC
      which is a 50% owner of Apogee Financial Investments, Inc., a merchant bank
      (“Apogee”). Apogee owns 100% of Midtown Partners & Co., LLC, a FINRA
      licensed broker-dealer.




On
      October 19, 2007, we entered into a subscription agreement with ResponzeTV
      PLC
      (“ResponzeTV”) (the “Subscription Agreement”) pursuant to which we purchased
      8,500,000 ordinary shares of ResponzeTV and received warrants to purchase
      17,000,000 ordinary shares of ResponzeTV for an aggregate purchase price of
      US$5,100,000. The warrants are to be issued in the following manner: (i) a
      warrant to purchase 8,500,000 common shares with an exercise price of £37p, (ii)
      a warrant to purchase 4,250,000 common shares with an exercise price of £50p and
      (iii) 4,250,000 common shares with an exercise price of £100p. Each warrant
      shall have a term of five years from the date of issuance. Kevin Harrington
      and
      Tim Harrington, who are directors of the Company, are officers and directors
      of
      ResponzeTV. Midtown Partners & Co., LLC, which served as the Company’s
      placement agent in connection with the Subscription Agreement, received
      aggregate placement agent fees of US$50,000, as well as 500,000 ordinary shares
      of ResponzeTV. Midtown Partners & Co., LLC is a FINRA registered
      broker-dealer. Chris Phillips, who is the Company’s CEO, CFO, Secretary,
      Treasurer and a director, is also the Manager and sole member of FAMALOM, LLC
      which is a 50% owner of Apogee Financial Investments, Inc., a merchant bank
      (“Apogee”). Apogee owns 100% of Midtown Partners & Co., LLC, a FINRA
      licensed broker-dealer.





On
      October 19, 2007, our wholly-owned subsidiary OmniReliant Corp. (“ORC”) entered
      into and closed a share exchange agreement with ResponzeTV (the “Exchange
      Agreement”). Pursuant to the terms of the Exchange Agreement, ResponzeTV
      acquired all of the issued and outstanding shares of capital stock of KHL
      Holdings, Inc., a newly formed Florida corporation and wholly-owned subsidiary
      of ORC (“KHL”), in exchange for 9,500,000 ordinary shares of stock of
      ResponzeTV. On October 12, 2007, ORC entered into an exclusive sublicense
      agreement with KHL, pursuant to which ORC granted KHL the exclusive right and
      license to our rights to use the Kathy Hilton Trademark and to sell products
      bearing the Kathy Hilton Trademark exclusive of fragrance. The initial term
      of
      this sublicense agreement shall terminate on June 30, 2012. ORC shall have
      the
      option to renew this Agreement for an additional five year period. Kevin
      Harrington and Tim Harrington, who are directors of the Company, are officers
      and directors of ResponzeTV.


83





On
      May 7,
      2008, the Company entered into loan agreement (the “Purchase Agreement”) with
      ResponzeTV, PLC, a corporation incorporated under the laws of England and Wales
      (“RETV”) pursuant to which the Company purchased a 10% Promissory Note from RETV
      for an aggregate purchase price of $2,000,000 (the “Note”). The Note bears
      interest at 10% per annum and matures on June 21, 2008, forty-five days from
      the
      date of issuance (the “Maturity Date”).





On
      the
      Maturity Date, the Company, at its sole discretion, may either (i) apply the
      principal amount of the Note, and any interest accrued thereon, towards the
      purchase price of a strategic transaction entered into with the RETV for the
      acquisition of the capital stock and/or assets of any of RETV’s subsidiaries
      and/or divisions (the “Strategic Transaction”) or (ii) convert the principal
      amount of the Note, and any interest accrued thereon, into (x) the Specified
      Number of New RETV Shares at a price of 25.75p per share plus (y) New RETV
      Warrants (the “New RETV Securities”). If the Company does not make any such
      express election, the Company will be deemed to have elected to convert the
      principal amount of the Note, and any accrued interest thereon, on the Maturity
      Date, in accordance with (ii) above. If the Company converts the Note in
      accordance with the provisions set forth above, the Company will hereby forgive
      RETV of its obligation to repay the principal amount of the Note and any
      interest


accrued
      but unpaid thereunder and the Note shall become null and void as of the Maturity
      Date.





For
      purposes of the New RETV Securities, “New RETV Shares” means new ordinary shares
      of 16p par value in the capital of RETV, credited as fully paid up, “New RETV
      Warrants” means new unlisted warrants to subscribe for





New
      RETV
      Shares which will be issued and granted to the Company pursuant to a warrant
      instrument in substantially the same form as the warrant instrument granted
      to
      the Company in October 2007, in the following manner: (x) warrants equal to
      the
      Specified Number, which shall be exercisable at 37p; (y) warrants equal to
      50%
      of the Specified Number, which shall be exercisable at 50p; and (z) warrants
      equal to 50% of the Specified Number, which shall be exercisable at 100p. For
      purposes of this Section, “Specified Number” means the principal amount of the
      Note, and any interest accrued thereon, in Pounds Sterling (calculated at an
      agreed exchange rate of £1:US$1.98) divided by 25.75p (being the agreed price
      for each New RETV Share).


84


**ITEM
      13. EXHIBITS.**




Exhibit
              Number
            
            Description2.1
            
            Stock
                Exchange Agreement ***2.2
            
            Securities
                Purchase Agreement by and among OmniReliant Corporation, Willowtree
                Advisor and Cynthia Allison.***3.1
            
            Willowtree
                Advisor Articles of Incorporation *3.2
            
            Willowtree
                Advisor Bylaws *3.3
            
            Willowtree
                Advisor Certificate Designation of Series A 10% Convertible Preferred
                Stock ***3.4
            
            Articles
                of Merger******3.5
            
            Certificate
                of Designation of Series B 10% Convertible Preferred Stock
                ********3.6
            
            Certificate
                of Designation of Series C Convertible Preferred Stock4.1
            
            Form
                of Series A Common Stock Purchase Warrant ***4.2
            
            Form
                of Series B Common Stock Purchase Warrant ********4.3
            
            Form
                of Series C-1 Common Stock Purchase Warrant4.4
            
            Form
                or Series C-2 Common Stock Purchase Warrant10.1
            
            Securities
                Purchase Agreement by and among Willowtree Advisor and the Purchasers
                identified therein. ***10.2
            
            Registration
                Rights Agreement ***10.3
            
            Paul
                Morrison Executive Employment Agreement ***10.4
            
            Kathy
                Hilton License Agreement ****10.5
            
            First
                Amendment to Kathy Hilton License Agreement ***10.6
            
            Harrington
                Business Development, LLC Consulting Agreement ***10.7
            
            Guaber
                S.P.A. International Marketing & Distribution Agreement
                ***10.8
            
            Assignment
                of Guaber S.P.A. International Marketing & Distribution Agreement
                ***10.9
            
            Midtown
                Partners & Co., LLC Placement Agent Agreement ***10.10
            
            First
                Amendment to Placement Agent Agreement ***10.11
            
            Amendment
                No. 1 to Registration Rights Agreement, dated November 22,
                2006*******10.12
            
            Securities
                Purchase Agreement by and among OmniReliant Holdings and the Purchasers
                identified therein., dated May 25, 2007 ********10.13
            
            Registration
                Rights Agreement by and between OmniReliant Holdings, Inc. and Dynamic
                Decisions Strategic Opportunities, dated May 25, 2007
                ********10.14
            
            Agreement
                for Acquistiion of Patent Application, dated June 18, 2007 by and
                between
                OmniReliant Holdings, Inc. and Product & Technology Partners
                LLC*******10.15
            
            Securities
                Purchase Agreement, dated October 18, 2007, by and between OmniReliant
                Holdings, Inc. and Vicis Capital Master Fund***********10.16
            
            Securities
                Purchase Agreement, dated October 18, 2007, by and between OmniReliant
                Holdings, Inc. and Dynamic Decisions Strategic
                Opportunities***********10.17
            
            Amended
                and Restated Registration Rights Agreement, dated October 18, 2007,
                by and
                among OmniReliant Holdings, Inc., Vicis Capital Master Fund and Dynamic
                Decisions Strategic Opportunities***********10.18
            
            Subscription
                Agreement, dated October 19, 2007, by and between OmniReliant Corp.
                and
                ResponzeTV PLC***********10.19
            
            Share
                Exchange Agreement, dated October 19, 2007 by and between OmniReliant
                Corp. and ResponzeTV PLC***********14.1
            
            Code
                of Ethics **16.1
            
            Letter
                from Williams & Webster, P.S. *****16.2
            
            Letter
                from Herman, Lagor, Hopkins & Meeks, P.A.
                **********31
            
            Certification
                by Chief Executive Officer and Chief Financial Officer, required
                by Rule
                13a-14(a) or Rule 15d-14(a) of the Exchange Act32
            
            Certification
                by Chief Executive Officer and Chief Financial Officer, required
                by Rule
                13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350
                of
                Chapter 63 of Title 18 of the United States
                Code




85





*
      Incorporated by reference from the Registrant's Form SB-2 Registration Statement
      filed with the Securities and Exchange Commission on August 2, 2004 (File No.
      333-117840).





**
      Incorporated by reference from to the Registrant’s Form 10-KSB for the period
      ending June 30, 2005 filed with the Securities and Exchange Commission on
      November 2, 2005.





***
      Incorporated by reference from to the Registrant’s Form 8-K filed with the
      Securities and Exchange Commission on November 29, 2006.





****
      Subject to a request for confidential treatment filed with the Securities and
      Exchange Commission pursuant to Rule 24b-2 promulgated under the Securities
      Exchange Act of 1934, as amended.





*****
      Incorporated by reference from to the Registrant’s Form 8-K filed with the
      Securities and Exchange Commission on December 20, 2006.




******
      Incorporated by reference from to the Registrant’s Form 8-K filed with the
      Securities and Exchange Commission on December 29, 2006.





*******Incorporated
      by reference from the Registrant’s Form SB-2 (File No. 333-140800) filed with
      the Securities and Exchange Commission on February 20, 2007.




********
      Incorporated by reference from to the Registrant’s Form 8-K filed with the
      Securities and Exchange Commission on June 1, 2007.





*********
      Incorporated by reference from to the Registrant’s Form 8-K filed with the
      Securities and Exchange Commission on June 26, 2007.




**********
      Incorporated by reference from to the Registrant’s Form 8-K filed with the
      Securities and Exchange Commission on July 26, 2007.





***********
      Incorporated by reference from to the Registrant’s Form 8-K filed with the
      Securities and Exchange Commission on October 24, 2007.


86


**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 Herman, Lagor, Hopkins & Meeks, P.A. 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 Herman, Lagor, Hopkins & Meeks, P.A.
      in 2007 and Williams & Webster, P.S. in 2006 were approved by the board of
      directors.





Audit
      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-QSB for 2008 and 2007
      were $55,000 and $28,000 respectively, net of expenses.





Audit-Related
      Fees





There
      were no other fees billed by during the last two fiscal years for assurance
      and
      related services that were reasonably related to the performance of the audit
      or
      review of the Company's financial statements and not reported under "Audit
      Fees"
      above.





Tax
      Fees





There
      were $-0- per year spent on tax filings.





All
      Other Fees





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




87


**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.




**OMNIRELIANT
                HOLDINGS, INC.**Date:
                October 14, 2008
            By:
            /s/
                Paul MorrisonPaul
                MorrisonChief
                Executive Officer and Chief Financial Officer (Principal Executive
                Officer, Financial Officer and Principal 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/
              Paul Morrison
            Chief Executive
              Officer and CFO
            October 14, 2008Paul Morrison/s/ Christopher Phillips
            Director
            October 14, 2008Christopher Phillips/s/ Richard Diamond
            Director
            October 14, 2008Richard Diamond




88