UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington
      D. C. 20549





FORM
      10-QSB





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


EXCHANGE
      ACT OF 1934





For
      the
      quarterly period ended March 31, 2008





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


EXCHANGE
      ACT OF 1934


For
      the
      transition period from





Commission
      file number 000-51599




OmniReliant
      Holdings, Inc.


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





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





4218
      West
      Linebaugh Avenue


Tampa,
      Florida 33624


(Address
      of principal executive offices)





(813)
      885-5998


(Issuer's
      telephone number)





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





Yes x No o





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





Yes o No x





The
      number of shares of the issuer's outstanding common stock on March 31, 2008
      was
      14,301,512.





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








PART
      I -
      FINANCIAL INFORMATION







FORWARD-LOOKING
      STATEMENTS





This
      Form
      10-QSB contains “forward-looking statements” relating to OmniReliant Holdings,
      Inc. (referred to as the “Company” or “we”, “us” or “our” in this Form 10-QSB),
      which represent the Company’s current expectations or beliefs including, but not
      limited to, statements concerning the Company’s operations, performance,
      financial condition and growth. For this purpose, any statements contained
      in
      this Form 10-QSB 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.


2


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED BALANCE SHEET


March
      31,
      2008





ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            336,274Accounts
                receivable
            
            
            94,820Inventory
            
            
            292,656Prepaid
                expenses
            
            
            259,405Total
                current assets
            
            
            983,155Investments
                in debt securities
            
            
            151,159Equity-method
                investment in ResponzeTV
            
            
            11,504,552Intangible
                assets, net of accumulated amortization of $553,494
            
            
            1,348,822Deferred
                financing costs, net of accumulated amortization of $3,949
            
            
            39,130Total
                assets
            
            $
            14,026,818LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                liabilities:Accounts
                payable
            
            $
            74,002Derivative
                liabilities
            
            
            17,441,623Current
                portion of deferred revenue
            
            
            765,683Total
                current liabilities
            
            
            18,281,308Deferred
                revenue, net of current portion
            
            
            5,250,400Total
                liabilities
            
            
            23,531,708Redeemable
                preferred stock
            
            
            19,456,362Stockholders'
                equity (deficit):Common
                stock, $0.00001 par value; 100,000,000 sharesauthorized;
                14,301,512 shares issued and outstanding.
            
            
            142Additional
                paid-in capital
            
            
            29,960,320Deficit
                accumulated during development stage
            
            
            (58,921,714
            )Total
                shareholders' equity (deficit)
            
            
            (28,961,252
            )Total
                liabilities, redeemable preferred stock and shareholders' equity
                (deficit)
            
            $
            14,026,818








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


3


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF OPERATIONS





Three months ended
              March 31, 2008
            
            Three months ended
              March 31, 2007(Restated)License
                revenue
            
            $
            328,150
            
            $
            —Product
                sales
            
            
            84,846
            
            
            —Total
                revenue
            
            
            412,996
            
            
            —Operating
                costs and expenses:Cost
                of product sales
            
            
            34,341
            
            
            —Salaries
                and wages
            
            
            33,265
            
            
            51,195Amortization
                expense
            
            
            66,689
            
            
            171,869Professional
                and consulting
            
            
            102,066
            
            
            150,596General
                and administrative
            
            
            194,168
            
            
            26,656Total
                operating expenses
            
            
            430,529
            
            
            400,316Operating
                loss
            
            
            (17,533
            )
            
            (400,316
            )Other
                Income (expense):Derivative
                fair value adjustments
            
            
            11,996,024
            
            
            2,470,712Equity
                in ResponzeTV
            
            
            (181,224
            )
            
            —Registration
                payments
            
            
            —
            
            
            (91,125
            )Interest
                income
            
            
            7,858
            
            
            —Interest
                expense
            
            
            (2,154
            )
            
            (94,944
            )Total
                other income (expense)
            
            
            11,820,504
            
            
            2,284,643Income
                (loss) before income taxes
            
            $
            11,802,971
            
            $
            1,884,327Income
                taxes
            
            
            —
            
            
            —Net
                income (loss)
            
            $
            11,802,971
            
            $
            1,884,327Reconciliation
                of netincometoincomeapplicableto
                common shareholders:Net
                income
            
            $
            11,802,971
            
            $
            1,884,327Preferred
                stock dividends, in arrears
            
            
            —
            
            
            (41,687
            )Net
                income (loss) applicable to common shareholders
            
            $
            11,802,971
            
            $
            1,842,640Income
                per common share (basic)
            
            $
            0.83
            
            $
            0.11Income
                per common share (diluted)
            
            $
            0.27
            
            $
            0.10Weighted-average
                common shares outstandingBasic
            
            
            14,232,908
            
            
            16,792,833Diluted
            
            
            44,030,174
            
            
            19,318,751




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


4


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF OPERATIONS





Nine months ended
              March 31, 2008
            
            Nine months ended
              March 31, 2007(Restated)License
                revenue
            
            $
            546,917
            
            $
            —Product
                sales
            
            
            274,519
            
            
            2,640Total
                revenue
            
            
            821,436
            
            
            2,640Costs
                and other operating expenses:Cost
                of other product sales
            
            
            144,220
            
            
            1,320Salaries
                and wages
            
            
            1,179,274
            
            
            102,169Amortization
                expense
            
            
            428,064
            
            
            226,970Professional
                and consulting
            
            
            378,510
            
            
            299,882General
                and administrative
            
            
            433,056
            
            
            45,658Total
                operating expenses
            
            
            2,563,124
            
            
            675,999Operating
                loss
            
            
            (1,741,688
            )
            
            (673,359
            )Other
                Income (expense):Loss
                on exchange of redeemable preferred
            
            
            (26,247,007
            )
            
            —Derivative
                fair value adjustments
            
            
            5,248,398
            
            
            (15,082,233
            )Extinguishment
                of other liabilities
            
            
            (271,109
            )
            
            —Registration
                payments
            
            
            (309,137
            )
            
            (91,125
            )Interest
                income
            
            
            12,637
            
            
            —Interest
                expense
            
            
            (152,569
            )
            
            (126,591
            )Equity
                in losses of ResponzeTV
            
            
            (288,448
            )
            
            —Total
                other expense
            
            
            (22,007,235
            )
            
            (15,299,949
            )Loss
                before provision for income taxes
            
            
            (23,748,923
            )
            
            (15,973,308
            )Provision
                for income taxes
            
            
            —
            
            
            —Net
                loss
            
            $
            (23,748,923
            )
            $
            (15,973,308
            )Reconciliation
                of net loss to loss applicableto
                common shareholders:Net
                loss
            
            $
            (23,748,923
            )
            $
            (15,973,308
            )Accretion
                of preferred stock toredemption
                value
            
            
            (6,400,000
            )
            
            (3,000,000
            )Preferred
                stock dividends, in arrears
            
            
            —
            
            
            (75,854
            )Loss
                applicable to common shareholders
            
            $
            (30,148,923
            )
            $
            (19,049,162
            )Basic
                and Diluted loss per common share
            
            $
            (2.14
            )
            $
            (1.62
            )Weighted
                average common shares outstanding -basic
                and diluted
            
            
            14,080,464
            
            
            11,787,398








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


5


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF OPERATIONS





August
                21, 2006 (inception) to
              March 31,
                2008
            
            August
                21, 2006 (inception) to
              March 31, 2007(Restated)License
                revenue
            
            $
            546,917
            
            $
            —Product
                sales
            
            
            277,159
            
            
            2,640Total
                revenue
            
            
            824,076
            
            
            2,640Costs
                and other operating expenses:Cost
                of other product sales
            
            
            145,540
            
            
            1,320Salaries
                and wages
            
            
            1,334,168
            
            
            102,169Amortization
                expense
            
            
            840,016
            
            
            226,970Professional
                and consulting
            
            
            3,202,592
            
            
            299,882General
                and administrative
            
            
            588,619
            
            
            45,658Total
                operating expenses
            
            
            6,110,935
            
            
            675,999Operating
                loss
            
            
            (5,286,859
            )
            
            (673,359
            )Other
                (expense):Loss
                on exchange of redeemable preferred
            
            
            (26,247,007
            )
            
            —Derivative
                fair value adjustments
            
            
            (14,907,872
            )
            
            (15,082,233
            )Extinguishment
                of other liabilities
            
            
            (271,109
            )
            
            —Registration
                payments
            
            
            (542,080
            )
            
            (91,125
            )Interest
                income
            
            
            12,637
            
            
            —Interest
                expense
            
            
            (382,089
            )
            
            (126,591
            )Equity
                in losses of ResponzeTV
            
            
            (288,448
            )
            
            —Total
                other expense
            
            
            (42,625,968
            )
            
            (15,299,949
            )Loss
                before income taxes
            
            
            (47,912,827
            )
            
            (15,973,308
            )Income
                taxes
            
            
            —
            
            
            —Net
                loss
            
            $
            (47,912,827
            )
            $
            (15,973,308
            )Reconciliation
                of net loss to loss applicable to common shareholders:Net
                loss
            
            $
            (47,912,827
            )
            $
            (15,973,308
            )Accretion
                of preferred stock to redemption value
            
            
            (9,400,000
            )
            
            (3,000,000
            )Preferred
                stock dividends, in arrears
            
            
            —
            
            
            (75,854
            )Loss
                applicable to common shareholders
            
            $
            (57,312,827
            )
            $
            (19,049,162
            )




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




6




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF CASH FLOWS





Nine months ended
              March 31, 2008
            
            Nine
                months ended
              March 31, 2007(Restated)Cash
                flows from operating activities:Net
                loss
            
            $
            (23,748,923
            )
            $
            (15,973,309
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Loss
                on exchange of preferred stock
            
            
            26,247,007
            
            
            —Derivative
                fair value adjustments
            
            
            (5,248,398
            )
            
            15,082,233Share-based
                payments
            
            
            1,134,705
            
            
            15,000Extinguishment
                of liabilities
            
            
            271,109
            
            
            —Amortization
                of intangible assets
            
            
            470,445
            
            
            226,970Amortization
                of deferred finance costs
            
            
            121,050
            
            
            126,592Registration
                payments
            
            
            —
            
            
            91,125Equity
                in losses of ResponzeTV
            
            
            288,448
            
            
            —Changes
                in operating assets and liabilities:Accounts
                Receivable
            
            
            (94,820
            )
            
            —Inventory
            
            
            (302,032
            )
            
            —Prepaid
                expenses
            
            
            192,444
            
            
            (35,058
            )Accounts
                payable and accrued expenses
            
            
            49,268
            
            
            16,332Accrued
                registration payments
            
            
            309,137
            
            
            —Deferred
                revenue
            
            
            (546,917
            )
            
            —Net
                cash flow from operating activities
            
            
            (857,477
            )
            
            (450,115
            )Cash
                flows from investing activities:Investment
                in ResponzeTV
            
            
            (5,100,000
            )
            
            —Payments
                for patents
            
            
            (31,811
            )
            
            —Investment
                in securities
            
            
            (200,000
            )
            
            —Payments
                for licenses
            
            
            —
            
            
            (1,006,010
            )Net
                cash flow from investing activities
            
            
            (5,331,811
            )
            
            (1,006,010
            )Cash
                flows from financing activities:Net
                proceeds from sales of preferred stock
            
            
            5,814,078
            
            
            2,540,000Proceeds
                from sale of common stock
            
            
            —
            
            
            —Purchase
                and retirement of common shares
            
            
            —
            
            
            (475,813
            )Net
                cash flow from financing activities
            
            
            5,814,078
            
            
            2,064,187Net
                increase (decrease) in cash and cash equivalents
            
            
            (375,210
            )
            
            608,062Cash
                and cash equivalents at beginning of year
            
            
            711,484
            
            
            —Cash
                and cash equivalents at end of year
            
            $
            336,274
            
            $
            608,062




7




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF CASH FLOWS  (CONTINUED)





Supplemental
                cash flow information:Interest
                paid in cash
            
            $
            —
            
            $
            —Income
                taxes paid in cash
            
            $
            —
            
            $
            —Supplemental
              schedule of non-cash investing and financing:Series
                C Preferred and warrants issued in exchange
            
            $
            (31,349,989
            )Investment
                in ResponzeTV
            
            $
            (6,538,240
            )Common
                stock issued for patent, at fair value
            
            $
            420,000Common
                stock issued for license, at fair value
            
            $
            —
            
            $
            52,500





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


8


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
        Development Stage Company)
 UNAUDITED
        CONSOLIDATED STATEMENTS OF CASH FLOWS


August
                      21, 2006 (inception) to
                    March
                      31, 2008
                  
                  August
                      21, 2006 (inception) to
                    March
                      31, 2007(Restated)Cash
                      flows from operating activities:Net
                      loss
                  
                  $
                  (47,912,827
                  )
                  $
                  (15,973,309
                  )Adjustments
                      to reconcile net loss
                    to
                      net cash used in operating activities:Loss
                      on exchange of preferred stock
                  
                  
                  26,247,007
                  
                  
                  --Derivative
                      fair value adjustments
                  
                  
                  14,907,872
                  
                  
                  15,082,233Share-based
                      payments
                  
                  
                  3,621,106
                  
                  
                  15,000Extinguishment
                      of liabilities
                  
                  
                  271,109
                  
                  
                  --Amortization
                      of intangible assets
                  
                  
                  882,320
                  
                  
                  226,970Amortization
                      of deferred finance costs
                  
                  
                  350,570
                  
                  
                  126,592Registration
                      payments
                  
                  
                  --
                  
                  
                  91,125Equity
                      in losses of ResponzeTV
                  
                  
                  288,448
                  
                  
                  --Changes
                      in operating assets and liabilities:Accounts
                      Receivable
                  
                  
                  (94,820
                  )
                  
                  --Inventory
                  
                  
                  (422,656
                  )
                  
                  --Prepaid
                      expenses
                  
                  
                  155,917
                  
                  
                  (35,058
                  )Accounts
                      payable
                  
                  
                  76,621
                  
                  
                  16,332Accrued
                      registration payments
                  
                  
                  542,080
                  
                  
                  --Deferred
                      revenue
                  
                  
                  (546,917
                  )
                  
                  --Net
                      cash flow from operating activities
                  
                  
                  (1,634,170
                  )
                  
                  (450,115
                  )Cash
                      flows from investing activities:Investment
                      in ResponzeTV
                  
                  
                  (5,100,000
                  )
                  
                  --Payments
                      for patents
                  
                  
                  (56,811
                  )
                  
                  --Investment
                      in securities
                  
                  
                  (200,000
                  )
                  
                  --Payments
                      for licenses
                  
                  
                  (1,006,010
                  )
                  
                  (1,006,010
                  )Net
                      cash flow from investing activities
                  
                  
                  (6,362,821
                  )
                  
                  (1,006,010
                  )Cash
                      flows from financing activities:Net
                      proceeds from sales of preferred stock
                  
                  
                  8,794,078
                  
                  
                  2,540,000Proceeds
                      from sale of common stock
                  
                  
                  15,000
                  
                  
                  --Purchase
                      and retirement of common shares
                  
                  
                  (475,813
                  )
                  
                  (475,813
                  )Net
                      cash flow from financing activities
                  
                  
                  8,333,265
                  
                  
                  2,064,187Net
                      increase (decrease) in cash and cash equivalents
                  
                  
                  336,274
                  
                  
                  608,062Cash
                      and cash equivalents at beginning of year
                  
                  
                  --
                  
                  
                  --Cash
                      and cash equivalents at end of year
                  
                  $
                  336,274
                  
                  $
                  608,062Supplemental
                      cash flow information:Interest
                      paid in cash
                  
                  $
                  --
                  
                  $
                  --Income
                      taxes paid in cash
                  
                  $
                  --
                  
                  $
                  --Supplemental
                    schedule of non-cash investing and financing:Series
                      C Preferred and warrants issued in exchange
                  
                  $
                  (31,349,989
                  )
                  $
                  --Investment
                      in ResponzeTV
                  
                  $
                  (6,538,240
                  )
                  $
                  --Transfer
                      of inventory as part of investment in securities
                  
                  $
                  130,000
                  
                  $
                  --
  9
  OMNIRELIANT
        HOLDINGS, INC. & SUBSIDIARY
 (A
        Development Stage Company)
 UNAUDITED
        CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 Transfer
                    of sublicense as part of investment in securities
                
                $
                198,914
                
                $
                -Dividends
                    paid in the form of Series C Preferred
                
                $
                309,564
                
                $
                --Common
                    stock issued for patent, at fair value
                
                $
                720,000
                
                $
                --Common
                    stock issued for license, at fair value
                
                $
                352,500
                
                $
                52,500
 
 The
        accompanying notes are an integral part of these Consolidated Financial
        Statements.
  10
   OMNIRELIANT
        HOLDINGS, INC. & SUBSIDIARY
 (A
        Development Stage Company)
 CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
 Period
        from August 21, 2006 (inception) to March 31, 2008 (Restated)
 
 Common
                  Stock
              
              Paid-in
              
              AccumulatedShares
              
              Amount
              
              Capital
              
              Deficit
              
              TotalBalances
                  at August 21, 2006 (inception)
              
              
              6,485,000
              
              $
              65
              
              $
              254,264
              
              $
              (254,329
              )
              $
              —Recapitalization
                  to effect the reverse merger
              
              
              7,300,000
              
              
              73
              
              
              (450,215
              )
              
              254,329
              
              
              (195,813
              )Series
                  A Preferred Stock Financing (1):Beneficial
                  conversion feature
              
              
              —
              
              
              —
              
              
              1,173,510
              
              
              —
              
              
              1,173,510Allocation
                  of deferred finance costs (2)
              
              
              —
              
              
              —
              
              
              (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
              )Reclassification
                  to liabilities (3)
              
              
              —
              
              
              —
              
              
              (1,600,270
              )
              
              —
              
              
              (1,600,270
              )Issuances
                  of common stock warrants:License
                  agreement
              
              
              15,000
              
              
              —
              
              
              52,500
              
              
              —
              
              
              52,500Public
                  relations firm (1,000,000 warrants)
              
              
              —
              
              
              —
              
              
              2,471,401
              
              
              —
              
              
              2,471,401Patent
                  costs
              
              
              200,000
              
              
              2
              
              
              719,998
              
              
              —
              
              
              720,000Series
                  C Preferred Stock Financing (7):
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —Beneficial
                  conversion feature
              
              
              —
              
              
              —
              
              
              2,766,833
              
              
              —
              
              
              2,766,833Allocation
                  of deferred finance costs (8)
              
              
              —
              
              
              —
              
              
              (4,998,926
              )
              
              —
              
              
              (4,998,926
              )Placement
                  agent warrants
              
              
              —
              
              
              —
              
              
              5,198,797
              
              
              —
              
              
              5,198,797Investor
                  warrants
              
              
              —
              
              
              —
              
              
              3,633,167
              
              
              —
              
              
              3,633,167Series
                  C Preferred Stock ExchangeAccretion
                  to redemption value
              
              
              —
              
              
              —
              
              
              —
              
              
              (6,400,000
              )
              
              (6,400,000
              )Investor
                  warrants
              
              
              —
              
              
              —
              
              
              17,796,834
              
              
              —
              
              
              17,796,834Other
                  activity:Reclassification
                  of warrants (4)
              
              
              —
              
              
              —
              
              
              (4,202,365
              )
              
              (909,504
              )
              
              (5,111,869
              )Preferred
                  stock dividends (5)
              
              
              —
              
              
              —
              
              
              —
              
              
              (542,080
              )
              
              (542,080
              )Reclassification
                  of warrants to equity (9)
              
              
              —
              
              
              —
              
              
              4,008,912
              
              
              —
              
              
              4,008,912Stock
                  based compensation
              
              
              —
              
              
              —
              
              
              1,057,705
              
              
              —
              
              
              1,057,705Employee
                  exercise of stock options
              
              
              27,778
              
              
              —
              
              
              —
              
              
              —
              
              
              —Stock
                  issued for services
              
              
              35,334
              
              
              —
              
              
              77,000
              
              
              —
              
              
              77,000Cashless
                  exercise of warrants
              
              
              38,400
              
              
              —
              
              
              —
              
              
              —
              
              
              —Stock
                  issued for patent
              
              
              200,000
              
              
              2
              
              
              419,998
              
              
              —
              
              
              420,000Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              (47,912,827
              )
              
              (47,912,827
              )Balance
                  at March 31, 2008
              
              
              14,301,512
              
              $
              142
              
              $
              29,960,320
              
              $
              (58,921,714
              )
              $
              (28,961,252
              )
  The
        accompanying notes are an integral part of these Consolidated Financial
        Statements.
  11
  OMNIRELIANT
        HOLDINGS, INC. & SUBSIDIARY
 (A
        Development Stage Company)
 CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
 Period
        from August 21, 2006 (inception) to March 31, 2008 (Restated)
 
 Explanatory
        Notes:
 (1)
                
                The
                    initial classification of the Series A Preferred Stock was in
                    the
                    mezzanine section of the balance sheet, outside of stockholders’ equity.
                    These amounts reflect the effects of the financing on stockholders’
                    equity. See Note 10 for details of the allocation.(2)
                
                Aggregate
                    financing costs were allocated to deferred financing costs and
                    paid-in
                    capital based upon the relative fair values of the financial
                    instruments
                    issued in the financing. Since, as discussed in Note 10, no amount
                    was
                    initially allocated to the mezzanine classification, the amount
                    associated
                    with that financial instrument was recorded as a deemed
                    dividend.(3)
                
                As
                    discussed in Note 10, the Series A Preferred fell within the
                    scope of
                    Statement 150 on May 22, 2007 and was re-classed to liabilities
                    accordingly.(4)
                
                Also,
                    as discussed in Note 10, share settlement of share-indexed financial
                    instruments was no longer within the Company’s control as a result of the
                    variable-conversion rate in the Series A Preferred triggered
                    on May 22,
                    2007. Warrants previously classified in stockholders’ equity required
                    reclassification to derivative liabilities on that date, based
                    upon their
                    fair value. Amounts in excess of paid-in capital were classified
                    as
                    charges to accumulated deficit.(5)
                
                This
                    amount corrects an improper entry to reverse registration
                    payments.(6)
                
                The
                    initial classification of the Series B Preferred stock was in
                    the
                    liabilities section. See Note 10.(7)
                
                The
                    classification of the Series C Preferred Stock is in the Mezzanine
                    section
                    of the balance sheet outside of stockholders’ equity.(8)
                
                Aggregate
                    financing costs were allocated to deferred financing costs, pain
                    in
                    capital and Series C Preferred (Mezzanine) based upon the relative
                    fair
                    values of the financial instruments issued in the
                    financing.(9)
                
                Upon
                    the exchange of the Series A and B Preferred Stock for Series
                    C Preferred
                    stock, there was no longer a variable conversion rate associated
                    with the
                    Preferred stock financings. Accordingly, share settlement was
                    once again
                    determined to be within the Company’s control and the warrants were
                    reclassified from liabilities to stockholders’
                    equity.
  The
        accompanying notes are an integral part of these Consolidated Financial
        Statements.
  12
  OMNIRELIANT
        HOLDINGS, INC. & SUBSIDIARY
 (A
        Development Stage Company)
 NOTES
        TO
        UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
        1 -
        ORGANIZATION AND NATURE OF BUSINESS
 
 *Organization*
 
 Willowtree
        Advisor, Inc. ("the Company" or “OmniReliant Holdings, Inc”) was incorporated on
        June 16, 2004 under the laws of the State of Nevada to offer landscape advisory
        services. On November 22, 2006, Willowtree Advisor, Inc. entered into a
        Securities Purchase Agreement with OmniReliant Corporation (“OmniReliant”) and
        Cynthia Allison, pursuant to which OmniReliant purchased 5,000,000 shares
        of the
        Company's common stock from Ms. Allison for $475,813. Pursuant to the Common
        Stock Purchase Agreement, OmniReliant transferred the 5,000,000 shares to
        the
        Company for cancellation. The transaction with Ms. Allison was accounted
        for as
        a reduction of additional paid in capital.
 
 Also
        on
        November 22, 2006, Willowtree entered into an exchange agreement pursuant
        to
        which the Company acquired one hundred percent (100%) of the equity of
        OmniReliant from, the stockholders of OmniReliant. Contemporaneously, the
        Company entered into to a securities purchase agreement with an accredited
        investor for the sale of convertible preferred stock and warrants for an
        aggregate purchase price of $3,000,000. As a result of the Exchange Agreement,
        OmniReliant became a wholly-owned subsidiary of the Company and the Company
        succeeded to the business of OmniReliant as its sole business.
 
 The
        Exchange Transaction is deemed to be a reverse acquisition. In accordance
        with
        the Accounting and Financial Reporting Interpretations and Guidance provided
        by
        the staff of the U.S. Securities and Exchange Commission, WillowTree (the
        legal
        acquirer) is considered the accounting acquiree and OmniReliant (the legal
        acquiree) is considered the accounting acquirer. A reverse merger is accounted
        for as the issuance of shares of the accounting acquirer for the net-monetary
        assets or liabilities of the accounting acquire, accompanied by a
        recapitalization of stockholders’ equity. The consolidated financial statements
        of the combined entity will, in substance, be those of the accounting acquire,
        OmniReliant, which, as discussed below, was organized on August 21, 2006.
 
 Effective
        December 29, 2006, the Registrant’s name changed from Willowtree Advisor, Inc.
        to OmniReliant Holdings, Inc. ("the Company").
 
 *Nature
        of Business*
 
 OmniReliant
        Corporation was incorporated on August 21, 2006 under the laws of the State
        of
        Florida. The Company is in the development stage and has realized only minor
        revenues from its planned operations. OmniReliant Corporation (“OmniReliant”)
        engages in the creation, design, distribution, and sale of affordable luxury
        products. OmniReliant plans to make these products available to U.S. and
        international consumers through direct response infomercials, live shopping
        networks, ecommerce, direct mail and traditional retail
        channels. OmniReliant will first focus on bringing the Kathy Hilton
“Private Beauty Spa” product line to market, after which OmniReliant plans to
        develop other personalities and designer licenses. Ms. Hilton, who is the
        wife
        of Rick Hilton, the grandson of the Hilton Hotel founder, has agreed to appear
        in television segments and infomercials.
 
 Until
        the
        Company’s products are successfully marketed on a live shopping network or via
        infomercials, we will not generate significant revenues and may not be
        successful. If we cannot generate sufficient revenues to continue operations,
        we
        will be forced to suspend or cease operations.
  13
  OMNIRELIANT
        HOLDINGS, INC. & SUBSIDIARY
 (A
        Development Stage Company)
 NOTES
        TO
        UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
        1 -
        ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
 
 *Going* *Concern*
 
 The
        Company is in its development stage and has incurred losses and has used
        cash in
        its operating activities while devoting substantially all of its efforts
        to
        raising capital and identifying and pursuing businesses opportunities. The
        Company's total liabilities exceed its total assets and the Company's liquidity
        is substantially dependent on raising capital. These factors raise substantial
        doubt about the Company's ability to continue as a going concern.
        The accompanying consolidated financial statements have been prepared on
        a going concern
        basis, which contemplates continuing operations, realization of assets and
        liquidation of liabilities in the ordinary course of business. The Company's
        ability to continue as a going concern
        is dependent upon its ability to raise sufficient capital to implement a
        successful business plan and to generate profits sufficient to become
        financially viable. The consolidated financial statements do not include
        adjustments relating to the recoverability of recorded assets or liabilities
        that might be necessary should the Company be unable to continue as a going concern.
 
 NOTE
        2- BASIS OF PRESENTATION
 
 The
        accompanying unaudited consolidated financial statements for the three month
        period ended March 31, 2008, the three month period ended March 31, 2007,
        the
        nine month period ended March 31, 2008, the nine month period ended March
        31,
        2007, the period from August 21, 2006 (inception) to March 31, 2008, and
        the
        period from August 21, 2006 (inception) to March 31, 2007 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 10QSB. Accordingly,
        they do not include all the information and footnotes required by accounting
        principles generally accepted in the United States of America for complete
        financial statements.
 
 The
        unaudited financial information included in this report includes all adjustments
        which are, in the opinion of management, necessary to reflect a fair statement
        of the results for the interim periods. The operations for the three month
        period ended March 31, 2008, the three month period ended March 31, 2007,
        nine
        month period ended March 31, 2008, the nine month period ended March 31,
        2007,
        the period from August 21, 2006 (inception) to March 31, 2008, and the period
        from August 21, 2006 (inception) to March 31, 2007 are not necessarily
        indicative of the results of the full fiscal year.
 
 The
        condensed consolidated financial statements included in this report should
        be
        read in conjunction with the financial statements and notes thereto included
        in
        the Registrant's June 30, 2007 Annual Report on Form 10-KSB and subsequent
        filings on Form 8-K.
 
 NOTE
        3 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 *Revenue
        Recognition -* Revenue
        is recognized when the product is shipped to a customer, or in the limited
        circumstances, at destination, when terms provide that title passes at
        destination. Estimated amounts for sales returns and allowances are recorded
        at
        the time of sale. License revenue is recorded over the term of the license
        arrangement, as it is earned.
 
 *Principles
        of Consolidation* - The
        Consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiary. All significant intercompany accounts, profits and
        transactions have been eliminated in consolidation. Entities where the Company
        does not have voting control but has significant influence over its operations
        are accounted for under the equity method.
  14
  OMNIRELIANT
        HOLDINGS, INC. & SUBSIDIARY
 (A
        Development Stage Company)
 NOTES
        TO
        UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
        3 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
 
 *Use
        of Estimates* - The
        process of preparing financial statements in conformity with accounting
        principles generally accepted in the United States of America requires the
        use
        of estimates and assumptions regarding certain types of assets, liabilities,
        revenues, and expenses. Such estimates primarily relate to unsettled
        transactions and events as of the date of the financial statements. Accordingly,
        upon settlement, actual results may differ from estimated amounts.
 
 *Investments
        in Debt Securities* -
        The
        Company accounts for its investment in debt securities in accordance with
        SFAS
        115, “Accounting for Certain Investments in Debt and Equity Securities,” and
        accordingly, classifies them as held-to-maturity, available-for-sale, or
        trading. Currently, the Company holds held-to-maturity debt
        securitieswhich
        are recorded at amortized cost, adjusted for the amortization or accretion
        of
        premiums or discounts and such carrying values approximate fair
        value.Interest
        income is recognized when earned. A decline in the market value of a
        held-to-maturity security below that which is deemed to be other-than-temporary
        would result in a reduction in the carrying amount to fair
        value.
 
 *Merchandise
        Inventories -* Merchandise
        inventories are recorded at the lower of average cost or market. In-bound
        freight-related costs from our vendors are included as part of the net cost
        of
        merchandise inventories. Other costs associated with acquiring, storing and
        transporting merchandise inventories are expensed as incurred and included
        in
        cost of goods sold.
 
 *Intangible
        assets-* Trademarks and licenses are recorded at cost and those with finite lives
        are
        amortized over the estimated periods of benefit. Amortization expense for
        the
        three month period ended March 31, 2008, the three month period ended March
        31,
        2007(as restated), the nine month period ended March 31,2008, the nine month
        period ended March 31, 2007 (as restated), the period from August 21, 2006
        (inception) to March 31 2008, and the period from August 21, 2006 (inception)
        to
        March 31, 2007 (as restated) was $66,689, $171,869, $428,064, $226,970, $840,016
        and $226,970, respectively.
 
 *Stock
        Based Compensation -* In
        December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
        Payment". SFAS 123(R) will provide investors and other users of financial
        statements with more complete and neutral financial information by requiring
        that the compensation cost relating to share-based payment transactions be
        recognized in financial statements. That cost will be measured based on the
        fair
        value of the equity or liability instruments issued. SFAS 123(R) covers a
        wide
        range of share-based compensation arrangements including share options,
        restricted share plans, performance-based awards, share appreciation rights,
        and
        employee share purchase plans. SFAS 123(R) replaces FASB Statement No. 123,
        "Accounting for Stock-Based Compensation", and supersedes APB Opinion No.
        25,
        "Accounting for Stock Issued to Employees". SFAS 123, as originally issued
        in
        1995, established as preferable a fair-value-based method of accounting for
        share-based payment transactions with employees. However, that statement
        permitted entities the option of continuing to apply the guidance in Opinion
        25,
        as long as the footnotes to financial statements disclosed what net income
        would
        have been had the preferable fair-value-based method been used. Public entities
        (other than those filing as small business issuers) were required to apply
        SFAS
        123(R) as of the first interim or annual reporting period that begins after
        June
        15, 2005. For public entities that file as small business issuers, SFAS 123(R)
        was applicable as of the beginning of the first interim or annual reporting
        period that begins after December 15, 2005.
 
 15
  OMNIRELIANT
        HOLDINGS, INC. & SUBSIDIARY
 (A
        Development Stage Company)
 NOTES
        TO
        UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
        3 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
 
 *2007
        Long Term Incentive Plan*
 
 On
        November 21, 2007 the Company established a Long Term Incentive (the “2007
        Incentive Plan”) plan for the purposes of advancing the interests of the Company
        and our shareholders by providing incentives to certain of our employees
        and
        other key individuals who perform services for us, including those who
        contribute significantly to the strategic and long-term performance objectives
        and growth of the Company. The 2007 Incentive Plan is administered by a
        committee (the “Committee”) appointed by the Board of Directors. Currently, the
        Committee is comprised of all members of the Board of Directors acting as
        a
        group. The Committee has the power to interpret the 2007 Incentive Plan and
        to
        prescribe rules, regulations and procedures in connection with the operations
        of
        the 2007 Incentive Plan. The Committee may delegate administrative
        responsibilities under the 2007 Incentive Plan to any one or more of its
        members
        or other persons, except as may otherwise be required under applicable law
        or
        listing standards for an exchange on which the Company’s common stock may be
        listed. The 2007 Incentive Plan provides for the granting of several types
        of
        awards, including stock options, performance grants and other awards deemed
        by
        the Committee to be consistent with the purposes of the 2007 Incentive Plan.
        Awards may be granted alone, or in conjunction with one or more other awards,
        as
        determined by the Committee.
 
 The
        2007
        Incentive Plan was effective as of November 21, 2007, and was approved by
        the
        Company’s board of directors. The Company’s shareholders have not voted on
        approval of the 2007 Incentive Plan. A maximum of two million shares (2,000,000)
        shares of common stock has been authorized to be issued under the 2007 Incentive
        Plan in connection with the grant of awards, subject to adjustment for corporate
        transactions, including, without limitation, any stock dividend, forward
        stock
        split, reverse stock split, merger or recapitalization. Of this amount, no
        more
        than two million (2,000,000) shares of common stock may be issued as incentive
        stock options. Common stock issued under the 2007 Incentive Plan may be either
        newly issued shares, treasury shares, reacquired shares or any combination
        thereof. If common stock issued as restricted stock, restricted stock units
        or
        otherwise subject to repurchase or forfeiture rights is reacquired by us
        pursuant to such rights, or if any award is cancelled, terminates, or expires
        unexercised, the common stock which would otherwise have been issuable pursuant
        to such awards will be available for issuance under new awards. All awards
        under
        the 2007 Incentive Plan shall be granted within 10 years of the date the
        plan
        was adopted.
 
 The
        Committee has exclusive discretion to select to whom awards will be granted;
        to
        determine the type, size, terms and conditions of each award; to modify or
        waive, within certain limits, the terms and conditions of any award; to
        determine the time when awards will be granted; to establish performance
        objectives; to prescribe the form of documents representing awards under
        the
        2007 Incentive Plan; and to make all other determinations which it deems
        necessary, advisable or desirable in the interpretation and administration
        of
        the 2007 Incentive Plan. At the discretion of the Committee, awards may be
        made
        under the 2007 Incentive Plan in assumption of, or in substitution for,
        outstanding awards previously granted by the Company, any predecessor or
        a
        company acquired by the Company or with which it combines. The Committee
        has the
        authority to administer and interpret the 2007 Incentive Plan, and its decisions
        are final, conclusive and binding. We anticipate that all of our employees
        and
        directors will be eligible to participate in the 2007 Incentive
        Plan.
 
 On
        December 7, 2007 pursuant to the Long Term Incentive Plan the Company awarded
        certain employees 350,000 stock options with an exercise price of $1.00 and
        a
        term of 5 years. All of the options issued were fully vested on the grant
        date.
        The Company has recognized $607,705 of expense related to issuances in the
        Consolidated Statement of Operations for the nine month period ended March
        31,
        2008.
  16
  OMNIRELIANT
        HOLDINGS, INC. & SUBSIDIARY
 (A
        Development Stage Company)
 NOTES
        TO
        UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
        3 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
 
 *Determining
        Fair-Value*
  The
        Company uses the Black-Scholes option valuation model to determine the fair
        value of stock options and employee stock purchase plan shares. The
        determination of the fair value of share-based payment awards on the date
        of
        grant using an option-valuation
        model is affected by the Company’s stock price as well as assumptions regarding
        a number of complex variables. These variables include the Company’s expected
        stock price volatility over the term of the awards, projected employee stock
        option exercise behavior, expected risk-free interest rate and expected
        dividends.
 
 The
        Company estimates the expected term and volatility of options granted based
        on
        values derived from its industry peer group. Our decision to use these measures
        of expected term and volatility was based upon the lack of availability of
        actively traded options in the Company’s own common stock and the Company’s
        assessment that the peer group measure of volatility is more representative
        of
        future stock price trends than the Company’s historical volatility. The Company
        bases the risk-free interest rate for option valuation on Constant Maturity
        Rates provided by the U.S. Treasury with remaining terms similar to the expected
        term of the options. The Company does not anticipate paying any cash dividends
        in the foreseeable future and therefore uses an expected dividend yield of
        zero
        in the option valuation model. In addition, SFAS No. 123(R) requires
        forfeitures of share-based awards to be estimated at the time of grant and
        revised, if necessary, in subsequent periods if actual forfeitures differ
        from
        those estimates. As this is the Company’s initial issuance and no historical
        data exists to estimate pre-vesting option forfeitures the Company has recorded
        stock-based compensation expense for the all the awards vested. The Company
        uses
        the straight-line attribution as its expensing method of the value of
        share-based compensation for options and awards.
  Under
        SFAS No. 123(R) the Company uses the Black-Scholes option valuation model
        to
        estimate the fair value of the Company’s option awards. The key assumptions used
        in the model during the three and nine month periods ended March 31, 2008
        included a risk free interest rate of 5.00%, an expected volatility of 122.95%
        and an expected option life of 2 years.
 
 *Financial
        Instruments -* Financial
        instruments, as defined in Financial Accounting Standard No. 107 Disclosures
        about Fair Value of Financial Instruments (Statement 107), consist of cash, evidence of ownership in an entity, and
        contracts that both (i) impose on one entity a contractual obligation to
        deliver
        cash or another financial instrument to a second entity, or to exchange other
        financial instruments on potentially unfavorable terms with the second entity,
        and (ii) conveys to that second entity a contractual right (a) to receive
        cash
        or another financial instrument from the first entity, or (b) to exchange
        other
        financial instruments on potentially favorable terms with the first entity.
        Accordingly, our financial instruments consist of cash and cash equivalents,
        accounts receivable, accounts payable, accrued liabilities, derivative financial
        instruments, and redeemable preferred stock that we have concluded is more
        akin
        to equity than debt.
  17
  OMNIRELIANT
        HOLDINGS, INC. & SUBSIDIARY
 (A
        Development Stage Company)
 NOTES
        TO
        UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
        3 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
 
 We
        carry
        cash and cash equivalents, accounts payable and accrued liabilities at
        historical costs; their respective estimated fair values approximate carrying
        values due to their current nature. We carry derivative financial instruments
        at
        fair value in accordance with Financial Accounting Standard No. 133 Accounting
        for Derivative Financial Instruments and Hedging Activities (Statement 133). We carry redeemable preferred stock at either its basis
        derived
        from the cash received or fair value depending upon the classification afforded
        the preferred stock, or embedded components thereof, in accordance with
        Statement 133 and Financial Accounting Standard No. 150 Financial
        Instruments with Characteristics of both Equity and Liabilities (Statement 150).
 
 Derivative
        Financial Instruments –
        Derivative financial instruments, as defined in Statement 133 consist of
        financial instruments or other contracts that contain a notional amount and
        one
        or more underlying (e.g. interest rate, security price or other variable),
        require no initial net investment and permit net settlement. Derivative
        financial instruments may be free-standing or embedded in other financial
        instruments. Further, derivative financial instruments are initially, and
        subsequently, measured at fair value and recorded as liabilities or, in rare
        instances, assets.
 
 We
        generally do not use derivative financial instruments to hedge exposures
        to
        cash-flow, market or foreign-currency risks. However, we have entered into
        certain other financial instruments and contracts, such as redeemable preferred
        stock arrangements and freestanding warrants with features that are either
        (i)
        not afforded equity classification, (ii) embody risks not clearly and closely
        related to host contracts, or (iii) may be net-cash settled by the counterparty.
        As required by Statement 133, these instruments are required to be carried
        as
        derivative liabilities, at fair value, in our financial statements.
 
 Redeemable
        Preferred Stock –
        Redeemable preferred stock (and, if ever, any other redeemable financial
        instrument we may enter into) is initially evaluated for possible classification
        as liabilities under Statement 150. Redeemable preferred stock classified
        as
        liabilities is recorded and carried at fair value. Redeemable preferred stock
        that does not, in its entirety, require liability classification is evaluated
        for embedded features that may require bifurcation and separate classification
        as derivative liabilities under Statement 133. In all instances, the
        classification of the redeemable preferred stock host contract that does
        not
        require liability classification is evaluated for equity classification or
        mezzanine classification based upon the nature of the redemption features.
        Generally, any feature that could require cash redemption for matters not
        within
        our control, irrespective of probability of the event occurring, requires
        classification outside of stockholders’ equity. See Note 10 for further
        disclosures about our redeemable preferred stock.
 
 *Registration
        Payment Arrangement* s ****– Certain
        financial instruments, including convertible preferred stock and the related
        freestanding warrants issued in connection with those convertible instruments,
        are subject to registration rights agreements, which impose penalties for
        our
        failure to register the underlying common stock by a defined date. These
        potential cash penalties, which are referred to as registration payment
        arrangements, are recorded when payments are both probable and reasonably
        estimable, in accordance with FAS No. 5, Accounting
        for Contingencies *.* These
        liquidated damages were included in the liabilities that were exchanged for
        the
        Series C Preferred Stock. Accordingly, we no longer have an obligation to
        pay
        registration payments. See Note 10 for additional information related to
        the
        exchange.
  18




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





*Recent
      Accounting Pronouncements*





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





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





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





*Recent
      developments*





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





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





19




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      4 -
      ACCOUNTING FOR STOCK BASED COMPENSATION





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





As
      a
      result of adopting SFAS No.123(R) on January 1, 2006, the Company has recognized
      $607,705 of expense related to issuances in the Consolidated Statement of
      Operations for the nine month period ended March 31, 2008.




20


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      4 -
      ACCOUNTING FOR STOCK BASED COMPENSATION (CONTINUED)





*Stock
      Options and Warrants:*





The
      following table summarizes the activity related to all Company stock options
      and
      warrants for the period from June 30, 2007 through March 31, 2008:


Weighted AverageExercise Price
              
              Exercise PriceStock
              
              Per Share
              
              Per ShareWarrants
              
              Options
              
              Warrants
              
              Options
              
              Warrants
              
              OptionsOutstanding
                  at June 30,2007
              
              
              —
              
              
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Granted
              
              
              9,004,000
              
              
              —
              
              $
              1.00-3.75
              
              
              —
              
              $
              2.13
              
              
              —Exercised
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Expired
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Outstanding
                  at September 30, 2007
              
              
              9,004,000
              
              
              —
              
              $
              1.00-3.75
              
              
              —
              
              $
              2.13
              
              
              —Granted
              
              
              30,052,171
              
              
              350,000
              
              $
              0.75-2.00
              
              $
              1.00
              
              $
              1.72
              
              $
              1.00Exercised
              
              
              —
              
              
              (50,000
              )
              
              —
              
              $
              (1.00
              )
              
              —
              
              $
              (1.00
              )Outstanding
                  at December 31, 2007
              
              
              39,056,171
              
              
              300,000
              
              $
              0.75-3.75
              
              $
              1.00
              
              $
              1.70
              
              $
              1.00GrantedExercised
              
              
              (38,400
              )Outstanding
                  at March 31, 2008
              
              
              39,017,771Exercisable
                  at March 31, 2008
              
              
              39,017,771
              
              
              300,000
              
              $
              0.75-3.75
              
              $
              1.00
              
              $
              1.70
              
              $
              1.00




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




21


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      5 –
INCOME (LOSS) PER SHARE





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




Nine Months
              Ended
              March 31, 2008
            
            Nine Months
              Ended
              March 31, 2007Income
                (Loss) applicable to common shareholders
            
            $
            (30,148,923
            )
            $
            (19,049,163
            )Weighted
                average shares outstanding:
            
            
            14,080,464
            
            
            11,787,398Income
                (Loss) per share—basic**
            
            $
            (2.14
            )
            $
            (1.62
            )Income
                (Loss) per share—diluted**
            
            $
            (2.14
            )
            $
            (1.62
            )





Three Months
              Ended
              March 31, 2008
            
            Three Months
              Ended
              March 31, 2007Income
                (loss) applicable to common shareholders
            
            $
            11,802,971
            
            $
            1,842,640Weighted
                average shares outstanding:Basic
            
            
            14,232,908
            
            
            16,792,833Diluted
            
            
            44,030,174
            
            
            19,318,751Income
                (loss) per share—basic
            
            $
            0.83
            
            $
            0.11Income
                (loss) per share—diluted
            
            $
            0.27
            
            $
            0.10





August 21, 2006 (inception)to March 31, 2008
            
            August 21, 2006(inception) toMarch 31, 2007Loss
                applicable to common shareholders
            
            $
            (57,312,827
            )
            $
            (19,049,162
            )Weighted
                average shares outstanding:
            
            
            8,040,738
            
            
            11,787,398Loss
                per share—basic and diluted**
            
            $
            (7.13
            )
            $
            (1.62
            )





Diluted
      weighted average per share outstanding for all periods presented , other than
      the three months ended March 31, 2008 do not include the effect of dilutive
      Series A and B Preferred Stock and Series A-1, A-2, B-1, B-2, C-1, C-2, BD-1,
      BD-2, BD-3, BD-7, BD-8 and BD-9 and consultant warrants because to do so would
      have been anti-dilutive ( see list of anti-dilutive shares below). Accordingly,
      basic and diluted net loss per share for these periods is the same.




22




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      5 -
      LOSS PER SHARE (CONTINUED)





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


**Exercise**
              
              **Common Equivalents**
                **as of**
                **March 31,****Securities**
              
              **Price**
              
              **2008**
              
              **2007*****Preferred:***Series
                  A Preferred
              
              
              
              
              
              —
              
              
              3,000,000Series
                  C Preferred
              
              
              
              
              
              13,746,085
              
              
              —***Warrants:***Class
                  A-1 Warrants (1)
              
              $
              0.75
              
              
              3,000,000
              
              
              3,000,000Class
                  A-2 Warrants (1)
              
              $
              0.75
              
              
              3,000,000
              
              
              3,000,000Class
                  B-1 Warrants (1)
              
              $
              0.75
              
              
              480,000
              
              
              —Class
                  B-2 Warrants (1)
              
              $
              0.75
              
              
              480,000
              
              
              —Class
                  BD-1 Warrants (1)
              
              $
              0.75
              
              
              300,000
              
              
              300,000Class
                  BD-2 Warrants (1)
              
              $
              0.75
              
              
              300,000
              
              
              300,000Class
                  BD-3 Warrants (1)
              
              $
              0.75
              
              
              300,000
              
              
              300,000Class
                  BD-4 Warrants (1)
              
              $
              0.75
              
              
              48,000
              
              
              -Class
                  BD-5 Warrants (1)
              
              $
              0.75
              
              
              48,000
              
              
              -Class
                  BD-6 Warrants (1)
              
              $
              0.75
              
              
              48,000
              
              
              -Class
                  BD-7 Warrants (1)
              
              $
              0.75
              
              
              853,333
              
              
              -Class
                  BD-8 Warrants (1)
              
              $
              0.75
              
              
              853,333
              
              
              -Class
                  BD-9 Warrants (1)
              
              $
              0.75
              
              
              853,333
              
              
              -Class
                  C-1 Warrants
              
              $
              1.50
              
              
              13,746,086
              
              
              -Class
                  C-2 Warrants
              
              $
              2.00
              
              
              13,746,086
              
              
              -Warrant
                  issued to consultants
              
              
              
              
              
              1,000,000
              
              
              -***Options******:***Employee
                  stock options
              
              $
              1.00
              
              
              300,000
              
              
              —Total
                  common stock equivalent shares
              
              
              
              
              
              53,102,256
              
              
              9,900,000




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




23


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 –
INVESTMENT IN DEBT SECURITIES





On
      February 12, 2008, we obtained a Convertible Promissory Note for $150,000 which
      accrues interest at 6% per year and is due and payable to us on February 12,
      2010. On February 14 ,2008, we entered into a Note Purchase Agreement in which
      we had the opportunity to invest up to $450,000 in convertible notes which
      were
      convertible for up to a 5% Membership Interest in the Investee. We have the
      option to convert the note into Membership Interest of the Investee at any
      time
      prior to maturity. The number of Membership Interests that would be delivered
      to
      us upon conversion would equal the principle balance on the note divided by
      $7,500,000. The Investee may require conversion of this note, only if they
      obtain a financing of at least $1,000,000.





The
      investment is being held to maturity, and thus, is being recorded at amortized
      cost. The amortized cost of the investment on March 31, 2008 was
      $151,159.





*Subsequent
      considerations:*





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





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





NOTE
      7 –
INTANGIBLE ASSETS





Our
      intangible assets consist of the following at March 31, 2008:





Carrying
            
            AccumulatedAmount
            
            AmortizationIntangible
                Assets:License
                agreement
            
            $
            656,481
            
            $
            (492,758
            )Patent
                costs
            
            
            1,193,334
            
            
            (8,235
            )Straightening
                iron agreement
            
            
            52,500
            
            
            (52,500
            )Total
            
            $
            1,902,315
            
            $
            (553,493
            )Aggregate
                Amortization ExpenseQuarter
                ended March 31, 2008
            
            $
            66,689Estimated
                Amortization ExpensePeriod
                from December 31, 2007 through June 30, 2008:
            
            $
            70,310Year
                ending June 30:2009
            
            
            75,7292010
            
            
            113,1462011
            
            
            113,1462012
            
            
            113,1462013
            
            
            86,828Thereafter
            
            
            776,517




24




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      7 –
INTANGIBLE ASSETS (CONTINUED):





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





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





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





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





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





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





For
      the
      quarter ended March 31, 2008 the Company recognized $58,454 of expense related
      to this agreement.





25




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      7 –
INTANGIBLE ASSETS (CONTINUED):





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





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





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


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


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





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




The
      Company shall have the right to sell and distribute the Products at such prices
      and on such terms and conditions (including shipping and handling charges)
      as
      ORH may establish. In the event that ORH fails, during the one-year period
      commencing upon Rollout and continuing thereafter, to generate $2,000,000 in
      Product sales per year (“Minimum Quantities”), Licensor may provide 30 days
      prior written notice to ORH and make ORH’s rights hereunder non-exclusive. For
      the life of the Product, ORH or a designated third party, such as the
      manufacturer, on behalf of ORH will maintain and keep in force product liability
      insurance with an insurer approved by Licensor in the amounts not less than
      $2,000,000 per occurrence and $5,000,000 in the aggregate covering all Products
      licensed by ORH from Licensor. ORH, Licensor and, upon ORH’s request, any of
      ORH’s subsidiaries, affiliates or sub-licensees who are involved with the
      marketing and distribution of the Products shall be named as additional insured
      on all such insurance policies, each of which shall be endorsed so as to provide
      at least 30 days notice to ORH of its cancellation, termination or
      non-renewal.





As
      of
      December 31, 2007, this agreement was fully amortized; therefore the Company
      had
      no expense related to this agreement for the three months ended March 31, 2008.





26




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      7 –
INTANGIBLE ASSETS (CONTINUED):





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





-
      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.





-
      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).





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





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





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





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





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





For
      the
      nine months ended March 31, 2008 the Company did not recognize any expense
      related to this agreement.





*Patent
      Application Agreement (#2) -* On
      January 24, 2008, we formally acquired the rights to a unique patented topical
      pharmaceutical product capable of delivering salicylic acid in a non-stick
      clear
      solid composition to treat acne. We will use the patented product to compliment
      the company’s patent pending warming foam acne treatment product. In
      consideration for the rights to the product, the Company issued to the Seller,
      Two Hundred Thousand (200,000) shares of the Company’s common stock.





In
      the
      event additional assistance is required with the patent pending application
      the
      scientist will act a consultant to develop the product.





The
      Company is amortizing the cost of the patent over the remaining useful life
      of
      the asset which is 8.5 years. For the three months ended March 31, 2008 the
      Company recognized $8,235 in expense related to this agreement.


27


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      8 -
      COMMITMENTS & CONTINGENCIES





*Consulting
      Agreement -* On
      October 1, 2006 the Company entered into a six (6) month consulting agreement
      with Harrington Business Development, LLC (“HBD”) to provide services related to
      the creation, production, and editing of infomercials and also to consult the
      Company on marketing and distribution of its products. In consideration for
      the
      services performed the Company will compensate HBD $15,000 per month. On April
      1, 2007 the Company verbally extended the term of the Harrington Business
      Development, LLC consulting agreement for an additional 3 months. The agreement
      was not renewed subsequent to June 30, 2007. The shareholders of HBD are also
      shareholders of the Company.





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





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





*International
      Distribution Agreement -* On March
      19, 2007, the Company entered into an International Distribution Agreement
      with
      Reliant International Media LLC. Pursuant to the Agreement, the Company has
      granted Reliant the exclusive right to represent the Company with respect to
      sales of certain products through retail distribution channels in the United
      Kingdom, Japan and Korea. The products covered by the agreement include any
      and
      all products marketed by the Company under the Kathy Hilton name, likeness
      or
      brand, excluding all perfume and perfume related products. In consideration
      for
      Reliant’s marketing services, the Company has agreed to pay to Reliant a royalty
      equal to ten percent of the Company’s gross revenues. The shareholders of
      Reliant International Media are also shareholders of the Company. For the three
      months ended March 31, 2008 the Company has not recognized any expense related
      to this agreement.





*Public
      Relations Agreement -* On
      April
      27, 2007 the Company entered into a three year consulting agreement with a
      public relations firm. Pursuant to the terms of the agreement the Company will
      pay the following as compensation for services: $7,500 payable each month;
      1,000,000 warrants with a term of 3 years, issued at the onset, entitling the
      holder to purchase shares of the Company’s common stock at an exercise price of
      $1.00 per share; exclusive rights to all future public relation contracts
      awarded to the Company for Kathy Hilton licenses; and compensation at the rate
      of 3% of projected gross wholesale sales per year on all future Kathy Hilton
      licenses awarded to the Company. For the 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.





28


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 – STOCKHOLDERS’ EQUITY





*Common
      Stock Purchase Agreement*





On
      November 22, 2006 the Company and OmniReliant entered into a securities purchase
      agreement with the Company's then principal stockholder, Cynthia Allison,
      pursuant to which OmniReliant purchased 5,000,000 shares of the Company's common
      stock from Ms. Allison for a purchase price of $475,813. Pursuant to the Common
      Stock Purchase Agreement, OmniReliant transferred the 5,000,000 shares to the
      Company for cancellation. The transaction with Ms. Allison was accounted for
      as
      a reduction of additional paid in capital.





*Exchange
      Agreement*





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





Number
                ofName
            
            SharesApogee
                Financial Investments, Inc.
            
            
            3,000,000ZTZ
                Trust Inc.
            
            
            3,000,000Kevin
                Harrington
            
            
            1,500,000Tim
                Harrington
            
            
            1,500,000KRH
                Licensing Company, LLC
            
            
            3,000,000Paul
                Morrison
            
            
            300,000Total
            
            
            12,300,000





*Public
      Relations Agreement -* On
      April
      27, 2007 the Company entered into a three year consulting agreement with a
      public relations firm. Pursuant to the terms of the agreement the Company issued
      1,000,000 warrants with a term of 3 years, issued at the onset, entitling the
      holder to purchase shares of the Company’s common stock at an exercise price of
      $1.00 per share. For the three months ended March 31, 2008 the Company
      recognized expense of $2,471,401 associated with the 1,000,000 warrants which
      were issued. The value of the warrants was determined by using the Black-Scholes
      option pricing model. The Company used a volatility percentage of 23.6%, a
      risk
      free interest rate of 5.00%, and an expected life of 1 1⁄2 years in calculating
      the fair value. See *“Public
      Relations Agreement”* above
      for additional details.





As
      more
      fully discussed in Note 10, these warrants were reclassified to liabilities
      on
      May 22, 2007, and were carried at their fair values, with adjustments to income
      until October 18, 2008, at which time they will be reclassed to
      equity.





*Patent
      Application Agreement -* On June
      18, 2007, the Company entered into an Agreement for Acquisition of a Patent
      Application. The Company upon execution of the Agreement issued to the Seller
      Two Hundred Thousand (200,000) shares of the Company’s common stock. For the
      quarter ended March 31, 2008 the Company did not recognize any expense related
      to this agreement. See *“Patent
      Application Agreement”* above
      for additional details.





29







OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




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





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





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





On
      November 22, 2006, we designated 3,000 shares of our preferred stock as Series
      A
      10% Convertible Preferred Stock (“Series A Preferred”). On May 25, 2007, we
      designated 1,000 shares of our preferred stock as Series B 10% Convertible
      Preferred Stock (“Series B Preferred”). On October 18, 2007, we designated
      10,620,000 shares of our preferred stock as Series C Convertible Preferred
      Stock
      (“Series C Preferred”). The Series A has a par value of $0.0001, a stated value
      of $1,000 and a liquidation preference of $1,000, plus accrued dividends, if
      any. The Series B has a par value of $.00001, a stated value of $1,000 and
      a
      liquidation preference of $1,000. The Series C has a par value of $.0001, a
      stated value of $1.00 and a liquidation preference of $1.00. The Series A
      Preferred, Series B Preferred and Series C Preferred are convertible into our
      common stock at stated conversion prices of $1.00, $1.25, $0.75 respectively,
      based upon the stated value. The conversion prices are subject to anti-dilution
      protection for (i) traditional capital restructurings, such as splits, stock
      dividends and reorganizations and (ii) sales or issuances of common shares
      or
      contracts to which common shares are indexed at less than the stated conversion
      prices.





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





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





30


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




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





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





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


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


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


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


31


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




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


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


·
            Unless
                specifically addressed elsewhere in this Certificate of Designation
                as a
                Triggering Event, the Corporation shall fail to observe or perform
                any
                other covenant, agreement or warranty contained in, or otherwise
                commit
                any breach of the Transaction Documents, and such failure or breach
                shall
                not, if subject to the possibility of a cure by the Corporation,
                have been
                cured within 30 calendar days after the date on which written notice
                of
                such failure or breach shall have been
                delivered;


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


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


·
            There
                shall have occurred a Bankruptcy Event;


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


·
            Any
                monetary judgment, writ or similar final process shall be entered
                or filed
                against the Corporation, any Subsidiary or any of their respective
                property or other assets for greater than
                $50,000.





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





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





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





32


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




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




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





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




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





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





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





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




33








OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




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





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





·  Series
      B
      Preferred—May 25, 2007—The Series B Preferred has terms and features consistent
      with those embodied in the Series A Preferred. However, as more fully discussed
      below, on the issuance date the Company’s ability to share settle the 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
      Statement 133. Derivative financial instruments, as defined in Statement 133
      consist of financial instruments or other contracts that contain a notional
      amount and one or more underlying (e.g. interest rate, security price or other
      variable), require no initial net investment and permit net settlement.
      Derivative financial instruments may be free-standing or embedded in other
      financial instruments. Further, derivative financial instruments are initially,
      and subsequently, measured at fair value and recorded as liabilities or, in
      rare
      instances, assets.





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


34


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




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





The
      initial allocation of the basis in the Series A Preferred Financing transaction
      resulted in no basis ascribed to the redeemable preferred stock for the reason
      discussed in the next paragraph. 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.





35




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




*Subsequent
      and Ongoing Classification Considerations:*





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





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


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


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


36


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




The
      following table illustrates the activity with respect to each of the Series
      A
      and Series B Preferred from their respective inception dates to March 31,
      2008:





Series
                A
            
            Series
                B
            
            TotalMezzanineInitial
                allocation of Series A Preferredin
                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 BPreferred
                in liabilities
            
            
            —
            
            
            780,000
            
            
            780,000Redeemable
                preferred stock (liabilities)
            
            
            5,200,000
            
            
            780,000
            
            
            5,980,000Exchanged
                for Series C Preferred
            
            
            (5,200,000
            )
            
            (780,000
            )
            
            (5,980,000
            )$
            —
            
            $
            —
            
            $
            —





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





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


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


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


·
            The
                shares underlying the placement agent warrants are not subject to
                the
                registration rights. Accordingly, the placement agent warrants issued
                with
                the Series A Preferred Financing were afforded equity classification.
                On
                May 21, 2007, however, our ability to share-settle our share-indexed
                financial instruments was placed out of our control because the number
                of
                shares necessary to share-settle the Series A Preferred became
                indeterminate and we potentially could have insufficient authorized
                shares
                to settle all of our share-indexed financial instruments. On that
                date,
                the warrants issued with the Series A Preferred required reclassification
                to liabilities. Subsequently, on May 25, 2007, the placement agent
                warrants issued with theSeries
                B Preferred Financing did not achieve equity classification for this
                reason.





The
      Series A and Series B Preferred Stock were exchanged for Series C Preferred
      Stock and warrants on October 18, 2007, as discussed in the following
      section:





37





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




*Sale
      and Exchange of Series C Preferred Stock:*





On
      October 18, 2007, we sold 6,400,000 Series C Preferred shares plus two tranches
      of warrants. We also issued warrants to placement agents. On October 18, 2007,
      we also exchanged all outstanding Series A Preferred, 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
                CFinancing
            
            Series
                CExchange
            
            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
            
            
            8,533,334
            
            
            5,212,752
            
            
            13,746,086Investor
                warrants:Tranche
                C-1
            
            
            8,533,344
            
            
            5,212,752
            
            
            13,746,096Tranche
                C-2
            
            
            8,533,344
            
            
            5,212,752
            
            
            13,746,096Placement
                agent warrants
            
            
            2,559,999
            
            
            —
            
            
            2,559,99928,160,021
            
            
            15,638,256
            
            
            43,798,277





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





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





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


38




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




*Sale
      and Exchange of Series C Preferred Stock (continued):*





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




Series 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 redeemablepreferred
                stock
            
            
            —
            
            
            26,247,006
            
            
            26,247,006Day-one
                derivative loss
            
            
            399,150
            
            
            —
            
            
            399,150Loss
                on extinguishment of other liabilities
            
            
            —
            
            
            271,109
            
            
            271,109Gross
                proceeds (financing) basis (exchange)
            
            $
            (6,400,000
            )
            $
            (4,831,874
            )
            $
            (11,231,874
            )




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




Fair
                value of Series C Preferred
            
            $
            13,553,155Fair
                value of Series C investor warrants
            
            
            17,796,83431,349,989Carrying
                values of financialinstruments
                exchanged:Series
                A Preferred
            
            
            (5,200,000
            )Series
                B Preferred
            
            
            (780,000
            )Accrued
                dividends
            
            
            (309,564
            )Accrued
                registration payments
            
            
            (542,080
            )Unamortized
                finance costs
            
            
            1,999,770Total
                carrying values
            
            
            (4,831,874
            )Excess
                of fair values over carrying values
            
            $
            26,518,115Allocation
                of excess:Extinguishment
                of redeemable preferred
            
            $
            26,247,006Extinguishment
                of other liabilities
            
            
            271,109Excess
                of fair values over carrying values
            
            $
            26,518,115




39




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




*Sale
      and Exchange of Series C Preferred Stock (continued):*





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





Financing
                Inception Dates:
            
            A-1
            
            A-2
            
            B-1
            
            B-2Trading
                market price
            
            $
            3.50
            
            $
            3.50
            
            $
            3.50
            
            $
            3.50Strike
                or exercise price
            
            $
            1.50
            
            $
            1.00
            
            $
            1.87
            
            $
            3.75Expected
                term in years
            
            
            5yrs
            
            
            10yrs
            
            
            3yrs
            
            
            5yrsVolatility
            
            
            43.91
            %
            
            51.15
            %
            
            39.86
            %
            
            42.19
            %Risk-free
                rate
            
            
            4.57
            %
            
            4.57
            %
            
            4.81
            %
            
            4.80
            %Expected
                dividend rate
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00





October
                18, 2007:
            
            A-1
            
            A-2
            
            B-1
            
            B-2Trading
                market price
            
            $
            3.25
            
            $
            3.25
            
            $
            3.25
            
            $
            3.25Strike
                or exercise price:Contract
                price
            
            $
            1.50
            
            $
            1.00
            
            $
            1.87
            
            $
            3.75Repriced
            
            $
            0.75
            
            $
            0.75
            
            $
            0.75
            
            $
            0.75Expected
                term in years
            
            
            4.15yrs
            
            
            9.10yrs
            
            
            2.65yrs
            
            
            4.65yrsVolatility
            
            
            39.60
            %
            
            52.07
            %
            
            34.97
            %
            
            40.03
            %Risk-free
                rate
            
            
            4.23
            %
            
            4.59
            %
            
            4.03
            %
            
            4.23
            %Expected
                dividend rate
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00





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





The
      fair
      value of the warrants issued to placement agents in connection with the Series
      A
      Preferred and Series B Preferred financing transactions amounted to $2,492,312
      and $384,034, respectively; $2,876,346 in the aggregate. The fair values were
      calculated using the Black-Scholes-Merton (“BSM”) valuation technique.
      Significant assumptions included award date trading market values of $3.50
      and
      $3.50, volatility percentages of 51.00% and 51.15%, and risk-free rates of
      4.57%
      and 4.86%, respectively. In all instances, the contractual term was used for
      the
      expected term.





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




40




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




*Direct
      Financing Costs:*





Aggregate
      financing costs arising from the Series A, Series B and Series C Preferred
      financings amounted to $2,967,312, $479,034 and $5,538,797, respectively. As
      noted in the tables, below, these financing costs were allocated among deferred
      financing costs, paid-in capital and retained earnings. The allocation of total
      financing costs was based upon the relative fair values of the components of
      the
      financing. That is, liability classified financial instruments (i.e.
      derivatives), mezzanine financial instruments and equity classified financial
      instruments (i.e. BCF). Since, as previously discussed, no basis was ascribed
      to
      the redeemable preferred stock, the amount of financing costs allocated to
      this
      category are reflected as a charge to retained earnings.





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





Classification
            
            Series A
            
            Series B
            
            Series C
            
            TotalDeferred
                financingcosts
                (asset)
            
            $
            1,898,875
            
            $
            479,034
            
            $
            43,079
            
            $
            2,420,988Paid-in
                capital
            
            
            911,135
            
            
            —
            
            
            4,998,925
            
            
            5,910,060Series
                C PreferredMezzanine
            
            
            —
            
            
            —
            
            
            496,793
            
            
            496,793Retained
                earnings(deemed
                dividend)
            
            
            157,303
            
            
            —
            
            
            —
            
            
            157,303Aggregate
                finance costs
            
            $
            2,967,313
            
            $
            479,034
            
            $
            5,538,797
            
            $
            8,985,144





*Derivative
      Financial Instruments*





The
      following table summarizes the components of derivative liabilities as of March
      31, 2008:





Financing
                Transaction:Series
                A Convertible Preferred Financing- Investor warrants
            
            $
            (14,790,870
            )Series
                B Convertible Preferred Financing- Investor warrants
            
            
            (2,262,623
            )Series
                C Convertible Preferred Financing- Put liability
            
            
            (388,130
            )$
            (17,441,623
            )Common
                shares indexed to derivative warrants
            
            
            7,104,000




41




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




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





The
      following table summarizes the components of derivative income (expense) arising
      from fair value adjustments during the periods from the financing inception
      dates to March 31, 2008:





Financing
                Transactions:
            
            Embedded
              Derivatives
            
            Warrants
              Derivatives
            
            TotalSeries
                A Financing
            
            $
            235,096
            
            $
            1,551,680
            
            $
            1,786,776Series
                B Financing
            
            
            —
            
            
            (543,264
            )
            
            (543,264
            )Series
                C Financing
            
            
            11,021
            
            
            —
            
            
            11,021Other
                warrants, reclassified
            
            
            —
            
            
            1,423,200
            
            
            1,423,200Day-one
                derivative losses
            
            
            (17,585,605
            )
            
            —
            
            
            (17,585,605
            )Total
                derivative income (expense)
            
            $
            (17,339,488
            )
            $
            2,431,616
            
            $
            (14,907,872
            )Total
                derivative income (expense) for the :Three
                months endedMarch
                31, 2008
            
            $
            10,496
            
            $
            11,985,528
            
            $
            11,996,024Three
                months endedMarch
                31, 2007
            
            $
            147,212
            
            $
            2,323,500
            
            $
            2,470,712Nine
                months ended
            
            
            
            
            
            
            
            
            .1March
                31, 2008
            
            $
            (388,129
            )
            $
            5,636,527
            
            $
            5,248,398Nine
                months endedMarch
                31, 2007
            
            $
            (15,239,783
            )
            $
            157,550
            
            $
            (15,082,233
            )Inception
                (August 21, 2006)to
                March 31, 2007
            
            $
            (15,239,783
            )
            $
            157,550
            
            $
            (15,082,233
            )Inception
                ( August 21, 2006)To
                March 31, 2008
            
            $
            (17,339,488
            )
            $
            2,431,616
            
            $
            (14,907,872
            )




42




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




We
      estimate fair values of derivative financial instruments using various
      techniques (and combinations thereof) that are considered to be consistent
      with
      the objective measuring fair values. In selecting the appropriate technique,
      we
      consider, among other factors, the nature of the instrument, the market risks
      that it embodies and the expected means of settlement. For less complex
      derivative instruments, such as free-standing warrants, we generally use the
      Black-Scholes-Merton option valuation technique because it embodies all of
      the
      requisite assumptions (including  trading
      volatility, estimated terms and risk free rates) necessary to fair value these
      instruments. For forward contracts that contingently require net-cash settlement
      as the principal means of settlement, we project and discount future cash flows
      applying probability-weightage to multiple possible outcomes. Estimating fair
      values of derivative financial instruments requires the development of
      significant and subjective estimates that may, and are likely to, change over
      the duration of the instrument with related changes in internal and external
      market factors. In addition, option-based techniques are highly volatile and
      sensitive to changes in the trading market price of our common stock, which
      has
      a high estimated historical volatility. Since derivative financial instruments
      are initially and subsequently carried at fair values, our income will reflect
      the volatility in these estimate and assumption changes.





*Registration
      Rights Agreements*





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




43


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




*Registration
      Rights Agreements (continued)*





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





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




44




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 – 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, 2008 or the nine months ended
      March 31, 2008. See “ *Consulting
      Agreement* ”
above
      for further details.





*Licensing
      Agreement -* On
      October 13, 2006, the Company entered into a licensing agreement with a
      shareholder of the Company. On November 22, 2006 the Company made a payment
      of
      $850,000 pursuant to the agreement. On January 10, 2007, pursuant to the
      agreement, the Company paid the remaining balance due of $150,000. The Company
      has recognized expense related to this agreement in the amount of $56,964 for
      the quarter ended March 31, 2008. 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.




45




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 – RELATED
      PARTY TRANSACTIONS (CONTINUED):





Midtown
      Partner & Co. LLC received an aggregate placement agent fee related to
      the Series C Preferred Stock Purchase agreement of approximately $340,000,
      as
      well as the following common stock purchase warrants: (a) series BD-7 common
      stock purchase warrants entitling Midtown Partners to purchase 853,333 shares
      of
      the Company's common stock at an exercise price of seventy five cents ($0.75)
      per share, and (b) series BD-8 common stock purchase warrants entitling Midtown
      Partners to purchase 853,333 shares of the Company's common stock at an exercise
      price of one dollar and fifty cents ($1.50) per share and (c) series BD-8 common
      stock purchase warrants entitling Midtown Partners to purchase 853,333 shares
      of
      the Company's common stock at an exercise price of two dollars ($2.00) per
      share. The Series BD warrants have a term of ten years. The member’s of Midtown
      Partners & Co. LLC are also shareholders of the Company. See
“ *Preferred
      Stock Purchase Agreement”* above
      for further details.





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





*Consulting
      Agreement -* On
      December 8, 2006 the Company entered into a verbal agreement with TotalCFO,
      LLC.
      TotalCFO, LLC is owned by a shareholder of the Company. The Company has
      recognized $18,000 of expense related to this agreement for the quarter ended
      March 31, 2008.





*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.




NOTE
      12 – RESTATEMENTS





The
      accompanying financial statements have been restated to give effect to the
      following:





·
            The
                amortization expense associated with intangible assets was revised
                to
                provide for amortization over the contractual terms of the
                assets.


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


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





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




46




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 – RESTATEMENTS (CONTINUED):





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





As Originally
              Filed
            
            Adjustments
            
            As RestatedStatement
                of operations:Revenues
            
            $
            —
            
            
            —
            
            $
            —Costs
                and expenses
            
            
            (435,311
            )
            
            34,995
            a
            
            (400,316
            )Other
                income (expense):Derivative
                fair value adjustments
            
            
            —
            
            
            2,470,712
            b
            
            2,470,712Interest
                expense
            
            
            —
            
            
            (94,944
            )
            
            (94,944
            )Registration
                payments
            
            
            —
            
            
            (91,125
            )
            
            (91,125
            )Total
                other expenses
            
            
            —
            
            
            2,284,643
            
            
            2,284,643Net
                income (loss)
            
            $
            (435,311
            )
            
            2,249,648
            
            $
            1,884,327Loss
                applicable to common shareholders:Net
                loss
            
            $
            (435,311
            )
            
            2,319,638
            
            $
            1,884,327Accretion
                of preferred
            
            
            —
            
            
            —
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            (41,687
            )
            
            (41,687
            )Loss
                applicable to common shareholders
            
            $
            (435,311
            )
            
            2,277,954
            
            $
            1,842,640Loss
                per common share:Basic
            
            $
            (0.03
            )
            
            0.14
            
            $
            0.11Diluted
            
            $
            (0.03
            )
            
            0.13
            
            $
            0.10





Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $777,154 to $171,869.
                The correction ofestimated
                lives of these assets gave rise to this
                adjustment.


b.
            Our
                previously filed financial statements did not separately disclose
                our
                derivative financial instruments.  Derivative financial instruments
                represent derivative warrants that are carried at fair value and
                a
                 redemption put. Changes in the fair value of derivative liabilities
                are reflected in our income. During  the period, fair value
                adjustments of $2,470,712 were recorded.




47




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 – RESTATEMENTS (CONTINUED):





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





As Originally
              Filed
            
            Adjustments
            
            As RestatedStatement
                of operations:Revenues
            
            $
            2,640
            
            
            —
            
            $
            2,640Costs
                and expenses
            
            
            (856,194
            )
            
            180,195
            a
            
            (675,999
            )Other
                expenses:Derivative
                fair value adjustments
            
            
            —
            
            
            (15,082,233)
            b
            
            (15,082,233
            )Interest
                expense
            
            
            —
            
            
            (126,591
            )
            
            (126,591
            )Registration
                payments
            
            
            —
            
            
            (91,125
            )
            
            (91,125
            )Total
                other expenses
            
            
            —
            
            
            (15,299,949
            )
            
            (15,299,949
            )Net
                loss
            
            $
            (853,554
            )
            
            (15,119,754
            )
            $
            (15,973,308
            )Loss
                applicable to common shareholders:Net
                loss
            
            $
            (853,554
            )
            
            (15,119,754
            )
            $
            (15,973,308
            )Accretion
                of preferred
            
            
            —
            
            
            (3,000,000
            )
            
            (3,000,000
            )Preferred
                stock dividends
            
            
            —
            
            
            (75,854
            )
            
            (75,854
            )Loss
                applicable to common shareholders
            
            $
            (853,554
            )
            
            (18,195,608
            )
            $
            (19,049,162
            )Loss
                per common share:Basic
            
            $
            (0.09
            )
            
            (1.53
            )
            $
            (1.62
            )Diluted
            
            $
            (0.09
            )
            
            (1.53
            )
            $
            (1.62
            )





Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $777,154 to $226,970.
                The correction ofestimated
                lives of these assets gave rise to this
                adjustment.


b.
            Our
                previously filed financial statements did not separately disclose
                our
                derivative financial instruments.  Derivative financial instruments
                represent derivative warrants that are carried at fair value. Changes
                in
                the  fair value of derivative liabilities are reflected in our
                income. During the period, fair value adjustments of  $268,654 were
                recorded. In addition, our financing transactions gave rise to a
                day-one
                derivative loss of  $15,350,887 because the fair value of derivative
                financial instruments sold in the transactions exceeded the  proceeds
                received.




48






OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 –
RESTATEMENTS (CONTINUED):





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





As Originally
              Filed
            
            Adjustments
            
            As RestatedStatement
                of operations:Revenues
            
            $
            2,640
            
            
            —
            
            $
            2,640Costs
                and expenses
            
            
            (856,194
            )
            
            180,195
            a
            
            (675,999
            )Other
                expenses:Derivative
                fair value adjustments
            
            
            —
            
            
            (15,082,233)
            c
            
            (15,082,233
            )Interest
                expense
            
            
            —
            
            
            (126,591)
            b
            
            (126,591
            )Registration
                payments
            
            
            —
            
            
            (91,125
            )
            
            (91,125
            )Total
                other expenses
            
            
            —
            
            
            (15,299,949
            )
            
            (15,299,949
            )Net
                loss
            
            $
            (853,554
            )
            
            (15,119,754
            )
            $
            (15,973,308
            )Loss
                applicable to common shareholders:Net
                loss
            
            $
            (853,554
            )
            
            (15,119,754
            )
            $
            (15,973,308
            )Accretion
                of preferred
            
            
            —
            
            
            (3,000,000
            )
            
            (3,000,000
            )Preferred
                stock dividends
            
            
            —
            
            
            (75,854
            )
            
            (75,854
            )Loss
                applicable to common shareholders
            
            $
            (853,554
            )
            
            (18,195,608
            )
            $
            (19,049,162
            )Loss
                per common share:Basic
            
            $
            (0.09
            )
            
            (1.53
            )
            $
            (1.62
            )Diluted
            
            $
            (0.09
            )
            
            (1.53
            )
            $
            (1.62
            )





Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $777,154 to $226,970.
                The correction ofestimated
                lives of these assets gave rise to this
                adjustment.


b.
            Our
                previously filed financial statements did not separately disclose
                our
                derivative financial instruments.  Derivative financial instruments
                represent derivative warrants that are carried at fair value. Changes
                in
                the  fair value of derivative liabilities are reflected in our
                income. During the period, fair value adjustments of  $268,654 were
                recorded. In addition, our financing transactions gave rise to a
                day-one
                derivative loss of  $15,350,887 because the fair value of derivative
                financial instruments sold in the transactions exceeded the  proceeds
                received.


49


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      13–
TRANSACTIONS WITH RESPONZETV





Sublicense
      Agreement:





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





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


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


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


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





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


50


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      13 –
TRANSACTIONS WITH RESPONZETV (CONTINUED)




The
      substance of the above series of transactions is that of a sublicense
      arrangement between us and ResponzeTV; that is, a revenue arrangement. Our
      accounting for the activity arising from this arrangement, which will commence
      in the second fiscal quarter of our year ending June 30, 2008, provides for
      recognition of deferred revenue to the extent of the consideration received
      for
      the sublicense, which amounts will be recognized in our earnings when amounts
      are earned. As of March 31, 2008 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 are freely
      trading in the United Kingdom; the warrants are not traded. We issued 500,000
      of
      the purchased shares to brokers.





Upon
      the
      completion of the aforementioned sublicense agreement, the purchase and the
      issuance of shares to the brokers, we owned 16.78% of ResponzeTV’s outstanding
      common stock. Our voting control coupled with our representation on ResponzeTV’s
      board of directors indicates that we have substantial influence with respect
      to
      ResponzeTV. As a result, the Company is accounting for the investment under
      the
      equity method of accounting in accordance with Accounting Principles Board
      Opinion No.18, “The Equity Method for Accounting for Investments in Common
      Stock” (APB 18).





Loss
      from
      equity method investment of $288,448 for the nine months ended March 31, 2008
      consists of the allocation of losses from the equity method
      investment.





NOTE
      14 -
      SUBSEQUENT EVENTS





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





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





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





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




51




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      14 -
      SUBSEQUENT EVENTS (CONTINUED)




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





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





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




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




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





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





52




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      14 -
      SUBSEQUENT EVENTS (CONTINUED)




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





53





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





FORWARD
      LOOKING STATEMENTS





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





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





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





3.
      The
      intensity of competition; and





4.
      General economic conditions.





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





Recent
      Developments





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





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





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





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





54




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





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





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




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




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





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





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





55




Reverse
      Acquisition





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





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





Plan
      of
      Operation - Development Stage Company





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





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





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.





56




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





Results
      of Operations





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





*For
      the three months ended March 31, 2008 compared to the three months ended March
      31, 2007*





*Revenues.* Our
      revenues from product sales for the three months ended March 31, 2008 were
      $84,846 compared to the three months ended March 31, 2007 which was $0. This
      increase is primarily the result of launching our products. If we are unable
      to
      implement our plan to manufacture, market and distribute our products, our
      revenues will not significantly increase during the upcoming fiscal year. During
      the three months ended March 31, 2008, we also recorded revenue of $328,150
      from
      the sublicense agreement with ResponzeTV.





*Cost
      of Product Sales.* Costs of
      Products Sold for the three months ended March 31, 2008 was $34,341 compared
      to
      the three months ended March 31, 2007 which was $0. This increase of $34,341
      was
      primarily the result of the launching our products. If we are successful in
      implementing our plan to increase manufacturing and distribution of our
      products, our cost of goods sold will significantly increase during the upcoming
      fiscal year.





*Salaries
      and Wages –* Salaries
      and wages paid to our employees for the three months ended March 31, 2008 were
      $33,265 compared to the three months ended March 31, 2007 which was $51,195.
      The
      primary reason for the increase is due to the stock options that were granted to
      employees during the three month period ended March 31, 2008. We may incur
      additional salaries and wages in future periods as we build our internal
      resources. In these circumstances, we would expect our consulting expenses,
      as
      discussed above, to decrease. In addition, we intend to use share-based payments
      to further compensate employees in the future. We are required to recognize
      share-based payments, when and if they are made, at their fair values on the
      grant date over the vesting period of the related awards.




*Amortization
      –* Amortization
      expense related to our intangible assets for the three months ended March 31,
      2008 was $66,689 compared to the three months ended March 31, 2007 which
      amounted to $171,869. We amortize our intangible assets using the straight-line
      method over periods of future benefit. We also consider our intangible assets
      for impairment when circumstances, if any, arise that indicates that we may
      not
      recover these assets through future revenue streams. During the period from
      August 21, 2006 (inception) through March 31, 2008, and through the date of
      this
      report, we concluded that our intangible assets were recoverable and that our
      estimated useful lives continued to be appropriate. However, given the
      developmental nature of our operations, we will continue to evaluate these
      assets as of each future reporting period. Our operations will continued to
      reflect amortization of these intangible assets over the remaining estimated
      useful lives.





*Professional
      and Consulting –* Our
      professional and consulting expenses for
      the
      three months ended March 31, 2008 were $102,066 compared to the three months
      ended March 31, 2007 which amounted
      to $150,596. ** Inception
      to date expenses reflects significant costs incurred under a public relations
      consultancy contract.





*General
      and Administrative –* Our
      general and administrative expenses for the three months ended March 31, 2008
      were $194,168 compared to the three months ended March 31, 2007 which amounted
      to $26,656. We may incur higher levels of general and administrative expenses
      when our operations become established and increase.





57




*Derivative
      Fair Value Adjustments –* Our
      derivative fair value adjustments for the three months ended March 31, 2008
      were
      $11,996,024 compared to the three month period ended March 31, 2007 which
      amounted to $2,470,712. **The
      increase in the derivative fair value adjustment is primarily related to the
      additional preferred shares issued in connection with Series B and C financing
      agreements. Derivative
      financial instruments, as defined in Financial Accounting Standard No. 133
      consist of financial instruments or other contracts that contain a notional
      amount and one or more underlying (e.g. interest rate, security price or other
      variable), require no initial net investment and permit net settlement.
      Derivative financial instruments may be free-standing or embedded in other
      financial instruments. Further, derivative financial instruments are initially,
      and subsequently, measured at fair value and recorded as liabilities or, in
      rare
      instances, assets. We generally do not use derivative financial instruments
      to
      hedge exposures to cash-flow, market or foreign-currency risks. However, we
      have
      entered into certain other financial instruments and contracts, such as
      redeemable preferred stock arrangements and freestanding warrants with features
      that are either (i) not afforded equity classification, (ii) embody risks not
      clearly and closely related to host contracts, or (iii) may be net-cash settled
      by the counterparty. As required by Statement 133, these instruments are
      required to be carried as derivative liabilities, at fair value, in our
      financial statements.




We
      note
      that all share-indexed financial instruments previously and subsequently issued
      required derivative liability classification, unless otherwise exempted under
      Statement 133, so long as the Series A Preferred Stock embodied its current
      variable share-indexed redemption because, under these circumstances,
      share-settlement was presumed not to be within our control and net-cash
      settlement was assumed. Upon the exchange of the Series A and B Preferred Stock
      for Series C Preferred Stock, there was no longer a variable conversion rate
      associated with the Preferred Stock financings. Accordingly, share
      settlement was once again determined to be within our control and the
      share-indexed instruments were reclassified from liabilities to stockholders’
equity.





*Equity
      in losses of ResponzeTV—*On October 19, 2007 the Company made an investment
      in ResponzeTV*.* We
      carry
      our investment in ResponzeTV under the equity method because we exert
      significant influence, although not control. Our proportionate share of losses
      in ResponzeTV for the three months ended March 31, 2008 amounted to $181,224.
      We
      will continue to record our share of losses or income in ResponzeTV while this
      investment is classified as and accounting for under the equity
      method.





*Finance
      Costs –* Finance
      costs, which represent amortization of asset-classified finance costs arising
      from our Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
      Stock and Warrant financing transactions for the three months ended March 31,
      2008 was $2,154 compared to the three months ended March 31, 2007 which was
      $94,944. The decrease in financing costs is primarily related to the exchange
      on
      October 18, 2007 of the Series A and B Preferred Stock for Series C Preferred
      Stock. As a result of the exchange, the amount of the deferred finance costs
      allocated to the Series C Preferred decreased. The allocation of finance costs
      is based upon the relative fair values of the components of the financing.
      We
      will continue to amortize deferred financing costs over the terms of the
      liability classified financial instruments.




*Net
      Income (Loss) –* Our
      net
      income (loss) for the three months ended March 31, 2008 was $11,802,971 compared
      to the three months ended March 31, 2007 which was $1,884,327. This gives effect
      to the components of our operational income and costs and expenses and our
      other
      income and expense categories as discussed above.





*Income
      (loss) Applicable to Common Shareholders –* Income
      (loss) applicable to common stockholders represents our net income as adjusted
      for cumulative dividends and accretions of discounts on our Series A, B and
      C
      Preferred Stock. Our income (loss) applicable to common shareholders and our
      income (loss) per common share (basic and diluted) for the three months ended
      March 31, 2008 was $11,802,971 and $0.83 and $0.27 compared to the three months
      ended March 31, 2007 which was $1,842,640 and
      $0.11
      and $0.10. All of the accumulated dividends in arrears associated with the
      Series A and Series B Preferred Stock were eliminated as part of the exchange
      agreement associated with the Series C Preferred Stock. There are no preferred
      dividends related to the Series C Preferred Stock, so it is not necessary to
      adjust net income for accrued preferred dividends in arrears in future periods
      unless a new agreement or amendment to the existing agreement warrants such
      treatment.





*For
      the nine months ended March 31, 2008 compared to the nine months ended March
      31,
      2007*





*Net
      Revenues.* Our
      revenues from product sales for the nine months ended March 31, 2008 were
      $274,519 compared to the nine months ended March 31, 2007 which were $2,640.
      This increase is primarily the result of launching our products. If we are
      unable to implement our plan to manufacture, market and distribute our products,
      our revenues will not significantly increase during the upcoming fiscal year.
      During the nine months ended March 31, 2008, we also recorded revenue of
      $546,917 from the sublicense agreement with ResponzeTV.




58






*Cost
      of Product Sales.* Costs of
      Products Sold for the nine months ended March 31, 2008 was $144,220 compared
      to
      the nine months ended March 31, 2007 which was $1,320. This increase was
      primarily the result of the launching our products. If we are successful in
      implementing our plan to increase manufacturing and distribution of our
      products, our cost of goods sold will significantly increase during the upcoming
      fiscal year.





*Salaries
      and Wages –* Salaries
      and wages paid to our employees for the nine months ended March 31, 2008 were
      $1,179,274 compared to the nine months ended March 31, 2007 which were $102,169.
      The primary reason for the increase is due to the stock options that were
      granted to employees during the nine month period ended March 31, 2008. We
      may
      incur additional salaries and wages in future periods as we build our internal
      resources. In these circumstances, we would expect our consulting expenses,
      as
      discussed above, to decrease. In addition, we intend to use share-based payments
      to further compensate employees in the future. We are required to recognize
      share-based payments, when and if they are made, at their fair values on the
      grant date over the vesting period of the related awards.





*Amortization
      –* Amortization
      expense related to our intangible assets for the nine months ended March 31,
      2008 was $428,064 compared to the nine months ended March 31, 2007 which
      amounted to $226,970. We amortize our intangible assets using the straight-line
      method over periods of future benefit. We also consider our intangible assets
      for impairment when circumstances, if any, arise that indicates that we may
      not
      recover these assets through future revenue streams. During the period from
      August 21, 2006 (inception) through March 31, 2008, and through the date of
      this
      report, we concluded that our intangible assets were recoverable and that our
      estimated useful lives continued to be appropriate. However, given the
      developmental nature of our operations, we will continue to evaluate these
      assets as of each future reporting period. Our operations will continued to
      reflect amortization of these intangible assets over the remaining estimated
      useful lives.





*Professional
      and Consulting –* Our
      professional and consulting expenses for
      the
      nine months ended March 31, 2008 were $378,510 compared to the nine months
      ended
      March 31, 2007 which amounted
      to $299,882. ** Inception
      to date expenses reflects significant costs incurred under a public relations
      consultancy contract.





*General
      and Administrative –* Our
      general and administrative expenses for the nine months ended March 31, 2008
      were $433,056 compared to the nine months ended March 31, 2007 which amounted
      to
      $45,658. We may incur higher levels of general and administrative expenses
      when
      our operations become established and increase.





*Losses
      on Exchanges and Extinguishments* —
During
      October 2007, we exchanged Series C Preferred Stock and Series C Warrants having
      a fair value of $31,349,989 for our Series A and Series B Redeemable Preferred
      Stock and certain liabilities having a carrying value of $5,084,856. As a
      result, we were required to record losses in the amount of $26,265,133 related
      to the extinguishment of liabilities.





*Derivative
      Fair Value Adjustments –*Our derivative fair value adjustments for the nine
      months ended March 31, 2008 were $5,248,398 compared to the nine months ended
      March 31, 2007 which amounted to ($15,082,233).**The change in the
      derivative fair value adjustment is primarily related to a decrease in the
      trading price of the Company’s common stock and the exchange of the Series A and
      B Preferred Stock for the Series C Stock on Oct. 18, 2007. Derivative financial
      instruments, as defined in Financial Accounting Standard No. 133 consist of
      financial instruments or other contracts that contain a notional amount and
      one
      or more underlying (e.g. interest rate, security price or other variable),
      require no initial net investment and permit net settlement. Derivative
      financial instruments may be free-standing or embedded in other financial
      instruments. Further, derivative financial instruments are initially, and
      subsequently, measured at fair value and recorded as liabilities or, in rare
      instances, assets. We generally do not use derivative financial instruments
      to
      hedge exposures to cash-flow, market or foreign-currency risks. However, we
      have
      entered into certain other financial instruments and contracts, such as
      redeemable preferred stock arrangements and freestanding warrants with features
      that are either (i) not afforded equity classification, (ii) embody risks not
      clearly and closely related to host contracts, or (iii) may be net-cash settled
      by the counterparty. As required by Statement 133, these instruments are
      required to be carried as derivative liabilities, at fair value, in our
      financial statements.





We
      note
      that all share-indexed financial instruments previously and subsequently issued
      required derivative liability classification, unless otherwise exempted under
      Statement 133, so long as the Series A Preferred Stock embodied its current
      variable share-indexed redemption because, under these circumstances,
      share-settlement was presumed not to be within our control and net-cash
      settlement was assumed. Upon the exchange of the Series A and B Preferred Stock
      for Series C Preferred Stock, there was no longer a variable conversion rate
      associated with the Preferred Stock financings. Accordingly, share
      settlement was once again determined to be within our control and the
      share-indexed instruments were reclassified from liabilities to stockholders’
equity.




59





*Finance
      Costs –* Finance
      costs, which represent amortization of asset-classified finance costs arising
      from our Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
      Stock and Warrant financing transactions for the nine months ended March 31,
      2008 was $152,569 compared to the nine months ended March 31, 2007 which was
      $126,591. The
      decrease in finance costs is primarily related to the exchange on Oct 18, 2007
      of the Series A and B Preferred Stock for Series C Preferred Stock. As a result
      of the exchange, the amount of deferred finance costs allocated to the Series
      C
      Preferred decreased. The allocation of finance costs is based upon the relative
      fair values of the components of the financing.We will continue to
      amortize deferred financing costs over the terms of the liability classified
      financial instruments.





*Equity
      in losses of ResponzeTV –*On Oct 19, 2007, the Company made an investment
      in ResponzeTV. We
      carry
      our investment in ResponzeTV under the equity method because we exert
      significant influence, although not control. Our proportionate share of losses
      in ResponzeTV for the nine months ended March 31, 2008 amounted to $288,488.
      We
      will continue to record our share of losses or income in ResponzeTV while this
      investment is classified as and accounting for under the equity
      method.





*Registration
      Payments –* Registration
      payments represent the liquidated damages that arose when we failed to achieve
      the requirements of our registration rights agreement underlying the Series
      A
      Preferred Stock and Warrant Financing Arrangement. Registration payments for
      the
      nine months ended March 31, 2008 were $309,137 compared to the nine months
      ended
      March 31, 2007 which were $91,125.





*Net
      Income (Loss) –* Our
      net
      loss for the nine months ended March 31, 2008 was ($23,748,923) compared to
      the
      nine months ended March 31, 2007 which was ($15,973,308). This gives effect
      to
      the components of our operational income and costs and expenses and our other
      income and expense categories as discussed above.





*Income
      (loss) Applicable to Common Shareholders –* Income
      (loss) applicable to common stockholders represents our net income (loss) as
      adjusted for cumulative dividends and accretions of discounts on our Series
      C
      Preferred Stock. Our income (loss) applicable to common shareholders and our
      loss per common share (basic and diluted) for the nine months ended March 31,
      2008 was ($30,148,923) and ($2.14) compared to the nine month period ended
      March
      31, 2007 which was ($19,049,163) and
      ($1.62). All of the accumulated dividends in arrears associated with the Series
      A and Series B Preferred Stock were eliminated as part of the exchange agreement
      associated with the Series C Preferred Stock. There are no preferred dividends
      related to the Series C Preferred Stock, so it is not necessary to adjust net
      income for accrued preferred dividends in arrears in future periods unless
      a new
      agreement or amendment to the existing agreement warrants such treatment.




Liquidity
      and Capital Resources





*Liquidity*  *and
      Going Concern* –
Cash
      and cash equivalents amounted to $336,274
      as of March 31, 2008 .
      The
      Company has a working capital deficiency of ($17,298,153). Included in the
      working capital deficiency is $17,441,623 of derivative financial instruments
      because net cash settlement is assumed with respect to certain share-indexed
      financial instruments, principally warrants.





The
      Company has suffered recurring losses while devoting substantially all of its
      efforts to raising capital, identifying and pursuing businesses opportunities.
      Moreover, the Company's total liabilities exceed its total assets and the
      Company's liquidity is substantially dependent on raising capital.





Currently

      the Company does not generate revenues from its operations, and the Company
      will
      require additional cash to develop its business plan and to pay ongoing
      operating expenses, including licensing fees.





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





60




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





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





*Cash
      Flow from Operating Activities* –
We
      used
      cash of ($857,477) and ($1,634,170) in our operating activities during the
      nine
      months ended March 31, 2008 and for the period from August 21, 2006 (inception)
      through March 31, 2008 .
      Our
      cash flow gives effect to our net loss, as adjusted for non-cash charges and
      credits to income, including fair value adjustments to derivatives, share-based
      payments and amortization.





*Cash
      Flow from Investing Activities* –
We
      used
      cash of ($5,331,811) and ($6,362,821) in our investing activities during the
      nine months ended March 31, 2008 and for the period from August 21, 2006
      (inception) through March 31, 2008 . Our
      license agreement requires guaranteed minimum payments to the licensor amounting
      to approximately $1,000,000 annually, less royalty payments for sales of
      licensed product. We otherwise have no commitment to purchase long-lived
      assets.





*Cash
      Flow from Financing Activities* –
We
      received $5,814,078 and 8,333,265 in cash from our financing activities for
      the nine month period ended March 31, 2008 and
      for
      the period from August 21, 2006 (inception) through March 31, 2008. The
      proceeds principally relate to the sale of Series A Preferred Stock, Series
      B
      Preferred Stock, Series C Preferred Stock and Warrants.





Critical
      Accounting Policies





Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our financial statements, which have been prepared in accordance
      with
      accounting principles generally accepted in the United States of America. The
      preparation of these consolidated financial statements requires us to make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosures of contingent assets and
      liabilities. For a description of those estimates, see Note 3, Summary of
      Significant Accounting Policies, contained in the explanatory notes to our
      audited financial statements for the three months ended March 31, 2008 attached
      to this Form 10-QSB. 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.





61




*Recent
      Accounting Pronouncements*





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





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





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* .
      SFAS
      No. 159 permits entities to choose to measure many financial instruments and
      certain other items at fair value. SFAS No. 159 will be effective at the
      beginning of fiscal year 2008. We are presently evaluating the impact of the
      adoption of SFAS No. 159 on our results of operations and financial
      position.





In
      September 2006, the Securities and Exchange Commission issued SAB No. 108
“Considering the Effects of Prior Year Misstatements When Quantifying
      Misstatements in Current Year Financial Statements”, which provides interpretive
      guidance on how the effects of the carryover or reversal of prior year
      misstatements should be considered in quantifying a current year misstatement.
      The guidance is applicable beginning fiscal 2008. The Company does not believe
      SAB No. 108 will have a material impact on the consolidated financial
      statements.





Off
      Balance Sheet Arrangements





None.


62




Item
      3.
      Controls and Procedures





(a)
      Evaluation of disclosure controls and procedures.





Wemaintain
      “disclosure
      controls and procedures,”
as
      such term is defined in Rules 13a-15(e) and 15d-15(e) underthe
      Securities Exchange Act of 1934 (the“Exchange
      Act”),that are
      designed to ensure that information required to be disclosedby
      usinreportsthat
      we
      fileorsubmitunder
      the Exchange Act is recorded, processed, summarized,and
      reported,within
      the time periods specified inSecurities
      and Exchange Commissionrules
      and forms,
      and
      that such informationis
      accumulated and communicated toourmanagement, including our Chief Executive Officer and Chief Financial Officer,as
      appropriate,to
      allow
      timely decisions regarding required disclosure.In
      designing and evaluatingour
      disclosure controls and procedures,
      management recognized that disclosure controls and procedures, no matter how
      well conceived and operated,can
      provide only reasonable,not
      absolute, assurance that the objectives of thedisclosure
      controls and procedures are met. Additionally, in designing disclosure controls
      and procedures, our management necessarily was required to apply its judgment
      in
      evaluating the cost-benefit relationship of possible disclosure controls and
      procedures. The design of any disclosure controls and procedures
      alsois based
      in part upon certain assumptions about the likelihood of future
      events,
      and
      there can be no assurance that any design will succeed in achieving its stated
      goals under all potential future conditions.





As
      of
      March 31, 2008, wecarried
      out an evaluation,under
      the supervision and with the participation of ourChief
      Executive Officer and Chief Financial Officer,of the
      effectiveness of the design and operation of our disclosure controls and
      procedures.
      Based
      on this evaluation, ourChief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures were effective inensuring
      thatinformation required to bedisclosed
      by us in our periodic reports is recorded, processed, summarized and
      reported,within
      the time periods specified for each report and that such information is
      accumulated and communicated to our management, including our principal
      executive and principal financial officers, or persons performing similar
      functions, as appropriate to allow timely decisions regarding required
      disclosure.





(b)
      Changes in internal control over financial reporting.





There
      were no changes in our internal control over financial reporting that occurred
      during the period covered by this Quarterly Report
      on Form 10-QSB that
      have materially affected, or are reasonably likely to materially affect, our
      internal control over financial reporting.





63




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





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





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





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





**Item
      3. Defaults Upon Senior Securities**





None.





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





None.





**Item
      5. Other Information**





None.





**Item
      6. Exhibits**





31
            Certification
                by Chief Executive Officer and Chief Financial Officer, required
                by Rule
                13a- 14(a) or Rule 15d-14(a) of the Exchange Act, promulgated under
                the
                Securities and Exchange Act of 1934, as amended.





32
            Certification
                by Chief Executive Officer and Chief Financial Officer, pursuant
                to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.




64




SIGNATURES





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




OMNIRELIANT
                HOLDINGS, INC.Date:
                May 20, 2008
            By:
            /s/
                Paul MorrisonPaul
                MorrisonTitle:   
                Chief Executive Officer,
              Chief
                Financial Officer




65