UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington
D. C. 20549





FORM
10-Q





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





For the
quarterly period ended March
31, 2009





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





Commission
file number 000-51599





OmniReliant
Holdings, Inc.


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





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





14375
Myerlake Circle


Clearwater,
Florida 33760


(Address
of principal executive offices)





(727)
230-1031


(Issuer's
telephone number)





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





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





Large
      accelerated filer  ̈
              Accelerated filer ̈Non-accelerated
      filer  ̈
              Smaller reporting companyx





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12-b2 of the Exchange
Act).   Yes ̈Nox





The
number of shares of the registrant’s Common Stock, $0.00001 par value per share,
outstanding as of May 15, 2009 is 14,509,225.





OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


QUARTERLY
PERIOD ENDED MARCH 31, 2009





Table
of Contents





Part
                Item
      and Description
                
                PagePart
      I
                Financial
      InformationForward-Looking
      Statements
                
                3Item
      1. Financial Statements
                
                4Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                
                68Item
      3. Quantitative and Qualitative Disclosures about Market
    Risks
                
                85Item
      4T. Controls and Procedures
                
                86Part
      II
                Other
      InformationItem
      1. Legal ProceedingsItem
      1A. Risk Factors
                
                87Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                
                87Item
      3. Defaults Upon Senior Securities
                
                87Item
      4. Submission of Matters to a Vote of Security Holders
                
                87Item
      5. Other Information
                
                87Item
      6. Exhibit Index
                
                8787Signatures
                
                
                88





Exhibits:31.1
                  Certification
      of Periodic Financial Reports by Paul Morrison in satisfaction of Section
      302 of the Sarbanes-Oxley Act of 200231.2
                  Certification
      of Periodic Financial Reports by Paul Morrison in satisfaction of Section
      302 of the Sarbanes-Oxley Act of 200232.1
                  Certification
      of Periodic Financial Reports by Paul Morrison in satisfaction of Section
      906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section
      135032.2
                  Certification
      of Periodic Financial Reports by Paul Morrison in satisfaction of Section
      906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section
      1350


2


PART
I - FINANCIAL INFORMATION




FORWARD-LOOKING
STATEMENTS





This Form
10-Q contains “forward-looking statements” relating to OmniReliant Holdings,
Inc. (referred to as the “Company” or “we”, “us” or “our” in this Form 10-QS),
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-Q 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


ITEM
1 – FINANCIAL STATEMENTS





OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


CONDENSED
CONSOLIDATED BALANCE SHEETS





March
      31,
                                2009
                              
                              
                              June
      30,
                                2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                              
                              $
                              8,904,137
                              
                              
                              $
                              4,435,814Accounts
      receivable, net of $60,165 in allowances
                              
                              
                              238,794
                              
                              
                              
                              48,231Inventories
                              
                              
                              678,397
                              
                              
                              
                              232,425Investments
                              
                              
                              170,587
                              
                              
                              
                              —Prepaid
      expenses and other current assets
                              
                              
                              107,506
                              
                              
                              
                              69,200Total
      current assets
                              
                              
                              10,099,421
                              
                              
                              
                              4,785,670Property
      and equipment, net
                              
                              
                              2,669,499
                              
                              
                              
                              —Investments
                              
                              
                              1,339,999
                              
                              
                              
                              426,558Intangible
      assets, net
                              
                              
                              1,321,219
                              
                              
                              
                              1,278,512Other
      assets
                              
                              
                              982,593
                              
                              
                              
                              1,078,237Total
      assets
                              
                              $
                              16,412,731
                              
                              
                              $
                              7,568,977LIABILITIES
      AND STOCKHOLDERS' (DEFICIT)Current
      liabilities:Accounts
      payable
                              
                              $
                              347,580
                              
                              
                              $
                              110,381Current
      maturities of long-term debt
                              
                              
                              32,691
                              
                              
                              
                              —Derivative
      liabilities
                              
                              
                              5,752,553
                              
                              
                              
                              6,361,100Total
      current liabilities
                              
                              
                              6,132,824
                              
                              
                              
                              6,471,481Long-term
      debt
                              
                              
                              1,954,160
                              
                              
                              
                              —Security
      deposits on leases
                              
                              
                              11,734
                              
                              
                              
                              —Total
      liabilities
                              
                              
                              8,098,718
                              
                              
                              
                              6,471,481Minority
      interest
                              
                              
                              238,467
                              
                              
                              
                              —Redeemable
      preferred stock
                              
                              
                              45,969,634
                              
                              
                              
                              35,969,634Commitments
      and contingencies (Note 8)
                              
                              
                              —
                              
                              
                              
                              —Stockholders'
      (deficit):Series
      E convertible preferred stock, $0.00001 par value;$1.00
      stated value; 13,001,000 shares authorized; noneissued
      (Note 4)
                              
                              
                              —
                              
                              
                              
                              —Common
      stock, $0.00001 par value 500,000,000 sharesauthorized,
      14,509,225 shares issued and outstanding
                              
                              
                              145
                              
                              
                              
                              145Paid-in
      capital
                              
                              
                              32,720,476
                              
                              
                              
                              32,332,804Other
      stockholders’ deficiency
                              
                              
                              (70,614,709
                              )
                              
                              
                              (67,205,087
                              )Total
      stockholders' (deficit)
                              
                              
                              (37,894,088
                              )
                              
                              
                              (34,872,138
                              )Total
      liabilities and stockholders' (deficit)
                              
                              $
                              16,412,731
                              
                              
                              $
                              7,568,977





See
accompanying notes.


4


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


THREE
MONTHS ENDED MARCH 31, 2009 AND 2008





Three
      Months Ended
                    March
      31,2009
                  
                  
                  2008(unaudited)
                  
                  
                  (unaudited)Revenues:Product
      sales
                  
                  $
                  2,585,582
                  
                  
                  $
                  84,846Rental
      revenue
                  
                  
                  58,314
                  
                  
                  
                  —Licensing
      revenues
                  
                  
                  —
                  
                  
                  
                  328,1502,643,896
                  
                  
                  
                  412,996Operating
      costs and expenses:Cost
      of product sales
                  
                  
                  1,473,776
                  
                  
                  
                  34,341Other
      operating expenses
                  
                  
                  2,424,660
                  
                  
                  
                  396,1883,898,436
                  
                  
                  
                  430,529Loss
      from operations
                  
                  
                  (1,254,540
                  )
                  
                  
                  (17,533
                  )Other
      income (expense):Derivative
      income (expense)
                  
                  
                  (2,071,646
                  )
                  
                  
                  11,996,024Interest
      expense
                  
                  
                  (55,280
                  )
                  
                  
                  (2,154
                  )Interest
      income
                  
                  
                  26,751
                  
                  
                  
                  7,858Other
      income (expense), net
                  
                  
                  (19,022
                  )
                  
                  
                  (181,224
                  )Income
      (loss) before minority interests
                  
                  
                  (3,373,737
                  )
                  
                  
                  11,802,971Minority
      interest in loss of subsidiary
                  
                  
                  20,623
                  
                  
                  
                  —Net
      income (loss)
                  
                  $
                  (3,353,114
                  )
                  
                  $
                  11,802,971Reconciliation
      of net income (loss) to income (loss)applicable
      to common stockholdersNet
      income (loss)
                  
                  $
                  (3,353,114
                  )
                  
                  $
                  11,802,971Preferred
      stock dividends and accretion
                  
                  
                  (2,958,350
                  )
                  
                  
                  —Income
      (loss) applicable to common stockholders
                  
                  $
                  (6,311,464
                  )
                  
                  $
                  11,802,971Income
      (loss) per common share:Basic
                  
                  $
                  (0.43
                  )
                  
                  $
                  0.83Diluted
                  
                  $
                  (0.43
                  )
                  
                  $
                  0.27Weighted
      average common shares—basic
                  
                  
                  14,509,225
                  
                  
                  
                  14,232,908Weighted
      average common shares—diluted
                  
                  
                  14,509,225
                  
                  
                  
                  44,030,174





See
accompanying notes.


5


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


NINE
MONTHS ENDED MARCH 31, 2009 AND 2008 AND


THE
PERIOD FROM INCEPTION (AUGUST 21, 2006) TO MARCH 31, 2009





Nine
      Months Ended
                        March
      31,
                      
                      
                      Inception
      to
                        March
      31,2009
                      
                      
                      2008
                      
                      
                      2009(unaudited)
                      
                      
                      (unaudited)
                      
                      
                      (unaudited)Revenues:Product
      sales
                      
                      $
                      3,756,840
                      
                      
                      $
                      274,519
                      
                      
                      $
                      4,180,293Rental
      revenues
                      
                      
                      190,420
                      
                      
                      
                      —
                      
                      
                      
                      190,420Licensing
      revenues
                      
                      
                      —
                      
                      
                      
                      546,917
                      
                      
                      
                      546,9173,947,260
                      
                      
                      
                      821,436
                      
                      
                      
                      4,917,630Operating
      costs and expenses:Cost
      of product sales
                      
                      
                      2,086,495
                      
                      
                      
                      144,220
                      
                      
                      
                      2,374,853Other
      operating expenses
                      
                      
                      4,936,377
                      
                      
                      
                      2,418,904
                      
                      
                      
                      13,500,0587,022,872
                      
                      
                      
                      2,563,124
                      
                      
                      
                      15,874,911Loss
      from operations
                      
                      
                      (3,075,612
                      )
                      
                      
                      (1,741,688
                      )
                      
                      
                      (10,957,281
                      )Other
      income (expense):Derivative
      income (expense)
                      
                      
                      2,703,891
                      
                      
                      
                      5,248,398
                      
                      
                      
                      4,242,045Interest
      expense
                      
                      
                      (180,918
                      )
                      
                      
                      (152,569
                      )
                      
                      
                      (601,167
                      )Interest
      income
                      
                      
                      84,590
                      
                      
                      
                      12,637
                      
                      
                      
                      117,771Other
      income (expense), net
                      
                      
                      (19,022
                      )
                      
                      
                      —
                      
                      
                      
                      (832,207
                      )Loss
      on exchange of redeemable preferred
                      
                      
                      —
                      
                      
                      
                      (26,247,007
                      )
                      
                      
                      (26,247,007
                      )Impairment
      of investments
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (5,776,917
                      )Registration
      payments
                      
                      
                      —
                      
                      
                      
                      (309,137
                      )
                      
                      
                      —Equity
      in losses of ResponzeTV
                      
                      
                      —
                      
                      
                      
                      (288,448
                      )
                      
                      
                      —Extinguishment
      of other liabilities
                      
                      
                      —
                      
                      
                      
                      (271,109
                      )
                      
                      
                      —Income
      (loss) before minority interests
                      
                      
                      (487,071
                      )
                      
                      
                      (23,748,923
                      )
                      
                      
                      (40,054,763
                      )Minority
      interest in loss of subsidiary
                      
                      
                      81,533
                      
                      
                      
                      —
                      
                      
                      
                      81,533Net
      income (loss)
                      
                      $
                      (405,538
                      )
                      
                      $
                      (23,748,923
                      )
                      
                      $
                      (39,973,230
                      )Reconciliation
      of net income (loss) to (loss) applicable to common
      shareholders:Net
      income (loss)
                      
                      $
                      (405,538
                      )
                      
                      $
                      (23,748,923
                      )
                      
                      $
                      (39,973,230
                      )Preferred
      stock dividends and accretion
                      
                      
                      (2,958,350
                      )
                      
                      
                      (6,400,000
                      )
                      
                      
                      (29,066,090
                      )Income
      (loss) applicable to common shareholders
                      
                      $
                      (3,363,888
                      )
                      
                      $
                      (30,148,923
                      )
                      
                      $
                      (69,039,320
                      )Income
      (loss) per common share:Basic
                      
                      $
                      (0.23
                      )
                      
                      $
                      (2.14
                      )
                      
                      $
                      (4.89
                      )Diluted
                      
                      $
                      (0.23
                      )
                      
                      $
                      (2.14
                      )
                      
                      $
                      (4.89
                      )Weighted
      average common shares—basic
                      
                      
                      14,501,318
                      
                      
                      
                      14,080,464
                      
                      
                      
                      14,108,827Weighted
      average common shares—diluted
                      
                      
                      14,501,318
                      
                      
                      
                      14,080,464
                      
                      
                      
                      14,108,827





See
accompanying notes.


6


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


NINE
MONTHS ENDED MARCH 31, 2009 AND 2008 AND


THE
PERIOD FROM INCEPTION (AUGUST 21, 2006) TO MARCH 31, 2009





Nine
      Months Ended
                          March
      31,
                        
                        
                        Inception
      to
                          March
      31,2009
                        
                        
                        2008
                        
                        
                        2009(unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)Cash
      flows from operating activities:Net
      income (loss)
                        
                        $
                        (405,538
                        )
                        
                        $
                        (23,748,923
                        )
                        
                        $
                        (39,973,231
                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Derivative
      (income) expense
                        
                        
                        (2,703,891
                        )
                        
                        
                        (5,248,398
                        )
                        
                        
                        (4,242,048
                        )Share-based
      payment
                        
                        
                        344,339
                        
                        
                        
                        1,134,705
                        
                        
                        
                        3,994,945Amortization
      of intangible assets
                        
                        
                        300,534
                        
                        
                        
                        470,445
                        
                        
                        
                        1,612,870Amortization
      of deferred finance costs
                        
                        
                        168,200
                        
                        
                        
                        121,050
                        
                        
                        
                        588,449Depreciation
      expense
                        
                        
                        142,402
                        
                        
                        
                        —
                        
                        
                        
                        142,402Minority
      interest in loss of subsidiary
                        
                        
                        (81,533
                        )
                        
                        
                        —
                        
                        
                        
                        (81,533
                        )Loss
      on exchange of preferred stock
                        
                        
                        —
                        
                        
                        
                        26,247,007
                        
                        
                        
                        26,247,007Equity
      in losses of ResponzeTV
                        
                        
                        —
                        
                        
                        
                        288,448
                        
                        
                        
                        —Extinguishment
      of liabilities
                        
                        
                        —
                        
                        
                        
                        271,109
                        
                        
                        
                        271,109Impairments
      related to ResponzeTV
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        7,828,633Changes
      in operating assets and liabilities:Accounts
      receivable
                        
                        
                        (190,563
                        )
                        
                        
                        (94,820
                        )
                        
                        
                        (238,794
                        )Inventories
                        
                        
                        (445,972
                        )
                        
                        
                        (302,032
                        )
                        
                        
                        (808,397
                        )Prepaid
      expenses
                        
                        
                        (38,305
                        )
                        
                        
                        192,444
                        
                        
                        
                        (107,505
                        )Other
      assets
                        
                        
                        (11,500
                        )
                        
                        
                        —
                        
                        
                        
                        (11,500
                        )Accounts
      payable and accrued expenses
                        
                        
                        186,417
                        
                        
                        
                        49,268
                        
                        
                        
                        237,390Accrued
      registration payments
                        
                        
                        —
                        
                        
                        
                        309,137
                        
                        
                        
                        542,080Deferred
      revenue
                        
                        
                        —
                        
                        
                        
                        (546,917
                        )
                        
                        
                        (546,917
                        )Other
      liabilities
                        
                        
                        11,734
                        
                        
                        
                        —
                        
                        
                        
                        11,734Net
      cash used for operating activities
                        
                        
                        (2,723,676
                        )
                        
                        
                        (857,477
                        )
                        
                        
                        (4,533,306
                        )Cash
      flows from investing activities:Purchases
      of property and equipment
                        
                        
                        (2,811,901
                        )
                        
                        
                        —
                        
                        
                        
                        (2,811,901
                        )Purchases
      of investments
                        
                        
                        (1,139,944
                        )
                        
                        
                        (200,000
                        )
                        
                        
                        (8,746,755
                        )Minority
      shareholders investment in subsidiary
                        
                        
                        320,000
                        
                        
                        
                        —
                        
                        
                        
                        320,000Payments
      for licenses
                        
                        
                        (300,000
                        )
                        
                        
                        —
                        
                        
                        
                        (1,306,010
                        )Investment
      in ResponzeTV
                        
                        
                        —
                        
                        
                        
                        (5,100,000
                        )
                        
                        
                        —Payment
      for patents
                        
                        
                        —
                        
                        
                        
                        (31,811
                        )
                        
                        
                        —Net
      cash flow from investing activities
                        
                        
                        (3,931,845
                        )
                        
                        
                        (5,331,811
                        )
                        
                        
                        (12,544,666
                        )





Continued
on the next page.


7


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


NINE
MONTHS ENDED MARCH 31, 2009 AND 2008 AND


THE
PERIOD FROM INCEPTION (AUGUST 21, 2006) TO MARCH 31, 2009


(CONTINUED)





Nine
      Months Ended
                          March
      31,
                        
                        
                        Inception
      to
                          March
      31,2009
                        
                        
                        2008
                        
                        
                        2009(unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)Cash
      flows from financing activities:Proceeds
      from sale of preferred stock
                        
                        
                        9,136,994
                        
                        
                        
                        5,814,078
                        
                        
                        
                        24,471,072Proceeds
      from long-term debt, net of $60,964 of direct loan costs
                        
                        
                        1,994,694
                        
                        
                        
                        —
                        
                        
                        
                        1,994,694Payments
      on long-term debt
                        
                        
                        (7,844
                        )
                        
                        
                        —
                        
                        
                        
                        (7,844
                        )Purchase
      and retirement of common stock
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (475,813
                        )Net
      cash flow from financing activities
                        
                        
                        11,123,844
                        
                        
                        
                        5,814,078
                        
                        
                        
                        25,982,109Net
      change in cash and cash equivalents
                        
                        
                        4,468,323
                        
                        
                        
                        (375,210
                        )
                        
                        
                        8,904,137Cash
      and cash equivalents at beginning of period
                        
                        
                        4,435,814
                        
                        
                        
                        711,484
                        
                        
                        
                        —Cash
      and cash equivalents at end of period
                        
                        $
                        8,904,137
                        
                        
                        $
                        336,274
                        
                        
                        $
                        8,904,137





SUPPLEMENTAL
CASH FLOW INFORMATION





Nine
      Months Ended
                      March
      31,
                    
                    
                    Inception
      to
                      March
      31,2009
                    
                    
                    2008
                    
                    
                    2009(unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)Cash
      paid for interest
                    
                    $
                    54,387
                    
                    
                    $
                    —
                    
                    
                    $
                    54,387Cash
      paid for income taxes
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Non-cash
      investing and financing activities:Common
      stock issued for loan costs
                    
                    
                    43,333
                    
                    
                    
                    —
                    
                    
                    
                    43,333Fair
      value adjustments for investments
                    
                    
                    45,733
                    
                    
                    
                    —
                    
                    
                    
                    45,734Series
      C and Series D preferred stock issued in exchange
    transactions
                    
                    
                    —
                    
                    
                    
                    (31,349,989
                    )
                    
                    
                    47,452,123Non-cash
      investment in ResponzeTV
                    
                    
                    —
                    
                    
                    
                    (6,538,240
                    )
                    
                    
                    6,538,240Common
      stock issued for license arrangements
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    352,500Common
      stock issued for a patent
                    
                    
                    —
                    
                    
                    
                    420,000
                    
                    
                    
                    1,140,000Dividends
      paid with Series C preferred stock
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    309,564Non-monetary
      exchange of assets for investment
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    328,914





See
accompanying notes


8


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)


PERIODS
FROM INCEPTION (AUGUST 21, 2006) TO MARCH 31, 2009





Common Stock
                    
                    
                    Paid-in
                    
                    
                    Other
                      comprehensive
                    
                    
                    AccumulatedShares
                    
                    
                    Amount
                    
                    
                    capital
                    
                    
                    income
                    
                    
                    deficit
                    
                    
                    TotalBalances
      at November 22, 2006
                    
                    
                    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
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,173,510
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,173,510Allocation
      of deferred finance costs
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (911,135
                    )
                    
                    
                    —
                    
                    
                    
                    (157,303
                    )
                    
                    
                    (1,068,438
                    )Placement
      agent warrants
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    2,492,312
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    2,492,312Accretion
      to redemption value
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (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
                    )Balances
      at 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
                    
                    
                    
                    1,884,327Balances
      at 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
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,600,270
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,600,270
                    )Reclassification
      of warrants to liability
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (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
                    )Balances
      at June 30, 2007
                    
                    
                    14,000,000
                    
                    
                    $
                    140
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    (28,425,178
                    )
                    
                    $
                    (28,425,038
                    )





See
accompanying notes.




9




OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)


PERIODS
FROM INCEPTION (AUGUST 21, 2006) TO MARCH 31, 2009


(CONTINUED)




Common Stock
                      
                      
                      Paid-in
                      
                      
                      Other
                        comprehensive
                      
                      
                      AccumulatedShares
                      
                      
                      Amount
                      
                      
                      capital
                      
                      
                      income
                      
                      
                      deficit
                      
                      
                      TotalBalances
      at July 1, 2007
                      
                      
                      14,000,000
                      
                      
                      $
                      140
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      (28,425,178
                      )
                      
                      $
                      (28,425,038
                      )Net
      income for the three months ended September 30, 2007
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      2,725,814
                      
                      
                      
                      2,725,814Balances
      at September 30, 2007
                      
                      
                      14,000,000
                      
                      
                      $
                      140
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      (25,699,364
                      )
                      
                      $
                      (25,699,224
                      )Beneficial
      conversion on Series C Preferred-Stock Financing (5)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      2,766,833
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      2,766,833Allocation
      of deferred finance costs associated with Series C Preferred-Stock
      Financing (6), (5)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (5,231,442
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (5,231,442
                      )Placement
      agent warrants on Series C Preferred-Stock Financing (5)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      5,198,797
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      5,198,797Investor
      warrants on Series C Preferred-Stock Financing (5)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      3,633,167
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      3,633,167Accretion
      to redemption value on Series C Preferred-Stock Exchange
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (6,400,000
                      )
                      
                      
                      (6,400,000
                      )Investor
      warrants-Stock Exchange
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      17,796,834
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      17,796,834Registration
      payments net of dividends rolled into financing
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Reclassification
      of warrants to equity (7)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      4,008,912
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      4,008,912Employee
      stock compensation
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      450,000
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      450,000Employee
      stock option compensation
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      607,705
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      607,705Employee
      exercise of stock options
                      
                      
                      27,778
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Stock
      issued for legal work associated with Preferred C and SB2
                      
                      
                      35,334
                      
                      
                      
                      —
                      
                      
                      
                      77,000
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      77,000Net
      loss for the three month period ended December 31, 2007
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (38,392,805
                      )
                      
                      
                      (38,392,805
                      )Balances
      at December 31, 2007
                      
                      
                      14,063,112
                      
                      
                      $
                      140
                      
                      
                      $
                      29,307,806
                      
                      
                      $
                      —
                      
                      
                      $
                      (70,492,169
                      )
                      
                      $
                      (41,184,223
                      )Cashless
      exercise of warrants
                      
                      
                      38,400
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Stock
      issued for patent
                      
                      
                      200,000
                      
                      
                      
                      2
                      
                      
                      
                      419,998
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      420,000Net
      loss for the three month period ended March 31, 2008
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      11,802,971
                      
                      
                      
                      11,802,971Balances
      at March 31, 2008
                      
                      
                      14,301,512
                      
                      
                      $
                      142
                      
                      
                      $
                      29,727,804
                      
                      
                      $
                      —
                      
                      
                      $
                      (58,689,198
                      )
                      
                      $
                      (28,961,252
                      )Preferred
      Series D issuance
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      2,553,378
                      
                      
                      
                      —
                      
                      
                      
                      (316,615
                      )
                      
                      
                      2,236,763Accretion
      of Series C Preferred
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (9,513,273
                      )
                      
                      
                      (9,513,273
                      )Accretion
      of Series D Preferred
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (7,000,000
                      )
                      
                      
                      (7,000,000
                      )Cashless
      exercise of warrants
                      
                      
                      131,880
                      
                      
                      
                      2
                      
                      
                      
                      (2
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Stock
      issued as compensation for services
                      
                      
                      42,500
                      
                      
                      
                      1
                      
                      
                      
                      51,624
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      51,625Fair
      value adjustment on available for sale securities
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      $
                      (31,135
                      )
                      
                      
                      —
                      
                      
                      
                      (31,135
                      )Net
      income for the three month period ended June 30, 2008
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      8,345,134
                      
                      
                      
                      8,345,134Balances
      at June 30, 2008
                      
                      
                      14,475,892
                      
                      
                      $
                      145
                      
                      
                      $
                      32,332,804
                      
                      
                      $
                      (31,135
                      )
                      
                      $
                      (67,173,952
                      )
                      
                      $
                      (34,872,138
                      )




See
accompanying notes.




10




OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)


PERIODS
FROM INCEPTION (AUGUST 21, 2006) TO MARCH 31, 2009


(CONTINUED)





Common Stock
                    
                    
                    Paid-in
                    
                    
                    Other
                      comprehensive
                    
                    
                    AccumulatedShares
                    
                    
                    Amount
                    
                    
                    capital
                    
                    
                    income
                    
                    
                    deficit
                    
                    
                    TotalBalances
      at July 1, 2008
                    
                    
                    14,475,892
                    
                    
                    $
                    145
                    
                    
                    $
                    32,332,804
                    
                    
                    $
                    (31,135
                    )
                    
                    $
                    (67,173,952
                    )
                    
                    $
                    (34,872,138
                    )Stock
      issued as compensation for services
                    
                    
                    33,333
                    
                    
                    
                    —
                    
                    
                    
                    43,333
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    43,333Fair
      value adjustment on available for sale securities
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (31,450
                    )
                    
                    
                    —
                    
                    
                    
                    (31,450
                    )Net
      income for the three months ended September 30, 2008
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,895,405
                    
                    
                    
                    1,895,405Balances
      at September 30, 2008
                    
                    
                    14,509,225
                    
                    
                    $
                    145
                    
                    
                    $
                    32,376,137
                    
                    
                    $
                    (62,586
                    )
                    
                    $
                    (65,278,547
                    )
                    
                    $
                    (32,964,850
                    )Fair
      value adjustments on available for sale securities
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    574
                    
                    
                    
                    —
                    
                    
                    
                    574Net
      income for the three months ended December 31, 2008
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,052,171
                    
                    
                    
                    1,052,171Balances
      at December 31, 2008
                    
                    
                    14,509,225
                    
                    
                    $
                    145
                    
                    
                    $
                    32,376,137
                    
                    
                    $
                    (62,012
                    )
                    
                    $
                    (64,226,376
                    )
                    
                    $
                    (31,912,106
                    )Fair
      value adjustments on available for sale securities
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (14,857
                    )
                    
                    
                    —
                    
                    
                    
                    (14,857
                    )Share-based
      payments (employees)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    283,683
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    283,683Share-based
      payments (others)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    60,656
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    60,656Accretion
      of Series F Preferred Stock
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (2,958,350
                    )
                    
                    
                    (2,958,350
                    )Net
      loss for the three months ended March 31, 2009
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (3,353,114
                    )
                    
                    
                    (3,353,114
                    )Balances
      at March 31, 2009
                    
                    
                    14,509,225
                    
                    
                    $
                    145
                    
                    
                    $
                    32,720,476
                    
                    
                    $
                    (76,869
                    )
                    
                    $
                    (70,537,840
                    )
                    
                    $
                    (37,894,088
                    )





See
accompanying notes.


11


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED 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 acquiree, accompanied by a
recapitalization of stockholders’ equity. The consolidated financial statements
of the combined entity will, in substance, be those of the accounting acquiree,
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 makes these products available to both domestic and
international consumers through 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.


12


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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





During
the current fiscal year, the Company purchased an office building in Pinellas
County, Florida, which is largely being leased to unrelated tenants. While real
estate operations is not the Company’s principal business, the Company accounts
for this new business as an identifiable business segment. See Note
14.





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 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 condensed consolidated financial statements as of March
31, 2009 and for the three and nine months ended March 31, 2009 and 2008, and
the period from August 21, 2006 (inception) to March 31, 2009 are unaudited, but
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-Q. Accordingly, they do not include all the information and footnotes
required for complete financial statements. However, the unaudited condensed
consolidated financial information included in this report includes all
adjustments which are, in the opinion of management, necessary to fairly present
the consolidated financial position and the consolidated results of operations
for the interim periods presented. The operations for the three and nine months
ended March 31, 2009 are not necessarily indicative of the results for the
year ending June 30, 2009.





The
condensed consolidated financial statements included in this report should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company’s June 30, 2008 Annual Report on Form 10-KSB and
subsequent filings on Form 8-K.


13


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:





Use of estimates - The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make estimates and assumptions that affect the reported amounts in our
consolidated financial statements. Significant estimates embodied in the
Company’s financial statements include (i) developing fair value measurements to
record financial instruments, including investments (ii) developing cash flow
projections for purposes of evaluating the recoverability of long-lived assets.
Actual results could differ from those estimates.





Principles of
consolidation – The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, OmniReliant
Corporation and OmniResponse Corporation, and its 60.0% owned subsidiary
OmniComm Studios LLC. 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.





Business Segments—We apply
the management approach to the identification of our reportable operating
segments as provided in accordance with Statements on Financial Accounting
Standards (“SFAS”) No. 131, Disclosures about Segments
of an Enterprise and Related Information (“SFAS No. 131”). This approach
requires us to report our segment information based on how our chief decision
making officer internally evaluates our operating performance. Our business
segments consist of (i) Retail Products and Licensing and (ii) Commercial Real
Estate Services. See Note 14.





Revenue recognition– Revenue is recognized when
evidence of the arrangement exists, the product is shipped to a customer, or in
the limited circumstances, at destination, and 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.





Shipping costs –
Shipping costs billed to customers are included as a component of product sales.
The associated cost of shipping is included as a component of cost of product
sales.





Inventories–Inventories consist of
merchandise that is in its finished form and ready for sale to end-user
customers. Inventories are recorded at the lower of average cost or market.
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.





Property and equipment–Property and
equipmentare
recorded at our cost. The Company depreciates these assets using the
straight-line method over lives that we believe the assets will have utility.
Our expenditures for additions, improvements and renewals are capitalized, while
normal expenditures for maintenance and repairs are charged to
expense.





Intangible assets - Trademarks and licenses are
recorded at cost and those with finite lives are amortized over the estimated
periods of benefit.


14


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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





Impairments – The Company’s
management evaluates its tangible and definite-lived intangible assets for
impairment under Statement of Financial Accounting Standards No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144) annually at the
beginning of our fourth fiscal quarter or more frequently in the presence of
circumstances or trends that may be indicators of impairment. Our evaluation is
a two step process. The first step is to compare our undiscounted cash flows, as
projected over the remaining useful lives of the assets, to their respective
carrying values. In the event that the carrying values are not recovered by
future undiscounted cash flows, as a second step, we compare the carrying values
to the related fair values and, if lower, record an impairment adjustment. For
purposes of fair value, we generally use replacement costs for tangible fixed
assets and discounted cash flows, using risk-adjusted discount rates, for
intangible assets.





Investments – Our investments
consist principally of notes receivable. Investments in these debt securities
are carried as available-for-sale securities under Statement’s on Financial
Accounting Standards No. 115 Accounting for
Investments. Debt securities classified as available-for-sale securitiesare reported at fair value, with unrealized gains and losses excluded
from earnings and reported in a separate component of shareholders’ equity. Fair
value is based upon the present value of the forward cash-flows, discounted at a
credit-risk adjusted rate for similar instruments. The conversion option is
considered a fair-value enhancement when such amount is readily convertible into
cash, which, as a private, closely held company, it is not currently. Changes in
the fair value of available-for-sale debt securities arise from changes in
market interest rates for similar instruments and the period remaining to
maturity.





Deferred finance costs –
Direct, incremental finance costs related to debt instruments and other
financial instruments that are recorded in liabilities are included in other
assets and amortized over the term of the respective instrument through charges
to interest expense using the effective method or the straight-line method,
when the difference would not be material. Total deferred financing cost
included in other assets amount to $971,093 and $1,138,290, as of March 31, 2009
and June 30, 2008, respectively. These amounts are net of accumulated
amortization of $253,550 and $49,500 as of March 31, 2009 and June 30, 2008,
respectively.





Share-based payment– We apply the
grant-date fair value method to our share-based payment arrangements with
employees under the rules provided in Statement of Financial Accounting
Standards No. 123R Accounting for Share-Based
Payment (SFAS 123R). For share-based payment transactions with parties
other than employees we apply EITF Issue No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. Under SFAS 123R, share-based
compensation cost to employees is measured at the grant date fair value based on
the value of the award and is recognized over the service period, which is
usually the vesting period for employees. Share-based payments to non-employees
are recorded at fair value on the measurement date and reflected in expense over
the service period.


15


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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





The
Company uses the Black-Scholes option valuation model to determine the
grant-date 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.





Advertising – The Company
generally expenses advertising when it is incurred in accordance with Statement
of Position 93-7 Accounting for
Advertising. Commencing in the current fiscal year the Company began
engaging for the production of infomercials related to its Retail Products
Business, which is expected to be an increasing activity and cost. The Company’s
accounting policy provides that the costs of infomercials are deferred in
prepaid assets until the first airing, at which time the cost is expensed.
During the three and nine months ended March 31, 2009, the Company expensed
$1,206,190 and $2,385,194 of costs related to infomercials, which amount is
included in other costs and expenses in our condensed consolidated statements of
operations. As of March 31, 2009, prepaid advertising expense was
zero.





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, long-term debt, and
redeemable preferred stock.


16


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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





We carry
cash and cash equivalents, accounts payable and accrued liabilities and
long-term debt at historical costs; their respective estimated fair values
approximate carrying values due. 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. See Note 11 for additional information.





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 Statements of Financial Accounting Standards No. 150 Financial Instruments with
Characteristics of Both Liabilities and Equity. Redeemable preferred
stock classified as liabilities is recorded and carried at fair value.
Redeemable preferred stock that does not, in its entirety, require liability
classification is evaluated for embedded features that may require bifurcation
and separate classification as derivative liabilities under Statement 133. In
all instances, the classification of the redeemable preferred stock host
contract that does not require liability classification is evaluated for equity
classification or mezzanine classification based upon the nature of the
redemption features. Generally, any feature that could require cash redemption
for matters not within our control, irrespective of probability of the event
occurring, requires classification outside of stockholders’ equity. See Note 10
for further disclosures about our redeemable preferred stock.





Fair value measurements -
Fair value measurement requirements are embodied in certain accounting standards
applied in the preparation of our financial statements. Significant fair value
measurements resulted from the application of SFAS 133 to our preferred stock
and warrant financing arrangements and SFAS 123R to our share-based payment
arrangements.


17


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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





Financial
Accounting Standard No. 157 Fair Value
Measurements defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. It is effective for our fiscal year beginning
October 1, 2008. This Statement applies under other accounting pronouncements
that require or permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this new standard did not require any new
fair value measurements. We do not believe that adoption of this standard
resulted in a material financial affect.





Financial
Accounting Standard No. 159 The Fair Value Option for
Financial Assets and Financial Liabilities permits entities to choose to
measure many financial instruments and certain other items at fair value. It is
effective for our fiscal year beginning October 1, 2008. At this time, we do not
intend to reflect any of our current financial instruments at fair value (expect
that we are required to carry our derivative financial instruments at fair
value). However, we will consider the appropriateness of recognizing financial
instruments at fair value on a case by case basis as they arise in future
periods.





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





Loss per common share - We
have applied the provisions in Statement of Financial Accounting Standards No.
128, Earnings per
Share (SFAS 128) in calculating our basic and diluted loss per common
share. Basic loss per common share represents our loss applicable to common
shareholders divided by the weighted average number of common shares outstanding
during the period. Diluted loss per common share gives effect to all potentially
dilutive securities. We compute the effects on diluted loss per common share
arising from warrants and options using the treasury stock method or, in the
case of liability classified warrants, the reverse treasury stock method. We
compute the effects on diluted loss per common share arising from convertible
securities using the if-converted method. The effects, if anti-dilutive are
excluded. The following table illustrates the reconciliation of the weighted
average common shares to the denominator for diluted loss per common
share:


18


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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





Three Months Ended
                  March 31,
                
                
                Nine Months Ended
                  March 31,
                
                
                Inception to
                  March 31,2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                2009Weighted
      average shares
                
                
                14,509,225
                
                
                
                14,232,908
                
                
                
                14,501,318
                
                
                
                14,080,464
                
                
                
                14,108,827Dilutive
      instruments:Warrants
      and stock options
                
                
                *
                
                
                
                16,051,181
                
                
                
                *
                
                
                
                *
                
                
                
                *Convertible
      securities:Series
      C Preferred Stock
                
                
                *
                
                
                
                13,746,085
                
                
                
                *
                
                
                
                *
                
                
                
                *Series
      D Preferred Stock
                
                
                *
                
                
                
                —
                
                
                
                *
                
                
                
                *
                
                
                
                *Denominator
      for dilutive shares
                
                
                14,509,225
                
                
                
                44,030,174
                
                
                
                14,501,318
                
                
                
                14,080,464
                
                
                
                14,108,827


*
These instruments were excluded during the respective periods because the effect
was anti-dilutive.





Reclassifications – Certain
reclassifications have been made to the prior period financial statements for
them to conform to the condensed classifications in the current
period.





Recent accounting pronouncements -We have reviewed accounting pronouncements and interpretations thereof
that have effectiveness dates during the periods reported and in future periods.
We believe that the following impending standards may have an impact on our
future filings. Also see Fair Value Measurements, above. The applicability of
any standard is subject to the formal review of our financial management and
certain standards are under consideration.





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations
("SFAS 141(R)"), which establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination.  SFAS 141R is effective as of the beginning of
the first fiscal year beginning on or after December 15, 2008. The effective
date therefore is July 1, 2009. Earlier adoption is prohibited. As more fully
discussed in the Subsequent Events footnote, the Company is currently seeking to
complete purchase business combinations. If these acquisitions are
completed before July 1, 2009, we will be required to apply SFAS 141. However,
if these transactions are completed on or after July 1, 2009, we will be
required to apply SFAS 141(R).





In
September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and132(R) (“SFAS 158”).  SFAS 158
improves financial reporting by requiring an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets of a not-for-profit organization. SFAS 158
also improves financial reporting by requiring an employer to measure the funded
status of a plan as of the date of its year-end statement of financial position,
with limited exceptions.  The effective date for an employer with
publicly traded equity securities is as of the end of the fiscal year ending
after December 15, 2006. The adoption of SFAS 158 did not have a material impact
on our financial position, results of operations or cash flows because we do not
have a defined benefit plan for our employees.


19


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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





In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements Liabilities –an Amendment of ARB No.
51. This statement amends ARB No. 51 to establish accounting and
reporting standards for the Non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary.  SFAS 160 will change the
classification and reporting for minority interest and non-controlling interests
of variable interest entities.  Following the effectiveness of SFAS
160, the minority interest and non-controlling interest of variable interest
entities will be carried as a component of stockholders’ equity. Accordingly,
upon the effectiveness of this statement, we will begin to reflect
non-controlling interest in our consolidated variable interest entities as a
component of stockholders’ equity. This statement is effective for fiscal years
and interim periods within those fiscal years, beginning on or after December
15, 2008 and earlier adoption is prohibited. Since we do not currently have
Variable Interest Entities consolidated in our financial statements, adoption of
this standard is not expected to have a material effect.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment to FASB Statement No.
133 (“SFAS 161”).  SFAS 161 is intended to improve
financial standards for derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. Entities are required to provide enhanced disclosures about: (a) how and
why an entity uses derivative instruments; (b) how derivative instruments and
related hedged items are accounted for under SFAS 133 and its related
interpretations; and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows. It
is effective for financial statements issued for fiscal years beginning after
November 15, 2008, with early adoption encouraged. We are currently evaluating
the impact of SFAS 161, if any, will have on our financial position, results of
operations or cash flows. This standard will affect the disclosures in our
financial statements to provide the required information.





In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles ("SFAS 162"). SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS 162 will become effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, "The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles." The Company does not expect the adoption of
SFAS 162 will have a material effect on its financial position, results of
operations or cash flows.





In July
2006, the FASB issued Interpretation No. 48, Accountingfor
uncertainty in Income Taxes(“FIN 48”). FIN No. 48
clarifies the accounting for Income Taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. It also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition and clearly scopes income taxes out of SFAS No. 5,
Accounting
for Contingencies. FIN 48 was effective for
fiscal years beginning after December 15, 2006. Accordingly, we have implemented
FIN 48 by summarizing and evaluating all potential uncertain tax positions. As a
result of our implementation, FIN No. 48 did not have a material impact on our
financial position, results of operations or cash flows, although, as discussed
in our income tax disclosures, certain positions are present that require our
periodic review in maintaining compliance with this standard.


20


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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





In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements (FSP 00-19-2) which addresses accounting for
registration payment arrangements. FSP 00-19-2 specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or
included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with SFAS No. 5, Accounting for
Contingencies.  FSP 00-19-2 further clarifies that a financial
instrument subject to a registration payment arrangement should be accounted for
in accordance with other applicable generally accepted accounting principles
without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement.  For registration payment
arrangements and financial instruments subject to those arrangements that were
entered into prior to the issuance of EITF 00-19-2, this guidance shall be
effective for financial statements issued for fiscal years beginning after
December 15, 2006 and interim periods within those fiscal years. The adoption of
EITF 00-19-02 did not have a material impact on our financial position, results
of operations or cash flows, because we have no current transactions that embody
Registration Payment Arrangements, as defined in the standard.





In April
2008, the FASB issued FSP No. FAS 142-3 Determination of the Useful
Life of Intangible Assets. This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Assets. The Company is required to adopt FSP 142-3 on October
1, 2008. The guidance in FSP 142-3 for determining the useful life of a
recognized intangible asset shall be applied prospectively to intangible assets
acquired after adoption, and the disclosure requirements shall be applied
prospectively to all intangible assets recognized as of, and subsequent to,
adoption. The Company is currently evaluating the impact of FSP 142-3 on its
financial position, results of operations or cash flows, and believes that the
established lives will continue to be appropriate under the FSP.





In May
2008, the FASB issued FSP Accounting Principles Board 14-1 Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of
certain convertible debt instruments that may be settled in cash (or other
assets) on conversion to separately account for the liability (debt) and equity
(conversion option) components of the instrument in a manner that reflects the
issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008 on a retroactive basis. The
Company is currently evaluating the potential impact, if any, of the adoption of
FSP APB 14-1 on its financial position, results of operations or cash
flows.


21


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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





In June
2008, the Emerging Issues Task Force issued EITF Consensus No. 07-05 Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock,
which supersedes the definition in EITF 06-01 for periods beginning after
December 15, 2008 (our fiscal year ending June 30, 2010). The objective of this
Issue is to provide guidance for determining whether an equity-linked financial
instrument (or embedded feature) is indexed to an entity's own stock and it
applies to any freestanding financial instrument or embedded feature that has
all the characteristics of a derivative in of Statement 133, for purposes of
determining whether that instrument or embedded feature qualifies for the first
part of the scope exception in paragraph 11(a) of Statement 133 (the “Paragraph
11(a) Exemption). This Issue also applies to any freestanding financial
instrument that is potentially settled in an entity's own stock, regardless of
whether the instrument has all the characteristics of a derivative in Statement
133, for purposes of determining whether the instrument is within the scope of
Issue 00-19. We currently have warrants that embody terms and conditions that
require the reset of their strike prices upon our sale of shares or
equity-indexed financial instruments and amounts less than the conversion
prices. These features will no longer be treated as “equity” under the EITF once
it becomes effective. Rather, such instruments will require classification as
liabilities and measurement at fair value. Early adoption is precluded.
Accordingly, this standard will be adopted in our quarterly period ended
September 30, 2009.





In June
2008, the Emerging Issues Task Force issue EITF Consensus No. 08-04 Transition
Guidance for Conforming Changes to Issue 98-5 Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, which is effective for years ending after December 15,
2008 (our fiscal year ending June 30, 2009). Early adoption is not permitted.
The overall objective of the Issue is to conform the requirements of EITF 00-27
and Financial Accounting Standard No. 150 with EITF 98-5 to provide for
consistency in application of the standard. We computed and recorded a
beneficial conversion feature in connection with certain of our prior financing
arrangements and do not believe that this standard has any material effect on
that accounting.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on our present or future financial
statements.


22


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4 –
INVESTMENTS:





Investments
consisted of the following on March 31, 2009 and June 30, 2008:





March
      31,
                  2009
                
                
                June
      30,
                  2008Current
      Investments:Available-for-sale
      investments:Valcom,
      face value $100,000, 10.0% convertible note receivable, due January 2010
      (Cost basis $100,000)
                
                $
                97,118
                
                
                $
                —Wine
      Harvest, face value $73,000, 10% convertible note Receivable, due March
      2009 (Cost basis $73,000)
                
                
                73,469
                
                
                
                —Total
      current investments
                
                $
                170,587
                
                
                $
                —Non-Current
      InvestmentsAvailable-for-sale
      investments:Abazias,
      Inc., face value $500,000, 10.0% convertible note receivable, due December
      31, 2009 (Cost basis: $500,000)
                
                $
                595,434
                
                
                $
                —Carolyn
      & Company, face value $450,000, 6.0% convertible note receivable, due
      February 2010 (Cost basis: $450,000)
                
                
                438,587
                
                
                
                426,558Total
      available-for-sale type investments
                
                
                1,034,021
                
                
                
                426,558Other
      investments, at cost
                
                
                305,978
                
                
                
                —Total
      non-current investments
                
                $
                1,339,999
                
                
                $
                426,558





Valcom,
Inc.:





On
January 6, 2009, we entered into a note purchase agreement with Valcom, Inc.
(“Valcom”), a Delaware corporation, whereby we purchased a 10% secured
convertible promissory note in the principal amount of $100,000 with a
conversion price of $0.10 per share, which is secured pursuant to a security
agreement (the “Security Agreement”) and a warrant to purchase 1,000,000 shares
of Valcom’s Common Stock at an exercise price of $0.20. Pursuant to the
Transaction Documents, Valcom promises to pay to the Company $100,000 in cash on
January 6, 2010. The Note bears interest at the rate of 10% per annum until the
maturity date.





Wineharvest,
Inc.:





On March
12, 2009, we entered into a stock purchase agreement with Wineharvest, Inc.
(“Wineharvest”), a Florida Corporation, that provides for our purchase of
3,000,000 shares of Wineharvest common stock, representing a 30% interest, for
$300,000. As of the filing date of this report, we have not closed on this
purchase transaction. However, we also loaned Wineharvest $73,000 under a 12%
convertible note, due in May and June of 2009.


23


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4 –
INVESTMENTS (CONTINUED):





Abazias,
Inc:





On
December 3, 2008, the Company entered into a securities purchase agreement (the
“Purchase Agreement”) with Abazias, Inc. (“Abazias”), a Delaware corporation and
Abazias.com, Inc., (“Abazias”), a Nevada corporation and wholly owned subsidiary
of Abazias, pursuant to which the Company has agreed to purchase substantially
all of the assets of Abazias Sub for an aggregate purchase price of: (i) a loan
in the amount of Five Hundred Thousand Dollars ($500,000) (the “Loan”) and; (ii)
the issuance of up to thirteen million one thousand (13,001,000) shares of the
Company’s zero coupon convertible preferred stock (the “Preferred Stock”) to the
Shareholders of Abazias, subject to adjustment. Under the Purchase Agreement,
upon closing of the transaction the Company shall issue the Preferred Stock to
the shareholders of Abazias, Inc. in exchange for all of the issued and
outstanding shares of capital stock of Abazias. The Loan, in the form of a Note,
was made on August 12, 2008 (see Investments). The Note bears interest at 10%
per annum and matures on December 31, 2009 (the “Maturity Date”). The full
principal amount of the Note, along with any interest accrued thereon, is due
upon a default under the terms of the Note.
 
 Upon the
Closing of this transaction, Abazias, will become a wholly owned subsidiary of
the Company. Commensurate with the entering into of the Agreement, Abazias Sub
has entered into Employment Agreements with Oscar Rodriguez and Jesus Diaz, with
Mr. Rodriguez serving as Chief Executive Officer and President of Abazias Sub
and Mr. Diaz serving as Vice President, Chief Financial Officer and Chief
Operating Officer of Abazias Sub. The Employment Agreements shall become
effective upon the closing of the transaction.
 
 OmniReliant
and Abazias determined that for federal income tax purposes, as well
as to segregate the assets and liabilities of Abazias into a separate
entity, the transaction as it had been constituted needed to be revised and
that instead of purchasing substantially all of the assets of Abazias.com, Inc.
for the 13,001,000 shares of the Preferred Stock, to be distributed to the
shareholders of Abazias, which would have resulted in a taxable transaction for
shareholders of Abazias, the Boards of Directors of Abazias and OmniReliant
resolved that OmniReliant would acquire Abazias Inc., a Delaware corporation
(Abazias-Delaware), Abazias, Inc. a Nevada corporation (Abazias-Nevada) and a
wholly owned subsidiary of the Abazias-Delaware, and Abazias.com, Inc., a Nevada
corporation and a wholly owned subsidiary of Abazias Nevada, for the Series E
Preferred Stock, thus allowing the transaction to qualify as a tax free
reorganization under the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended.
 
 In order
to further clarify the Amended Stock Purchase Agreement, on April 29,2009,
OmniReliant and Abazias decided to enter into an Agreement and Plan of Merger
which superseded and replaced the Amended  Stock Purchase Agreement
and further clarified  that Abazias, Inc. shall merge into OmniReliant
Acquisition Sub, a wholly owned subsidiary of OmniReliant.  Many of
the essential terms remained from the Amended Securities Purchase Agreement,
however, all parties involved felt that a more streamlined Agreement and Plan of
Merger would be more appropriate.
 
 Subsequent
to entering into the Agreement and Plan of Merger, OmniReliant and Abazias
decided that in order to segregate the assets and liabilities of
Abazias into a separate entity, for federal income tax reasons, as
well as both Companies belief that the financial condition of Abazias combined
with the expertise and assets of Omni is consistent with OmniReliant’s expansion
and overall business strategy and that the acquisition will expand OmniReliant’s
ability to finance its operations and further its growth, the transaction
as it had been constituted needed to be further  revised and that
instead of purchasing substantially all of the assets of Abazias.com, Inc. com
for the 13,001,000 shares of the Preferred Stock, to be distributed to the
shareholders of Abazias, which would have resulted in a taxable transaction for
shareholders of Abazias, the Boards of Directors of Abazias and OmniReliant
resolved that OmniReliant would acquire Abazias Inc., a Delaware corporation
(Abazias-Delaware), Abazias, Inc. a Nevada corporation (Abazias-Nevada) and a
wholly owned subsidiary of the Abazias-Delaware, and Abazias.com, Inc., a Nevada
corporation and a wholly owned subsidiary of Abazias Nevada, for the Series E
Preferred Stock, thus allowing the transaction to qualify as a tax free
reorganization under the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended.
 
 In order
to further clarify the above intentions of OmniReliant and Abazias, the parties
decided to enter into Agreement and Plan of Merger which superseded and replaced
the Amended Stock Purchase Agreement and further clarified  that
Abazias, Inc. shall merge into OmniReliant Acquisition Sub, a wholly owned
subsidiary of OmniReliant.  Many of the essential terms remained from
the Amended Securities Purchase Agreement, however, all parties involved
felt that a more streamlined Agreement and Plan of Merger would be more
appropriate.
  24
 
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 4 –
INVESTMENTS (CONTINUED):
 Upon the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger Abazias-Delaware and OmniReliant Acquisition Sub shall consummate a
merger pursuant to which (i) the Abazias-Delaware shall be merged with and into
OmniReliant Acquisition Sub and the separate corporate existence of
Abazias-Delaware shall thereupon cease, (ii) OmniReliant Acquisition Sub
shall be the successor or surviving corporation in the Merger and shall continue
to be governed by the Laws of the State of Nevada, and (iii) the separate
corporate existence of OmniReliant Acquisition Sub with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger.  The corporation surviving the Merger is sometimes hereinafter
referred to below as the "Surviving Corporation."  The Merger shall
have the effects set forth under the Laws of the State of Nevada.
 
 The
Certificate of Incorporation of OmniReliant Acquisition Sub, as in effect
immediately prior to the merger shall be the Certificate of Incorporation of the
Surviving Corporation, until thereafter amended as provided by Law and such
Certificate of Incorporation.
 
 The
Bylaws of OmniReliant Acquisition Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation, until
thereafter amended as provided by Law, the Certificate of Incorporation of the
Surviving Corporation and such Bylaws.
 
 Subject
to the provisions of the Agreement and Plan of Merger, the parties shall (i)
file the appropriate Certificate of Merger in such form as is required by and
executed in accordance with the relevant provisions of the Nevada Revised
Statutes (“NRS”) and the Delaware General Corporation Law (“DGCL”) and (ii) make
all other filings or recordings required under the NRS and DGCL.  The
Merger will become effective at such time as the Certificate of Merger is duly
filed with the Secretary of State of the State of Nevada and Delaware, or at
such subsequent date or time as the Company and OmniReliant Acquisition Sub
agree and specify in the Certificate of Merger (such time hereinafter referred
to as the "Effective
Time").
 
 The
directors of the Abazias-Delaware immediately prior to the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving
Corporation, and the officers of the Abazias-Delaware immediately prior to the
Effective Time shall, from and after the Effective Time, be the officers of the
Surviving Corporation, in each case until their respective successors shall have
been duly elected, designated or qualified, or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws. If at any time after the Effective Time
the Surviving Corporation shall determine, in its reasonable discretion, that
any actions are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of either of the Abazias-Delaware
or OmniReliant Acquisition Sub acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, then the officers and directors of the Surviving
Corporation shall be authorized take all such actions as may be necessary or
desirable to vest all right, title or interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Agreement.”
 
 As of the
Effective Time, by virtue of the Merger and without any action on the part of
the holders of any shares of common stock of the Abazias-Delaware
(“Abazias-Delaware Common Stock”), or of OmniReliant Acquisition
Sub”
 
 (a)         Each
outstanding share of OmniReliant Acquisition Sub common stock shall remain
outstanding and shall constitute the only issued and outstanding shares of
common stock of the Surviving Corporation.
 
 (b)         All
shares of Abazias-Delaware Common Stock (the “Abazias-Delaware Shares”) that are
owned by the Abazias-Delaware as treasury stock shall be cancelled and retired,
and no consideration shall be delivered in exchange therefor.
 
 (c)         Each
outstanding Abazias-Delaware Share, other than those set forth in the Agreement
and Plan of Merger shall be converted into the right to receive, and shall be
exchangeable for the merger consideration (the “Merger
Consideration”).   At the Effective Time, all Abazias-Delaware
Shares converted into the right to receive the Merger Consideration pursuant to
the Agreement and Plan of Merger and shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each holder of a
certificate (or, in the case of uncertificated Abazias-Delaware Shares, evidence
of such Abazias-Delaware Shares in book-entry form) which immediately prior to
the Effective Time represented any such Abazias-Delaware Shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration.  Notwithstanding the foregoing, if between the date of
this Agreement and the Effective Time, the shares of outstanding
Abazias-Delaware Common Stock shall have been changed into a different number of
shares or a different class, by reason of the occurrence or record date of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination, exchange of shares or similar transaction, then the Merger
Consideration shall be appropriately adjusted to reflect such
action.
 
 25
 
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 4 –
INVESTMENTS (CONTINUED):
 The
Merger consideration, consisting of the total purchase price payable to the
shareholders of the Abazias-Delaware in connection with the acquisition by
merger of Abazias-Delaware, shall be delivered and shall consist exclusively of
13,001,000 newly issued shares of Series E Zero Coupon Convertible Preferred
Stock, of OmniReliant (the "Preferred Stock").  The Preferred Stock
shall be convertible into shares of common stock of OmniReliant in accordance
with the terms of, and the Preferred Stock shall have those rights, preferences
and designations set forth in, that certain Certificate of Designation,
Preferences and Rights of Preferred Stock (the "Certificate Of
Designation").
 
 During
the six months after the closing of the transaction, OmniReliant will provide
additional non-debt funding to Abazias.com of Five Hundred Thousand Dollars
($500,000.00) to be used by the Abazias.com for general working capital or such
other purposes in furtherance of the business of Abazias.com.  This
money will be advanced in amounts and at times during this six month period at
the request of the officers of the Abazias.com as determined in their sole and
absolute discretion.  If any requested advance is not made by the end
of a seven (7) day period, OmniReliant shall distribute 13,001,000, or such
greater number of shares if more than 13,001,000 shares of Preferred Stock are
issued as consideration at closing, to the extent that the shares of Preferred
Stock are convertible into more than 13,001,000 shares of common stock pursuant
to the adjustment provisions of the Certificate of Designations, to the same
shareholders of Abazias.com  in the same amounts as the shares of
Preferred Stock distributed to such Abazias shareholders at Closing. The holders
of a majority of such shares shall be entitled to make one demand to the
Purchaser to register such shares on a registration statement.
 
 Completion
of the Transaction is subject to certain conditions described in the Agreement
and Plan of Merger, including but not limited to (a) approval by the
shareholders of Abazias of the merger (b) registration under the Securities Act
of 1933, as amended, of OmniReliant Holdings' shares to be issued to Abazias and
subsequently distributed to the shareholders of Abazias upon closing of the
transaction.
 
 The
Company and Abazias jointly prepared and the Company filed with the Securities
and Exchange Commission a Form S-4 on February 11, 2009 and an amendment to the
S-4 was filed  jointly prepared as well and filed by the Company on
May 7, 2009.
 
 The
Company anticipates accounting for the purchase of Abazias as a purchase
business combination, applying Statements of Financial Accounting Standards No.
141 Business
Combinations (“SFAS 141”). In the unlikely event that the purchase occurs
on or after July 1, 2009, we will be required to apply Statements of Financial
Accounting Standards No. 141(R) Business Combinations
(“SFAS 141(R)”), which would result in substantial differences from SFAS 141.
SFAS 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Accordingly, the effective date
for our application of SFAS 141(R) will be commencing with our fiscal year
beginning July 1, 2009. Early adoption of SFAS 141(R) is prohibited by the
standard. The Company’s application of SFAS 141 will provide for the allocation
of the total estimated purchase price to the tangible and intangible assets of
Abazias acquired at their respective fair values. The excess of the estimated
purchase price over the tangible and intangible assets will be reflected in our
post-acquisition financial statements as goodwill.


26





OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4 –
INVESTMENTS (CONTINUED):





Carolyn
& Company:





On
February 12, 2008, we obtained a Convertible Promissory Note for $150,000 which
accrues interest at 6% per On February 12, 2008, we purchased a face-value
$150,000, 6.0% per annum, Convertible Promissory Note from an early-stage,
Member-Managed Limited Liability Company in the Media Sector. Principal and
interest are payable on February 12, 2010. The Convertible Promissory Note is
convertible at our option into Member Units representing an aggregate of 2.0% of
the investee’s aggregate member units. On April 3, 2008, we amended the
Convertible Promissory Note to add full-ratchet anti-dilution protection and a
“Most Favored Nation” provision which would allow us to exchange the promissory
note for any securities issued by the Investee in a subsequent financing on a
dollar by dollar basis. On April 4, 2008, we invested an additional $300,000 and
received a Convertible Promissory Note which accrues interest at 6% per year and
is due and payable on February 12, 2010. We have the option to convert the note
any time prior to maturity and we would receive Membership Interests equal to
the principle balance on the note divided by $10,000,000. This note contains
full ratchet anti-dilution protection and a “Most Favored Nation”
provision.





NOTE 5 –
PROPERTY AND EQUIPMENT:





Property
and equipment consisted of the following on March 31, 2009 and June 30,
2008:





March
      31,
                    2009
                  
                  
                  June
      30,
                    2008Land
                  
                  $
                  500,000
                  
                  
                  $
                  —Buildings
      and building improvements
                  
                  
                  1,529,755
                  
                  
                  
                  —Furnishings
      and office equipment
                  
                  
                  782,146
                  
                  
                  
                  —2,811,901
                  
                  
                  
                  —Less
      accumulated depreciation
                  
                  
                  (142,402
                  )
                  
                  
                  —$
                  2,669,499
                  
                  
                  $
                  —





The
Company depreciates buildings and improvements and furnishings and office
equipment over estimated useful lives of 15 and 5 years,
respectively.





Depreciation
expense amounted to $38,873 and $142,402 during the three and nine months ended
March 31, 2009, respectively.


27


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 6 –
INTANGIBLE ASSETS:
 
 The
Company’s intangible assets consisted of the following on March 31, 2009 and
June 30, 2008:
 
 March 31,
                    2009
                  
                  
                  June 30,
                    2008Patent
      costs
                  
                  $
                  1,169,412
                  
                  
                  $
                  1,169,412License
      agreement
                  
                  
                  953,502
                  
                  
                  
                  653,005Other
      fully-amortized intangibles
                  
                  
                  79,402
                  
                  
                  
                  79,4022,202,316
                  
                  
                  
                  1,901,819Less
      accumulated amortization
                  
                  
                  (881,097
                  )
                  
                  
                  (623,307
                  )$
                  1,321,219
                  
                  
                  $
                  1,278,512
 
 Aggregate
      Amortization Expense:Three
      months ended March 31, 2009
                    
                    $
                    118,932Nine
      months ended March 31, 2009
                    
                    $
                    257,293Inception
      (August 21, 2006) to March 31, 2009
                    
                    $
                    881,097Estimated
      Amortization Expense:Period
      from April 1, 2009 to June 30, 2009:
                    
                    $
                    118,932Year
      ending June 30:2010
                    
                    
                    75,7292011
                    
                    
                    95,0212012
                    
                    
                    114,3962013
                    
                    
                    88,0782014
                    
                    
                    88,078Thereafter
                    
                    
                    740,984$
                    1,321,219
 
 Patent costs— On June 18,
2007, 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
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), paid January 22,
  2008.
 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.
  28
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 6 –
INTANGIBLE ASSETS (CONTINUED):
 
 The
Company has received a written opinion issued by the USPTO as International
Search Authority and a response was filed as entering Chapter ii of the PCT
designating the USPTO as International Examining Authority. The Company has
consulted with the scientist regarding the application and we believe the
technology has many future uses.  Once approved, the Company plans to
market and sell products using the technology acquired.
 
 The
Company estimates the patent pending application will take up to 3 years to go
through the approval process. At such time the Company will begin amortizing the
cost over 20 years, the useful life of the asset. In the event additional
assistance is required with the patent pending application or development of a
product the members of Product & Technology Partners, LLC have agreed to
work with the Company on a consulting basis.
 
 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 has 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
                      
                      $
                      400,0003
                      
                      1/1/09
      to 12/31/09
                      
                      $
                      400,0004
                      
                      1/1/10
      to 12/31/10
                      
                      $
                      400,0005
                      
                      1/1/11
      to 12/31/11
                      
                      $
                      400,0006
                      
                      1/1/12
      to 12/31/15
                      
                      $
                      400,000
 
 In
addition to the minimum royalty payment the Company will also compensate the
other party a sales royalty of eight percent (8%) on each annual period's net
sales made in all venues other than infomercials; a minimum of three percent
(3%) on each annual period's net sales made through infomercials and four
percent (4%) should the revenues exceed media expenditures by a three to one
media ratio. The sales royalty is payable on a quarterly basis within forty-five
(45) days after the close of the prior quarter's sales. The payment of sales
royalties are credited against the guaranteed minimum royalty payment for any
annual period.
 
 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.
  29
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 6 –
INTANGIBLE ASSETS (CONTINUED):
 
 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 1st and
July 1st 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
purposes of the agreement, Adjusted Gross Collected Revenues (“AGCR”) means
ORH’s Gross Revenue from sales of the Products, less all of the
following:
 
 ·
              Shipping
      and 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.
 
 The
Company has 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.
  30
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 7 –
LONG-TERM DEBT:
 
 The
Company’s long-term debt consisted of the following at March 31,
2009:
 
 AmountInitial
      $2,000,000 six-year, variable rate mortgage note, with interest at the
      Wall Street Prime Rate, plus 1.5%, with a floor of 6.5% and a cap 7.75%
      during the first three years and a floor of 6.75% and a cap of 8.75%
      during the second three years; principal and interest payments of $13,507
      are payable over the six year term based upon a twenty-five year
      amortization schedule, with $1,766,016 payable at maturity; secured by
      real estate; guaranteed by related parties.
                  
                  $
                  1,986,851Less
      current maturities
                  
                  
                  (32,691
                  )Long-term
      debt
                  
                  $
                  1,954,160Maturities
      of long-term debt are as follows:Three
      months ending June 30, 2009
                  
                  $
                  7,973Year
      ending June 30:2010
                  
                  
                  33,2302011
                  
                  
                  35,4772012
                  
                  
                  37,8762013
                  
                  
                  40,4372014
                  
                  
                  43,172Thereafter
                  
                  
                  1,788,686$
                  1,986,851
 
 The
Company has concluded that the interest rate collar is clearly and closely
related to the host debt instrument and, accordingly, it does not require
bifurcation and recognition at fair value. The interest rate in effect during
the current quarterly period was at the 6.5% floor. Interest paid in cash during
the quarterly period amounted to $54,387.
  31
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 8 -
COMMITMENTS & CONTINGENCIES:
 
 Consulting Agreement - On
October 1, 2006 the Company entered into a six 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 three months. The
agreement was not renewed subsequent to June 30, 2007. The shareholders of HBD
are also shareholders of the Company.  Further, on July 14, 2008 the
Company entered into a one year consulting agreement with HBD to provide
services related to, but not be limited to, the media production related to The
Franklin Mint, Inc., media purchase and management, supervision of editing and
dubbing of productions, shipping of tapes or DVDs to television or radio
networks and stations, assistance in website development, assistance in
establishing call centers and scripting for inbound calls, tracking of media
results, and any other assistance that is needed from the Company. In
consideration for the services performed the Company will compensate HBD $50,000
per month net of $5,000 for office rent. The Company has right to extend the
term of the Harrington Business Development, LLC consulting agreement for an
additional year.
 
 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 Form 10-K 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.
  32
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 8 -
COMMITMENTS & CONTINGENCIES (CONTINUED):
 
 Public Relations Agreement -On April 27, 2007 the Company entered into a three year consulting
agreement with a public relations firm. Pursuant to the terms of the agreement
the Company will pay the following as compensation for services: $7,500 payable
each month; 1,000,000 warrants with a term of 3 years, issued at the onset,
entitling the holder to purchase shares of the Company’s common stock at an
exercise price of $1.00 per share; exclusive rights to all future public
relation contracts awarded to the Company for Kathy Hilton licenses; and
compensation at the rate of 3% of projected gross wholesale sales per year on
all future Kathy Hilton licenses awarded to the Company. For the year ended June
30, 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. In January 2008, the Company notified the public relations firm
of their desire to terminate their agreement early. The Company believes it has
no further obligation pursuant to this agreement.
 
 NOTE 9 –
STOCKHOLDERS’ EQUITY (DEFICIT):
 
 Change
in Authorized Shares:
 
 Effective
August 25, 2008, the Company amended its articles of incorporation to increase
the number of authorized shares from 100,000,000 to 500,000,000, including
100,000,000 authorized shares of preferred stock.
 
 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
  33
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 9 –
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):
 
 Stock
Options and Warrants:
 
 The
following table summarizes the activity related to all Company stock options and
warrants for the period from August 21, 2006 (inception) through March 31,
2009:
 
 Weighted AverageExercise Price
                  
                  
                  Exercise PriceStock
                  
                  
                  Per Share
                  
                  
                  Per ShareWarrants
                  
                  
                  Options
                  
                  
                  Warrants
                  
                  
                  Options
                  
                  
                  Warrants
                  
                  
                  OptionsOutstanding
      at August 21, 2006
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —Outstanding
      at June 30, 2006
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —Granted
                  
                  
                  9,004,000
                  
                  
                  
                  —
                  
                  
                  
                  1.00-3.75
                  
                  
                  
                  —
                  
                  
                  
                  2.13
                  
                  
                  
                  —Exercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Cancelled
      or Expired
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      at June 30, 2007
                  
                  
                  9,004,000
                  
                  
                  
                  —
                  
                  
                  
                  1.00-3.75
                  
                  
                  
                  —
                  
                  
                  
                  2.13
                  
                  
                  
                  —Granted
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Exercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Cancelled
      or Expired
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      at September 30, 2007
                  
                  
                  9,004,000
                  
                  
                  
                  —
                  
                  
                  
                  1.00-3.75
                  
                  
                  
                  —
                  
                  
                  
                  2.13
                  
                  
                  
                  —Granted
                  
                  
                  23,092,171
                  
                  
                  
                  350,000
                  
                  
                  
                  0.75-2.00
                  
                  
                  
                  1.00
                  
                  
                  
                  1.72
                  
                  
                  
                  1.00Exercised
                  
                  
                  —
                  
                  
                  
                  (50,000
                  )
                  
                  
                  —
                  
                  
                  
                  (1.00
                  )
                  
                  
                  —
                  
                  
                  
                  (1.00
                  )Outstanding
      at December 31, 2007
                  
                  
                  32,096,171
                  
                  
                  
                  300,000
                  
                  
                  
                  0.75-3.75
                  
                  
                  
                  1.00
                  
                  
                  
                  1.70
                  
                  
                  
                  1.00Granted
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Exercised
                  
                  
                  (96,000
                  )
                  
                  
                  —
                  
                  
                  
                  (1.25-3.75
                  )
                  
                  
                  —
                  
                  
                  
                  (2.29
                  )
                  
                  
                  —Outstanding
      at March 31, 2008
                  
                  
                  32,000,171
                  
                  
                  
                  300,000
                  
                  
                  
                  0.75-3.75
                  
                  
                  
                  1.00
                  
                  
                  
                  1.46
                  
                  
                  
                  1.00Granted
                  
                  
                  30,100,000
                  
                  
                  
                  —
                  
                  
                  
                  0.50-0.75
                  
                  
                  
                  —
                  
                  
                  
                  0.74
                  
                  
                  
                  —Exercised
                  
                  
                  (139,200
                  )
                  
                  
                  —
                  
                  
                  
                  (075-3.75
                  )
                  
                  
                  —
                  
                  
                  
                  (1.69
                  )
                  
                  
                  —Cancelled
      or expired
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  —Outstanding
      at June 30, 2008
                  
                  
                  61,960,971
                  
                  
                  
                  300,000
                  
                  
                  
                  0.75-3.75
                  
                  
                  
                  1.00
                  
                  
                  
                  0.63
                  
                  
                  
                  1.00Granted
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Exercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Cancelled
      or expired
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      at September 30, 2008
                  
                  
                  61,960,971
                  
                  
                  
                  300,000
                  
                  
                  
                  0.75-3.75
                  
                  
                  
                  1.00
                  
                  
                  
                  0.63
                  
                  
                  
                  1.00Granted
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Exercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Cancelled
      or expired
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      at December 31, 2008
                  
                  
                  61,960,971
                  
                  
                  
                  300,000
                  
                  
                  
                  0.75-3.75
                  
                  
                  
                  1.00
                  
                  
                  
                  0.63
                  
                  
                  
                  1.00Granted
                  
                  
                  37,499,999
                  
                  
                  
                  1,845,000
                  
                  
                  
                  0.50-1.50
                  
                  
                  
                  0.50
                  
                  
                  
                  1.49
                  
                  
                  
                  0.50Exercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Cancelled
      or expired
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      at March 31, 2009
                  
                  
                  99,460,970
                  
                  
                  
                  2,145,000
                  
                  
                  
                  0.50-3.75
                  
                  
                  
                  0.50-1.00
                  
                  
                  
                  0.95
                  
                  
                  
                  0.57Exercisable
      at March 31, 2009
                  
                  
                  99,460,970
                  
                  
                  
                  2,145,000
                  
                  
                  
                  0.50-3.75
                  
                  
                  
                  0.50-1.00
                  
                  
                  
                  0.95
                  
                  
                  
                  0.57
 
 The
warrants expire at various dates ranging from April 2010 through October
2017.
  34
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 9 –
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):
 
 On
January 15, 2009, the Company issued 1,845,000 stock options to employees and
related parties (1,520,000 to employees and 325,000 to affiliates classified as
non-employees). The options have strike prices of $0.50 and expire in five
years; the grant date fair market value per common share was $1.00. The awards
vest to the benefit of each recipient upon grant. Total grant date fair value of
these options amounted to $344,339, using the Black-Scholes-Merton valuation
technique, and was recorded as compensation in the period of grant. This amount
is included in other operating expenses in the accompanying statements of
operations. We used the remaining contractual term for the expected term,
volatility ranging from 45.73% to 49.17% and risk-free rates ranging from 0.73%
to 1.36%.
 
 2007
Long Term Incentive Plan:
 
 On
November 21, 2007 the Company established a Long Term Incentive Plan (the “2007
Incentive 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)
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.
  35
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 9 –
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):
 
 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.
 
 Common
Stock Equivalents:
 
 Below is
a detailed list of the Company’s common stock equivalents:
 CommonEquivalentsSecurities:Series
      C Preferred Stock
                          
                          
                          20,619,128Series
      D Preferred Stock
                          
                          
                          14,000,000Series
      F Preferred Stock
                          
                          
                          8,333,333Warrants:Class
      A-1 Warrants
                          
                          
                          3,000,000Class
      A-2 Warrants
                          
                          
                          3,000,000Class
      B-1 Warrants
                          
                          
                          480,000Class
      B-2 Warrants
                          
                          
                          480,000Class
      BD-1 Warrants
                          
                          
                          300,000Class
      BD-2 Warrants
                          
                          
                          300,000Class
      BD-3 Warrants
                          
                          
                          300,000Class
      BD-4 Warrants
                          
                          
                          1,600Class
      BD-5 Warrants
                          
                          
                          1,600Class
      BD-6 Warrants
                          
                          
                          1,600Class
      BD-7 Warrants
                          
                          
                          821,333Class
      BD-8 Warrants
                          
                          
                          821,333Class
      BD-9 Warrants
                          
                          
                          821,333Class
      BD-10 Warrants
                          
                          
                          700,000Class
      BD-11 Warrants
                          
                          
                          1,400,000Class
      BD-12 Warrants
                          
                          
                          833,333Class
      BD-13 Warrants
                          
                          
                          3,333,333Warrant
      issued to consultants
                          
                          
                          1,000,000Class
      C-1 Warrants
                          
                          
                          10,266,086Class
      C-2 Warrants
                          
                          
                          10,266,086Class
      D-1 Warrants
                          
                          
                          28,000,000Class
      E Warrants (issued with Series F Preferred)
                          
                          
                          33,333,333Employee
      Stock Options
                          
                          
                          2,145,000Total
      common stock equivalent shares
                          
                          
                          144,558,431
  36
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 9 –
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):
 
 Series
E Convertible Preferred Stock:
 
 On
December 3, 2008, we designated 13,001,000 shares of our newly designated
$0.00001 par value, $1.00 stated value, Series E Convertible Preferred Stock
(the “Series E Preferred Stock”) which we currently plan to use in connection
with our impending acquisition of Abazias (see Note 4). The Series E Preferred
Stock will vote with the common shareholders on an if-converted basis. The
Series E Preferred Stock does not provide for either a liquidation preference or
a dividend right. The Series E Preferred Stock is initially convertible into
common stock on a one-for-one basis. However, this conversion rate is subject to
a one-time adjustment, on the closing date of the Abazias purchase, where the
conversion price is adjusted downward on a pro rata basis for common market
values below $1.20, subject to a floor of $0.50. In addition to the conversion
adjustment, the Series E Preferred Stock provides for down-round price
protection in the event that we sell shares or indexed securities below $1.20
during the two year period following issuance. In the event of a down-round
financing, the conversion price is adjusted similarly to the one-time adjustment
described above. That is, on a pro rata basis for down round financings at less
than $1.20. This protection has a floor of $0.50. The Series E Preferred Stock
conversion price is otherwise subject to adjustment for traditional
reorganizations, such as stock splits, stock dividends and similar restructuring
of equity. Finally, OmniReliant is precluded from changing the designations of
the Series E Preferred Stock without the approval of at least 80% of the
holders.
 
 The
embedded conversion feature in the Series E Preferred Stock has been evaluated
for derivative classification under Statement of Financial Accounting Standards
No. 133 Accounting for
Derivative Financial Instruments and Hedging Activities (“SFAS 133”). A
requisite consideration for applying SFAS 133 is making a determination
regarding whether the contract is more akin to an equity instrument or more akin
to a debt instrument based upon all features, terms and conditions in the
contract. Applying the guidance of EITF D-109 Determining the Nature of a
Host Contract Related to a Hybrid Financial Instrument Issued in the Form of a
Share under FASB Statement No. 133 we concluded that Series E Preferred
Stock was more akin to an equity instrument on the basis that it has no
redemption requirements, no dividend requirements and no features that would
indicate credit or interest risk components. As an “akin-to-equity” instrument,
the embedded conversion feature is clearly and closely related to the risks of
the contract and derivative classification is not required.
 
 The
Series E Preferred Stock was also evaluated for classification under Statement
of Financial Accounting Standards No. 150 Accounting for Financial
Instruments with Characteristics of Both Equity and Liabilities (“SFAS
150”) and EITF D-98 Classification and
Measurement of Redeemable Securities (EITF D-98). Generally, these
standards require financial instruments that are mandatorily redeemable,
including instances where contingent redemption events may be beyond the control
of management, to be classified outside of stockholders’ equity in liabilities
or mezzanine, respectively. As a result of our evaluation, the Series E
Preferred does not embody any terms or features that require or could
contingently require redemption.
  37
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 9 –
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):
 
 Series
E Convertible Preferred Stock:
 
 Finally,
the Series E Preferred Stock will be evaluated for the presence of a beneficial
conversion feature under the guidance of EITFs 98-5 and 00-27 Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (EITF 98-5) on the closing date of the
Abazias purchase. A beneficial conversion feature is present when the effective
conversion price of the convertible instrument is lower than the fair value of
the common shares to which it is indexed.
 
 Our
purchase of Abazias has not yet occurred as of the filing of this quarterly
report and is contingent upon the approval of both shareholder
groups.
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK:
 
 Redeemable
preferred stock consists of the following as of March 31, 2009 and June 30,
2008:
 
 March 31,
                    2009
                  
                  
                  June 30,
                    2008Series
      A 10% Convertible Preferred Stock, 3,000 shares
                    issued,
      none outstanding
                  
                  $
                  —
                  
                  
                  $
                  —Series
      B 10% Convertible Preferred Stock, 1,000 shares
                    issued,
      none outstanding
                  
                  
                  —
                  
                  
                  
                  —Series
      C Convertible Preferred Stock, 10,620,000 shares
                    issued
      and outstanding (liquidation value $10,620,000)
                  
                  
                  28,969,634
                  
                  
                  
                  28,969,634Series
      D Convertible Preferred Stock, 7,000,000 shares
                    issued
      and outstanding (liquidation value $7,000,000)
                  
                  
                  7,000,000
                  
                  
                  
                  7,000,000Series
      F Convertible Preferred Stock, 10,000,000 shares
                    issued
      and outstanding (liquidation value $10,000,000)
                  
                  
                  10,000,000
                  
                  
                  
                  —$
                  45,969,634
                  
                  
                  $
                  35,969,634
 
 See Note
9 for information on our Series E Convertible Preferred Stock.
 
 Terms,
Features and Conditions of our Redeemable Preferred Stock:
 
 Series
                
                Date of
                  Designation
                
                Number of
                  Shares
                
                
                Par
                  Value
                
                
                Stated
                  Value
                
                
                Liquidation
                  Value
                
                
                Dividend
                  Rate
                
                
                Initial
                  Conversion
                
                
                Current
                  ConversionA
                
                11/22/2006
                
                
                3,000
                
                
                $
                0.00001
                
                
                $
                1,000
                
                
                $
                1,000
                
                
                
                10
                %
                
                $
                1.00
                
                
                
                —B
                
                5/25/2007
                
                
                1,000
                
                
                $
                0.00001
                
                
                $
                1,000
                
                
                $
                1,000
                
                
                
                10
                %
                
                $
                1.25
                
                
                
                —C
                
                10/18/2007
                
                
                10,620,000
                
                
                $
                0.00001
                
                
                $
                1.00
                
                
                $
                1.00
                
                
                
                —
                
                
                $
                0.75
                
                
                $
                0.50D
                
                4/30/2008
                
                
                7,000,000
                
                
                $
                0.00001
                
                
                $
                1.00
                
                
                $
                1.00
                
                
                
                —
                
                
                $
                0.50
                
                
                $
                0.50F
                
                2/12/2009
                
                
                10,000,000
                
                
                $
                0.00001
                
                
                $
                1.00
                
                
                $
                1.00
                
                
                
                —
                
                
                $
                1.20
                
                
                $
                1.20
  38
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):
 
 Conversion price
adjustments:  The conversion prices of our outstanding
convertible preferred stock are subject to adjustment for anti-dilution
protection for (i) traditional capital restructurings, such as splits, stock
dividends and reorganizations (traditional restructuring events), and (ii) sales
or issuances of common shares or contracts to which common shares are indexed at
less than the stated conversion prices (down-round protections). As it relates
to adjustments to conversion prices arising from down-round financing triggering
events, we account for the incremental value to convertible preferred stock
classified as liabilities by charging earnings. For convertible preferred stock
classified in stockholders’ equity or redeemable preferred stock (mezzanine
classification) we charge the incremental value to accumulated deficit as a
deemed dividend.
 
 Commencing
July 1, 2009, the first day of our fiscal year ending June 30, 2010, we will be
required to reevaluate the classification of the embedded conversion options in
our outstanding convertible preferred stock under EITF 07-05 Determining Whether and
Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock
(EITF 07-05). EITF 07-5 addresses the determination of whether an equity-linked
financial instrument (or embedded feature, such as is the case with our
convertible preferred stock) is indexed to our common stock, and is an important
consideration in determining the instrument's ongoing accounting
classification. The guidance will require us to apply a two-step approach,
separately evaluating each preferred instrument's contingent exercise provisions
and then the preferred instrument's settlement provisions.Certain
common price protection provisions, such as the down-round anti-dilution
protection may cause some instruments (or embedded features) to be reclassified
to liabilities (or bifurcated, as provided in SFAS 133) and, thereafter,
marked-to-market through earnings. Our preliminary, based upon the current terms
and conditions of our convertible preferred stock, is that bifurcation will not
be required. Generally, we believe that the hierarchy in the application of the
fragmented standards surrounding accounting for financial instruments continues
to require the evaluation of whether preferred instruments are more akin to debt
or equity for purposes of establishing the embedded conversion feature as
akin-to-debt or akin-to-equity. As discussed further in this section, our
outstanding convertible preferred instruments, in their hybrid form, are
currently considered akin-to-equity contracts. Accordingly, the embedded
conversion features in these contracts, in the absence of changes or amendments,
will continue to be considered clearly and closely related for purposes of
exempting the conversion option for further consideration under existing
standards for bifurcation (that is, SFAS 133).
 
 Dividend
features:  As discussed in more detail in this footnote, the
Series A and B Preferred Stock were exchanged for Series C Preferred Stock and
Warrants. Holders of the Company’s Series A Preferred and the Series B Preferred
(collectively the “Series A and B Preferred”) were entitled to cumulative
dividends at the rate per share of 10% per annum, payable quarterly on January
1, April 1, July 1 and October 1. Dividends were payable in cash or common
stock, as follows: (a) if funds were legally available and certain equity
conditions, described below, have not been met during the preceding five
consecutive trading days payment must be in cash; (b) if funds were available
and the equity conditions have been met during the five preceding trading days
the payment may be made, at the sole election of the Company, in either cash or
common shares (at a 10% discount to the trading market price, as defined in the
Certificate of Designation). The Certificate of Designation provided that
dividends were cumulative and unconditionally payable, even in the absence of a
Board declaration. Accordingly, while these instruments were outstanding we
accrued dividends as they were earned.
  39
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):
 
 As of
October 18, 2007, (the date the Series A and B Preferred were exchanged for
Series C Preferred), we had paid $194,468 in dividends related to the Series A
and B Preferred shares. Preferred stock dividends are recorded as a reduction of
stockholders’ equity. However, we also reflected 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.
 
 Redemption
features: The Series C, Series D and Series F Preferred are redeemable for cash
in an amount representing the stated value. The following events give rise to a
redemption triggering event:
 
 ·
              The
      Corporation shall fail to have available a sufficient number of authorized
      and unreserved shares of Common Stock to issue to such Holder upon a
      conversion hereunder;
 
 ·
              Unless
      specifically addressed elsewhere in this Certificate of Designation as a
      Triggering Event, the Corporation shall fail to observe or perform any
      other covenant, agreement or warranty contained in the Certificate of
      Designation, and such failure or breach shall not, if subject to the
      possibility of a cure by the Corporation, have been cured within 20
      calendar days after the date on which written notice of such failure or
      breach shall have been delivered;
 
 ·
              The
      Corporation shall be party to a Change of Control
    Transaction;
 
 ·
              There
      shall have occurred a Bankruptcy Event or Material Monetary
      Judgment;
 
 If the
Company fails to pay the Triggering Redemption amount on the date it is due,
interest will accrue at a rate equal to the lesser of 18% per year, or the
maximum rate permitted by applicable law, accruing daily from the date of the
Triggering event until the amount is paid in full.
 
 Events
that may result in the redemption for cash of preferred stock, and that are not
within a company’s control, are required to be classified outside of
stockholders’ equity (in the mezzanine section), as required in EITF D-98 Classification and
Measurement of Redeemable Securities (EITF D-98). The specific triggering
event presumed not to be within our control is the change of control redemption
event. Accordingly, these instruments are recorded in our balance sheet in the
caption Redeemable Preferred Stock, which is outside of stockholders’
equity.
 
 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
                  
                  
                  $
                  3,030,000
  40
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):
 
 Series A
                  
                  
                  Series B
                  
                  
                  TotalCommon
      shares indexed to financial instruments (upon inception):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
                  
                  
                  
                  11,484,000Reduction
      in indexed shares resultingFrom
      the exchange of Series A and BPreferred
      Stock for Series D Preferred
                  
                  
                  (3,000,000
                  )
                  
                  
                  (480,000
                  )
                  
                  
                  (3,480,000
                  )6,900,000
                  
                  
                  
                  1,104,000
                  
                  
                  
                  8,004,000
 
 The
following table illustrates the terms of the warrants:
 
 Warrant terms:
                    
                    Strike Price
                      Original/Reset
                    
                    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/$0.50
                    
                    10
      yearsSeries
      B Financing
                    
                    $
                    1.25-$3.75/$0.50
                    
                    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 (mezzanine)
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —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
                  )
  41
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):
 The
accounting and reporting for complex financing transactions that embody multiple
financial instruments, some of which are features embedded within financial
instruments, can best be described as a step-by-step process where the terms and
features of the financial instruments are compared to multiple standards in a
hierarchy of decision making. The following summarizes this process and
conclusions during the process.
 
 As an
initial consideration, we are required to consider whether the Series A and B
Preferred Stock are, by their terms, financial instruments that require
liability classification under Statements on Financial Accounting Standards No.
150 Accounting for
Certain Financial Instruments with Characteristics of both Equity and
Liability (SFAS 150). SFAS 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 any of its share-indexed financial instruments was not within its
      control, due to the triggering of the variable-share-indexed conversion
      feature in the Series A Preferred. Because share settlement was not within
      the Company’s control, net cash settlement was assumed and the Series B
      Preferred was initially classified in liabilities, at fair
      value.
 
 The terms
and conditions of the Series A Preferred were also subject to evaluation under
SFAS 133. Derivative financial instruments, as defined in SFAS 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.
  42
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):
 
 In
considering the application of SFAS 133, we identified those specific terms and
features embedded in the contracts that possess the characteristics of
derivative financial instruments. Those features included the conversion option,
redemption features and other equity-indexed terms and conditions. In evaluating
the respective classification of these embedded derivatives, we are required to
determine whether the host contract (the Series A and B Preferred) is more akin
to a debt or equity instrument in regards to the risks. This determination is
subjective. However, in complying with the guidance provided in EITF D-109
Determining the Nature of a Host Contract Related to a Hybrid Financial
Instrument Issued in the Form of a Share under SFAS 133 we concluded, based upon
the preponderance and weight of all terms, conditions and features of the host
contracts, that the Series A Preferred was more akin to an equity instrument for
purposes of considering the clear and close relation of the embedded feature to
the host contract. Based upon this conclusion, we further concluded that (i) the
equity indexed and settled embedded features did require derivative liability
classification and (ii) certain redemption features (that is, features that
afford the investor the right to put the instruments for cash) required
bifurcation and classification as compound embedded derivative liabilities, at
fair value on the inception date. These amounts are reflected in the table above
as derivative put liabilities and are valued using multiple,
probability-weighted cash flow outcomes and market discount rates that are
commensurate with our estimated credit risk.
 
 Although,
as described above, the embedded conversion feature did not require liability
classification under SFAS 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.
  43
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):
 
 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 (EITF 00-19). Accordingly the proceeds from the issuance of the
debt and the detachable warrants was first allocated to the debt and the
warrants based on their relative fair values as described in APB
14.  The embedded derivatives in the debt instrument that required
bifurcation (put liability) were then bifurcated at their fair values from the
proceeds allocated to the debt under APB 14 and then the BCF was
calculated.  After the allocation process, any residual proceeds would
be allocated to the debt host, however, the aggregate fair values of the
warrants, put and BCF exceeded the gross proceeds so we recognized a day-one
derivative loss as indicated.
 
 As
discussed above, the initial allocation of the basis in the Series A Preferred
Financing transaction resulted in no basis ascribed to the redeemable preferred
stock. According to EITF D-98 Classification and
Measurement of Redeemable Securities, if the security is not currently
redeemable and it is not probable that the security will be become redeemable,
accretion to face value is not necessary.  The Series A Preferred is
convertible upon inception and there was no persuasive evidence that the
Preferred Stock would not be redeemed.  Based on this information,
redemption could not be considered “not probable” of occurring and accretion was
necessary. Redeemable preferred stock is required to be accreted to its
redemption values through periodic charges to retained earnings or, if no term
of redemption is embodied in the contract, as is the case of the Series A
Preferred, on the date of issuance. As a result, a day-one deemed dividend of
$3,000,000 was recorded to accrete the Series A Preferred to its redemption
value.
 
 The
allocation of the basis of the Series A and Series B Financing transactions
required the allocation to certain financial instruments at their respective
fair values, and these fair values in each instance exceeded the cash proceeds
obtained from the transactions. As a result, we were required to record day-one
derivative losses in connection with these transactions because fair value was
the required standard.
 
 Subsequent and Ongoing
Classification Considerations:The evaluation of the
classification of the Series A and B Preferred was required at each reporting
date. SFAS 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:
  44
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):
 
 ·
              The
      Series A Preferred required reclassification from its mezzanine
      classification to liabilities, at fair value, because the redemption is no
      longer conditional. This reclassification was accomplished by transferring
      the fair value from the mezzanine classification and joining the put
      derivative (that was fair valued on the date of the redemption triggering
      event with a charge to income).
 
 ·
              The
      Series B Preferred Stock, although possessing terms and conditions similar
      to those of the Series A Preferred was not afforded equity classification
      because share-settlement is presumed not to be within the Company’s
      control. In addition, investor and placement agent warrants issued with
      the Series B Preferred did not achieve equity classification for this same
      reason.
 
 ·
              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.
  The
following table illustrates the activity with respect to each of the Series A
and Series B Preferred from their respective inception dates to October 18, 2007
(date of exchange):
 
 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
                          )$
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —
  45
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):
 
 When the
Series A and Series B redeemable preferred stock was reflected in liabilities,
the value was based upon the redemption values calculated as
follows:
 
 ·
              Series
      A—This amount represented 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 represented only the cash redemption value because, unlike
      the Series A Preferred holders, the Series B Preferred holders did not
      have the right to require redemption in common
  stock.
 
 ·
              The
      shares underlying the investor warrants were subject to firm registration
      rights. That is, we were required to deliver registered shares, and the
      Registration Rights Agreement did not specify how the warrant contract
      would be settled in the event that we are unable to deliver registered
      shares. As a result, net-cash settlement was assumed under the standard.
      That ultimate assumption required us to classify the warrants as
      derivative liabilities at their fair values and account for the warrants
      at fair value with changes recognized in
income.
 
 ·
              The
      shares underlying the placement agent warrants are not subject to the
      registration rights. Accordingly, the placement agent warrants issued with
      the Series A Preferred Financing were afforded equity classification. On
      May 21, 2007, however, our ability to share-settle our share-indexed
      financial instruments was placed out of our control because the number of
      shares necessary to share-settle the Series A Preferred became
      indeterminate and we potentially could have insufficient authorized shares
      to settle all of our share-indexed financial instruments. On that date,
      the warrants issued with the Series A Preferred required reclassification
      to liabilities. Subsequently, on May 25, 2007, the placement agent
      warrants issued with the Series B Preferred Financing did not achieve
      equity classification for this reason. The Series A and Series B Preferred
      Stock were exchanged for Series C Preferred Stock and warrants on October
      18, 2007, as discussed in the following section. Upon the exchange of the
      Series A and B Preferred Stock for Series C Preferred Stock, there was no
      longer a variable conversion rate associated with the Preferred Stock
      Financings. Accordingly, share settlement was again determined to be
      within the Company’s control and the placement agent warrants from the
      Series A and B Financings were reclassed to
  equity.
 
 Note: In
accordance with SFAS 150, the carrying amount of the Series A and B Preferred
Stock were measured at fair value when the instruments were classified as
liabilities.  Certain provisions in the Preferred Stock were
considered when determining the fair value of the instrument. There was no right
to participate in earnings, the liquidation preference of the Preferred Stock
was the same as the stated rate, there were no voting rights and the Preferred
Stock was not redeemable by the Company, so no value was ascribed to these
provisions. There was also no value ascribed to the cumulative dividend feature
since the Company was unable to pay its dividend from earnings. Accordingly, the
fair value approximated the redemption value of the Preferred Stock which is
calculated as a common stock equivalent value based upon observable market
prices.
  46
  OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):
 
 Registration Rights
Agreement:  In connection with the Series A and B Preferred
financings, the Company and the Investors entered into a registration rights
agreement pursuant to which the Company agreed to file, within 90 days after the
closing (the Filing Date), a registration statement covering the common stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants. If
(i) a Registration Statement is not filed on or prior to its Filing Date (if the
Company files a Registration Statement without affording the Holders the
opportunity to review and comment on the same as required or (ii) the Company
fails to file with the Commission a request for acceleration in accordance with
Rule 461 promulgated under the Securities Act, within five Trading Days of the
date that the Company is notified (orally or in writing, whichever is earlier)
by the Commission that a Registration Statement will not be “reviewed,” or not
subject to further review, or (iii) prior to its Effectiveness Date, the Company
fails to file a pre-effective amendment and otherwise respond in writing to
comments made by the Commission in respect of such Registration Statement within
10 calendar days after the receipt of comments by or notice from the Commission
that such amendment is required in order for a Registration Statement to be
declared effective, or (iv) a Registration Statement filed or required to be
filed hereunder is not declared effective by the Commission by its
“Effectiveness Date” (the 150th calendar day following the date
the  agreement was entered into or the 180th calendar day in the event
of a “full review” of the initial Registration Statement by the Commission), or
(v) after the Effectiveness Date, a Registration Statement ceases for any reason
to remain continuously effective as to all Registrable Securities, for which it
is required to be effective, or the Holders are otherwise not permitted to
utilize the Prospectus therein to resell such Registrable Securities for more
than 10 consecutive calendar days or more than an aggregate of 15 calendar days
during any 12-month period (which need not be consecutive calendar days) then,
in addition to any other rights the Holders may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary of each
such Event Date (if the applicable Event shall not have been cured by such date)
until the applicable Event is cured, the Company shall pay to each Holder an
amount in cash or shares of Common Stock, or combination thereof, as partial
liquidated damages and not as a penalty, equal to 1.5% of the aggregate purchase
price paid by such Holder pursuant to the Purchase Agreement for any Registrable
Securities then held by such Holder (calculated as if all convertible securities
had been fully converted.)
 
 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.
  47




OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








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.
 
 Sale
and Exchange of Series C Preferred Stock:
 
 On
October 18, 2007, we sold 6,400,000 Series C Preferred shares plus two tranches
of warrants. We also issued warrants to placement agents. On October 18, 2007,
we also exchanged all outstanding Series A Preferred, and Series B Preferred,
for 3,909,564 shares of Series C Preferred and two tranches of warrants. The
following table illustrates details of the sales of these financial
instruments:
 
 Series
      C
                      Financing
                    
                    
                    Series
      C
                      Exchange
                    
                    
                    TotalGross
      proceeds
                    
                    $
                    6,400,000
                    
                    
                    $
                    —
                    
                    
                    $
                    6,400,000Financing
      costs paid in cash
                    
                    
                    (340,000
                    )
                    
                    
                    —
                    
                    
                    
                    (340,000
                    )Net
      proceeds
                    
                    $
                    6,060,000
                    
                    
                    $
                    —
                    
                    
                    $
                    6,060,000Common
      shares indexed to financial instruments:Series
      C Preferred
                    
                    
                    8,533,333
                    
                    
                    
                    5,212,752
                    
                    
                    
                    13,746,085Investor
      warrants:Tranche
      C-1
                    
                    
                    8,533,334
                    
                    
                    
                    5,212,752
                    
                    
                    
                    13,746,086Tranche
      C-2
                    
                    
                    8,533,334
                    
                    
                    
                    5,212,752
                    
                    
                    
                    13,746,086Placement
      agent warrants
                    
                    
                    2,559,999
                    
                    
                    
                    —
                    
                    
                    
                    2,559,99928,160,000
                    
                    
                    
                    15,638,256
                    
                    
                    
                    43,798,256
 
 Apogee
Financial Investments, Inc., a company owned by certain of our stockholders, and
Midtown Partners & Company LLC, a related company, received cash fees of
$340,000 for consulting and due diligence services rendered in connection with
the transactions, which amount is included in the financing costs paid in cash
in the table above.
  48


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):





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





Warrant terms:
                    
                    Strike Price
                      Original/Reset
                    
                    TermTranche
      C-1
                    
                    $
                    1.50/$0.50
                    
                    5
      yearsTranche
      C-2
                    
                    $
                    2.00/$0.50
                    
                    10
      yearsPlacement
      agents
                    
                    $
                    0.75-$2.00/$0.50
                    
                    10
      years





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





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


49


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):





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





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





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
                    %





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
                %


50


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):





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





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





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





Sales
of Series D Preferred Stock and Warrants:





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





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





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


51


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (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 we shall decide to prepare and file with the Commission a
registration statement relating to an offering for our own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with the stock option or other employee
benefit plans, then we will send to each holder a written notice of such
determination and, if within fifteen days after the date of such notice, any
such holder shall so request in writing, we will include in the registration
statement, all or any part of such Registrable Securities (as defined in Amended
Registration Rights Agreement) such holders request to be
registered.





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





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





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





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





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


52


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):





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





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





The terms
and conditions of the Series D Preferred were also subject to evaluation under
SFAS 133. Derivative financial instruments, as defined in SFAS 133 consist of
financial instruments or other contracts that contain a notional amount and one
or more underlying (e.g. interest rate, security price or other variable),
require no initial net investment and permit net settlement. Derivative
financial instruments may be free-standing or embedded in other financial
instruments. Further, derivative financial instruments are initially, and
subsequently, measured at fair value and recorded as liabilities or, in rare
instances, assets.





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


53


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (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 D
Preferred was found to have a BCF. The aggregate BCF at its intrinsic value
amounted to $38,460,136. This amount gives effect to the (i) the trading market
price on the contract dates and (ii) the effective conversion price of each
preferred issuance after allocation of proceeds to all financial instruments
sold based upon their relative fair values. Notwithstanding, BCF was limited to
the value ascribed to the remaining hybrid contract (using the relative fair
value approach). Accordingly, the BCF allocated to paid-in capital amounted to
$2,839,864.





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





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





Subsequent and Ongoing
Classification Considerations:The evaluation of the
classification of the Series D Preferred is required at each reporting date.
SFAS 150 requires reclassification of financial instruments otherwise classified
in stockholders’ equity or redeemable preferred stock to liabilities when the
conditional redemption becomes certain of occurrence. As of March 31, 2009, the
conditional redemption was not considered certain to occur and the Series D
Preferred continued to be recorded in the mezzanine section.


54


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):





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





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





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





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


55


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):





Series
F Preferred Stock and Warrant Financing Arrangement:





On
February 12, 2009, we entered into a securities purchase agreement with Vicis
Capital Master Fund (“Vicis”) pursuant to which Vicis purchased 10,000,000
shares of our newly designated Series F Convertible Preferred Stock (“Series F
Preferred Stock”), par value $0.00001, stated value $1.00, respectively for an
aggregate purchase price of $10,000,000 ($9,166,994 net of direct expenses). The
Series F Preferred Stock has a conversion price of $1.20 and is convertible into
an aggregate amount of 8,333,333 shares of common stock. The Series F Preferred
stock does not provide for annual dividends but each holder of Series F
Preferred Stock has the right to such number of votes equal to the number of
shares of common stock that the Series F Preferred Stock shall be converted
into, subject to the beneficial ownership limitation described below. Vicis also
received a warrant to purchase 33,333,333 shares of our common stock. The
warrant is exercisable for a period of ten years from the date of issuance at an
initial exercise price of $1.50. The warrant provides its redemption for cash or
other assets in the event of a fundamental transaction involving either (i) a
merger or consolidation, (ii) a sale of all or substantially all assets, (iii) a
tender offer is completed or (iv) a reclassification of the common stock or any
compulsory share exchange pursuant to which the common stock is effectively
converted into or exchanged for other securities, cash, or
property.





The
conversion price of the Series F Preferred Stock and the exercise price of the
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.





Midtown
Partners & Co., LLC, which served as our placement agent in connection with
the Securities Purchase Agreement (“Midtown”), received aggregate placement
agent fees of $700,000.00, as well as the following common stock purchase
warrants: (a) a warrant entitling Midtown to purchase 833,333 shares of our
common stock at an exercise price of $1.20 per share, and (b) a warrant
entitling Midtown to purchase 3,333,333 shares of our common stock at an
exercise price of $1.50 per share. The warrants have a term of five years from
the date of issuance and embody the same fundamental transaction provision as
the warrant issued to Vicis. Other direct, incremental finance costs amounted to
$133,006.





We have
evaluated the Series F Convertible Preferred Stock, the investor warrants and
the placement agent warrants for classification under SFAS 150. The Series F
Convertible Preferred Stock is conditionally redeemable under certain
circumstances, including (i) a change in control, (ii) insufficient authorized
shares to settle the conversion option, (iii) bankruptcy and (iv) significant
monetary judgments against the Company. These terms and features do not rise to
the level of “unconditionally” redeemable under SFAS 150. Accordingly, the
Series F Convertible Preferred Stock was found not to be within the scope of
SFAS 150. The investor and placement agent warrant provide for their redemption
for cash or other assets in the event of a fundamental transaction involving
either (i) a merger or consolidation, (ii) a sale of all or substantially all
assets, (iii) a tender offer is completed or (iv) a reclassification of the
common stock or any compulsory share exchange pursuant to which the common stock
is effectively converted into or exchanged for other securities, cash, or
property. SFAS 150 explicitly establishes put warrants that are redeemable for
cash or other assets within its scope. Accordingly, these fundamental
transaction provisions result in classification of the warrants as liabilities,
and at fair value, with changes in fair value charged or credited to
income.


56


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):





We then
evaluated the conversion feature embedded in the Series F Convertible Preferred
Stock, and certain other features (i.e. the contingent redemption elements) for
classification and measurement under SFAS 133. Generally, embedded terms and
features that both (i) meet the definition of derivatives and (ii) are clearly
and closely related to the host contract in terms of risks, do not require
bifurcation and separate measurement. In order to develop these conclusions, we
first evaluated the hybrid contract under EITF D-109 to determine if the hybrid
contract, with all features included, was more akin to an equity instrument or a
debt instrument. Significant indicators of equity were the non-existence of a
fixed and determinable redemption provision, the non-existence of any dividend
feature and the existence of voting rights based upon the if-converted number of
common shares. Significant indicators of debt were the Company’s ability to
redeem the preferred stock at a 10% premium and redemption features that require
redemption of the preferred stock for events that embody credit risk (i.e.
bankruptcy event and monetary judgments). The weight of these indicators led us
to the conclusion that the hybrid contract was more akin to an equity
instrument. Accordingly, the conversion option does not require bifurcation
because its risks and the risks of the hybrid are clearly and closely related.
The contingent redemption features, conversely, do require bifurcation because
their risks and the risks of the host are not clearly and closely
related.





Further
consideration of the classification of the Series F Convertible Preferred Stock
was required under EITF D-98. Generally, EITF D-98 provides that redeemable
instruments, where redemption is either stated or outside the control of
management, require classification outside of stockholders’ equity. Because the
definition of redeemable is much broader under EITF D-98 than SFAS 150, events
such as redemption in the event of a change in control require the Series F
Convertible Preferred Stock to be classified outside of stockholders’ equity.
This classification is often referred to as the mezzanine.





For
purposes of our accounting, we were required to develop estimates of fair value
of each component of the transaction, including the Series F Convertible
Preferred Stock, the investor warrants and the broker warrants. The fair values
of the Series F Convertible Preferred Stock and investor warrants are necessary
to develop the relative fair values for purposes of (i) identifying the presence
of a beneficial conversion feature and (ii) make certain allocations, such as
financing costs among the components. In addition, the warrants require fair
value measurement on the inception date and thereafter.





The
following table reflects the components of fair value and related
allocations:





Fair Value
                
                
                Allocated
                  Value
                
                
                Allocation of
                  Cash Costs
                
                
                Allocation of
                  Warrant CostsGross
      consideration
                
                
                
                
                $
                10,000,000Cash
      financing costs
                
                
                
                
                
                
                
                
                $
                ( 863,006
                )Warrant
      financing costs (fair value)
                
                
                
                
                
                
                
                
                
                
                
                
                $
                ( 253,750
                )Financial
      instruments sold:Series
      F Convertible Preferred
                
                $
                10,002,594
                
                
                $
                7,970,000
                
                
                $
                ( 717,410
                )
                
                $
                ( 210,940
                )Investor
      warrants
                
                
                2,030,000
                
                
                
                2,030,000
                
                
                
                (145,596
                )
                
                
                (42,810
                )$
                12,032,594
                
                
                $
                10,000,000
                
                
                $
                ( 833,006
                )
                
                $
                ( 253,750
                )


57


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):





The gross
proceeds were allocated to the Series F Convertible Preferred and Investor
Warrants, first to the fair value of the Investor warrants, because they
required liability classification on the inception date, and the residual to the
Series F Convertible Preferred. Cash and warrant financing costs were allocated
to the Series F Convertible Preferred and the Investor Warrants based upon their
relative fair values. We evaluate all terms and features in estimating the fair
value of our hybrid contracts, such as the Series F Preferred Stock. The fair
value of the Series F Preferred Stock is derived from a combination of the
common stock equivalent value plus the value of the liquidation preference. On a
combined basis, these features are enhanced by the incremental values associated
the down-round, anti-dilution protection and the significant voting influence
that the investor has in the Series F Preferred Stock and all other voting
investments that the investor has in our company. The fair value of the investor
and broker warrants was based upon the Black-Scholes-Merton option valuation
technique.





Components
of the fair value of the Series F Preferred Stock are as follows:





Series F Preferred Stock:
                
                AmountCommon
      stock equivalent value (8,333,333 indexed shares at $0.60)
                
                $
                5,000,000Liquidation
      preference
                
                
                3,003,174Voting
      features
                
                
                1,528,802Down-round,
      anti-dilution protection
                
                
                470,618$
                10,002,594





Details
of the fair value of the investor and broker warrants are as
follows:





Warrants:
                
                Investor
                
                
                Broker
                
                
                BrokerIndexed
      common shares
                
                
                33,333,333
                
                
                
                3,333,333
                
                
                
                833,333Strike
                
                $
                1.20
                
                
                $
                1.50
                
                
                $
                1.20Term
      (contractual in years)
                
                
                10
                
                
                
                10
                
                
                
                10Volatility
                
                
                48.60
                %
                
                
                48.60
                %
                
                
                48.60
                %Risk
      free rate
                
                
                2.75
                %
                
                
                2.75
                %
                
                
                2.75
                %Fair
      value
                
                $
                2,030,000
                
                
                $
                203,000
                
                
                $
                50,750





EITF
98-5, as amended by EITF 00-27, provides that the effective conversion price
necessary to establish the presence of a beneficial conversion feature is the
relative fair value of the convertible instrument ($8,312,916) divided by the
number of common shares indexed to the convertible instrument (8,333,333). As a
result, the conversion price is $1.20, but the effective conversion price is
$0.99. In light of the fact that the trading market price of our common stock on
the transaction date was $0.60, there is no beneficial conversion feature
present.





The above
allocation resulted in the Series F Convertible Preferred to be initially
recognized at a discount to its redemption value of $10,000,000. As a result, we
recognized a deemed dividend by charging accumulated deficit for the discount
since the security does not have a stated maturity or redemption date and it is
convertible at any time after the issuance date. The following table show the
details of the allocation and the dividend:


58


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 –
REDEEMABLE PREFERRED STOCK (CONTINUED):





AmountAllocation
      of gross proceeds
                
                $
                7,970,000Allocation
      of cash finance costs
                
                
                (717,410
                )Allocation
      of warrant finance costs
                
                
                (210,940
                )7,041,440Deemed
      dividend
                
                
                2,958,560$
                10,000,000





Direct
Financing Costs:





Aggregate
financing costs arising from the Series A, Series B, Series C, Series D and
Series F Preferred financings amounted to $2,967,313, $479,034, $5,538,797,
$1,680,370 and $1,116,756 respectively. As noted in the tables below, these
financing costs were allocated among deferred financing costs, redeemable
preferred stock, paid-in capital and retained earnings based upon the relative
fair values of the components of the financing. That is, liability classified
financial instruments (i.e. derivatives), mezzanine financial instruments and
equity classified financial instruments (i.e. BCF). Since, as previously
discussed, no basis was ascribed to the redeemable preferred stock, the amount
of financing costs allocated to this category were reflected as a charge to
retained earnings.





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





Classification
                  
                  Series A
                  
                  
                  Series B
                  
                  
                  Series C
                  
                  
                  Series D
                  
                  
                  Series FDeferred
      financing costs
                  
                  $
                  1,898,875
                  
                  
                  $
                  479,034
                  
                  
                  $
                  43,079
                  
                  
                  $
                  1,077,268
                  
                  
                  $
                  —Paid-in
      capital
                  
                  
                  911,135
                  
                  
                  
                  —
                  
                  
                  
                  4,998,925
                  
                  
                  
                  286,487
                  
                  
                  
                  —Redeemable
      preferred
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  496,793
                  
                  
                  
                  —
                  
                  
                  
                  928,350Accumulated
      deficit
                  
                  
                  157,303
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  316,615
                  
                  
                  
                  —Day-one
      derivative loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  188,406Aggregate
      finance costs
                  
                  $
                  2,967,313
                  
                  
                  $
                  479,034
                  
                  
                  $
                  5,538,797
                  
                  
                  $
                  1,680,370
                  
                  
                  $
                  1,116,756


59




OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11 –
DERIVATIVE FINANCIAL INSTRUMENTS:





The
following table summarizes the components of derivative liabilities as of March
31, 2009 and June 30, 2008:





Financing—Financial Instrument
                
                March 31,
                  2009
                
                
                June 30,
                  2008Series
      A Preferred Financing—Investor warrants
                
                $
                755,100
                
                
                $
                1,093,500Series
      B Preferred Financing—Investor warrants
                
                
                87,504
                
                
                
                42,384Series
      C Preferred Financing—Put derivative
                
                
                188,843
                
                
                
                733,144Series
      D Preferred Financing—Investor warrants
                
                
                2,237,200
                
                
                
                3,329,200Series
      D Preferred Financing—Placement agent warrants
                
                
                173,010
                
                
                
                148,509Series
      D Preferred Financing—Put derivative
                
                
                243,312
                
                
                
                1,014,363Series
      F Preferred Financing—Investor warrants
                
                
                1,806,667
                
                
                
                —Series
      F Preferred Financing—Placement agent warrants
                
                
                260,917
                
                
                
                —Derivative
      liabilities
                
                $
                5,752,553
                
                
                $
                6,361,100





The
following table summarizes the number of common shares index to derivative
financial instruments as of March 31, 2009 and June 30, 2008:





Financing—Financial Instrument
                
                March 31,
                  2009
                
                
                June 30,
                  2008Series
      A Preferred Financing—Investor warrants
                
                
                6,000,000
                
                
                
                6,000,000Series
      B Preferred Financing—Investor warrants
                
                
                960,000
                
                
                
                960,000Series
      D Preferred Financing—Investor warrants
                
                
                28,000,000
                
                
                
                28,000,000Series
      D Preferred Financing—Placement agent warrants
                
                
                2,100,000
                
                
                
                2,100,000Series
      F Preferred Financing—Investor warrants
                
                
                33,333,333
                
                
                
                —Series
      F Preferred Financing—Placement agent warrants
                
                
                4,166,666
                
                
                
                —74,559,999
                
                
                
                37,060,000





The
following table summarizes the components of derivative income (expense) arising
from fair value adjustments during the three and nine months ended March 31,
2009 and 2008:





Three months ended
                  March 31,
                
                
                Nine months ended
                  March 31,Financing—Financial
    Instrument
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Series
      A Preferred Financing—Warrants
                
                $
                (438,016
                )
                
                $
                10,330,200
                
                
                $
                338,400
                
                
                $
                6,123,459Series
      B Preferred Financing—Warrants
                
                
                (74,305
                )
                
                
                1,655,328
                
                
                
                (45,120
                )
                
                
                (486,932
                )Series
      C Preferred Financing—Put
                
                
                8,167
                
                
                
                10,496
                
                
                
                544,301
                
                
                
                (388,129
                )Series
      D Preferred Financing—Warrants
                
                
                (1,604,159
                )
                
                
                —
                
                
                
                1,067,500
                
                
                
                —Series
      D Preferred Financing—Put
                
                
                8,907
                
                
                
                —
                
                
                
                771,051
                
                
                
                —Series
      F Preferred Financing—Day-one loss
                
                
                (188,406
                )
                
                
                —
                
                
                
                (188,406
                )
                
                
                —Series
      F Preferred Financing—Warrants
                
                
                216,166
                
                
                
                —
                
                
                
                216,166
                
                
                
                —Derivative
      income (expense)
                
                $
                (2,071,646
                )
                
                $
                11,996,024
                
                
                $
                2,703,891
                
                
                $
                5,248,398


60


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11 –
DERIVATIVE FINANCIAL INSTRUMENTS:





The
overall accounting for the Preferred Financings described in Note 10 required
consideration regarding the classification of the investor and placement agent
warrants. Warrants are derivative financial instruments that are indexed to the
Company’s own stock and, accordingly, equity classification of the warrants is
dependent upon (i) meeting the exemption to liability classification in SFAS 150
and (ii) meeting eight specific conditions for equity classification provided in
EITF 00-19 Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock. In evaluating the warrants under SFAS 150 and EITF
00-19, we noted that there were no explicit conditions that required net cash
settlement. However, with the exception of the warrants issued with the Series C
Preferred Financing Arrangement, each of our warrants embodies a fundamental
transaction provision wherein a change in control or similar transaction could
require settlement of the warrant for cash and/or assets. In FSP FAS150-1, the
Financial Accounting Standards Board clarified its view related to the
classification of freestanding contracts that are composed of more than one
option (e.g. a puttable warrant). The FSP provides that if a freestanding
instrument is composed of a written call option and a written put option, the
existence of the written call option does not affect the classification. As a
result, a puttable warrant is a liability under SFAS 150, because it embodies an
obligation indexed to an obligation to repurchase the issuer's shares and may
require a transfer of assets. The warrants issued in the subject financing
transactions are call options that include a written put. Such put is embodied
as a “fundamental transaction provision” described above. That is, in a
transaction involving the consolidation or merger of the Company, the holder may
put the warrants to the Company for assets similar to those that the common
holders in such transaction would receive. Since the warrant embodies both a
call and a put, in accordance with FSP FAS150-1, the call in not considered in
classifying the instrument. Under SFAS 150, written put options do not
constitute equity and are required to be recorded in liabilities. Accordingly,
the warrants require liability classification.





Derivative
financial instruments are recorded initially and on an ongoing basis at fair
value with changes in fair value reflected in earnings.





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.


61


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11 –
DERIVATIVE FINANCIAL INSTRUMENTS:





The
warrants were valued using BSM. Our trading market price on March 31, 2009 was
$1.01. Significant assumptions underlying the BSM calculations are as follows as
of March 31, 2009:





Indexed
                  Shares
                
                
                Exercise
                  Price
                
                
                Remaining
                  Term
                
                
                Expected
                  Volatility
                
                
                Risk-Free
                  RateSeries
      A Preferred Financing:A-1
      Investor Warrants
                
                
                3,000,000
                
                
                $
                0.50
                
                
                
                2.64
                
                
                
                112.53
                %
                
                
                1.15
                %A-2
      Investor Warrants
                
                
                3,000,000
                
                
                $
                0.50
                
                
                
                7.64
                
                
                
                69.21
                %
                
                
                2.28
                %Series
      B Preferred Financing:B-1
      Investor Warrants
                
                
                480,000
                
                
                $
                0.50
                
                
                
                1.15
                
                
                
                154.29
                %
                
                
                0.57
                %B-2
      Investor Warrants
                
                
                480,000
                
                
                $
                0.50
                
                
                
                3.15
                
                
                
                102.59
                %
                
                
                1.15
                %Series
      D Preferred Financing:D-1
      Investor Warrants
                
                
                28,000,000
                
                
                $
                0.75
                
                
                
                6.08
                
                
                
                74.06
                %
                
                
                2.28
                %BD
      Placement agent warrants
                
                
                700,000
                
                
                $
                0.50
                
                
                
                4.08
                
                
                
                89.39
                %
                
                
                1.67
                %BD-11
      Placement agent warrants
                
                
                1,400,000
                
                
                $
                0.75
                
                
                
                4.08
                
                
                
                89.39
                %
                
                
                1.67
                %Series
      F Preferred Financing:E-1
      Warrants
                
                
                33,333,333
                
                
                $
                1.50
                
                
                
                9.87
                
                
                
                65.19
                %
                
                
                2.71
                %BD-12
      Placement agent warrants
                
                
                833,333
                
                
                $
                1.20
                
                
                
                9.87
                
                
                
                65.19
                %
                
                
                2.71
                %BD-13
      Placement agent warrants
                
                
                3,333,333
                
                
                $
                1.50
                
                
                
                9.87
                
                
                
                65.19
                %
                
                
                2.71
                %





The
remaining term of our warrants is used as our term input. Since our trading
history does not cover a period sufficient for computing volatility, we use a
weighted average of our history for two years of trading and the trading history
of a peer group. For purposes of the risk-free rate, we use the published yields
on zero-coupon Treasury Securities with maturities consistent with the remaining
term of the warrant.





Our put
derivatives, which were bifurcated from our Series C and Series D Preferred
Stock, are estimated based upon a multiple, probability-weighted outcomes, cash
flow model that is present valued using risk-adjusted interest rates. We use
publicly available bond-rate curves for companies that we estimate have credit
ratings similar to what ours may be based upon Standard & Poors and Moody’s
rating scales. Those ratings generally fall in the highly speculative to
in-poor-standing categories of these ratings, and ranged from 16.32% to 21.17%
for periods from one to five years, respectively.


62


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 12 –
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 quarter ended March 31, 2009 or the
nine months ended March 31, 2009. On July 14, 2008 the Company entered into a
one (1) year consulting agreement with HBD.





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 $106,579 for
the quarter ended March 31, 2009. See “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 “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.





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


63


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 12 –
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 arrangement with TotalCFO,
LLC. TotalCFO, LLC is owned by a shareholder of the Company. The Company has
recognized $99,413 and $233,994 of expense related to this arrangement for the
quarter and nine-month periods ended March 31, 2009.





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
“International Distribution
Agreement” above for further details.


64


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 13 –
TRANSACTIONS WITH RESPONZETV:





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.





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 March 31, 2009 we had recognized $546,917 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 were, then,
freely trading in the United Kingdom; however, 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. Our voting control coupled with our representation on ResponzeTV’s
board of directors indicated 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).


65


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 13 –
TRANSACTIONS WITH RESPONZETV (CONTINUED):





During
the second half of our prior fiscal year ended June 30, 2008, ResponzeTV began
experiencing financial difficulties and delisted its shares for trading. Based
upon the preponderance of all available information, the Company’s management
concluded that the Company’s investment was not recoverable and impaired the
investment in the amount of $5,776,919. There have been no further developments
related to the investment’s recovery.





NOTE
14 – SEGMENT INFORMATION:





Our
business segments consist of (i) Retail Products and Licensing and (ii) Real
Estate. Our real estate business commenced during the current fiscal year upon
the purchase of an office building in Pinellas County, Florida. Our chief
decision making officer considers income (loss) from operations as the basis to
measure segment profitability. The following table summarizes important
financial information about our business segments as of March 31, 2009 and for
the three and nine months ended March 31, 2009:





Retail
                  Products
                  and
                  Licensing
                
                
                Real
                  Estate
                
                
                ConsolidatedThree Months Ended March 31, 2009Revenues
      from external customers
                
                $
                2,585,582
                
                
                $
                58,314
                
                
                $
                2,643,896Depreciation
      expense
                
                
                4,157
                
                
                
                34,716
                
                
                
                38,873Income
      (loss) from operations
                
                
                (1,202,121
                )
                
                
                (52,419
                )
                
                
                (1,254,540
                )Capital
      expenditures
                
                
                6,714
                
                
                
                —
                
                
                
                6,714





Nine Months Ended March 31, 2009Revenue
      from external customers
                
                $
                3,756,840
                
                
                $
                190,420
                
                
                $
                3,947,260Depreciation
      expense
                
                
                7,405
                
                
                
                134,997
                
                
                
                142,402Income
      (loss) from operations
                
                
                (2,870,890
                )
                
                
                (204,722
                )
                
                
                (3,075,612
                )Capital
      expenditures
                
                
                87,310
                
                
                
                2,724,591
                
                
                
                2,811,901





March 31, 2009Total
      assets
                
                $
                13,789,460
                
                
                $
                2,623,271
                
                
                $
                16,412,731





During
the three and nine months ended March 31, 2009, the Real Estate operation
received $21,377 and $57,005, respectively, in rental revenue from the Retail
Products and Licensing business, which amount is eliminated in the table
above.


66


OMNIRELIANT
HOLDINGS, INC. & SUBSIDIARIES


(A
DEVELOPMENT STAGE ENTERPRISE)


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 15 –
SUBSEQUENT EVENT:





On April
29, 2009, we entered into a securities purchase agreement (the “Purchase
Agreement”) with Strathmore Investments, Inc. a Delaware corporation (also known
as Cellular Blowout and referred to herein as “Strathmore”). Pursuant to and
upon the closing of the Purchase Agreement, on April 29, 2009 (the “Closing
Date”), the Company purchased 500 shares of Strathmore’s common stock, which
represents 50% of Strathmore’s issued and outstanding common stock, for
$1,000,000. Pursuant to the Purchase Agreement, until the second anniversary of
the Closing Date, and subject to Strathmore’s compliance with certain loan
conditions, Strathmore may sell to the Company up to $500,000 of its working
capital notes (the “Working Capital Notes”). Pursuant to the Purchase Agreement,
the Company and Strathmore also entered into a Security Agreement pursuant to
which the Company was given a security interest in Strathmore’s
assets.





The
Company’s obligation to purchase the Working Capital Notes is subject to
Strathmore’s compliance with the conditions of the Purchase Agreement, including
the following:





·
            Strathmore’s
      not being in default under any
indebtedness;


·
            the
      Company’s continuing to have a first priority security interest in
      Strathmore’s assets; and


·
            Strathmore’s
      material compliance with its agreements and obligations in the Purchase
      Agreement and other agreements executed in connection with the Purchase
      Agreement.





The
Working Capital Notes bear interest at a rate of 7% computed on the basis of a
365 day year, and interest is payable monthly. The principal and any unpaid
interest due on the note must be paid two years after the issue date of the
note.


67


ITEM 2 –
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





Special
Note on Forward-Looking Statements: Some of the statements contained in this
Form 10-Q 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-Q, 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-Q 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.





Overview





The
following discussion and analysis is intended to help the reader understand the
results of operations, financial condition, and cash flows of OmniReliant
Holdings, Inc. MD&A is provided as a supplement to, and should be read in
conjunction with, our consolidated financial statements and the accompanying
notes to the financial statements ("Notes").





Reverse
Acquisition – OmniReliant Corporation was incorporated on August 21, 2006 under
the laws of the State of Florida. On November 22, 2006, Willowtree Advisor,
Inc., an entity which was incorporated on June 16, 2004 under the laws of the
State of Nevada, entered into an exchange agreement with the stockholders of
OmniReliant Corporation (the “Exchange Transaction”). As a result of the
Exchange Transaction, OmniReliant Corporation became a wholly-owned subsidiary
of Willowtree Advisor, Inc. and succeeded to the business of OmniReliant
Corporation as its sole business. The Exchange Transaction is deemed to be a
reverse acquisition for accounting purposes. As a result, in accordance with the
Accounting and Financial Reporting Interpretations and Guidance provided by the
staff of the U.S. Securities and Exchange Commission, Willowtree Advisor, Inc.
(the legal acquirer) is considered the accounting acquiree and OmniReliant
Corporation (the legal acquiree) is considered the accounting acquirer. The
discussions below, and the consolidated financial statements attached hereto,
will in substance be those of OmniReliant Corporation, with the assets and
liabilities, and revenues and expenses, of Willowtree Advisor, Inc. being
included effective from the date of consummation of the Exchange
Transaction.





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


68





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.





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.


69


Discussion
and Analysis of Results of Operations, Liquidity and Financial
Condition





The
following discussion of the financial condition and results of operations should
be read in conjunction with the consolidated 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.





Three
months ended March 31, 2009 compared to three months ended March 31,
2008:





Revenues –We derive revenues
from the sale and licensing of products in our Retail Products and Licensing
business. Commencing in the current year, we purchased certain real estate in
Pinellas County, Florida and leased a substantial portion of this building to
third-party tenants. We are accounting for each of these businesses as
identifiable segments.





·
            Product
      sales: Our product sales increased $2,500,736 to $2,585,582 for the three
      months ended March 31, 2009 compared to $84,846 for the three months ended
      March 31, 2008. This increase reflects our maturation in identifying new
      retail products to sell through our distribution
  networks.


·
            Licensing
      revenue: Licensing revenue was derived from sub-licensing our rights to
      certain licensed products. We discontinued recording licensing revenue
      when the licensee began experiencing significant financial difficulties
      and the collection of our licensing revenue could not be assured beyond a
      reasonable doubt.


·
            Rental
      revenue: Our rental of commercial real estate commenced during the current
      fiscal year. Accordingly, we reported no similar balances in prior
      periods. We anticipate rental revenues to be higher in future periods that
      will reflect rentals for the entire period and as we increase the
      percentage of our building that is available to be
  rented.





Cost of product sales – Our
cost of product sales increased $1,439,435 to $1,473,776 for the three months
ended March 31, 2009 compared to $34,341 for the three months ended March 31,
2008. This increase reflects our increasing retail product sales. Our margin
during the current period amounted to 43% compared to 60% in the prior period.
Margins on retail products are largely dependent upon the types and demands for
retail products. Accordingly, our ongoing margins will likely be volatile until
we establish the types of products that will serve as our long-term base of
offerings.





Other operating expenses –Other operating expenses consists of advertising expense, general and
administrative expenses, depreciation and amortization, and expenses of our real
estate operations:





·
            Advertising
      expense: We began incurring substantial advertising expense during the
      current fiscal year as we launch infomercials related to our retail
      products business. We generally expense advertising when it is incurred in
      accordance with Statement of Position 93-7 Accounting for
      Advertising. Commencing in the current fiscal year the Company
      began engaging for the production of infomercials related to its Retail
      Products Business, which is expected to be an increasing activity and
      cost. The Company’s accounting policy provides that the costs of
      infomercials are deferred in prepaid assets until the first airing, at
      which time the cost is expenses. During the three and nine months ended
      March 31, 2009, the Company expensed $1,206,190 and $2,385,194 of costs
      related to infomercials, which amount is included in other costs and
      expenses in our condensed consolidated statements of operations. As of
      March 31, 2009, prepaid advertising expense was
  zero.


70





·
            General
      and administrative: These costs and expenses include compensation,
      professional fees, occupancy costs and general office expenses. Our
      general and administrative costs increased $346,383 to $540,551 for the
      three months ended March 31, 2009 compared to $194,168 for the three
      months ended March 31, 2008. The principal reason for this increase
      relates to our recognition of $334,339 in non-cash share-based
      compensation payment expense during the 2009 period and none in the 2008
      period.


·
            Depreciation
      and amortization: Our amortization of intangible assets and depreciation
      of property and equipment amounted to $142,960 and $38,873, respectively
      for the three months ended March 31, 2009. Our amortization of intangible
      assets amounted to $66,689 during the three months ended March 31, 2008.
      The decrease in the amortization is due to the full amortization of
      certain intangible assets during the prior and current periods. The
      addition of depreciation expense relates to our recently acquired real
      estate, along with improvements and fixtures. Our depreciation expense
      will continue and increase in the near term as our operations reflect the
      depreciation for the full periods
reported.


·
            Real
      estate operations: Our real estate operation expenses include property
      taxes, utilities, repairs and maintenance and insurance costs. These items
      amounted to $86,747 for the three months ended March 31, 2009; none in the
      prior year because we did not run this operation during that period. We
      expect our real estate related costs to increase in the near term to give
      effect to its operation during full fiscal
  periods.





Other income (expense)–
Other income and expense include fair value adjustments related to our
derivative financial instruments, interest expense and income, extinguishments
and impairments.





·
            Derivative
      income (expense): The following table reflects comparative information
      related to our derivative income (expense). Derivative income (expense)
      results from certain financial instruments (including embedded derivative
      financial instruments) that are required to be measured at fair value. The
      changes in the fair value of these derivatives are significantly
      influenced by changes in our trading stock price and changes in interest
      rates in the public markets. Further, certain elements of the fair value
      techniques require us to make estimates about the outcome of certain
      events, such as defaults.





Three months ended
                      March 31,Financing and Financial
      Instrument
                    
                    2009
                    
                    
                    2008Series
      A Preferred Financing—Investor warrants
                    
                    $
                    (438,016
                    )
                    
                    $
                    10,330,200Series
      B Preferred Financing—Investor warrants
                    
                    
                    (74,305
                    )
                    
                    
                    1,655,328Series
      C Preferred Financing—Put derivative
                    
                    
                    8,167
                    
                    
                    
                    10,496Series
      D Preferred Financing—Investor warrants
                    
                    
                    (1,604,159
                    )
                    
                    
                    —Series
      D Preferred Financing—Put derivative
                    
                    
                    8,907
                    
                    
                    
                    —Series F
      Preferred Financing— Investor warrants
                    
                    
                    27,760
                    
                    
                    
                    —Derivative
      income (expense)
                    
                    $
                    (2,071,646
                    )
                    
                    $
                    11,996,024





·
            Interest
      expense: Interest expense includes amortization of deferred finance costs
      and interest on our new mortgage loan. Interest expense increased $53,126
      to $55,280 during the three months ended March 31, 2009 compared to $2,154
      for the three months ended March 31, 2008. The increase in interest
      expense relates to interest on the mortgage loan. We anticipate that our
      interest expense will increase in future periods as our operations reflect
      mortgage interest for the full periods
  presented.


71


·
            Other
      expenses: Other expenses in 2008 include the expense related to the
      extinguishment of certain issued of our preferred stock ($26,247,007) and
      registration payments made to investors. Our capital structure is complex
      and we have entered into transactions that have significant effects on our
      financial statements. See our footnotes to the financials included
      elsewhere herein for more information. While we currently do not
      anticipate the need for these types of transactions in future periods,
      there can be no assurance that financing and other transactions that we
      enter into would not have the same effects on our
  income.





Minority interest – Minority
interests arises from the consolidation of or 60% owned subsidiary OmniCom
Studios LLC. This company constitutes our real estate business and was
capitalized by cash by us and other unrelated investors. Minority interest
arises from recognition of the minority shareholders proportionate share of
OmniComm’s losses.





Net income (loss) –We have
reported a net loss of ($3,353,114) during the three months ended March 31, 2009
compared to a net income of $11,802,971 during the three months ended March 31,
2008. Our loss from operations amounted to ($1,254,540) and ($17,533) for the
three months ended March 31, 2009 and 2008, respectively. Our net income (loss)
has been largely influenced by our other income (expense), which as discussed
above, gives effect to fair value adjustments and the effects of financing
transactions necessary to support our capital requirements.





Income (loss) applicable to common
stockholders – Income (loss) applicable to common stockholders represents
our net income (loss) as adjusted for cumulative dividends and accretions on our
Series F Preferred Stock, if any. These amounts are necessary to compute income
(loss) per common share.


72


Nine
months ended March 31, 2009 compared to nine months ended March 31,
2008:





Revenues –We derive revenues
from the sale and licensing of products in our Retail Products and Licensing
business. Commencing in the current year, we purchased certain real estate in
Pinellas County, Florida and leased a substantial portion of this building to
third-party tenants. We are accounting for each of these businesses as
identifiable segments.





·
            Product
      sales: Our product sales increased $3,482,321 to $3,756,840 for the nine
      months ended March 31, 2009 compared to $274,519 for the nine months ended
      March 31, 2008. This increase reflects our maturation in identifying new
      retail products to sell through our distribution
  networks.


·
            Licensing
      revenue: Licensing revenue was derived from sub-licensing our rights to
      certain licensed products. We discontinued recording licensing revenue
      when the licensee began experiencing significant financial difficulties
      and the collection of our licensing revenue could not be assured beyond a
      reasonable doubt.


·
            Rental
      revenue: Our rental of commercial real estate commenced during the current
      fiscal year. Accordingly, we reported no similar balances in prior
      periods. We anticipate rental revenues to be higher in future periods that
      will reflect rentals for the entire period and as we increase the
      percentage of our building that is available to be
  rented.





Cost of product sales – Our
cost of product sales increased $1,942,275 to $2,086,495 for the nine months
ended March 31, 2009 compared to $144,220 for the nine months
ended March 31, 2008. This increase reflects our increasing retail product
sales. Our margin during the current period amounted to 44% compared to 43% in
the prior period. Margins on retail products are largely dependent upon the
types and demands for retail products. Accordingly, our ongoing margins will
likely be volatile until we establish the types of products that will serve as
our long-term base of offerings.





Other operating expenses –Other operating expenses consists of advertising expense, general and
administrative expenses, depreciation and amortization, and expenses of our real
estate operations:





·
            Advertising
      expense: We began incurring substantial advertising expense during the
      current fiscal year as we launch infomercials related to our retail
      products business. We generally expense advertising when it is incurred in
      accordance with Statement of Position 93-7 Accounting for
      Advertising. Commencing in the current fiscal year the Company
      began engaging for the production of infomercials related to its Retail
      Products Business, which is expected to be an increasing activity and
      cost. The Company’s accounting policy provides that the costs of
      infomercials are deferred in prepaid assets until the first airing, at
      which time the cost is expenses. During the three and nine months ended
      March 31, 2009, the Company expensed $1,206,190 and $2,385,194 of costs
      related to infomercials, which amount is included in other costs and
      expenses in our condensed consolidated statements of operations. As of
      March 31, 2009, prepaid advertising expense was
  zero.


·
            General
      and administrative: These costs and expenses include compensation,
      professional fees, occupancy costs and general office expenses. Our
      general and administrative costs increased $1,017,939 to $1,450,995 for
      the nine months ended March 31, 2009 compared to $433,056 for the nine
      months ended March 31, 2008.


·
            Depreciation
      and amortization: Our amortization of intangible assets and depreciation
      of property and equipment amounted to $300,534 and $142,402, respectively
      for the nine months ended March 31, 2009. Our amortization of intangible
      assets amounted to $470,445 during the nine months ended March 31, 2008.
      The decrease in the amortization is due to the full amortization of
      certain intangible assets during the prior and current periods. The
      addition of depreciation expense relates to our recently acquired real
      estate, along with improvements and fixtures. Our depreciation expense
      will continue and increase in the near term as our operations reflect the
      depreciation for the full periods
reported.


73


·
            Real
      estate operations: Our real estate operation expenses include property
      taxes, utilities, repairs and maintenance and insurance costs. These items
      amounted to $260,631 for the nine months ended March 31, 2009; none in the
      prior year because we did not run this operation during that period. We
      expect our real estate related costs to increase in the near term to give
      effect to its operation during full fiscal
  periods.





Other income (expense)–
Other income and expense include fair value adjustments related to our
derivative financial instruments, interest expense and income, extinguishments
and impairments.





·
            Derivative
      income (expense): The following table reflects comparative information
      related to our derivative income (expense). Derivative income (expense)
      results from certain financial instruments (including embedded derivative
      financial instruments) that are required to be measured at fair value. The
      changes in the fair value of these derivatives are significantly
      influenced by changes in our trading stock price and changes in interest
      rates in the public markets. Further, certain elements of the fair value
      techniques require us to make estimates about the outcome of certain
      events, such as defaults.





Nine months ended
                    March 31,Financing and Financial Instrument
                  
                  2009
                  
                  
                  2008Series
      A Preferred Financing—Warrants
                  
                  $
                  338,400
                  
                  
                  $
                  6,123,459Series
      B Preferred Financing— Warrants
                  
                  
                  (45,120
                  )
                  
                  
                  (486,932
                  )Series
      C Preferred Financing—Put derivative
                  
                  
                  544,301
                  
                  
                  
                  (388,129
                  )Series
      D Preferred Financing—Warrants
                  
                  
                  1,067,500
                  
                  
                  
                  —Series
      D Preferred Financing—Put derivative
                  
                  
                  771,051
                  
                  
                  
                  —Series
      F Preferred Financing—Warrants
                  
                  
                  27,759Derivative
      income (expense)
                  
                  $
                  2,703,891
                  
                  
                  $
                  5,248,398





·
            Interest
      expense: Interest expense includes amortization of deferred finance costs
      and interest on our new mortgage loan. Interest expense increased $28,349
      to $180,918 during the nine months ended March 31, 2009 compared to
      $152,569 for the nine months ended March 31, 2008. The decrease in
      interest expense generally relates to the lower amortization of deferred
      loan costs, but reflects an increase due to interest on our new mortgage
      loan. We anticipate that our interest expense will increase in future
      periods as our operations reflect mortgage interest for the full periods
      presented.





Minority interest – Minority
interests arises from the consolidation of or 60% owned subsidiary OmniCom
Studios LLC. This company constitutes our real estate business and was
capitalized by cash by us and other unrelated investors. Minority interest
arises from recognition of the minority shareholders proportionate share of
OmniComm’s losses.





Net income (loss) –We have
reported net loss of ($405,538) during the nine months ended March 31, 2009
compared to a loss of ($23,748,923) during the nine months ended March 31, 2008.
Our loss from operations amounted to ($3,075,612) and ($1,741,688) for the nine
months ended March 31, 2009 and 2008, respectively. Our net income (loss) has
been largely influenced by our other income (expense), which as discussed above,
gives effect to fair value adjustments and the effects of financing transactions
necessary to support our capital requirements.


74





Income (loss) applicable to common
stockholders – Income (loss) applicable to common stockholders represents
our net income (loss) as adjusted for cumulative dividends and accretions on our
Series F Preferred Stock, if any. These amounts are necessary to compute income
(loss) per common share.





Liquidity
and Capital Resources





We are in
our development stages and have reported recurring losses while devoting
substantially all of its efforts to raising capital, identifying and pursuing
businesses opportunities and developing our retail products and distribution
networks. During our development period, we have used cash of $2,723,676 and
$857,477 during the nine months ended March 31, 2009 and 2008, respectively, and
$4,533,306 since our inception. These conditions raise substantial doubt about
our ability to continue as a going concern for a reasonable period. 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. Our 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.





There can
be 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 and
cash equivalents amounted to $8,904,137 as of March 31, 2009 compared to
$4,435,814 at June 30, 2008. We have working capital of $3,966,597 as of March
31, 2009 while we reported a working capital deficiency of $1,685,811 at June
30, 2008. Our working capital fluctuates significantly due to reflecting certain
financial instruments at fair value. Our improved working capital gives effect
to reductions in the fair value of these financial instruments by $608,547 from
June 30, 2008 to March 31, 2009. Future changes in the fair value of these
financial instruments could increase or decrease our working capital based upon
changes in the assumptions underlying our fair value calculations.





Cash Flow from Operating Activities– We used cash of ($2,723,676) and ($857,477) in our operating activities
during the nine months ended March 31, 2009 and 2008, respectively.





We
recorded net income (loss) of ($405,538) and ($23,748,923) during the nine
months ended March 31, 2009 and 2008, respectively that was offset by non-cash
charges (credits) of ($1,829,949) and $23,284,366, respectively. Non-cash
charges and (credits) include changes in the fair value of derivative financial
instruments and other activity associated with our financial instruments,
amounting to ($2,703,891) and ($5,248,398) during the nine-months ended March
31, 2009 and 2008, respectively. Non-cash charges also included share-based
payment of $344,339 and $1,134,705; amortization and depreciation of $442,936
and $470,445; and amortization of finance costs of $168,200 and $121,050 during
the nine months ended March 31, 2009 and 2008, respectively. Our depreciation
will increase in future periods reflecting higher average balances of property
and equipment. During the nine months ended March 31, 2008, we recorded a loss
on the exchange of our preferred stock that amounted to $26,247,007, which
charges are not currently expected to reoccur. Our net operating assets
increased by $837,189 during the nine months ended March 31, 2009, compared to
an increase of $392,920 in the prior year, reflecting the ramping up of our
retail product operations.


75





Cash Flow from Investing
Activities– We used cash of ($3,931,845) and ($5,331,811) in our
investing activities during the nine months ended March 31, 2009 and 2008,
respectively.





We
purchased property and equipment amounting to $2,811,901 during the nine months
ended March 31 2009. This property is used in our real estate business. We also
invested $1,139,944 and $300,000 in investments and licenses during the nine
months ended March 31, 2009. During the prior year, we made investment of
$200,000. Finally, our cash flow from investing activities reflects the cash
infusion of the minority shareholders of OmniComm Studios, LLC, which is our
real estate holding company.





Cash Flow from Financing Activities– We generated $11,123,844 and $5,814,078 in cash from our financing
activities during the nine months period ended March 31, 2009 and
2008.





Cash was
received during the nine months ended March 31, 2009 from proceeds on the sale
of our preferred stock totaling $9,136,994 and a mortgage loan totaling
$1,994,694. The mortgage proceeds were used to fund the purchase of the property
and equipment of OmniComm Studios LLC. In the prior year, we received net
proceeds from the sale of preferred stock amounting to $5,814,078.





We have
no commitments for the purchase of property and equipment. We have entered into
the Valcom Investment and Abazias Purchase Transactions subsequent to March 31,
2009. These transactions are more fully discussed below:





Abazias
Purchase Transaction:





On
December 3, 2008, the Company entered into a securities purchase agreement (the
“Purchase Agreement”) with Abazias, Inc. (“Abazias”), a Delaware corporation and
Abazias.com, Inc., (“Abazias”), a Nevada corporation and wholly owned subsidiary
of Abazias, pursuant to which the Company has agreed to purchase substantially
all of the assets of Abazias Sub for an aggregate purchase price of: (i) a loan
in the amount of Five Hundred Thousand Dollars ($500,000) (the “Loan”) and; (ii)
the issuance of up to thirteen million one thousand (13,001,000) shares of the
Company’s zero coupon convertible preferred stock (the “Preferred Stock”) to the
Shareholders of Abazias, subject to adjustment. Under the Purchase Agreement,
upon closing of the transaction the Company shall issue the Preferred Stock to
the shareholders of Abazias, Inc. in exchange for all of the issued and
outstanding shares of capital stock of Abazias. The Loan, in the form of a Note,
was made on August 12, 2008 (see Investments). The Note bears interest at 10%
per annum and matures on December 31, 2009 (the “Maturity Date”). The full
principal amount of the Note, along with any interest accrued thereon, is due
upon a default under the terms of the Note.





Upon the
Closing of this transaction, Abazias, will become a wholly owned subsidiary of
the Company. Commensurate with the entering into of the Agreement, Abazias Sub
has entered into Employment Agreements with Oscar Rodriguez and Jesus Diaz, with
Mr. Rodriguez serving as Chief Executive Officer and President of Abazias Sub
and Mr. Diaz serving as Vice President, Chief Financial Officer and Chief
Operating Officer of Abazias Sub. The Employment Agreements shall become
effective upon the closing of the transaction.





OmniReliant
and Abazias determined that for federal income tax purposes, as well
as to segregate the assets and liabilities of Abazias into a separate
entity, the transaction as it had been constituted needed to be revised and
that instead of purchasing substantially all of the assets of Abazias.com, Inc.
for the 13,001,000 shares of the Preferred Stock, to be distributed to the
shareholders of Abazias, which would have resulted in a taxable transaction for
shareholders of Abazias, the Boards of Directors of Abazias and OmniReliant
resolved that OmniReliant would acquire Abazias Inc., a Delaware corporation
(Abazias-Delaware), Abazias, Inc. a Nevada corporation (Abazias-Nevada) and a
wholly owned subsidiary of the Abazias-Delaware, and Abazias.com, Inc., a Nevada
corporation and a wholly owned subsidiary of Abazias Nevada, for the Series E
Preferred Stock, thus allowing the transaction to qualify as a tax free
reorganization under the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended.


76





In order
to further clarify the Amended Stock Purchase Agreement,  on April 29,
2009, OmniReliant and Abazias entered into an Agreement and Plan of Merger which
superseded and replaced the Amended  Stock Purchase Agreement and
further clarified  that Abazias, Inc. shall merge into OmniReliant
Acquisition Sub, a wholly owned subsidiary of OmniReliant.  Many of
the essential terms remained from the Amended Securities Purchase Agreement,
however, all parties involved felt that a more streamlined Agreement and Plan of
Merger would be more appropriate.





Subsequent
to entering into the Agreement and Plan of Merger, OmniReliant and Abazias
decided that in order to segregate the assets and liabilities of
Abazias into a separate entity, for federal income tax reasons, as
well as both Companies belief that the financial condition of Abazias combined
with the expertise and assets of Omni is consistent with OmniReliant’s expansion
and overall business strategy and that the acquisition will expand OmniReliant’s
ability to finance its operations and further its growth, the transaction
as it had been constituted needed to be further  revised and that
instead of purchasing substantially all of the assets of Abazias.com, Inc. com
for the 13,001,000 shares of the Preferred Stock, to be distributed to the
shareholders of Abazias, which would have resulted in a taxable transaction for
shareholders of Abazias, the Boards of Directors of Abazias and OmniReliant
resolved that OmniReliant would acquire Abazias Inc., a Delaware corporation
(Abazias-Delaware), Abazias, Inc. a Nevada corporation (Abazias-Nevada) and a
wholly owned subsidiary of the Abazias-Delaware, and Abazias.com, Inc., a Nevada
corporation and a wholly owned subsidiary of Abazias Nevada, for the Series E
Preferred Stock, thus allowing the transaction to qualify as a tax free
reorganization under the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended.





In order
to further clarify the above intentions of OmniReliant and Abazias, the parties
decided to enter into Agreement and Plan of Merger which superseded and replaced
the Amended Stock Purchase Agreement and further clarified  that
Abazias, Inc. shall merge into OmniReliant Acquisition Sub, a wholly owned
subsidiary of OmniReliant.  Many of the essential terms remained from
the Amended Securities Purchase Agreement, however, all parties involved
felt that a more streamlined Agreement and Plan of Merger would be more
appropriate.




Upon the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger Abazias-Delaware and OmniReliant Acquisition Sub shall consummate a
merger pursuant to which (i) the Abazias-Delaware shall be merged with and into
OmniReliant Acquisition Sub and the separate corporate existence of
Abazias-Delaware shall thereupon cease, (ii) OmniReliant Acquisition Sub
shall be the successor or surviving corporation in the Merger and shall continue
to be governed by the Laws of the State of Nevada, and (iii) the separate
corporate existence of OmniReliant Acquisition Sub with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger.  The corporation surviving the Merger is sometimes hereinafter
referred to below as the "Surviving Corporation."  The Merger shall
have the effects set forth under the Laws of the State of Nevada.





The
Certificate of Incorporation of OmniReliant Acquisition Sub, as in effect
immediately prior to the merger shall be the Certificate of Incorporation of the
Surviving Corporation, until thereafter amended as provided by Law and such
Certificate of Incorporation.





The
Bylaws of OmniReliant Acquisition Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation, until
thereafter amended as provided by Law, the Certificate of Incorporation of the
Surviving Corporation and such Bylaws.


77





Subject
to the provisions of the Agreement and Plan of Merger, the parties shall (i)
file the appropriate Certificate of Merger in such form as is required by and
executed in accordance with the relevant provisions of the Nevada Revised
Statutes (“NRS”) and the Delaware General Corporation Law (“DGCL”) and (ii) make
all other filings or recordings required under the NRS and DGCL.  The
Merger will become effective at such time as the Certificate of Merger is duly
filed with the Secretary of State of the State of Nevada and Delaware, or at
such subsequent date or time as the Company and OmniReliant Acquisition Sub
agree and specify in the Certificate of Merger (such time hereinafter referred
to as the "Effective
Time").





The
directors of the Abazias-Delaware immediately prior to the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving
Corporation, and the officers of the Abazias-Delaware immediately prior to the
Effective Time shall, from and after the Effective Time, be the officers of the
Surviving Corporation, in each case until their respective successors shall have
been duly elected, designated or qualified, or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws. If at any time after the Effective Time
the Surviving Corporation shall determine, in its reasonable discretion, that
any actions are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of either of the Abazias-Delaware
or OmniReliant Acquisition Sub acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, then the officers and directors of the Surviving
Corporation shall be authorized take all such actions as may be necessary or
desirable to vest all right, title or interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Agreement.”





As of the
Effective Time, by virtue of the Merger and without any action on the part of
the holders of any shares of common stock of the Abazias-Delaware
(“Abazias-Delaware Common Stock”), or of OmniReliant Acquisition
Sub”





(a)         Each
outstanding share of OmniReliant Acquisition Sub common stock shall remain
outstanding and shall constitute the only issued and outstanding shares of
common stock of the Surviving Corporation.





(b)         All
shares of Abazias-Delaware Common Stock (the “Abazias-Delaware Shares”) that are
owned by the Abazias-Delaware as treasury stock shall be cancelled and retired,
and no consideration shall be delivered in exchange therefor.





(c)         Each
outstanding Abazias-Delaware Share, other than those set forth in the Agreement
and Plan of Merger shall be converted into the right to receive, and shall be
exchangeable for the merger consideration (the “Merger
Consideration”).   At the Effective Time, all Abazias-Delaware
Shares converted into the right to receive the Merger Consideration pursuant to
the Agreement and Plan of Merger and shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each holder of a
certificate (or, in the case of uncertificated Abazias-Delaware Shares, evidence
of such Abazias-Delaware Shares in book-entry form) which immediately prior to
the Effective Time represented any such Abazias-Delaware Shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration.  Notwithstanding the foregoing, if between the date of
this Agreement and the Effective Time, the shares of outstanding
Abazias-Delaware Common Stock shall have been changed into a different number of
shares or a different class, by reason of the occurrence or record date of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination, exchange of shares or similar transaction, then the Merger
Consideration shall be appropriately adjusted to reflect such
action.


78





The
Merger consideration, consisting of the total purchase price payable to the
shareholders of the Abazias-Delaware in connection with the acquisition by
merger of Abazias-Delaware, shall be delivered and shall consist exclusively of
13,001,000 newly issued shares of Series E Zero Coupon Convertible Preferred
Stock, of OmniReliant (the "Preferred Stock").  The Preferred Stock
shall be convertible into shares of common stock of OmniReliant in accordance
with the terms of, and the Preferred Stock shall have those rights, preferences
and designations set forth in, that certain Certificate of Designation,
Preferences and Rights of Preferred Stock (the "Certificate Of
Designation").





During
the six months after the closing of the transaction, OmniReliant will provide
additional non-debt funding to Abazias.com of Five Hundred Thousand Dollars
($500,000.00) to be used by the Abazias.com for general working capital or such
other purposes in furtherance of the business of Abazias.com.  This
money will be advanced in amounts and at times during this six month period at
the request of the officers of the Abazias.com as determined in their sole and
absolute discretion.  If any requested advance is not made by the end
of a seven (7) day period, OmniReliant shall distribute 13,001,000, or such
greater number of shares if more than 13,001,000 shares of Preferred Stock are
issued as consideration at closing, to the extent that the shares of Preferred
Stock are convertible into more than 13,001,000 shares of common stock pursuant
to the adjustment provisions of the Certificate of Designations, to the same
shareholders of Abazias.com  in the same amounts as the shares of
Preferred Stock distributed to such Abazias shareholders at Closing. The holders
of a majority of such shares shall be entitled to make one demand to the
Purchaser to register such shares on a registration statement.





Completion
of the Transaction is subject to certain conditions described in the Agreement
and Plan of Merger, including but not limited to (a) approval by the
shareholders of Abazias of the merger (b) registration under the Securities Act
of 1933, as amended, of OmniReliant Holdings' shares to be issued to Abazias and
subsequently distributed to the shareholders of Abazias upon closing of the
transaction.





The
Company and Abazias jointly prepared and the Company filed with the Securities
and Exchange Commission a Form S-4 on February 11, 2009 and an amendment to the
S-4 was filed  jointly prepared as well and filed by the Company on
May 7, 2009.





The
Company anticipates accounting for the purchase of Abazias as a purchase
business combination, applying Statements of Financial Accounting Standards No.
141 Business
Combinations (“SFAS 141”). In the unlikely event that the purchase occurs
on or after July 1, 2009, we will be required to apply Statements of Financial
Accounting Standards No. 141(R) Business Combinations
(“SFAS 141(R)”), which would result in substantial differences from SFAS 141.
SFAS 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Accordingly, the effective date
for our application of SFAS 141(R) will be commencing with our fiscal year
beginning July 1, 2009. Early adoption of SFAS 141(R) is prohibited by the
standard. The Company’s application of SFAS 141 will provide for the allocation
of the total estimated purchase price to the tangible and intangible assets of
Abazias acquired at their respective fair values. The excess of the estimated
purchase price over the tangible and intangible assets will be reflected in our
post-acquisition financial statements as goodwill.





Segment
Reporting:





Our
business segments consist of (i) Retail Products and Licensing and (ii) Real
Estate. Our real estate business commenced during the current fiscal year upon
the purchase of an office building in Pinellas County, Florida. Our chief
decision making officer considers income (loss) from operations as the basis to
measure segment profitability. The following table summarizes important
financial information about our business segments as of March 31, 2009 and for
the three and nine months ended March 31, 2009:


79





Retail
                  Products
                  and
                  Licensing
                
                
                Real
                  Estate
                
                
                ConsolidatedThree Months Ended March 31, 2009Revenues
      from external customers
                
                $
                2,585,582
                
                
                $
                58,314
                
                
                $
                2,643,896Depreciation
      expense
                
                
                4,157
                
                
                
                34,716
                
                
                
                38,873Income
      (loss) from operations
                
                
                (1,202,121
                )
                
                
                (52,419
                )
                
                
                (1,254,540
                )Capital
      expenditures
                
                
                6,714
                
                
                
                —
                
                
                
                6,714





Nine Months Ended March 31, 2009Revenue
      from external customers
                
                $
                3,756,840
                
                
                $
                190,420
                
                
                $
                3,947,260Depreciation
      expense
                
                
                7,405
                
                
                
                134,997
                
                
                
                142,402Income
      (loss) from operations
                
                
                (2,870,890
                )
                
                
                (204,722
                )
                
                
                (3,075,612
                )Capital
      expenditures
                
                
                87,310
                
                
                
                2,724,591
                
                
                
                2,811,901





March 31, 2009Total
      assets
                
                $
                13,789,460
                
                
                $
                2,623,271
                
                
                $
                16,412,731





During
the three and nine months ended March 31, 2009, the Real Estate operation
received $21,377 $57,005, respectively, in rental revenue from the Retail
Products and Licensing business, which amount is eliminated in the table
above.


80


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 nine months ended March 31, 2009 attached
to this Form 10-Q. 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.





Effect
of Recently Issued Accounting Pronouncements:





We have
reviewed accounting pronouncements and interpretations thereof that have
effectiveness dates during the periods reported and in future periods. We
believe that the following impending standards may have an impact on our future
filings. Also see Fair Value Measurements, above. The applicability of any
standard is subject to the formal review of our financial management and certain
standards are under consideration.





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations
("SFAS 141(R)"), which establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination.  SFAS 141R is effective as of the beginning of
the first fiscal year beginning on or after December 15, 2008. Earlier adoption
is prohibited. As more fully discussed in the Subsequent Events footnote, the
Company is currently seeking to complete a purchase business combination. If the
purchase is completed before July 1, 2009, the Company will be required to apply
SFAS 141. However, if the transaction is completed on or after July 1, 2009, the
Company will be required to apply SFAS 141(R).





In
September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and132(R) (“SFAS 158”).  SFAS 158
improves financial reporting by requiring an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets of a not-for-profit organization. SFAS 158
also improves financial reporting by requiring an employer to measure the funded
status of a plan as of the date of its year-end statement of financial position,
with limited exceptions.  The effective date for an employer with
publicly traded equity securities is as of the end of the fiscal year ending
after December 15, 2006. The adoption of SFAS 158 did not have a material impact
on our financial position, results of operations or cash flows because we do not
have a defined benefit plan for our employees.


81





In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements Liabilities –an Amendment of ARB No.
51. This statement amends ARB No. 51 to establish accounting and
reporting standards for the Non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary.  SFAS 160 will change the
classification and reporting for minority interest and non-controlling interests
of variable interest entities.  Following the effectiveness of SFAS
160, the minority interest and non-controlling interest of variable interest
entities will be carried as a component of stockholders’ equity. Accordingly,
upon the effectiveness of this statement, we will begin to reflect
non-controlling interest in our consolidated variable interest entities as a
component of stockholders’ equity. This statement is effective for fiscal years
and interim periods within those fiscal years, beginning on or after December
15, 2008 and earlier adoption is prohibited. Since we do not currently have
Variable Interest Entities consolidated in our financial statements, adoption of
this standard is not expected to have a material effect.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment to FASB Statement No.
133 (“SFAS 161”).  SFAS 161 is intended to improve
financial standards for derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. Entities are required to provide enhanced disclosures about: (a) how and
why an entity uses derivative instruments; (b) how derivative instruments and
related hedged items are accounted for under SFAS 133 and its related
interpretations; and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows. It
is effective for financial statements issued for fiscal years beginning after
November 15, 2008, with early adoption encouraged. We are currently evaluating
the impact of SFAS 161, if any, will have on our financial position, results of
operations or cash flows. This standard will affect the disclosures in our
financial statements to provide the required information.





In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles ("SFAS 162"). SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS 162 will become effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, "The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles." The Company does not expect the adoption of
SFAS 162 will have a material effect on its financial position, results of
operations or cash flows.





In July
2006, the FASB issued Interpretation No. 48, Accountingfor
uncertainty in Income Taxes(“FIN 48”). FIN No. 48
clarifies the accounting for Income Taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. It also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition and clearly scopes income taxes out of SFAS No. 5,
Accounting
for Contingencies. FIN 48 was effective for
fiscal years beginning after December 15, 2006. Accordingly, we have implemented
FIN 48 by summarizing and evaluating all potential uncertain tax positions. As a
result of our implementation, FIN No. 48 did not have a material impact on our
financial position, results of operations or cash flows, although, as discussed
in our income tax disclosures, certain positions are present that require our
periodic review in maintaining compliance with this standard.





In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements (FSP 00-19-2) which addresses accounting for
registration payment arrangements. FSP 00-19-2 specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or
included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with SFAS No. 5, Accounting for
Contingencies.  FSP 00-19-2 further clarifies that a financial
instrument subject to a registration payment arrangement should be accounted for
in accordance with other applicable generally accepted accounting principles
without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement.  For registration payment
arrangements and financial instruments subject to those arrangements that were
entered into prior to the issuance of EITF 00-19-2, this guidance shall be
effective for financial statements issued for fiscal years beginning after
December 15, 2006 and interim periods within those fiscal years. The adoption of
EITF 00-19-02 did not have a material impact on our financial position, results
of operations or cash flows, because we have no current transactions that embody
Registration Payment Arrangements, as defined in the standard.


82





In April
2008, the FASB issued FSP No. FAS 142-3 Determination of the Useful
Life of Intangible Assets. This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Assets. The Company is required to adopt FSP 142-3 on October
1, 2008. The guidance in FSP 142-3 for determining the useful life of a
recognized intangible asset shall be applied prospectively to intangible assets
acquired after adoption, and the disclosure requirements shall be applied
prospectively to all intangible assets recognized as of, and subsequent to,
adoption. The Company is currently evaluating the impact of FSP 142-3 on its
financial position, results of operations or cash flows, and believes that the
established lives will continue to be appropriate under the FSP.





In May
2008, the FASB issued FSP Accounting Principles Board 14-1 Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of
certain convertible debt instruments that may be settled in cash (or other
assets) on conversion to separately account for the liability (debt) and equity
(conversion option) components of the instrument in a manner that reflects the
issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008 on a retroactive basis. The
Company is currently evaluating the potential impact, if any, of the adoption of
FSP APB 14-1 on its financial position, results of operations or cash
flows.





In June
2008, the Emerging Issues Task Force issued EITF Consensus No. 07-05 Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock,
which supersedes the definition in EITF 06-01 for periods beginning after
December 15, 2008 (our fiscal year ending September 30, 2010). The objective of
this Issue is to provide guidance for determining whether an equity-linked
financial instrument (or embedded feature) is indexed to an entity's own stock
and it applies to any freestanding financial instrument or embedded feature that
has all the characteristics of a derivative in of Statement 133, for purposes of
determining whether that instrument or embedded feature qualifies for the first
part of the scope exception in paragraph 11(a) of Statement 133 (the “Paragraph
11(a) Exemption). This Issue also applies to any freestanding financial
instrument that is potentially settled in an entity's own stock, regardless of
whether the instrument has all the characteristics of a derivative in Statement
133, for purposes of determining whether the instrument is within the scope of
Issue 00-19. We currently have warrants that embody terms and conditions that
require the reset of their strike prices upon our sale of shares or
equity-indexed financial instruments and amounts less than the conversion
prices. These features will no longer be treated as “equity” under the EITF once
it becomes effective. Rather, such instruments will require classification as
liabilities and measurement at fair value. Early adoption is precluded.
Accordingly, this standard will be adopted in our quarterly period ended
September 30, 2009.





In June
2008, the Emerging Issues Task Force issue EITF Consensus No. 08-04 Transition
Guidance for Conforming Changes to Issue 98-5 Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, which is effective for years ending after December 15,
2008 (our fiscal year ending June 30, 2009). Early adoption is not permitted.
The overall objective of the Issue is to conform the requirements of EITF 00-27
and Financial Accounting Standard No. 150 with EITF 98-5 to provide for
consistency in application of the standard. We computed and recorded a
beneficial conversion feature in connection with certain of our prior financing
arrangements and do not believe that this standard has any material effect on
that accounting.


83





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on our present or future financial
statements.


84





ITEM 3 –
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS





The
information required by this item does not apply to smaller reporting
companies.


85





ITEM 4T –
CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures – The Company’s Chief Executive Officer
and Chief Financial Officer has evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) as of the fiscal period ending March 31, 2009 covered by
this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief
Executive Officer and Chief Financial Officer has concluded that, as of the end
of such period, the Company’s disclosure controls and procedures were not
effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange
Act.





Changes
in Internal Controls over Financial Reporting – During the quarter ended March
31, 2009, there have been no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.





Inherent
Limitations of the Effectiveness of Internal Control – A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the internal control system are met.
Because of the inherent limitations of any internal control system, no
evaluation of controls can provide absolute assurance that all control issues,
if any, within a company have been detected.


86





PART II –
OTHER INFORMATION





ITEM 1 –
LEGAL PROCEEDINGS





From time
to time we may be a defendant and plaintiff in various legal proceedings arising
in the normal course of our business. We are currently not a party to any
material pending legal proceedings or government actions, including any
bankruptcy, receivership, or similar proceedings. In addition, management is not
aware of any known litigation or liabilities involving the operators of our
properties that could affect our operations. Should any liabilities be incurred
in the future, they will be accrued based on management’s best estimate of the
potential loss. As such, there is no adverse effect on our consolidated
financial position, results of operations or cash flow at this time.
Furthermore, Management of the Company does not believe that there are any
proceedings to which any director, officer, or affiliate of the Company, any
owner of record of the beneficially owned more than five percent of the common
stock of the Company, or any associate of any such director, officer, affiliate
of the Company, or security holder is a party adverse to the Company or has a
material interest adverse to the Company.





ITEM 1A –
RISK FACTORS





There has
been no material change in our risk factors from those disclosed in our Annual
Report on Form10-KSB filed with the SEC for the year ended June 30,
2008.





ITEM 2 –
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None.





ITEM 3 –
DEFAULTS UPON SENIOR SECURITES





None.





ITEM 4 –
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.





ITEM 5 –
OTHER MATTERS





None.





ITEM 6 –
EXHIBIT INDEX





31.1
              Certification
      of Periodic Financial Reports by Paul Morrison in satisfaction of Section
      302 of the Sarbanes-Oxley Act of 200231.2
              Certification
      of Periodic Financial Reports by Paul Morrison in satisfaction of Section
      302 of the Sarbanes-Oxley Act of 200232.1
              Certification
      of Periodic Financial Reports by Paul Morrison in satisfaction of Section
      906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section
      135032.2
              Certification
      of Periodic Financial Reports by Paul Morrison in satisfaction of Section
      906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section
      1350


87





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





OmniReliant
      Holdings, Inc.Date:
      May 20, 2009
                  By:
                  /s/
      Paul MorrisonPaul
      MorrisonChief
      Executive Officer and Chief Financial Officer (Principal Accounting
      Officer


88