UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington
      D. C. 20549





FORM
      10-QSB/A





x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934





For
      the
      quarterly period ended December 31, 2007





o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934




For
      the
      transition period from





Commission
      file number 000-51599




OmniReliant
      Holdings, Inc.


(Exact
      name of small business issuer as specified in its charter)





Nevada
              (State
                or other jurisdiction of
              incorporation
                or organization)
            
            54-2153837
              (I.R.S.
                Employer
              Identification
                No.)





4218
      West
      Linebaugh Avenue


Tampa,
      Florida 33624


(Address
      of principal executive offices)





(813)
      885-5998


(Issuer's
      telephone number)




Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the past 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.





Yes x No o





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





Yes o No x





The
      number of shares of the issuer's outstanding common stock on February 14, 2008
      was 14,063,112.





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







Explanatory
      Notes





OmniReliant
      Holdings, Inc. (hereinafter referred to as “us,” “we,” or the “Company”) is
      filing this Amendment No. 1 on Form 10-QSB/A (the “First Amendment”) to its
      Quarterly Report for the fiscal period ended December 31, 2007, which was filed
      with the Securities and Exchange Commission (“SEC”) on February 14, 2008 (the
“Original Report”) in response to certain comments raised by the staff of the
      SEC.    As more fully discussed in Note 11 to the
      accompanying condensed consolidated financial statements, the purpose of this
      Amendment is to restate our unaudited financial statements and notes included
      in
      Part I, Item 1 *Financial Statements* and Part
      I, Item 2 *Management’s
      Discussion and Analysis* to
      address the following matters.




o
              The
                  amortization expense associated with intangible assets was revised
                  to
                  provide for amortization over the contractual terms of the
                  assets.o
              The
                  Series A, B and C 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 financing were revalued using reasonable techniques and
                  correct
                  assumptions.o
              Our
                  investments in ResponzeTV were originally accounted for at a fair
                  value
                  under Statement 115. However, we have further considered the level
                  of
                  influence that we have acquired over ResponzeTV and have concluded
                  that
                  our level of influence gives rise to an equity method investment.
                  These
                  financial statements give effect to our investment in ResponzeTV
                  using the
                  equity method.





This
      Amendment speaks only of the original filing date of the Original Report and,
      except for those Items disclosed in this explanatory note, is unchanged from
      the
      Original Report. This First Amendment reflects material subsequent events which
      occurred after the filing of the Original Report. You should read this
      First Amendment together with our other reports that update and supersede the
      information contained in this First Amendment.




2




PART
      I -
      FINANCIAL INFORMATION




FORWARD-LOOKING
      STATEMENTS





This
      Form
      10-QSB/A contains “forward-looking statements” relating to OmniReliant Holdings,
      Inc. (referred to as the “Company” or “we”, “us” or “our” in this Form
      10-QSB/A), which represent the Company’s current expectations or beliefs
      including, but not limited to, statements concerning the Company’s operations,
      performance, financial condition and growth. For this purpose, any statements
      contained in this Form 10-QSB/A that are not statements of historical fact
      are
      forward-looking statements. Without limiting the generality of the foregoing,
      words such as “may”, “anticipation”, “intend”, “could”, “estimate”, or
“continue” or the negative or other comparable terminology are intended to
      identify forward-looking statements. These statements by their nature involve
      substantial risks and uncertainties, such as credit losses, dependence on
      management and key personnel, variability of quarterly results, and the ability
      of the Company to continue its growth strategy and competition, certain of
      which
      are beyond the Company’s control. Should one or more of these risks or
      uncertainties materialize or should the underlying assumptions prove incorrect,
      actual outcomes and results could differ materially from those indicated in
      the
      forward-looking statements.





Any
      forward-looking statement speaks only as of the date on which such statement
      is
      made, and the Company undertakes no obligation to update any forward-looking
      statement or statements to reflect events or circumstances after the date on
      which such statement is made or to reflect the occurrence of unanticipated
      events. New factors emerge from time to time and it is not possible for
      management to predict all of such factors, nor can it assess the impact of
      each
      such factor on the business or the extent to which any factor, or combination
      of
      factors, may cause actual results to differ materially from those contained
      in
      any forward-looking statements.




3


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED BALANCE SHEET


December
      31, 2007 (Restated)


ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              868,153Accounts
                  receivable
              
              
              40,455Inventory
              
              
              181,236Prepaid
                  expenses
              
              
              383,992Total
                  current assets
              
              
              1,473,836Equity-method
                  investment in ResponzeTV
              
              
              11,685,776Intangible
                  assets, net of accumulated amortization of $486,805
              
              
              970,511Deferred
                  financing costs, net of accumulated amortization of $1,851
              
              
              41,284Total
                  assets
              
              $
              14,171,407LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                  liabilities:Accounts
                  payable
              
              $
              117,388Derivative
                  liabilities
              
              
              29,437,647Current
                  portion of deferred revenue
              
              
              1,312,600Total
                  current liabilities
              
              
              30,867,635Deferred
                  revenue, net of current portion
              
              
              5,031,633Total
                  liabilities
              
              
              35,899,268Redeemable
                  preferred stock
              
              
              19,456,362Stockholders'
                  equity (deficit):Common
                  stock, $0.00001 par value; 100,000,000 shares authorized; 14,000,000
                  shares issued and outstanding.
              
              
              140Additional
                  paid-in capital
              
              
              29,307,806Deficit
                  accumulated during development stage
              
              
              (70,492,169
              )Total
                  shareholders' equity (deficit)
              
              
              (41,184,223
              )Total
                  liabilities and shareholders' equity (deficit)
              
              $
              14,171,407





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




4




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF OPERATIONS





Three months ended
              December 31, 2007
            
            Three months ended
              December 31, 2006(Restated)
            
            (Restated)License
                revenue
            
            $
            218,767
            
            $
            —Product
                sales
            
            
            30,850
            
            
            —Total
                Revenue
            
            
            249,617
            
            
            —Operating
                costs and expenses:Cost
                of product sales
            
            
            11,453
            
            
            —Salaries
                and wages
            
            
            1,093,530
            
            
            50,975Amortization
                expense
            
            
            176,463
            
            
            55,099Professional
                and consulting
            
            
            145,491
            
            
            145,254General
                and administrative
            
            
            118,806
            
            
            19,003Total
                operating expenses
            
            
            1,545,743
            
            
            270,331Operating
                loss
            
            
            (1,296,126
            )
            
            (270,331
            )Other
                (expense):Extinguishment
                of redeemable preferred
            
            
            (26,247,007
            )
            
            —Derivative
                fair value adjustments
            
            
            (10,426,472
            )
            
            (17,552,945
            )Extinguishment
                of other liabilities
            
            
            (271,109
            )
            
            —Equity
                in ResponzeTV
            
            
            (107,224
            )
            
            —Interest
                expense
            
            
            (44,867
            )
            
            (31,648
            )Total
                other expense
            
            
            (37,096,679
            )
            
            (17,584,593
            )Loss
                before income taxes
            
            
            (38,392,805
            )
            
            (17,854,924
            )Income
                taxes
            
            
            —
            
            
            —Net
                loss
            
            $
            (38,392,805
            )
            $
            (17,854,924
            )Reconciliation
                of net loss to loss applicable to common shareholders:Net
                loss
            
            $
            (38,392,805
            )
            $
            (17,854,924
            )Accretion
                of preferred stock to redemption value
            
            
            (6,400,000
            )
            
            (3,000,000
            )Preferred
                stock dividends, in arrears
            
            
            —
            
            
            (34,167
            )Loss
                applicable to common shareholders
            
            $
            (44,792,805
            )
            $
            (20,889,091
            )Loss
                per common share (basic)
            
            $
            (3.20
            )
            $
            (1.71
            )Loss
                per common share (diluted)
            
            $
            (3.20
            )
            $
            (1.71
            )Weighted
                average common shares outstanding
            
            
            14,011,233
            
            
            12,189,658





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




5




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF OPERATIONS





Six months ended
              December 31, 2007
            
            August 21, 2006
              (inception) to
              December 31,
              2006
            
            August 21, 2006
              (inception) to
              December 31, 2007(Restated)
            
            (Restated)
            
            (Restated)License
                revenue
            
            $
            218,767
            
            $
            —
            
            $
            218,767Product
                sales
            
            
            189,673
            
            
            2,640
            
            
            192,313Total
                revenue
            
            
            408,440
            
            
            2,640
            
            
            411,080Costs
                and other operating expenses:Cost
                of other product sales
            
            
            109,879
            
            
            1,320
            
            
            111,199Salaries
                and wages
            
            
            1,146,009
            
            
            50,975
            
            
            1,300,903Amortization
                expense
            
            
            361,362
            
            
            55,099
            
            
            773,327Professional
                and consulting
            
            
            276,444
            
            
            149,286
            
            
            3,100,526General
                and administrative
            
            
            238,900
            
            
            19,003
            
            
            394,451Total
                operating expenses
            
            
            2,132,594
            
            
            275,683
            
            
            5,680,406Operating
                loss
            
            
            (1,724,154
            )
            
            (273,043
            )
            
            (5,269,326
            )Other
                (expense):Loss
                on exchange of redeemable preferred
            
            
            (26,247,007
            )
            
            —
            
            
            (26,247,007
            )Derivative
                fair value adjustments
            
            
            (6,747,626
            )
            
            (17,552,945
            )
            
            (26,903,896
            )Extinguishment
                of other liabilities
            
            
            (271,109
            )
            
            —
            
            
            (271,109
            )Registration
                payments
            
            
            (309,137
            )
            
            —
            
            
            (542,080
            )Interest
                expense
            
            
            (260,732
            )
            
            (31,648
            )
            
            (490,252
            )Equity
                in losses of ResponzeTV
            
            
            (107,224
            )
            
            —
            
            
            (107,224
            )Total
                other expense
            
            
            (33,942,835
            )
            
            (17,584,593
            )
            
            (54,561,568
            )Loss
                before income taxes
            
            
            (35,666,989
            )
            
            (17,857,636
            )
            
            (59,830,894
            )Income
                taxes
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            $
            (35,666,989
            )
            $
            (17,857,636
            )
            $
            (59,830,894
            )Reconciliation
                of net loss to loss applicable to common shareholders:Net
                loss
            
            $
            (35,666,989
            )
            $
            (17,857,636
            )
            $
            (59,830,894
            )Accretion
                of preferred stock to redemption value
            
            
            (6,400,000
            )
            
            (3,000,000
            )
            
            (9,400,000
            )Preferred
                stock dividends
            
            
            —
            
            
            (34,167
            )
            
            (194,468
            )Loss
                applicable to common shareholders
            
            $
            (42,066,989
            )
            $
            (20,891,803
            )
            $
            (69,425,362
            )Loss
                per common share (basic)
            
            $
            (3.00
            )
            $
            (2.13
            )Loss
                per common share (diluted)
            
            $
            (3.00
            )
            $
            (2.13
            )Weighted
                average common shares outstanding
            
            
            14,022,330
            
            
            9,808,358





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




6




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF CASH FLOWS





Six months ended
              December 31, 2007
            
            August 21, 2006
              (inception) to
              December 31,
              2006
            
            August 21, 2006
              (inception) to
              December 31,
              2007(Restated)
            
            (Restated)
            
            (Restated)Cash
                flows from operating activities:Net
                loss
            
            $
            (35,666,989
            )
            $
            (17,857,636
            )
            $
            (59,830,894
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Loss
                on exchange of preferred stock
            
            
            26,247,007
            
            
            —
            
            
            26,247,007Derivative
                fair value adjustments
            
            
            6,747,626
            
            
            17,552,945
            
            
            26,903,896Preferred
                Stock Dividend
            
            
            115,096
            
            
            —
            
            
            115,096Share-based
                payments
            
            
            1,134,705
            
            
            15,000
            
            
            3,621,106Extinguishment
                of liabilities
            
            
            271,109
            
            
            —
            
            
            271,109Amortization
                of intangible assets
            
            
            184,989
            
            
            55,099
            
            
            596,864Amortization
                of deferred finance costs
            
            
            118,896
            
            
            31,648
            
            
            348,416Equity
                in losses of ResponzeTV
            
            
            107,224
            
            
            —
            
            
            107,224Changes
                in operating assets and liabilities:Accounts
                Receivable
            
            
            (40,455
            )
            
            —
            
            
            (40,455
            )Inventory
            
            
            (190,612
            )
            
            —
            
            
            (311,236
            )Prepaid
                expenses
            
            
            19,017
            
            
            (15,200
            )
            
            (17,510
            )Accounts
                payable
            
            
            92,652
            
            
            10,786
            
            
            120,006Accrued
                registration payments
            
            
            309,137
            
            
            —
            
            
            542,080Net
                cash flow from operating activities
            
            
            (550,598
            )
            
            (207,358
            )
            
            (1,327,291
            )Cash
                flows from investing activities:Investment
                in ResponzeTV
            
            
            (5,100,000
            )
            
            —
            
            
            (5,100,000
            )Payments
                for patents
            
            
            (6,811
            )
            
            —
            
            
            (31,811
            )Payments
                for licenses
            
            
            —
            
            
            (853,000
            )
            
            (1,006,010
            )Net
                cash flow from investing activities
            
            
            (5,106,811
            )
            
            (853,000
            )
            
            (6,137,821
            )Cash
                flows from financing activities:Net
                proceeds from sales of preferred stock
            
            
            5,814,078
            
            
            2,540,000
            
            
            8,794,078Proceeds
                from sale of common stock
            
            
            —
            
            
            —
            
            
            15,000Purchase
                and retirement of common shares
            
            
            —
            
            
            (475,813
            )
            
            (475,813
            )Net
                cash flow from financing activities
            
            
            5,814,078
            
            
            2,064,187
            
            
            8,333,265Net
                increase in cash and cash equivalents
            
            
            156,669
            
            
            1,003,829
            
            
            868,153Cash
                and cash equivalents at beginning of year
            
            
            711,484
            
            
            —
            
            
            —Cash
                and cash equivalents at end of year
            
            $
            868,153
            
            $
            1,003,829
            
            $
            868,153Supplemental
                cash flow information:Interest
                paid in cash
            
            $
            —
            
            $
            —
            
            $
            —Income
                taxes paid in cash
            
            $
            —
            
            $
            —
            
            $
            —Series
                C Preferred and warrants issued in exchange
            
            $
            31,349,989
            
            $
            —
            
            $
            31,349,989Investment
                in ResponzeTV
            
            $
            6,538,240
            
            $
            —
            
            $
            6,538,240Common
                stock issued for patent, at fair value
            
            $
            —
            
            $
            —
            
            $
            720,000Common
                stock issued for license, at fair value
            
            $
            —
            
            $
            300,000
            
            $
            352,000





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




7




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)


Period
      from August 21, 2006 (inception) to December 31, 2007 (Restated)




Common Stock
            
            Paid-in
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            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.




8




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


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


Period
      from August 21, 2006 (inception) to December 31, 2007 (Restated)





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
            
            
            -
            
            
            17,796,834Reclassification
                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
            )





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 9 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 9, 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 9, 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, pain
                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.




9




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED 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 $475,813. 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.




10




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      1
      - ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)





*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 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





The
      accompanying unaudited consolidated financial statements for the three month
      period ended December 31, 2007, the six month period ended December 31, 2007,
      the three month period ended December 31, 2006, the period from August 21,
      2006
      (inception) to December 31, 2007, and the period from August 21, 2006
      (inception) to December 31, 2006 have been prepared in accordance with
      accounting principles generally accepted in the United States of America for
      interim financial information and pursuant to the rules and regulations of
      the
      Securities and Exchange Commission for Form 10-QSB. Accordingly, they do not
      include all the information and footnotes required by accounting principles
      generally accepted in the United States of America for complete financial
      statements.





The
      unaudited financial information included in this report includes all adjustments
      which are, in the opinion of management, necessary to reflect a fair statement
      of the results for the interim periods. The operations for the three month
      period ended December 31, 2007, the six month period ended December 31, 2007,
      the three month period ended December 31, 2006, the period from August 21,
      2006
      (inception) to December 31, 2007, and the period from August 21, 2006
      (inception) to December 31, 2006 are not necessarily indicative of the results
      of the full fiscal year.





The
      condensed consolidated financial statements included in this report should
      be
      read in conjunction with the financial statements and notes thereto included
      in
      the Registrant's June 30, 2007 Annual Report on Form 10-KSB and subsequent
      filings on Form 8-K.





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. License revenue is recorded over the term of the license
      arrangement, as it is earned.





*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. Entities where the Company
      does not have voting control but has significant influence over its operations
      are accounted for under the equity method.




11




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





*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 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.





*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
      three month period ended December 31, 2007 (as restated), the six month period
      ended December 31, 2007 (as restated), the three month period ended December
      31,
      2006 (as restated), the period from August 21, 2006 (inception) to December
      31,
      2007 (as restated), and the period from August 21, 2006 (inception) to December
      31, 2006 (restated) was $176,463, $361,362, $55,099, $773,327, and $55,099,
      respectively.





*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.




12




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED 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 $607,705 of expense related to issuances in the
      Consolidated Statement of Operations for the three and six month periods ended
      December 31, 2007.




13




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





*Determining
      Fair-Value*




The
      Company uses the Black-Scholes option valuation model to determine the fair
      value of stock options and employee stock purchase plan shares. The
      determination of the fair value of share-based payment awards on the date of
      grant using an option-valuation
      model is affected by the Company’s stock price as well as assumptions regarding
      a number of complex variables. These variables include the Company’s expected
      stock price volatility over the term of the awards, projected employee stock
      option exercise behavior, expected risk-free interest rate and expected
      dividends.





The
      Company estimates the expected term and volatility of options granted based
      on
      values derived from its industry peer group. Our decision to use these measures
      of expected term and volatility was based upon the lack of availability of
      actively traded options in the Company’s own common stock and the Company’s
      assessment that the peer group measure of volatility is more representative
      of
      future stock price trends than the Company’s historical volatility. The Company
      bases the risk-free interest rate for option valuation on Constant Maturity
      Rates provided by the U.S. Treasury with remaining terms similar to the expected
      term of the options. The Company does not anticipate paying any cash dividends
      in the foreseeable future and therefore uses an expected dividend yield of
      zero
      in the option valuation model. In addition, SFAS No. 123(R) requires
      forfeitures of share-based awards to be estimated at the time of grant and
      revised, if necessary, in subsequent periods if actual forfeitures differ from
      those estimates. As this is the Company’s initial issuance and no historical
      data exists to estimate pre-vesting option forfeitures the Company has recorded
      stock-based compensation expense for the all the awards vested. The Company
      uses
      the straight-line attribution as its expensing method of the value of
      share-based compensation for options and awards.




Under
      SFAS No. 123(R) the Company uses the Black-Scholes option valuation model to
      estimate the fair value of the Company’s option awards. The key assumptions used
      in the model during the three and six month periods ended December 31, 2007
      included a risk free interest rate of 5.00%, an expected volatility of 122.95%
      and an expected option life of 2 years.





*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.




14




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





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 9 for further
      disclosures about our redeemable preferred stock.





*Registration
      Payment Arrangement* s **–** 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 *.* As
      of
      June 30, 2007 as more fully discussed in Note 8, we were in default of certain
      registration rights agreements and the investors then had certain rights to
      demand payments. As of October 18, 2007 we had accrued $542,080 for liquidated
      damages associated with the Series A Preferred Stock, representing our best
      estimate of registration related payments that we would be required to make
      to
      the investors under the registration rights agreement. 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 9 for additional information related to the
      exchange.




15




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





*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 not expected to
      have a material effect on our consolidated financial statements.





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





NOTE
      4 -
      ACCOUNTING FOR STOCK BASED COMPENSATION





As
      of
      December 31, 2007, the Company had not yet created a stock incentive plan which
      authorizes the issuance of options to purchase common stock. 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
      $607,705 of expense related to issuances in the Consolidated Statement of
      Operations for the three and six month periods ended December 31,
      2007.




16


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      4 -
      ACCOUNTING FOR STOCK BASED C1OMPENSATION (CONTINUED)





*Stock
      Options and Warrants:*





The
      following table summarizes the activity related to all Company stock options
      and
      warrants for the three month period ended December 31, 2007:





Weighted AverageExercise Price
            
            Exercise PriceStock
            
            Per Share
            
            Per ShareWarrants
            
            Options
            
            Warrants
            
            Options
            
            Warrants
            
            OptionsOutstanding
                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
            
            $
            1.00Exercisable
                at December 31, 2007
            
            
            32,096,171
            
            
            300,000
            
            
            0.75-3.75
            
            $
            1.00
            
            $
            1.70
            
            $
            1.00




The
      warrants expire at various dates ranging from April 2010 through October
      2017.




17


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      5 -
      LOSS PER SHARE





Components
      of loss per common share for the period from the following periods are as
      follows:





Three Months
              Ended
              December 31, 2007
            
            Three Months
              Ended
              December 31, 2006
            
            Six Months
              Ended
              December 31, 2007Loss
                applicable to common shareholders
            
            $
            (44,792,805
            )
            $
            (20,889,091
            )
            $
            (42,066,989
            )Weighted
                average shares outstanding:
            
            
            14,011,233
            
            
            12,189,658
            
            
            14,022,330Loss
                per share—basic and diluted**
            
            $
            (3.20
            )
            $
            (1.71
            )
            $
            (3.00
            )





Components
      of loss per common share for the period from the following periods are as
      follows (continued):





August 21, 2006
              (inception) to December
              31, 2006Loss
                applicable to common shareholders
            
            $
            (20,891,803
            )Loss
                per common share (basic)
            
            
            (2.13
            )Loss
                per common share (diluted)
            
            
            (2.13
            )Weighted
                average shares outstanding:
            
            
            9,808,358





Diluted
      weighted average per share outstanding for the periods ended December 31, 2006
      and 2007 do not include the effect of dilutive Series A, B and C Preferred
      Stock
      and Series A-1, A-2, B-1, B-2, C-1, C-2, BD-1, BD-2, BD-3, BD-4, BD-5, BD-6,
      BD-7, BD-8 and BD-9 and consultant warrants because to do so would have been
      anti-dilutive ( see list of anti-dilutive shares below). Accordingly, basic
      and
      diluted net loss per share for this period is the same.




18


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      5 -
      LOSS PER SHARE (CONTINUED)





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


**Exercise**
              
              **Common Equivalents**
                **as of**
                **December 31,****Securities**
              
              **Price**
              
              **2007**
              
              **2006*****Preferred:***Series
                  A Preferred
              
              
              
              
              
              —
              
              
              3,000,000Series
                  C Preferred
              
              
              
              
              
              13,746,085
              
              
              —***Warrants:***Class
                  A-1 Warrants (1)
              
              $
              0.75
              
              
              3,000,000
              
              
              3,000,000Class
                  A-2 Warrants (1)
              
              $
              0.75
              
              
              3,000,000
              
              
              3,000,000Class
                  B-1 Warrants (1)
              
              $
              0.75
              
              
              480,000
              
              
              —Class
                  B-2 Warrants (1)
              
              $
              0.75
              
              
              480,000
              
              
              —Class
                  BD-1 Warrants (1)
              
              $
              0.75
              
              
              300,000
              
              
              300,000Class
                  BD-2 Warrants (1)
              
              $
              0.75
              
              
              300,000
              
              
              300,000Class
                  BD-3 Warrants (1)
              
              $
              0.75
              
              
              300,000
              
              
              300,000Class
                  BD-4 Warrants (1)
              
              $
              0.75
              
              
              48,000
              
              
              -Class
                  BD-5 Warrants (1)
              
              $
              0.75
              
              
              48,000
              
              
              -Class
                  BD-6 Warrants (1)
              
              $
              0.75
              
              
              48,000
              
              
              -Class
                  BD-7 Warrants (1)
              
              $
              0.75
              
              
              853,333
              
              
              -Class
                  BD-8 Warrants (1)
              
              $
              0.75
              
              
              853,333
              
              
              -Class
                  BD-9 Warrants (1)
              
              $
              0.75
              
              
              853,333
              
              
              -Class
                  C-1 Warrants
              
              $
              1.50
              
              
              10,266,086
              
              
              -Class
                  C-2 Warrants
              
              $
              2.00
              
              
              10,266,086
              
              
              -Warrant
                  issued to consultants
              
              
              
              
              
              1,000,000
              
              
              -***Options******:***Employee
                  stock options
              
              $
              1.00
              
              
              300,000
              
              
              —Total
                  common stock equivalent shares
              
              
              
              
              
              46,142,256
              
              
              9,900,000


(1)
            Warrants
                were repriced to $0.75 in connection with the Series C Convertible
                Preferred and Warrant Financing Transaction on October 19, 2007 (see
                Note
                9). The repricing gave rise to an approximate $3.2 million derivative
                expense.




19


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 –
INTANGIBLE ASSETS





Our
      intangible assets consist of the following at December 31, 2007:





Carrying
            
            AccumulatedIntangible
                Assets:
            
            Amount
            
            AmortizationLicense
                agreement
            
            $
            656,481
            
            $
            (440,867
            )Patent
                costs
            
            
            748,335
            
            
            —Straightening
                iron agreement
            
            
            52,500
            
            
            (45,938
            )Total
            
            $
            1,457,316
            
            $
            (486,805
            )Aggregate
                    Amortization Expense Quarter ended December 31,
                    2007
            
            $
            176,463




Estimated
                Amortization ExpensePeriod
                from December 31, 2007 through June 30, 2008:
            
            $
            140,564Year
                ending June 30:2009
            
            
            37,6532010
            
            
            74,6272011
            
            
            44,1652012
            
            
            37,4172013
            
            
            37,417Thereafter
            
            
            598,668





On
      October 12, 2007 we sold a portion of our licenses to ResponzeTV. The carrying
      value of the licenses sold was $653,005 and the related accumulated accumulation
      was $286,521. The difference of $366,484 was recorded as an addition to our
      investment in ResponzeTV.





*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
            
            
            
            MinimumPeriod
            
            Dates
            
            Royalty1
            
            Effective
              Date to 12/31/07
            
            $
            1,000,0002
            
            1/1/08
              to 12/31/08
            
            $
            1,000,0003
            
            1/1/09
              to 12/31/09
            
            $
            1,000,0004
            
            1/1/10
              to 12/31/10
            
            $
            1,000,0005
            
            1/1/11
              to 12/31/11
            
            $
            1,000,0006
            
            1/1/12
              to 12/31/15
            
            $
            1,500,000




20


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 –
INTANGIBLE ASSETS (CONTINUED):





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.





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
      quarter ended December 31, 2007 the Company recognized $169,328 of expense
      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:





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


·
            Sales,
                excise, use, value added or any like
                taxes;


·
            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.


21


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 –
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 and 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
      quarter ended December 31, 2007 the Company recognized $6,563 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.





In
      the
      event additional assistance is required with the patent pending application
      the
      members of Product & Technology Partners, LLC will act as consultants to
      develop the product.





On
      January 22, 2008 the Company paid the additional $25,000 to offer the product
      for sale, pursuant to (b) 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 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.





For
      the
      quarter ended December 31, 2007 the Company did not recognize any expense
      related to this agreement.


22






OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      7 -
      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 agreement
      was not renewed subsequent to June 30, 2007. The shareholders of HBD are also
      shareholders of the Company.





*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
      quarter ended December 31, 2007 the Company has not recognized any expense
      related to this agreement.





*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 quarter ended December 31, 2007 the
      Company recognized $2,490,151 of expense related to this agreement, of which
      $2,471,401 was 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. 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.




23


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      8 –
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 $475,813. 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 ofName
            
            SharesApogee
                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
            
            
            300,000Total
            
            
            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 quarter ended December 31, 2007 the Company recognized
      expense of $2,471,401 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. 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.





As
      more
      fully discussed in Note 9, these warrants were reclassified to liabilities
      on
      May 22, 2007, and were carried at their fair values, with adjustments to income
      until October 18, 2008, at which time they were reclassed to
      equity.





*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
      quarter ended September 30, 2007 the Company did not recognize any expense
      related to this agreement. See *“Patent
      Application Agreement”* above
      for additional details.


24


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
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 and Series C 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 and Series C 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”). The Series A has a par value of $0.00001, 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 $.00001, a stated value of $1,000 and
      a
      liquidation preference of $1,000. The Series C has a par value of $.00001,
      a
      stated value of $1.00 and a liquidation preference of $1.00. The Series A
      Preferred, Series B Preferred and Series C Preferred are convertible into our
      common stock at stated conversion prices of $1.00, $1.25, $0.75 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 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”) are 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 are payable in cash or common stock, as follows: (a) if
      funds are 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 are 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).





The
      Certificate of Designation provides that dividends are cumulative and
      unconditionally payable, even in the absence of a Board declaration.
      Accordingly, we accrued dividends as they are 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.




25


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




Certain
      equity conditions in the Certificate of Designations provide that (i) the
      Corporation shall have duly honored all conversions scheduled to occur or
      occurring by virtue of one or more Notices of Conversion of the applicable
      Holder on or prior to the dates so requested or required, if any, (ii) the
      Corporation shall have paid all liquidated damages and other amounts owing
      to
      the applicable Holder in respect of the Preferred Stock, (iii) there is an
      effective Conversion Shares Registration Statement pursuant to which the Holders
      are permitted to utilize the prospectus there under to resell all of the shares
      of Common Stock issuable pursuant to the Transaction Documents (and the
      Corporation believes, in good faith, that such effectiveness will continue
      uninterrupted for the foreseeable future), (iv) the Common Stock is trading
      on a
      Trading Market and all of the shares issuable pursuant to the Transaction
      Documents are listed for trading on such Trading Market (and the Corporation
      believes, in good faith, that trading of the Common Stock on a Trading Market
      will continue uninterrupted for the foreseeable future), (v) there is a
      sufficient number of authorized, but unissued and otherwise unreserved, shares
      of Common Stock for the issuance of all of the shares of Common Stock issuable
      pursuant to the Transaction Documents, (vi) there is no existing Triggering
      Event (see definition below) or no existing event which, with the passage of
      time or the giving of notice, would constitute a Triggering Event, (vii) the
      issuance of the shares in question to the applicable Holder would not violate
      the limitations set forth in Section 6(c) herein, (viii) there has been no
      public announcement of a pending or proposed Fundamental Transaction or Change
      of Control Transaction that has not been consummated, (ix) the applicable Holder
      is in possession of any information that constitutes, or may constitute,
      material non-public information, and (x) for a period of 20 consecutive Trading
      Days prior to the applicable date in question, the daily trading volume for
      the
      Common Stock on the principal Trading Market exceeds 100,000 shares per Trading
      Day (subject to adjustment for forward and reverse stock splits and the
      like).





The
      Series A and Series B Preferred are redeemable for cash or, at the holder’s
      option, common stock upon the occurrence of certain events. The cash redemption
      price amounts to the greatest of 130% of the stated value or the common stock
      equivalent value. The common stock redemption is affected when elected by the
      holder through the issuance of the number of common shares equal to the
      aforementioned cash redemption price divided by 75% of a trading market price,
      as defined. The following events give rise to a redemption triggering
      event:





·
            The
                failure of a Conversion Shares Registration Statement to be declared
                effective by the Commission on or prior to the 180thday after the Original Issue Date;


·
            The
                effectiveness of the Conversion Shares Registration Statement lapses
                for
                more than an aggregate of 60 calendar days (which need not be consecutive
                calendar days) during any 12 month period, or the Holders shall not
                otherwise be permitted to resell Registerable Securities under the
                Conversion Shares Registration Statement for more than an aggregate
                of 60
                calendar days (which need not be consecutive calendar days) during
                any 12
                month period;


·
            The
                Corporation shall fail to deliver certificates representing Conversion
                Shares issuable upon a conversion hereunder that comply with the
                provisions hereof prior to the fifth Trading Day after such shares
                are
                required to be delivered hereunder, or the Corporation shall provide
                written notice to any Holder, including by way of public announcement,
                at
                any time, of its intention not to comply with requests for conversion
                of
                any shares of Preferred Stock in accordance with the terms
                hereof;


·
            Default
                events provided in a Registration Rights Agreement (see further discussion
                in the accounting section below) have not been cured to the satisfaction
                of the Holders prior to the expiration of 30 calendar days from the
                Event
                Date;


26


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




·
            The
                Corporation shall fail for any reason to pay in full a amount of
                cash due
                pursuant to a Buy-In within five calendar days after notice therefore
                is
                delivered hereunder or shall fail to pay all amounts owed on account
                of
                any event as defined in the Registration Rights Agreement within
                five days
                of the date due;


·
            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, or otherwise
                commit
                any breach of the Transaction Documents, and such failure or breach
                shall
                not, if subject to the possibility of a cure by the Corporation,
                have been
                cured within 30 calendar days after the date on which written notice
                of
                such failure or breach shall have been
                delivered;


·
            The
                Corporation shall redeem more than a de minimis number of Junior
                Securities other than as to repurchases of Common Stock or Common
                Stock
                Equivalents from departing officers and directors of the Corporation,
                provided that, while any of the Preferred Stock remains outstanding,
                such
                repurchases shall not exceed an aggregate of $100,000 from all officers
                and directors;


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


·
            There
                shall have occurred a Bankruptcy Event;


·
            The
                Common Stock shall fail to be listed or quoted for trading on a Trading
                Market for more than five Trading Days, which need not be consecutive
                Trading Days; or


·
            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
                $50,000.





*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




27


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




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:





Warrant terms:
            
            Strike Price
            
            TermTranche A-1
            
            
            $1.50
            
            
            5 yearsTranche A-2
            
            
            $1.00
            
            
            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
            
            
            $1.87—$3.75
            
            
            10 years





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.


28


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




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 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 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 the 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.





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.


29


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
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 A and B Preferred) is more
      akin
      to a debt or equity instrument in regards to the risks. This determination
      is
      subjective. In order to reach this conclusion we reviewed the salient terms
      and
      features of the financing arrangements to develop the basis for conclusions
      under 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 .
      These
      terms and conditions include: the term or maturity date, inclusion of a coupon
      rate and participation versus protective rights. The perpetual nature of the
      Preferred Stock is persuasive evidence that it is more akin to equity. The
      Series A Preferred Stock agreement contains a cumulative dividend feature which
      is traditional and is expected due to the preferred nature of the security.
      The
      dividend feature, however, does include a default remedy that is most consistent
      with a debt issuance. The cumulative dividend feature would normally be
      considered a neutral indicator, however, it is considered to be minimal evidence
      of an akin to debt instrument due to its structure and operation in the
      Preferred Stock arrangement. Generally, equity instruments are expected to
      embody participation rights. Conversely, creditors generally provide for
      protective rights in debt contracts. Participating rights in the agreement
      includes the right to allow the holder to veto changes in the Company’s
      organization and participate in earnings through the cumulative dividend and
      the
      liquidation feature. Protective rights in the agreement include certain
      redemption features designed to protect the investor’s investment. The
      participating and protective rights have equal merit and neither contain a
      strong indicator of debt or equity. 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 not require derivative
                liability classification.





(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 redemption features provide for the redemption
                in
                cash, or in some instances in common stock at the holder’s option, at the
                occurrence of certain events, some of which are presumed not to be
                within
                management’s control. In addition, certain provisions embody a penalty
                provision that provides for an incremental cash payment when paid
                in cash
                or a discount to the trading market value of the common stock when
                settled
                with common stock. These redemption features 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.


30


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




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 we allocated proceeds to the detachable warrants based on their
      fair
      value. We then valued the put liability embedded in the Preferred Stock and
      the
      BCF and allocated proceeds to these components. Because the aggregate fair
      values of the warrants, put and BCF exceeded the gross proceeds, we recognized
      a
      day-one derivative loss as
      indicated.





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.


31


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




*Subsequent
      and Ongoing Classification Considerations:*





The
      evaluation of the classification of the Series A and B 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. 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 broker warrants issued with the
                Series
                B Preferred did not achieve equity classification for this same
                reason.


·
            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. This reclassification
                was
                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.


32


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




The
      following table illustrates the activity with respect to each of the Series
      A
      and Series B Preferred from their respective inception dates to December 31,
      2007:





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 do
                not have
                the right to require redemption in common
                stock.


·
            The
                shares underlying the investor warrants are subject to firm registration
                rights. That is, we are required to deliver registered shares, and
                the
                Registration Rights Agreement does 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 is 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 with changes 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 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 theSeries
                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:


33


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
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, 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:





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


34


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




*Sale
      and Exchange of Series C Preferred Stock (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
                CFinancing
            
            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 redeemablepreferred
                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 financialinstruments
                exchanged:Series
                A Preferred
            
            
            (5,200,000
            )Series
                B Preferred
            
            
            (780,000
            )Accrued
                dividends
            
            
            (309,564
            )Accrued
                preferred stock dividends
            
            
            (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




35


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




*Sale
      and Exchange of Series C Preferred Stock (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
            
            $
            1.00
            
            $
            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
            
            $
            2.60
            
            $
            2.60
            
            $
            2.60
            
            $
            2.60Strike
                or exercise price:Contract
                price
            
            $
            1.50
            
            $
            1.00
            
            $
            1.87
            
            $
            3.75Repriced
            
            $
            0.75
            
            $
            0.75
            
            $
            0.75
            
            $
            0.75Expected
                term in years
            
            
            4.10yrs
            
            
            9.10yrs
            
            
            2.60yrs
            
            
            4.60yrsVolatility
            
            
            39.73
            %
            
            50.03
            
            
            34.98
            %
            
            40.08
            %Risk-free
                rate
            
            
            4.17
            %
            
            4.52
            %
            
            3.98
            %
            
            4.17
            %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. 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.
      Significant assumptions included award date trading market values of $3.50
      and
      $3.50, volatility percentages of 51.15% and 51.00%, and risk-free rates of
      4.57%
      and 4.86%, respectively. In all instances, the contractual term was used for
      the
      expected term.





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.




36


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




*Direct
      Financing Costs:*





Aggregate
      financing costs arising from the Series A, Series B and Series C Preferred
      financings amounted to $2,967,313, $479,034 and $5,789,441, respectively. As
      noted in the tables, below, these financing costs were allocated among deferred
      financing costs, paid-in capital and accumulated deficit. The allocation of
      total financing costs was 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 are 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 C Financing Transactions:





Classification
            
            Series A
            
            Series B
            
            Series C
            
            TotalDeferred
                financing costs (asset)
            
            $
            1,898,875
            
            $
            479,034
            
            $
            43,079
            
            $
            2,420,988Paid-in
                capital
            
            
            911,135
            
            
            —
            
            
            5,231,442
            
            
            6,142,577Series
                C Preferred Mezzanine
            
            
            —
            
            
            —
            
            
            496,793
            
            
            496,793Accumulated
                deficit (deemed dividend)
            
            
            157,303
            
            
            —
            
            
            —
            
            
            157,303Aggregate
                finance costs
            
            $
            2,967,313
            
            $
            479,034
            
            $
            5,789,441
            
            $
            9,217,661





*Derivative
      Financial Instruments*





The
      following table summarizes the components of derivative liabilities as of
      December 31, 2007:





Financing
                Transaction:Series
                A Convertible Preferred Financing- Investor warrants
            
            $
            (25,121,070
            )Series
                B Convertible Preferred Financing- Investor warrants
            
            
            (3,917,952
            )Series
                C Convertible Preferred Financing- Put liability
            
            
            (398,625
            )$
            (29,437,647
            )




37


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




Embedded
      derivatives that required bifurcation under the Series A Convertible Preferred
      on the inception date (put and redemption features that were not clearly and
      closely related to the host contract) were recombined with the host preferred
      stock when, under Statement 150, the preferred stock required liability
      classification. If the preferred stock reacquires equity or mezzanine
      classification, the embedded features in the Series A and Series B Preferred
      Stock would continue to require liability classification.





The
      following table summarizes the components of derivative income (expense) arising
      from fair value adjustments during the periods from the financing inception
      dates to December 31, 2007:


Financing Transactions:
              
              Embedded
                Derivatives
              
              Warrants
                Derivatives
              
              TotalSeries
                  A Financing
              
              $
              235,096
              
              $
              (8,780,650
              )
              $
              (8,545,554
              )Series
                  B Financing
              
              
              —
              
              
              (2,198,592
              )
              
              (2,198,592
              )Series
                  C Financing
              
              
              525
              
              
              —
              
              
              525Other
                  warrants, reclassified
              
              
              —
              
              
              1,425,330
              
              
              1,425,330Day-one
                  derivative losses
              
              
              (17,585,605
              )
              
              —
              
              
              (17,585,605
              )Total
                  derivative income (expense)
              
              $
              (17,349,984
              )
              $
              (9,553,912
              )
              $
              (26,903,896
              )Total
                  derivative income (expense) for the :Three
                  months ended December 31, 2007
              
              $
              525
              
              $
              (10,426,820
              )
              $
              (10,426,472
              )Three
                  months ended December 31, 2006
              
              $
              (36,108
              )
              $
              (17,516,837
              )
              $
              (17,552,945
              )Six
                  months ended December 31, 2007
              
              $
              525
              
              $
              (6,748,151
              )
              $
              (6,747,626
              )Inception
                  (August 21, 2006) to December 31, 2006
              
              $
              (36,108
              )
              $
              (17,516,837
              )
              $
              (17,552,945
              )Inception
                  (August 21, 2006) to December 31, 2007
              
              $
              (17,349,984
              )
              $
              (9,553,912
              )
              $
              (26,903,896
              )




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.


38


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




*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 150 th calendar
      day following the date the  agreement
      was entered into or the 180 th 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.)


39


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
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.


40


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 –
REDEEMABLE PREFERRED STOCK, DERIVATIVE FINANCIAL INSTRUMENTS AND REGISTRATION
      PAYMENT ARRANGEMENTS (CONTINUED)




*Registration
      Rights Agreements (continued)*





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
      10 – 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. This agreement was not renewed subsequent
      to
      June 30, 2007 and therefore The Company did not recognize any expense related
      to
      this agreement for the year quarter ended December 31, 2007 or the six months
      ended December, 31, 2007. See Note 7, “ *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 $169,328
      for
      the quarter ended December 31, 2007. See Note 7, *“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. See Note 7, “ *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, B and C 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.


41


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      10 –
RELATED PARTY TRANSACTIONS (CONTINUED)




Midtown
      Partner & Co. LLC received an aggregate placement agent fee related to
      the Series C Preferred Stock Purchase agreement 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-8 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. The member’s of Midtown
      Partners & Co. LLC are also shareholders of the Company. See
“ *Preferred
      Stock Purchase Agreement”* above
      for further details.





*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. See “ *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 $15,000 of expense related to this agreement for the quarter ended
      December 31, 2007.





*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. See Note 7, “ *International
      Distribution Agreement,* ”
above
      for further details.





NOTE
      11 – RESTATEMENTS





The
      accompanying 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.


·
            The
                Series A, Series B and Series C 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.


·
            Our
                investments in ResponzeTV were originally accounted for at a fair
                value
                under Statement 115. However, we have further considered the level
                of
                influence that we have acquired over ResponzeTV and have concluded
                that
                our level of influence gives rise to an equity method investment.
                These
                financial statements give effect to our investment in ResponzeTV
                using the
                equity method.





In
      addition to the above restatements, certain reclassifications and expanded
      details have been provided in the restated financial
      statements.


42


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED)





The
      following table illustrates the effects of the restatements on our balance
      sheet
      as of December 31, 2007 and our statement of operations for the three month
      period ended December 31, 2007, the three month period ended December, 31,
      2006,
      the six month period ended December 31, 2007, the period from August 21, 2006
      (inception) to December 31, 2007 and the period from August 21, 2006 (inception)
      to December 31, 2006, each as originally filed and as restated.





As Originally
              Filed
            
            Adjustments
            
            As RestatedBalance
                sheet:Current
                assets
            
            $
            15,158,858
            
            
            (13,685,022
            )f
            $
            1,473,836License
            
            
            143,387
            
            
            78,789
            a
            
            222,176Patents
            
            
            748,335
            
            
            —
            
            
            748,335Investment
                in ResponzeTV
            
            
            —
            
            
            11,685,776
            f
            
            11,685,776Deferred
                financing costs
            
            
            —
            
            
            41,284
            b
            
            41,284Total
                assets
            
            $
            16,050,580
            
            
            (1,678,889
            )
            $
            14,171,407Accounts
                payable and accrued expenses
            
            $
            117,388
            
            
            —
            
            $
            117,388Derivative
                liabilities
            
            
            —
            
            
            29,437,647
            c
            
            29,437,647Deferred
                revenue
            
            
            —
            
            
            6,344,233
            d
            
            6,344,233Total
                liabilities
            
            
            117,388
            
            
            35,781,880
            
            
            35,899,268Redeemable
                Preferred Stock
            
            
            —
            
            
            19,456,362
            
            
            19,456,362Common
                stock
            
            
            140
            
            
            —
            
            
            140Series
                C Preferred Stock
            
            
            4,270,467
            
            
            (4,270,467
            )
            
            —Additional
                paid in capital
            
            
            8,756,263
            
            
            20,551,543
            e
            
            29,307,806Accumulated
                other comprehensive income
            
            
            8,622,592
            
            
            (8,622,592
            )f
            
            —Stockholders’
                deficit
            
            
            (5,716,270
            )
            
            (64,775,899
            )e
            
            (70,492,169
            )Total
                stockholders’ deficit
            
            
            15,933,192
            
            
            (57,117,415
            )
            
            (41,184,223
            )Liabilities
                and stockholders’ deficit
            
            $
            16,050,580
            
            
            (1,879,173
            )
            $
            14,171,407


43


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED)





The
      following table illustrates the effects of the restatements on our statement
      of
      operations for the three month period ended December 31, 2007, as originally
      filed and as restated.


As Originally
                Filed
              
              Adjustments
              
              As RestatedStatement
                  of operations:Revenues
              
              $
              30,850
              
              
              218,767
              f
              $
              249,617Costs
                  and expenses
              
              
              (1,439,944
              )
              
              (105,799
              )a
              
              (1,545,743
              )Other
                  expenses:Derivative
                  fair value adjustments
              
              
              —
              
              
              (10,426,472
              )c
              
              (10,426,472
              )Preferred
                  fair value adjustments
              
              
              17,847,742
              
              
              (17,847,742
              )d
              
              —Interest
                  income (expense)
              
              
              4,779
              
              
              (49,646
              )b
              
              (44,867
              )Registration
                  payments
              
              
              542,080
              
              
              (542,080
              )
              
              —Loss
                  on extinguishment
              
              
              —
              
              
              (271,109
              )
              
              (271,109
              )Extinguishment
                  of redeemable preferred
              
              
              —
              
              
              (26,247,007
              )g
              
              (26,247,007
              )Equity
                  in ResponzeTV
              
              
              —
              
              
              (107,224
              )f
              
              (107,224
              )Total
                  other expenses
              
              
              18,394,601
              
              
              (55,491,280
              )
              
              (37,096,679
              )Net
                  income (loss)
              
              $
              16,985,508
              
              
              (55,378,313
              )
              $
              (38,392,805
              )Loss
                  applicable to common shareholders:Net
                  income (loss)
              
              $
              16,985,508
              
              
              (55,378,313
              )
              $
              (38,392,805
              )Accretion
                  of preferred
              
              
              —
              
              
              (6,400,000
              )
              
              (6,400,000
              )Deemed
                  dividend on BCF
              
              
              (4,270,467
              )
              
              4,270,467
              
              
              —Preferred
                  stock dividends
              
              
              (18,127
              )
              
              18,127
              
              
              —Income
                  (Loss) applicable to common shareholders
              
              $
              12,696,914
              
              
              (57,489,719
              )
              $
              (44,792,805
              )Loss
                  per common share:Basic
              
              $
              0.91
              
              
              (4.11
              )
              $
              (3.20
              )Diluted
              
              $
              0.31
              
              
              (3.51
              )
              $
              (3.20
              )Other
                  comprehensive income:Unrealized
                  gain/loss on available for sale securities
              
              $
              8,945,167
              
              
              (8,945,167
              )
              $
              —Translation
                  gain/loss on available for sale securities
              
              
              (322,575
              )
              
              322,575
              
              $
              —Comprehensive
                  income (loss)
              
              $
              8,622,592
              
              
              (8,622,592
              )
              $
              —




Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $70,664 to $176,463.
                The correction of estimated lives of these assets gave rise to this
                adjustment. Amortization expense was included in the line item for
                general
                and administrative expenses in the originally filed financial
                statements.


b.
            Our
                previously filed financial statements did not give effect to finance
                charges. Finance costs arise from the Series C Preferred Financing
                Transaction. 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.
                Amortization of the deferred financing costs included in this adjustment
                amounts to $44,867. Amortization is included in interest
                expense.


44


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED)





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. Changes
                in
                the fair value of derivative liabilities are reflected in our income.
                During the period, fair value adjustments of $10,027,145 were recorded.
                In
                addition, our financing transactions gave rise to a day-one derivative
                loss of$399,150
                because the fair value of derivative financial instruments sold in
                the
                transactions exceeded the proceeds
                received.


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.


e.
            Changes
                to stockholders’ deficit reflect the revisions for amortization of
                intangibles, allocation and amortization of financing costs and changes
                in
                the valuation of derivative financial instruments. In addition, amounts
                charged to paid-in capital above amounts available in that category
                are
                reclassified to accumulated
                deficit.


f.
            Our
                investment in ResponzeTV was not accounted for using the equity method
                in
                our previously filed financial statements. These entries properly
                reflect
                the initial recording of the investment using the equity method and
                our
                share of the losses of ResponzeTV for the three month period ended
                December 31, 2007.


g.
            Our
                previously filed financial statements did not separately disclose
                our
                derivative financial instruments. As more fully disclosed in Note
                9,
                derivative financial instruments represent derivative warrants that
                are
                carried at fair value.





The
      following table illustrates the effects of the restatements on our statement
      of
      operations for the three month period ended December 31, 2006, as originally
      filed and as restated.




As Originally
                Filed
              
              Adjustments
              
              As RestatedStatement
                  of operations:Revenues
              
              $
              —
              
              $
              —
              
              $
              —Costs
                  and expenses
              
              
              (415,532
              )
              
              145,201
              a
              
              (270,331
              )Other
                  expenses:Derivative
                  fair value adjustments
              
              
              —
              
              
              (17,552,945
              )c
              
              (17,552,945
              )Interest
                  expense
              
              
              —
              
              
              (31,648
              )b
              
              (31,648
              )Total
                  other expenses
              
              
              —
              
              
              (17,584,593
              )
              
              (17,584,593
              )Net
                  loss
              
              $
              (415,532
              )
              
              (17,439,392
              )
              $
              (17,854,924
              )Loss
                  applicable to common shareholders:Net
                  loss
              
              $
              (415,532
              )
              $
              (17,439,392
              )
              $
              (17,854,924
              )Accretion
                  of preferred
              
              
              —
              
              
              (3,000,000
              )
              
              (3,000,000
              )Preferred
                  stock dividends
              
              
              —
              
              
              (34,167
              )
              
              (34,167
              )Loss
                  applicable to common shareholders
              
              $
              (415,532
              )
              $
              (20,473,559
              )
              $
              (20,889,091
              )Loss
                  per common share:Basic
              
              $
              (0.04
              )
              
              (1.67
              )
              $
              (1.71
              )Diluted
              
              $
              (0.04
              )
              
              (1.67
              )
              $
              (1.71
              )




45




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED)





Notes
      to
      the tables:





a.
      Amortization expense on the intangible assets was corrected from $200,300 to
      $55,099. The correction of estimated lives of these assets gave rise to this
      adjustment. Amortization expense was included in the line item for general
      and
      administrative expenses in the originally filed financial
      statements.


b.
      Our
      previously filed financial statements did not give effect to finance charges.
      Finance costs arise from the Series A Preferred Financing Transaction. 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. Amortization of the deferred financing
      costs included in this adjustment amounts to $31,648. Amortization is included
      in interest expense.


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. Changes in the fair value of derivative
      liabilities are reflected in our income. During the period, fair value
      adjustments of $2,202,058 were recorded. In addition, our financing transactions
      gave rise to a day-one derivative loss of $15,350,887 because the fair value
      of
      derivative financial instruments sold in the transactions exceeded the proceeds
      received.




46


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED)





The
      following table illustrates the effects of the restatements on our statement
      of
      operations for the period from August 21, 2006 (inception) to December 31,
      2007,
      as originally filed and as restated.




As
                  Originally
                Filed
              
              Adjustments
              
              As
                  RestatedStatement
                  of operations:Revenues
              
              $
              192,313
              
              
              218,767
              d
              $
              411,080Costs
                  and expenses
              
              
              (5,913,361
              )
              
              232,955
              a
              
              (5,680,406
              )Other
                  expenses:Derivative
                  fair value adjustments
              
              
              —
              
              
              (26,903,896
              )c
              
              (26,903,896
              )Loss
                  on extinguishment of redeemablePreferred
              
              
              —
              
              
              (26,247,007
              )e
              
              (26,247,007
              )Loss
                  on extinguishment of other liabilities
              
              
              —
              
              
              (271,109
              )
              
              (271,109
              )Equity
                  in ResponzeTV
              
              
              —
              
              
              (107,224
              )d
              
              (107,224
              )Interest
                  income (expense)
              
              
              4,779
              
              
              (495,031
              )b
              
              (490,252
              )Registration
                  payments
              
              
              —
              
              
              (542,080
              )
              
              (542,080
              )Total
                  other income (expense)
              
              
              4,779
              
              
              (54,566,347
              )
              
              (54,561,568
              )Net
                  loss
              
              $
              (5,716,269
              )
              
              (54,114,625
              )
              $
              (59,830,894
              )Loss
                  applicable to common shareholders:Net
                  loss
              
              $
              (5,716,269
              )
              
              (54,114,625
              )
              $
              (59,830,894
              )Accretion
                  of preferred
              
              
              —
              
              
              (9,400,000
              )
              
              (9,400,000
              )Registration
                  Payments
              
              
              (309,564
              )
              
              115,096
              
              
              (194,468
              )Loss
                  applicable to common shareholders
              
              $
              (6,025,833
              )
              
              (63,399,529
              )
              $
              (69,425,362
              )Other
                  comprehensive income:Unrealized
                  gain/loss on available for sale securities
              
              $
              8,945,167
              
              
              (8,945,167
              )
              $
              —Translation
                  gain/loss on available for sale securities
              
              $
              (322,575
              )
              
              322,575
              
              $
              —Comprehensive
                  income (loss)
              
              $
              8,622,592
              
              
              (8,622,592
              )
              $
              —





Notes
      to
      the tables:


a)
              Amortization
                  expense on the intangible assets was corrected from $1,006,282
                  to
                  $773,327. The correction of estimated lives of these assets gave
                  rise to
                  this adjustment. Amortization expense was included in the line
                  item for
                  general and administrative expenses in the originally filed financial
                  statements. b)
              Our
                  previously filed financial statements did not give effect to finance
                  charges and preferred stock dividends. Finance costs of $375,156
                  and
                  preferred stock dividends of $115,096 have been properly reflected
                  as an
                  interest charge.




47


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED)




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. Changes
                  in
                  the fair value of derivative liabilities are reflected in our income.
                  During the period, fair value adjustments of $9,717,441 were recorded.
                  In
                  addition, our financing transactions gave rise to a day-one derivative
                  loss of $17,186,455 because the fair value of derivative financial
                  instruments sold in the transactions exceeded the proceeds
                  received.
 d)
              Our
                  investment in ResponzeTV was not accounted for using the equity
                  method in
                  our previously filed financial statements. These entries properly
                  reflect
                  the initial recording of the investment using the equity method
                  and our
                  share of the losses of ResponzeTV for the period from inception
                  through
                  December 31, 2007.
 e)
              Our
                  previously filed financial statements did not separately disclose
                  our
                  derivative financial instruments. As more fully disclosed in Note
                  9,
                  derivative financial instruments represent derivative warrants
                  that are
                  carried at fair value.




The
      following table illustrates the effects of the restatements on our statement
      of
      operations for the period from August 21, 2006 (inception) to December 31,
      2006,
      as originally filed and as restated.





As
                Originally
              Filed
            
            Adjustments
            
            As
                RestatedStatement
                of operations:Revenues
            
            $
            2,640
            
            
            —
            
            $
            2,640Costs
                and expenses
            
            
            (420,884
            )
            
            145,201
            a
            
            (275,683
            )Other
                expenses:Derivative
                fair value adjustments
            
            
            —
            
            
            (17,552,945
            )c
            
            (17,552,945
            )Interest
                expense
            
            
            —
            
            
            (31,648
            )b
            
            (31,648
            )Total
                other expenses
            
            
            —
            
            
            (17,584,593
            )
            
            (17,584,593
            )Net
                loss
            
            $
            (418,244
            )
            
            (17,439,392
            )
            $
            (17,857,636
            )Loss
                applicable to common shareholders:Net
                loss
            
            $
            (418,244
            )
            
            (17,439,392
            )
            $
            (17,857,636
            )Accretion
                of preferred
            
            
            —
            
            
            (3,000,000
            )
            
            (3,000,000
            )Preferred
                stock dividends
            
            
            —
            
            
            (34,167
            )
            
            (34,167
            )Loss
                applicable to common shareholders
            
            $
            (418,244
            )
            
            (20,473,559
            )
            $
            (20,891,803
            )Loss
                per common share:Basic
            
            $
            (0.05
            )
            
            (2.08
            )
            $
            (2.13
            )Diluted
            
            $
            (0.05
            )
            
            (2.08
            )
            $
            (2.13
            )




48


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED)





Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $200,300 to $55,099.
                The correction of estimated lives of these assets gave rise to this
                adjustment. Amortization expense was included in the line item for
                general
                and administrative expenses in the originally filed financial
                statements.


b.
            Our
                previously filed financial statements did not give effect to finance
                charges and preferred stock dividends. Finance costs of $31,648 have
                been
                properly reflected as an interest
                charge.


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. Changes
                in
                the fair value of derivative liabilities are reflected in our income.
                During the period, fair value adjustments of $2,202,058 were recorded.
                In
                addition, our financing transactions gave rise to a day-one derivative
                loss of $15,350,887 because the fair value of derivative financial
                instruments sold in the transactions exceeded the proceeds
                received.





NOTE
      12 –
TRANSACTIONS WITH RESPONZETV





Sublicense
      Agreement:





On
      October 19, 2007, we entered into a sublicense arrangement with ResponzeTV
      PLC
      providing for restricted rights to use the Kathy Hilton Trademark, as provided
      in our Principal License Agreement with KHL Holdings, Inc., without territorial
      restriction. The only restriction is as to fragrance related products. The
      structure of this arrangement was accomplished, as follows:





·
            We
                created a wholly-owned subsidiary named KHL Holdings, Inc. with minimal
                capitalization on October 12, 2007. This subsidiary had no operations;
                nor
                were any operations transferred to the
                subsidiary.


·
            Also
                on October 12, 2007, we executed a formal sublicense agreement with
                the
                newly formed for the use of the licensed trademark, which agreement
                required and received the formal acknowledgement of Kathy Hilton.


·
            On
                October 19, 2007 all outstanding common stock KHL Holdings, Inc.
                was sold
                to ResponzeTV for 10,000,000 shares of their common stock, which
                had a
                value of $6,538,240 based upon ResponzeTV’s trading market
                price.


·
            Also
                on October 19, 2007, we executed a formal assignment agreement providing
                for the assignment of KHL Holdings, Inc. rights in the sublicense
                agreement to ResponzeTV.




The
      sublicense agreement provides for Minimum Annual Guaranteed Payments that
      coincide with the Principal License Agreement (although in lower amounts in
      recognition of the restriction as to product types) and royalty payments in
      amounts consistent with the Principal License Agreement.




49


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 –
TRANSACTIONS WITH RESPONZETV (CONTINUED)




The
      substance of the above series of transactions is that of a sublicense
      arrangement between us and ResponzeTV; that is, a revenue arrangement. Our
      accounting for the activity arising from this arrangement, which will commence
      in the second fiscal quarter of our year ending June 30, 2008, provides for
      recognition of deferred revenue to the extent of the consideration received
      for
      the sublicense, which amounts will be recognized in our earnings when amounts
      are earned. As of December 31, 2007 we had recognized $218,767 of
      earnings.





Investment
      in ResponzeTV:





On
      October 19, 2007, we purchased 8,500,000 shares of ResponzeTV common stock
      (valued at $5,557,504 based upon the trading market price of $0.653824, as
      translated to US$) and warrants to purchase ResponzeTV common stock at prices
      between $0.75 and $2.04 for $5,100,000. The common shares purchased are freely
      trading in the United Kingdom; the warrants are not traded. We issued 500,000
      of
      the purchased shares to brokers.





Upon
      the
      completion of the aforementioned sublicense agreement, the purchase and the
      issuance of shares to the brokers, we owned 16.78% of ResponzeTV’s outstanding
      common stock. In addition, two of our directors hold in aggregate 18,160,735
      shares and retain two of the six seats on the board of directors of ResponzeTV.
      The shares held by the directors represented 16.48% of the 110,154,638 shares
      outstanding in ResponzeTV after the transaction. Our voting control coupled
      with
      our representation on ResponzeTV’s board of directors indicates that we have
      substantial influence with respect to ResponzeTV. As a result, the Company
      is
      accounting for the investment under the equity method of accounting in
      accordance with Accounting Principles Board Opinion No.18, “The Equity Method
      for Accounting for Investments in Common Stock” (APB 18).





Loss
      from
      equity method investment of $107,224 for the quarter ended December 31, 2007
      consists of the allocation of losses from the equity method
      investment.


50





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      13 -
      SUBSEQUENT EVENTS





*Other
      events:*





On
      January 23, 2008, Christopher Phillips resigned as interim chief executive
      officer and chief financial officer of OmniReliant Holdings, Inc. (the
“Company”), effective January 24, 2008. There was no disagreement or dispute
      between Mr. Phillips and the Company which led to his resignation.





On
      January 24, 2008, our Board of Directors appointed Paul Morrison as chief
      executive officer and director of the Company. There is no understanding or
      arrangement between Mr. Morrison and any other person pursuant to which Mr.
      Morrison was selected as an executive officer and director. Mr. Morrison
      presently does not serve on any committee of our Board of Directors. Mr.
      Morrison may be appointed to serve as a member of a committee although there
      are
      no current plans to appoint him to a committee as of the date hereof. Mr.
      Morrison does not have any family relationship with any director, executive
      officer or person nominated or chosen by us to become a director or an executive
      officer. Mr. Morrison has served as the Company’s President and Chief Operating
      Officer since November 22, 2006.





On
      January 24, 2008, the Company formally acquired the rights to a unique patented
      topical pharmaceutical product capable of delivering salicylic acid in a
      non-stick clear solid composition to treat acne. Omni Reliant will use the
      patented product to compliment the company’s patent pending warming foam acne
      treatment product.





On
      April
      30, 2008, the Company 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 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 (“Series D Warrants”). 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.





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
      adjustments provisions for stock splits, stock dividends, recapitalizations
      and
      the like. Additionally, outstanding warrants issued in connection with previous
      financings and adjusted to full ratchet anti-dilution protection required
      adjustments to exercise prices as a result of the Series D financing
      transaction.


51





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      13 -
      SUBSEQUENT EVENTS (CONTINUED)





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 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 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
      the
      Company’s then issued and outstanding shares of common stock.





At
      any
      time before the one year anniversary of the date the Company initially issues
      the shares of Series D Preferred Stock, the Company 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).





Midtown
      Partners & Co., LLC, which served as the Company’s placement agent in
      connection with the Purchase Agreement (“Midtown”), 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.





The
      Series D Preferred Stock is convertible into shares of stock at a conversion
      price of $.50.  Any previously issued and outstanding financial instruments
      afforded full ratchet protection with a conversion price greater than $.50
      will
      automatically have their conversion price ratcheted down to the lower conversion
      price.





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”).




52





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      13 -
      SUBSEQUENT EVENTS (CONTINUED)





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).





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.





Accordingly,
      The Company believes that the future filings will reflect an impairment change
      as a result of the delisting.




53


Item
      2.
      Management’s Discussion and Analysis and Plan of Operations





FORWARD
      LOOKING STATEMENTS





Some
      of
      the statements contained in this Form 10-QSB that are not historical facts
      are
      "forward-looking statements" which can be identified by the use of terminology
      such as "estimates," "projects," "plans," "believes," "expects," "anticipates,"
      "intends," or the negative or other variations, or by discussions of strategy
      that involve risks and uncertainties. We urge you to be cautious of the
      forward-looking statements, that such statements, which are contained in this
      Form 10-QSB, reflect our current beliefs with respect to future events and
      involve known and unknown risks, uncertainties and other factors affecting
      our
      operations, market growth, services, products and licenses. No assurances can
      be
      given regarding the achievement of future results, as actual results may differ
      materially as a result of the risks we face, and actual events may differ from
      the assumptions underlying the statements that have been made regarding
      anticipated events. Factors that may cause actual results, our performance
      or
      achievements, or industry results, to differ materially from those contemplated
      by such forward-looking statements include without limitation:





1.
      Our
      ability to attract and retain management, and to integrate and maintain
      technical information and management information systems;





2.
      Our
      ability to generate customer demand for our services;





3.
      The
      intensity of competition; and





4.
      General economic conditions.





All
      written and oral forward-looking statements made in connection with this Form
      10-QSB that are attributable to us or persons acting on our behalf are expressly
      qualified in their entirety by these cautionary statements. Given the
      uncertainties that surround such statements, you are cautioned not to place
      undue reliance on such forward-looking statements.





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 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.




54


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.





*For
      the three months ended December 31, 2007 compared to the three months ended
      December 31, 2006*





*Revenues.* Our
      revenues from product sales for the three months ended December 31, 2007 were
      $30,850 compared to the period three months ended December 31, 2006 which was
      $0. This increase is primarily the result of launching our product. If we are
      unable to implement our plan to manufacture, market and distribute our
      products, our revenues will not significantly increase during the upcoming
      fiscal year. During the three months ended December 31, 2007, we also recorded
      revenue of $218,767 from the sublicense agreement with ResponzeTV.





*Cost
      of Product Sales.* Costs of
      Products Sold for the three months ended December 31, 2007 was $11,453 compared
      to the three month period ended December 31, 2006 which was $0. This increase
      of
      $11,453 was primarily the result of the launching our product. If 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.





*Salaries
      and Wages –* Salaries
      and wages paid to our employees for the three months ended December 31, 2007
      were $1,093,530 compared to the three month period ended December 31, 2006
      which
      was $50,975. The primary reason for the increase is due to the stock options
      that were granted to employees during the three month period ended December
      31,
      2007. 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 further 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.


55





*Amortization
      –* Amortization
      expense related to our intangible assets for the three months ended December
      31,
      2007 was $176,463 compared to the three month period ended December 31, 2006
      which amounted to $55,099. 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 December 31, 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.





*Professional
      and Consulting –* Our
      professional and consulting expenses for
      the
      three months ended December 31, 2007 were $145,491 compared to the three month
      period ended December 31, 2006 which amounted
      to $145,254. ** Inception
      to date expenses reflects significant costs incurred under a public relations
      consultancy contract.





*General
      and Administrative –* Our
      general and administrative expenses for the three months ended December 31,
      2007
      were $118,806 compared to the three month period ended December 31, 2006 which
      amounted to $19,003. We may incur higher levels of general and administrative
      expenses when our operations become established and increase.





*Losses
      on Exchanges and Extinguishments* —During
      the three months ended December 31, 2007, we exchanged Series C Preferred Stock
      and Series C Warrants having a fair value of $31,349,989 for our Series A and
      Series B Redeemable Preferred Stock and certain liabilities and deferred
      financing costs having a net carrying value of $5,102,982. As a result, we
      were
      required to record losses in the amount of $26,247,007 related to the
      extinguishment of liabilities.





*Derivative
      Fair Value Adjustments –* Our
      derivative fair value adjustments for the three months ended December 31, 2007
      were ($10,426,472) compared to the three month period ended December 31, 2006
      which amounted to ($17,552,945). ** The
      change in the derivative fair value adjustment is primarily related to the
      additional preferred shares issued in connection with the Series A, Series
      B,
      and C financing agreements *.* 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.





We
      note
      that all share-indexed financial instruments previously and subsequently issued
      required derivative liability classification, unless otherwise exempted under
      Statement 133, so long as the Series A Preferred Stock embodied its current
      variable share-indexed redemption because, under these circumstances,
      share-settlement was presumed not to be within our control and net-cash
      settlement was assumed. 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 our control and the
      share-indexed instruments were reclassified from liabilities to stockholders’
equity.





*Equity
      in losses of ResponzeTV—On October 17, 2007 the Company made an investment in
      ResponzeTV.* We
      carry
      our investment in ResponzeTV under the equity method because we exert
      significant influence, although not control. Our proportionate share of losses
      in ResponzeTV for the three months ended December 31, 2007 amounted to $107,224.
      We will continue to record our share of losses or income in ResponzeTV while
      this investment is classified as and accounting for under the equity
      method.




56





*Finance
      Costs –* Finance
      costs, which represent amortization of asset-classified finance costs arising
      from our Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
      Stock and Warrant financing transactions for the three months ended December
      31,
      2007 was $44,867 compared to the three month period ended December 31, 2006
      which was $31,648. The decrease in finance costs is primarily related to the
      exchange on October 18, 2007 of the Series A and B Preferred Stock for Series
      C
      Preferred Stock. As a result of the exchange, the amount of the deferred finance
      costs allocated to the Series C Preferred decreased. The allocation of finance
      costs is based upon the relative fair values of the components of the financing.
      We will continue to amortize deferred financing costs over the terms of the
      liability classified financial instruments.





*Net
      Income (Loss) –* Our
      net
      loss for the three months ended December 31, 2007 was ($38,392,805) compared
      to
      the three month period ended December 31, 2006 which was ($17,854,924). This
      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 Series A Preferred
      Stock. Our loss applicable to common shareholders and our loss per common share
      (basic and diluted) for the three months ended December 31, 2007 was
      ($44,792,805) and ($3.20) compared to the three month period ended December
      31,
      2006 which was ($20,889,091) and ($1.71). All of the accumulated dividends
      in
      arrears associated with the Series A and Series B Preferred Stock were
      eliminated as part of the exchange agreement associated with the Series C
      Preferred Stock. There are no preferred dividends related to the Series C
      Preferred Stock, so it is not necessary to adjust net income for accrued
      preferred dividends in arrears in future periods unless a new agreement or
      amendment to the existing agreement warrants such treatment.





*For
      the six months ended December 31, 2007 compared to the six months ended December
      31, 2006*





*Net
      Revenues* *–* Our
      revenues from product sales for the six months ended December 31, 2007 were
      $189,673 compared to the period six months ended December 31, 2006 which was
      $2,640. This increase is primarily the result of launching our product. If
      we
      are unable to implement our plan to manufacture, market and distribute our
      products, our revenues will not significantly increase during the upcoming
      fiscal year. During the six months ended December 31, 2007, we also recorded
      revenue of $218,767 from the sublicense agreement with ResponzeTV.





*Cost
      of Product Sales* *–* Costs of
      Products Sold for the six months ended December 31, 2007 was $109,879 compared
      to the six month period ended December 31, 2006 which was $1,320. This increase
      was primarily the result of the launching our product. If 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.





*Salaries
      and Wages –* Salaries
      and wages paid to our employees for the six months ended December 31, 2007
      were
      $1,146,009 compared to the six month period ended December 31, 2006 which was
      $50,975. The primary reason for the increase is due to the stock options that
      were granted to employees during the six month period ended December 31, 2007.
      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 further 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.





*Amortization
      –* Amortization
      expense related to our intangible assets for the six months ended December
      31,
      2007 was $361,362 compared to the six month period ended December 31, 2006
      which
      amounted to $55,099. 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 December 31, 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.


57





*Professional
      and Consulting –* Our
      professional and consulting expenses for
      the
      six months ended December 31, 2007 were $276,444 compared to the six month
      period ended December 31, 2006 which amounted
      to $149,286. ** Inception
      to date expenses reflects significant costs incurred under a public relations
      consultancy contract.





*General
      and Administrative –* Our
      general and administrative expenses for the six months ended December 31, 2007
      were $238,900 compared to the six month period ended December 31, 2006 which
      amounted to $19,003. We may incur higher levels of general and administrative
      expenses when our operations become established and increase.





*Losses
      on Exchanges and Extinguishments* —
During
      the six months ended December 31, 2007, we exchanged Series C Preferred Stock
      and Series C Warrants having a fair value of $31,349,989 for our Series A and
      Series B Redeemable Preferred Stock and certain liabilities and deferred
      financing costs having a net carrying value of $5,102,982. As a result, we
      were
      required to record losses in the amount of $26,247,007 related to the
      extinguishment of liabilities.





*Derivative
      Fair Value Adjustments –* Our
      derivative fair value adjustments for the six months ended December 31, 2007
      were ($6,747,626) compared to the six month period ended December 31, 2006
      which
      amounted to ($17,552,945). ** 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.





We
      note
      that all share-indexed financial instruments previously and subsequently issued
      required derivative liability classification, unless otherwise exempted under
      Statement 133, so long as the Series A Preferred Stock embodied its current
      variable share-indexed redemption because, under these circumstances,
      share-settlement was presumed not to be within our control and net-cash
      settlement was assumed. 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 our control and the
      share-indexed instruments were reclassified from liabilities to stockholders’
equity.




*Finance
      Costs –* Finance
      costs, which represent amortization of asset-classified finance costs arising
      from our Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
      Stock and Warrant financing transactions for the six months ended December
      31,
      2007 was $260,732 compared to the six month period ended December 31, 2006
      which
      was $31,648. We will continue to amortize deferred financing costs over the
      terms of the liability classified financial instruments.





*Equity
      in losses of ResponzeTV—* We
      carry
      our investment in ResponzeTV under the equity method because we exert
      significant influence, although not control. Our proportionate share of losses
      in ResponzeTV for the six months ended December 31, 2007 amounted to $107,224.
      We will continue to record our share of losses or income in ResponzeTV while
      this investment is classified as and accounting for under the equity
      method.





*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 for
      the
      six months ended December 31, 2007 were $309,137 compared to the six month
      period ended December 31, 2006 which were $0.





*Net
      Income (Loss) –* Our
      net
      loss for the six months ended December 31, 2007 was ($35,666,989) compared
      to
      the six month period ended December 31, 2006 which was ($17,857,636). This
      gives
      effect to the components of our operational income and costs and expenses and
      our other income and expense categories as discussed above.


58





*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 Series C Preferred
      Stock. Our loss applicable to common shareholders and our loss per common share
      (basic and diluted) for the six months ended December 31, 2007 was ($42,066,989)
      and ($3.00) compared to the six month period ended December 31, 2006 which
      was
      ($20,891,803) and ($2.13). All of the accumulated dividends in arrears
      associated with the Series A and Series B Preferred Stock were eliminated as
      part of the exchange agreement associated with the Series C Preferred Stock.
      There are no preferred dividends related to the Series C Preferred Stock, so
      it
      is not necessary to adjust net income for accrued preferred dividends in arrears
      in future periods unless a new agreement or amendment to the existing agreement
      warrants such treatment.





Liquidity
      and Capital Resources





*Liquidity*  *and
      Going Concern* –
Cash
      and cash equivalents amounted to $868,154 as of December 31, 2007. The Company
      has a working capital deficiency of ($29,393,799). Included in the working
      capital deficiency is $29,437,647 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 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 ($550,598) and ($207,358) in our operating activities during the six
      months ended December 31, 2007 and for the period from August 21, 2006
      (inception) through December 31, 2006 .
      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.





*Cash
      Flow from Investing Activities* –
We
      used
      cash of ($5,106,811) and ($853,00) in our investing activities during the six
      months ended December 31, 2007 and for the period from August 21, 2006
      (inception) through December 31, 2006 . 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* –
We
      received $5,814,078 and $2,064,087 in cash from our financing activities during
      the six months ended December 31, 2007 and for the period from August 21, 2006
      through December 31, 2006 that principally relate to the sale of Series A
      Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.


59





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 three months ended December 31, 2007
      attached to this Form 10-QSB/A. 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. Earlier application is
      encouraged. The adoption of this accounting pronouncement is not expected to
      have a material effect on our consolidated financial statements.





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. SFAS No. 159 will be effective at the
      beginning of fiscal year 2008. We are presently evaluating the impact of the
      adoption of SFAS No. 159 on our results of operations and financial
      position.





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 SAB No. 108
      did not have a material impact on the consolidated financial
      statements.





Off
      Balance Sheet Arrangements





None.


60


Item
      3.
      Controls and Procedures





*(a)
      Evaluation of disclosure controls and procedures.*





The
      Company, under the supervision and with the participation of its management,
      including the principal executive officer and principal financial officer,
      has
      evaluated the effectiveness of the design and operation of its disclosure
      controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange
      Act of 1934, as amended (the “Act”) as of the end of the period covered by this
      report (the “Disclosure Controls”). Based upon the Disclosure Controls
      evaluation, the principal executive officer and principal financial officer
      have
      concluded that the Company’s disclosure controls and procedures were not
      effective in connection with preparing this Annual Report on Form 10-KSB due
      to
      a material weakness in the Company’s internal control over financial reporting,
      mainly its financial closing, review and analysis process. The Company
      determined that a restatement of its financial statements was necessary due
      to
      the issuance of convertible preferred stock and warrants (collectively, the
      “Securities”) in various private placements over the last two years. This
      restatement is required to properly reflect the Company’s financial results (i)
      to revise the amortization expense associated with intangible assets to provide
      for amortization over the contractual terms of the assets and (ii) to reflect
      the proper accounting required under FAS 133 and 150 and other related
      pronouncements and standards related to our Series A and Series B Preferred
      Stock Financings. The financial instruments associated with the financings
      were
      revalued using reasonable techniques and correct assumptions.




The
      Company believes that the issues surrounding the restatement of these reports,
      mainly the internal controls related to the financial closing, review, and
      analysis process have been addressed by the restatement of the financial
      statements.  The Company has taken additional steps to avoid the
      reoccurrence of this condition by implementing additional procedures for all
      future financing and investing transactions. The new procedures will require
      a
      statement be prepared and presented to the board of directors for approval
      with
      any future financing or investment agreements. The statement will address the
      following items: a completed derivatives checklist (when applicable), assessment
      of the appropriate accounting treatment, and a review of accounting personnel
      required to accurately account for and report the transactions. The Company
      believes that these additional efforts taken by management will strengthen
      the
      Company’s internal controls and will be effective in future periods.




A
      control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the control system are met.
      Further, the design of a control system must reflect the fact that there are
      resource constraints, and the benefits of controls must be considered relative
      to their costs. Because of the inherent limitations in all control systems,
      no
      evaluation of controls can provide absolute assurance that all control issues
      and instances of fraud, if any, within the Company have been detected. Because
      of the inherent limitations in a cost-effective control system, misstatements
      due to error or fraud may occur and not be detected.




The
      Company’s internal control over financial reporting has been modified by adding
      additional resources to address deficiencies in the financial closing, review
      and analysis process, which has materially improved the Company’s internal
      control over financial reporting.




*(b)* *Changes
      in internal control over financial reporting.*




We regularly
      review our system of internal control over financial reporting and make changes
      to our processes and systems to improve controls and increase efficiency, while
      ensuring that we maintain an effective internal control environment. Changes
      may
      include such activities as implementing new, more efficient systems,
      consolidating activities, and migrating processes.




We
      made
      the changes as specified above in our internal control over financial reporting
      that occurred during the period covered by this Quarter Report on Form 10-QSB/A
      that have materially affected, or are reasonably likely to materially affect,
      our internal control over financial reporting.




61




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





From
      time
      to time, we may become involved in various lawsuits and legal proceedings which
      arise in the ordinary course of business. However, litigation is subject to
      inherent uncertainties, and an adverse result in these or other matters may
      arise from time to time that may harm our business. We are currently not aware
      of any such legal proceedings or claims that we believe will have, individually
      or in the aggregate, a material adverse affect on our business, financial
      condition or operating results.





**Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds**





In
      December 2007, we issued 35,334 shares of common stock to Sichenzia Ross
      Friedman Ference LLP in consideration for legal services rendered. The shares
      were issued pursuant to an exemption under Section 4(2) of the Securities Act
      of
      1933, as amended.





**Item
      3. Defaults Upon Senior Securities**





None.





**Item
      4. Submission of Matters to a Vote of Security Holders**





None.





**Item
      5. Other Information**





None.





**Item
      6. Exhibits**





31
            Certification
                by Chief Executive Officer and Chief Financial Officer, required
                by Rule
                13a- 14(a) or Rule 15d-14(a) of the Exchange Act, promulgated under
                the
                Securities and Exchange Act of 1934, as amended.32
            Certification
                by Chief Executive Officer and Chief Financial Officer, pursuant
                to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.




62




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 1, 2008
            By:
            /s/
                Paul
                MorrisonName:
            Paul
                MorrisonTitle:
            Chief
                Executive Officer,
              Chief
                Financial Officer




63