UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington
      D. C. 20549





FORM
      10-QSB/A





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





For
      the
      quarterly period ended September 30, 2007





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


For
      the
      transition period from





Commission
      file number 000-51599


OmniReliant
      Holdings, Inc.


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





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





4218
      West
      Linebaugh Avenue


Tampa,
      FL
      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 November 13, 2007
      was 14,000,000.





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









Explanatory
      Notes





OmniReliant
      Holdings, Inc. (hereinafter referred to as “us,” “we,” or the “Company”) is
      filing this Amendment No. 1 on Form 10-QSB/A (the “First Amendment”) to its
      Quarterly Report for the fiscal period ended September 30, 2007, which was
      filed
      with the Securities and Exchange Commission (“SEC”) on November 14, 2007 (the
“Original Report”) in response to certain comments raised by the staff of the
      SEC.    As more fully discussed in Note 11 to the
      accompanying condensed consolidated financial statements, the purpose of this
      Amendment is to restate our unaudited financial statements and notes included
      in
      Part I, Item 1 *Financial Statements* and Part
      I, Item 2 *Management’s
      Discussion and Analysis* to
      address the following matters.





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


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





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




2




PART
      I -
      FINANCIAL INFORMATION




FORWARD-LOOKING
      STATEMENTS





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





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




3




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED BALANCE SHEET


September
      30, 2007 (Restated)





ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            405,310Accounts
                receivable
            
            
            160,661Inventory
            
            
            212,928Prepaid
                expenses
            
            
            34,393Total
                current assets
            
            
            813,292Intangible
                assets, net of accumulated amortization of $596,954
            
            
            1,509,982Deferred
                financing costs, net of accumulated amortization of
                $445,385
            
            
            2,029,494Total
                assets
            
            $
            4,352,768LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                liabilities:Accounts
                payable
            
            $
            218,211Preferred
                stock dividends, in arrears
            
            
            291,437Registration
                payments
            
            
            542,080Redeemable
                preferred stock
            
            
            5,980,000Derivative
                liabilities
            
            
            23,020,264Total
                current liabilities
            
            
            30,051,992Stockholders'
                equity (deficit):Common
                stock, $0.00001 par value; 100,000,000 shares authorized; 14,000,000
                shares issued and outstanding.
            
            
            140Additional
                paid-in capital
            
            
            —Deficit
                accumulated during development stage
            
            
            (25,699,364
            )Total
                shareholders' equity (deficit)
            
            
            (25,699,224
            )Total
                liabilities and shareholders' equity (deficit)
            
            $
            4,352,768





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




4




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF OPERATIONS





Three month
              period ended
              September 30,
              2007
            
            Period from
              August 21, 2006
              (inception)
              to September 30,
              2006
            
            Period August
              21, 2006
              (inception) to
              September 30,
              2007(Restated)
            
            (Restated)
            
            (Restated)Revenue
            
            $
            158,823
            
            $
            2,640
            
            $
            161,463Cost
                of goods sold
            
            
            98,426
            
            
            1,320
            
            
            99,746Gross
                margin
            
            
            60,397
            
            
            1,320
            
            
            61,717Operating
                expenses:Professional
                and consulting
            
            
            130,953
            
            
            —
            
            
            2,955,035Amortization
                expense
            
            
            184,723
            
            
            —
            
            
            596,864Salaries
                and wages
            
            
            52,479
            
            
            —
            
            
            207,373General
                and administrative
            
            
            120,095
            
            
            4,032
            
            
            275,646Total
                operating expenses
            
            
            488,250
            
            
            4,032
            
            
            4,034,918Operating
                loss
            
            
            (427,853
            )
            
            (2,712
            )
            
            (3,973,201
            )Other
                (expense):Derivative
                fair value adjustments
            
            
            3,678,669
            
            
            —
            
            
            (16,477,601
            )Interest
                expense
            
            
            (215,865
            )
            
            —
            
            
            (445,385
            )Registration
                payments
            
            
            (309,137
            )
            
            —
            
            
            (542,080
            )Total
                other expense
            
            
            3,153,667
            
            
            —
            
            
            (17,465,066
            )Income
                (loss) before income taxes
            
            
            2,725,814
            
            
            (2,712
            )
            
            (21,438,267
            )Income
                taxes
            
            
            —
            
            
            —
            
            
            —Net
                income (loss)
            
            $
            2,725,814
            
            $
            (2,712
            )
            $
            (21,438,267
            )Reconciliation
                of net loss to loss applicableto
                common shareholders:Net
                income (loss)
            
            $
            2,725,814
            
            $
            (2,712
            )
            $
            (21,438,267
            )Accretion
                of preferred stock toredemption
                value
            
            
            —
            
            
            —
            
            
            (3,000,000
            )Preferred
                stock dividends, in arrears
            
            
            —
            
            
            —
            
            
            (194,469
            )Income
                (loss) applicable to common shareholders
            
            $
            2,725,814
            
            $
            (2,712
            )
            $
            (24,632,736
            )Net
                income (loss) per common share (basic)
            
            $
            0.19
            
            $
            (0.00
            )Net
                income (loss) per common share (diluted)
            
            $
            0.13
            
            $
            (0.00
            )Weighted
              average common shares outstandingBasic
            
            
            14,000,000
            
            
            8,550,000Diluted
            
            
            20,225,427
            
            
            8,550,000





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 CASH FLOWS




Three month
              period ended
              September 30,
              2007
            
            Period from
              August 21, 2006
              (inception) to
              September 30,
              2006
            
            Period August 21,
              2006(inception) to
              September 30, 2007Cash
                flows from operating activities:Net
                income (loss)
            
            $
            2,725,814
            
            $
            (2,712
            )
            $
            (21,438,267
            )Adjustments
                to reconcile net income (loss)to
                net cash used in operating activities:Derivative
                fair value adjustments
            
            
            (3,678,669
            )
            
            —
            
            
            16,477,601Amortization
                of intangible assets
            
            
            184,723
            
            
            —
            
            
            596,864Amortization
                of deferred finance costs
            
            
            215,865
            
            
            —
            
            
            445,385Share-based
                payments
            
            
            —
            
            
            —
            
            
            2,486,401Changes
                in operating assets and liabilities:Inventory
            
            
            (92,304
            )
            
            (530
            )
            
            (212,928
            )Accounts
                Receivable
            
            
            (160,661
            )
            
            —
            
            
            (160,661
            )Prepaid
                expenses
            
            
            (394
            )
            
            —
            
            
            (34,393
            )Accounts
                payable
            
            
            193,650
            
            
            9,658
            
            
            218,211Accrued
                registration payments
            
            
            309,137
            
            
            —
            
            
            542,080Net
                cash flow from operating activities
            
            
            (302,839
            )
            
            6,416
            
            
            (1,079,707
            )Cash
                flows from investing activities:Payments
                for licenses
            
            
            
            
            
            (3,776
            )
            
            (1,006,010
            )Payments
                for patents
            
            
            (3,335
            )
            
            —
            
            
            (28,335
            )Net
                cash flow from investing activities
            
            
            (3,335
            )
            
            (3,776
            )
            
            (1,034,345
            )Cash
                flows from financing activities:Net
                proceeds from sales of preferred stock
            
            
            —
            
            
            —
            
            
            2,995,000Proceeds
                from sale of common stock
            
            
            —
            
            
            15,000Purchase
                and retirement of common shares
            
            
            —
            
            
            —
            
            
            (475,638
            )Net
                cash flow from financing activities
            
            
            —
            
            
            15,000
            
            
            2,519,362Net
                increase in cash and cash equivalents
            
            
            (306,174
            )
            
            17,640
            
            
            405,310Cash
                and cash equivalents at beginning of year
            
            
            711,484
            
            
            —
            
            
            —Cash
                and cash equivalents at end of year
            
            $
            405,310
            
            $
            17,640
            
            $
            405,310Supplemental
                cash flow information:Interest
                paid in cash
            
            $
            —
            
            $
            —
            
            $
            —Income
                taxes paid in cash
            
            $
            —
            
            $
            —
            
            $
            —Common
                stock issued for patent,at
                fair value
            
            $
            —
            
            $
            —
            
            $
            720,000Common
                stock issued for license,at
                fair value
            
            $
            —
            
            $
            —
            
            $
            352,500




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




6




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)


Period
      from August 21, 2006 (inception) to September 30, 2007 (Restated)





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




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




7




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)


Period
      from August 21, 2006 (inception) to September 30, 2007 (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 9 for details of the
                allocation.


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


(3)
            As
                discussed in Note 9, the Series A Preferred fell within the scope
                of
                Statement 150 on May 22, 2007 and was re-classed to liabilities
                accordingly.


(4)
            Also,
                as discussed in Note 9, share settlement of share-indexed financial
                instruments was no longer within the Company’s control as a result of the
                variable-conversion rate in the Series A Preferred triggered on May
                22,
                2007. Warrants previously classified in stockholders’ equity required
                reclassification to derivative liabilities on that date, based upon
                their
                fair value. Amounts in excess of paid-in capital were classified
                as
                charges to accumulated deficit.




8




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 $475,638. 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.




9




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 September 30, 2007, the period from August 21, 2006 (inception)
      to
      September 30, 2006, and the period from August 21, 2006 (inception) to September
      30, 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 10-QSB. Accordingly, they do not include all the information and
      footnotes required by accounting principles generally accepted in the United
      States of America for complete financial statements.





The
      unaudited financial information included in this report includes all adjustments
      which are, in the opinion of management, necessary to reflect a fair statement
      of the results for the interim periods. The operations for the three month
      period ended September 30, 2007, the period from August 21, 2006 (inception)
      to
      September 30, 2006, and the period from August 21, 2006 (inception) to September
      30, 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. Further, there are additional disclosures contained herein
      that were not included in the original filing.





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.





*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.





*Inventory
      -* 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.




10




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





*Trademarks
      and licenses —* Trademarks and licenses are recorded at cost and those with finite lifes are
      amortized over the estimated periods of benefit. Amortization expense for the
      three month period ended September 30, 2007 (as restated), the period from
      August 21, 2006 (inception) through September 30, 2006, and the period from
      August 21, 2006 (inception) through September 30, 2007 (as restated) was
      $184,723, $0, and $596,864, respectively.





Indefinite-lived
      intangible assets are reviewed annually for impairment under the provisions
      of
      Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and
      Other Intangible Assets, during the Company's fourth quarter of each fiscal
      year, or sooner, if events indicate a potential impairment. The identification
      and measurement of impairment of indefinite-lived intangible assets involves
      the
      estimation of the fair value of the related asset. The estimates of fair value
      are based on the best information available as of the date of the assessment,
      which primarily incorporates management assumptions about discounted expected
      future cash flows. Future cash flows can be affected by changes in industry
      or
      market conditions.





*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.





*Financial
      Instruments -* Financial
      instruments, as defined in Financial Accounting Standard No. 107 Disclosures
      about Fair Value of Financial Instruments (Statement 107), consist of cash, evidence of ownership in an entity, and
      contracts that both (i) impose on one entity a contractual obligation to deliver
      cash or another financial instrument to a second entity, or to exchange other
      financial instruments on potentially unfavorable terms with the second entity,
      and (ii) conveys to that second entity a contractual right (a) to receive cash
      or another financial instrument from the first entity, or (b) to exchange other
      financial instruments on potentially favorable terms with the first entity.
      Accordingly, our financial instruments consist of cash and cash equivalents,
      accounts receivable, accounts payable, accrued liabilities, derivative financial
      instruments, and redeemable preferred stock that we have concluded is more
      akin
      to equity than debt.





We
      carry
      cash and cash equivalents, accounts payable and accrued liabilities at
      historical costs; their respective estimated fair values approximate carrying
      values due to their current nature. We carry derivative financial instruments
      at
      fair value in accordance with Financial Accounting Standard No. 133 Accounting
      for Derivative Financial Instruments and Hedging Activities (Statement 133). We carry redeemable preferred stock at either its basis derived
      from the cash received or fair value depending upon the classification afforded
      the preferred stock, or embedded components thereof, in accordance with
      Statement 133 and Financial Accounting Standard No. 150 Financial
      Instruments with Characteristics of both Equity and Liabilities (Statement 150).




11




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





Derivative
      Financial Instruments -
      Derivative financial instruments, as defined in Statement 133 consist of
      financial instruments or other contracts that contain a notional amount and
      one
      or more underlying (e.g. interest rate, security price or other variable),
      require no initial net investment and permit net settlement. Derivative
      financial instruments may be free-standing or embedded in other financial
      instruments. Further, derivative financial instruments are initially, and
      subsequently, measured at fair value and recorded as liabilities or, in rare
      instances, assets.





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





Redeemable
      Preferred Stock -
      Redeemable preferred stock (and, if ever, any other redeemable financial
      instrument we may enter into) is initially evaluated for possible classification
      as liabilities under Statement 150. Redeemable preferred stock classified as
      liabilities is recorded and carried at fair value. Redeemable preferred stock
      that does not, in its entirety, require liability classification is evaluated
      for embedded features that may require bifurcation and separate classification
      as derivative liabilities under Statement 133. In all instances, the
      classification of the redeemable preferred stock host contract that does not
      require liability classification is evaluated for equity classification or
      mezzanine classification based upon the nature of the redemption features.
      Generally, any feature that could require cash redemption for matters not within
      our control, irrespective of probability of the event occurring, requires
      classification outside of stockholders’ equity. See Note 9 for further
      disclosures about our redeemable preferred stock.





*Registration
      Payment Arrangement* s
      -
      Certain financial instruments, including convertible preferred stock and the
      related freestanding warrants issued in connection with those convertible
      instruments, are subject to registration rights agreements, which impose
      penalties for our failure to register the underlying common stock by a defined
      date. These potential cash penalties, which are referred to as registration
      payment arrangements, are recorded when payments are both probable and
      reasonably estimable, in accordance with FAS No. 5, Accounting
      for Contingencies *.* As
      of
      September 30, 2007 as more fully discussed in Note 9, we are in default of
      certain registration rights agreements and the investors then had certain rights
      to demand payments. However, the investors have not demanded payment, nor have
      they indicated that they will demand payment beyond amounts accrued over time.





*Recent
      Accounting Pronouncements*





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




12




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(continued):*





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 did not have a
      material effect on our consolidated financial statements.





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





NOTE
      4 -
      ACCOUNTING FOR STOCK BASED COMPENSATION





As
      of
      September 30, 2007, the Company had not yet created a stock incentive plan
      which
      authorizes the issuance of options to purchase common stock. Prior to January
      1,
      2006, the Company accounted for Stock Options and Stock Based Compensation
      under
      the recognition and measurement provisions of APB Opinion No. 25, “Accounting
      for Stock Issued to Employees”, and related Interpretations, as permitted by
      FASB Statement No. 123, “Accounting for Stock-Based Compensation”. Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS No. 123(R), Share-Based Payment, using the modified-prospective-transition
      method. Under that transition method, compensation cost for all share-based
      payments granted prior to, but not yet vested as of January 1, 2006 are based
      on
      (a) the grant date fair value estimated in accordance with the original
      provisions of SFAS No. 123, and (b) compensation cost for all share-based
      payments granted subsequent to January 1, 2006 are based on the grant-date
      fair
      value estimated in accordance with the provisions of SFAS No.123(R). Results
      for
      prior periods have not been restated.





As
      a
      result of adopting SFAS No.123(R) on January 1, 2006, this statement did not
      have any effect on the Company's net income and earnings per share for the
      periods ended September 30, 2007 since no options were granted.




13




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 three month period ended September 30, 2007:





**1**  Exercise
                Price
            
            **2**
            
            Exercise
                PriceStock
            
            **3**
            
            **4**  Per
                Share
            
            **5**
            
            Per
                ShareWarrants
            
            Options
            
            
            
            Warrants
            
            Options
            
            
            
            Warrants
            
            OptionsOutstanding
                atJune
                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
            
            
            -Exercisable
                at September 30, 2007
            
            
            9,004,000
            
            $
            -
            
            
            
            
            $
            1.00-3.75
            
            $
            -
            
            
            
            
            $
            2.13
            
            $
            -




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





NOTE
      5 – INCOME (LOSS) PER SHARE:





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





Three Months
              Ended September 30,
              2007
            
            Period from August 21,
              2006 (inception)
              to September 30,
              2006Income
                (loss) applicable to common shareholders
            
            $
            2,725,814
            
            $
            (2,712
            )Weighted
                average shares outstanding:Basic
            
            
            14,000,000
            
            
            8,550,000Diluted
            
            
            20,225,427
            
            
            8,550,000Income
                (loss) per share—basic
            
            $
            0.19
            
            $
            (0.00
            )Income
                (loss) per share- diluted
            
            $
            0.13
            
            $
            (0.00
            )





Diluted
      weighted average per share outstanding for period from August 21, 2006 to
      September 30, 2006 and 2007 does not include the effect of dilutive Series
      A
      Preferred Stock and Series A-1, A-2, B-1, B-2, BD-1, BD-2 and BD-3 and
      consulting warrants because to do so would have been anti-dilutive (see detailed
      list of anti-diluted shares below). Accordingly, basic and diluted net loss
      per
      share for this period is the same.


14


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      5 – INCOME (LOSS) PER SHARE (CONTINUED):





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





Exercise
            
            CommonSecurities
            
            Price
            
            EquivalentsPreferred:Series
                A Preferred
            
            $
            1.00
            
            
            3,000,000Series
                B Preferred
            
            $
            1.25
            
            
            480,000Warrants:Class
                A-1 Warrants
            
            $
            1.50
            
            
            3,000,000Class
                A-2 Warrants
            
            $
            1.00
            
            
            3,000,000Class
                B-1 Warrants
            
            $
            1.87
            
            
            480,000Class
                B-2 Warrants
            
            $
            3.75
            
            
            480,000Class
                BD-1 Warrants
            
            $
            1.00
            
            
            300,000Class
                BD-2 Warrants
            
            $
            1.50
            
            
            300,000Class
                BD-3 Warrants
            
            $
            3.00
            
            
            300,000Class
                BD-4 Warrants
            
            $
            1.87
            
            
            48,000Class
                BD-5 Warrants
            
            $
            3.75
            
            
            48,000Class
                BD-6 Warrants
            
            $
            1.25
            
            
            48,000Warrant
                issued to consultants
            
            
            
            
            
            1,000,000Total
                common stock equivalent shares
            
            
            
            
            
            12,484,000





NOTE
      6 – INTANGIBLE ASSETS





Our
      intangible assets consist of the following at September 30, 2007:


Carrying
            
            AccumulatedIntangible
                Assets:
            
            Amount
            
            AmortizationLicense
                agreement
            
            $
            1,306,101
            
            $
            (551,016
            )Patent
                costs
            
            
            748,335
            
            
            —Straightening
                iron agreement
            
            
            52,500
            
            
            (45,938
            )Total
            
            $
            2,106,936
            
            $
            (596,954
            )Aggregate
                Amortization ExpenseQuarter
                ended September 30, 2007
            
            $
            184,723Estimated
                Amortization ExpensePeriod
                from September 30, 2007 through June 30, 2008:
            
            $
            502,478Year
                ending June 30:2009
            
            
            111,2202010
            
            
            98,6372011
            
            
            98,6372012
            
            
            62,9252013
            
            
            37,417Thereafter
            
            
            598,668$
            1,509,982




15




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 – INTANGIBLE ASSETS (CONTINUED):





*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 September 30, 2007 the Company recognized $165,470 of expense
      related to this agreement.


16


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 – 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.





For
      the
      quarter ended September 30, 2007 the Company recognized $19,418 of amortization
      expense related to this agreement.


17


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 –
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:





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





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





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


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





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





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





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





For
      the
      quarter ended September 30, 2007 the Company did not recognize any expense
      related to this agreement.





NOTE
      7 -
      COMMITMENTS & CONTINGENCIES





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





For
      the
      quarter ended September 30, 2007 the Company recognized $-0- of expense related
      to this agreement.




18




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      7 -
      COMMITMENTS & CONTINGENCIES (CONTINUED):





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





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





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





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





NOTE
      8 -
      STOCKHOLDERS’ EQUITY:





*Common
      Stock Purchase Agreement*





On
      November 22, 2006 the Company and OmniReliant entered into a securities purchase
      agreement with the Company's then principal stockholder, Cynthia Allison,
      pursuant to which OmniReliant purchased 5,000,000 shares of the Company's common
      stock from Ms. Allison for a purchase price of $475,638. 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.




19




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      8 – STOCKHOLDERS’ EQUITY (CONTINUED):





*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 year ended June 30, 2007 the Company recognized expense
      of $2,490,151 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 Note 7, *“Public
      Relations Agreement,”* above
      for additional details.





As
      more
      fully discussed in Note 9, these warrants were reclassified to liabilities
      on
      May 22, 2007, and are carried at their fair values, with adjustments to
      income.





*Patent
      Application Agreement -* On June
      18, 2007, the Company entered into an Agreement for Acquisition of a Patent
      Application. The Company upon execution of the Agreement issued to the Seller
      Two Hundred Thousand (200,000) shares of the Company’s common stock. For the
      quarter ended September 30, 2007 the Company did not recognize any expense
      related to this agreement. See Note 7, *“Patent
      Application Agreement,”* above
      for additional details.




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




This
      footnote includes (i) the details of our redeemable preferred stock, (ii) our
      accounting for the Series A and Series B 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.




20







OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





*Series
      A and Series B Convertible Preferred Stock:*





The
      Company is authorized to sell or issue 100,000,000 shares of preferred stock.
      Redeemable preferred stock included in our liabilities under Statement 150
      consists of the following at September 30, 2007:





Series
                A 10% Convertible Preferred Stock, par value $0.0001, 3,000 shares
                designated, 3,000 shares issued and outstanding; at fair
                value
            
            $
            5,200,000Series
                B 10% Convertible Preferred Stock, par value $0.0001, 1,000 shares
                designated, 600 shares issued and outstanding; at fair
                value
            
            
            780,000$
            5,980,000





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”). Each series 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 A Preferred and Series B Preferred are immediately
      convertible into our common stock at stated conversion prices of $1.00 and
      $1.25, 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 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 September 30, 2007,
      we had accrued $188,635 and $5,833 in dividends related to the Series A and
      B
      Preferred shares, respectively. Preferred stock dividends were recorded as
      a
      reduction of stockholders’ equity through May 31, 2008 at which time they were
      classified as interest expense which resulted from a the reclassification of
      the
      preferred stock instrument from equity to liabilities. When we reflected
      preferred stock dividends as a reduction to equity, we also reflected them
      as a
      component of our net loss for purposes of calculating income (loss) applicable
      to common stockholders and our net loss per common share.


21


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





Certain
      equity conditions in the Certificate of Designations provide that (i) the
      Corporation shall have duly honored all conversions scheduled to occur or
      occurring by virtue of one or more Notices of Conversion of the applicable
      Holder on or prior to the dates so requested or required, if any, (ii) the
      Corporation shall have paid all liquidated damages and other amounts owing
      to
      the applicable Holder in respect of the Preferred Stock, (iii) there is an
      effective Conversion Shares Registration Statement pursuant to which the Holders
      are permitted to utilize the prospectus thereunder 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 Registrable 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;


22


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





·
            The
                Corporation shall fail for any reason to pay in full a amount of
                cash due
                pursuant to a Buy-In within five calendar days after notice therefor
                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 ofCommon
                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




23


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





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





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





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





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





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





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


24





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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


25





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




In
      considering the application of Statement 133, we identified those specific
      terms
      and features embedded in the contracts that possess the characteristics of
      derivative financial instruments. Those features included the conversion option,
      redemption features and other equity-indexed terms and conditions. In evaluating
      the respective classification of these embedded derivatives, we are required
      to
      determine whether the host contract (the Series A and B Preferred) is more
      akin
      to a debt or equity instrument in regards to the risks. This determination
      is
      subjective. In order to reach this conclusion we reviewed the salient terms
      and
      features of the financing arrangements to develop the basis for conclusions
      under EITF D-109 Determining the Nature of a Host Contract Related to a Hybrid Financial
      Instrument Issued in the Form of a Share under Statement No. 133 .
      These
      terms and conditions include: the term or maturity date, inclusion of a coupon
      rate and participation versus protective rights. The perpetual nature of the
      Preferred Stock is persuasive evidence that it is more akin to equity. The
      Series A Preferred Stock agreement contains a cumulative dividend feature which
      is traditional and is expected due to the preferred nature of the security.
      The
      dividend feature, however, does include a default remedy that is most consistent
      with a debt issuance. The cumulative dividend feature would normally be
      considered a neutral indicator, however, it is considered to be minimal evidence
      of an akin to debt instrument due to its structure and operation in the
      Preferred Stock arrangement. Generally, equity instruments are expected to
      embody participation rights. Conversely, creditors generally provide for
      protective rights in debt contracts. Participating rights in the agreement
      includes the right to allow the holder to veto changes in the Company’s
      organization and participate in earnings through the cumulative dividend and
      the
      liquidation feature. Protective rights in the agreement include certain
      redemption features designed to protect the investor’s investment. The
      participating and protective rights have equal merit and neither contain a
      strong indicator of debt or equity. In complying with the guidance provided
      in
      EITF D-109 Determining
      the Nature of a Host Contract Related to a Hybrid Financial Instrument Issued
      in
      the Form of a Share under Statement No. 133 we
      concluded, based upon the preponderance and weight of all terms, conditions
      and
      features of the host contracts, that the Series A Preferred was more akin to
      an
      equity instrument for purposes of considering the clear and close relation
      of
      the embedded feature to the host contract. Based upon this conclusion, we
      further concluded that:





(i)
            the
                equity indexed and settled embedded features did not require derivative
                liability classification.





(ii)
            certain
                redemption features (that is, features that afford the investor the
                right
                to put the instruments for cash) required bifurcation and classification
                as compound embedded derivative liabilities, at fair value on the
                inception date. These redemption features provide for the redemption
                in
                cash, or in some instances in common stock at the holder’s option, at the
                occurrence of certain events, some of which are presumed not to be
                within
                management’s control. In addition, certain provisions embody a penalty
                provision that provides for an incremental cash payment when paid
                in cash
                or a discount to the trading market value of the common stock when
                settled
                with common stock. These redemption features are reflected in the
                table
                above as derivative put liabilities and are valued using multiple,
                probability-weighted cash flow outcomes and market discount rates
                that are
                commensurate with our estimated credit
                risk.




26


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





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





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





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





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.


27





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





*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 are 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. While
      the holders have not elected to redeem the preferred stock, they have the right
      to do so. In addition, 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 indeterminate. Therefore, share settlement of the
      Series A Preferred, and all other of our share-indexed financial instruments
      is
      presumed 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 is no longer within our control. This reclassification
                was
                accomplished by transferring the fair value of these instruments
                from
                stockholders’ equity to liabilities at heir fair values. They require
                ongoing fair value measurement. See “Warrant Considerations,”
                below.


28





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




The
      following table illustrates the activity with respect to each of the Series
      A
      and Series B Preferred from their respective inception dates to September 30,
      2007:





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





The
      redeemable preferred stock is reflected in liabilities 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.





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


29





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




***Warrant
      Considerations***





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





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





A-1
            
            A-2
            
            B-1
            
            B-2Financing
                Inception Dates:Trading
                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





A-1
            
            A-2
            
            B-1
            
            B-2September
                30, 2007:Trading
                market price
            
            $
            3.25
            
            $
            3.25
            
            $
            3.25
            
            $
            3.25Strike
                or exercise price
            
            $
            1.50
            
            $
            1.00
            
            $
            1.87
            
            $
            3.75Expected
                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




30


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




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.





*Direct
      Financing Costs:*





Aggregate
      financing costs arising from the Series A and B Preferred financings amounted
      to
      $2,967,313 and $479,034, 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. As discussed in Note 13, the Series A and B
      Preferred Stock were exchanged for Series C Preferred Stock in October 2007.
      At
      the time of the exchange, the unamortized balance in the deferred finance
      account was included in the carrying value of the Series A and Series B
      Preferred Stock when calculating the excess of the fair value of the Series
      C
      Preferred Stock over the carrying value of the instruments
      exchanged.





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





Classification
            
            Series
                A
            
            Series
                B
            
            TotalDeferred
                financing costs (asset)
            
            $
            1,898,875
            
            $
            479,034
            
            $
            2,377,909Paid-in
                capital
            
            
            911,135
            
            
            —
            
            
            911,135Accumulated
                deficit (deemed dividend)
            
            
            157,303
            
            
            —
            
            
            157,303Cash,
                liability and equity finance costs
            
            $
            2,967,313
            
            $
            479,034
            
            $
            3,446,347


31


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




*Derivative
      Financial Instruments*





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





Warrant
              DerivativesFinancing
                Transaction:Series
                A Convertible Preferred Financing—Investor warrants
            
            $
            (16,736,070
            )Series
                B Convertible Preferred Financing—Investor warrants
            
            
            (1,340,304
            )Other
                warrants, reclassified:Series
                A and B—Placement Agents
            
            
            (2,591,490
            )Consultant
                warrants
            
            
            (2,352,400
            )$
            (23,020,264
            )Common
                shares indexed to derivative warrants
            
            
            9,004,000





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 September 30, 2007:





Embedded
              Derivatives
            
            Warrants
              Derivatives
            
            TotalFinancing
                Transactions:Series
                A Financing
            
            
            235,096
            
            
            (393,520
            )
            
            (158,424
            )Series
                B Financing
            
            
            —
            
            
            357,778
            
            
            357,778Other
                warrants, reclassified
            
            
            —
            
            
            509,500
            
            
            509,500Day-one
                derivative losses
            
            
            (17,186,455
            )
            
            —
            
            
            (17,186,455
            )Total
                derivative income (expense)
            
            
            (16,951,359
            )
            
            473,758
            
            
            (16,477,601
            )





*Derivative
      Financial Instruments*





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.


32


OMNIRELIANT HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





*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.)





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.


33





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      10 -
      RELATED PARTY TRANSACTIONS:





*Consulting
      Agreement -* On
      October 1, 2006 the Company entered into a six (6) month consulting agreement
      with Harrington Business Development, LLC (“HBD”). The shareholders of HBD are
      also shareholders of the Company. The Company has recognized expense related
      to
      this agreement in the amount of $-0- for the quarter ended September 30, 2007.
      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 $165,301
      for
      the year ended September 30, 2007. 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 and B Preferred Stock Purchase Agreements. Midtown
      Partners & Co. LLC received an aggregate placement agent fee related to
      Series A Preferred Stock Purchase agreement of approximately $300,000, as well
      as the following common stock purchase warrants: (a) series BD-1 common stock
      purchase warrants entitling Midtown Partners to purchase 300,000 shares of
      the
      Company's common stock at an exercise price of one dollar ($1.00) per share,
      (b)
      series BD-2 common stock purchase warrants entitling Midtown Partners to
      purchase 300,000 shares of the Company's common stock at an exercise price
      of
      one dollar and fifty cents ($1.50) per share, and (c)  series
      BD-3 common stock purchase warrants entitling Midtown Partners to purchase
      300,000 shares of the Company's common stock at an exercise price of three
      dollars ($3.00) per share. The Series BD warrants have a term of ten years.





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


34


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      10 -
      RELATED PARTY TRANSACTIONS (CONTINUED):





*Consulting
      Agreement -* On
      December 8, 2006 the Company entered into a verbal agreement with TotalCFO,
      LLC.
      TotalCFO, LLC is owned by a shareholder of the Company. The Company has
      recognized $15,000 of expense related to this agreement for the quarter ended
      September 30, 2007.





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





NOTE
      11 – RESTATEMENTS





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





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


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





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





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


As
                    Originally
                  Filed
                
                Adjustments
                
                As
                    RestatedBalance
                    sheet:Current
                    assets
                
                $
                813,292
                
                
                —
                
                $
                813,292License
                
                
                422,892
                
                
                338,755
                a
                
                761,647Patents
                
                
                748,335
                
                
                —
                
                
                748,335Deferred
                    financing costs
                
                
                —
                
                
                2,029,494
                b
                
                2,029,494Total
                    assets
                
                $
                1,984,519
                
                
                2,368,249
                
                $
                4,352,768Accounts
                    payable and accrued expenses
                
                $
                218,385
                
                
                (174
                )
                $
                218,211Preferred
                    stock dividends
                
                
                291,437
                
                
                —
                
                
                291,437Registration
                    payments
                
                
                542,080
                
                
                —
                
                
                542,080Redeemable
                    preferred stock
                
                
                —
                
                
                5,980,000
                
                
                5,980,000Derivative
                    liabilities
                
                
                —
                
                
                23,020,264
                c
                
                23,020,264Fair
                    value of redeemable preferredconversion
                    feature
                
                
                21,447,742
                
                
                (21,447,742
                )d
                
                —Total
                    liabilities
                
                
                22,499,644
                
                
                7,552,348
                
                
                30,051,992Common
                    stock
                
                
                140
                
                
                —
                
                
                140Additional
                    paid in capital
                
                
                2,186,511
                
                
                (2,186,511
                )e
                
                —Stockholders’
                    deficit
                
                
                (22,701,778
                )
                
                (2,997,586)
                f
                
                (25,699,364
                )Total
                    stockholders’ deficit
                
                
                (20,515,127
                )
                
                (5,184,097
                )
                
                (25,699,224
                )Liabilities
                    and stockholders’ deficit
                
                $
                1,984,517
                
                
                2,368,251
                
                $
                4,352,768
  35




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED):





Notes
      to
      the tables:





a.
            Accumulated
                amortization on the intangible assets was corrected from $889,772
                to
                $551,017****due
                adjustments related to a licensing fee for Kathy Hilton which had
                been
                omitted from the original amortization and a correction in the remaining
                estimated life of the Licensing Agreements from 15 months to 20 months
                due
                to an amendment of the terms of the agreement. See Note 6 for additional
                information related to this
                amendment.


b.
            Our
                previously filed financial statements did not give effect to finance
                charges. Finance costs arise from the Series A and Series B Preferred
                Financing Transactions. As more fully disclosed in Note 9, the financing
                costs were allocated to deferred assets, mezzanine and stockholders’
                equity based upon the relative fair values of the related financial
                instruments. The restatement adjustment as of September 30, 2007
                reflects
                deferred finance costs of $2,377,909, less related
                amortization.


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


d.
            Our
                previous financial statements combined our derivative warrants with
                the
                redeemable preferred stock. In addition, the values of the warrants
                and
                the redeemable preferred stock required revision. This entry gives
                effect
                to the reclassification of derivatives to their proper classification
                and
                the revaluation using proper assumptions and
                techniques.


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





To
                reverse incorrect entry to record deferred finance costs
            
            
            570,000To
                properly record finance costs allocated to Additional paid in
                capital
            
            
            2,754,688Entry
                to record the difference between the fair value fo the FAS 150 liability
                and the carrying value of the Series A Redeemable Preferred upon
                event of
                default
            
            
            (1,600,271
            )To
                reclass warrants from equity to a liability upon tainting
                event
            
            
            (5,111,870
            )To
                reclass amounts charged toadditional
                paid in capitalwhich are above the amounts available in that category
            
            
            909,504To
                reclass dividends on preferred stock fromadditional
                paid in capitalto
                Accumulated deficit
            
            
            291,438Restatement
                entry for additional paid in capital
            
            $
            (2,186,511
            )





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




Entry
                to correct the fair value adjustments on preferred stock
            
            $
            1,370,141Entry
                to record finance costs allocated to retained earnings
            
            
            (157,303
            )Entry
                to record the accretion of the Series A Preferred Stock
            
            
            (3,000,000
            )Entry
                to record the dividends on preferred stock
            
            
            (291,438
            )Entry
                to record amortization of deferred finance costs
            
            
            (348,242
            )Entry
                related to amortization expense adjustment
            
            
            338,755To
                reclass amounts charged toadditional
                paid in capitalwhich are above the amounts available in that category
            
            
            (909,499
            )Restatement
                entry for accumulated deficit)
            
            $
            (2,997,586
            )




36





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED):





The
      following table illustrates the effects of the restatements on our statement
      of
      operations for the three month period ended September 30, 2007, as originally
      filed and as restated.





As
                Originally
              Filed
            
            Adjustments
            
            As
                RestatedStatement
                of operations:Revenues
            
            $
            158,823
            
            
            —
            
            $
            158,823Costs
                and expenses
            
            
            (560,418
            )
            
            (26,258
            )a
            
            (586,676
            )Other
                income (expenses):Derivative
                fair value adjustments
            
            
            —
            
            
            3,678,669
            c
            
            3,678,669Preferred
                fair value adjustments
            
            
            2,309,757
            
            
            (2,309,757
            )d
            
            —Interest
                expense
            
            
            —
            
            
            (215,865)
            b
            
            (215,865
            )Registration
                payments
            
            
            (309,137
            )
            
            —
            
            
            (309,137
            )Total
                other expenses
            
            
            2,000,620
            
            
            1,153,047
            
            
            3,153,667Net
                income (loss)
            
            $
            1,599,025
            
            
            1,226,789
            
            $
            2,725,814Income
                applicable to common shareholders:Net
                income
            
            $
            1,599,025
            
            
            1,126,789
            
            $
            2,725,814Preferred
                stock dividends
            
            
            (96,970
            )
            
            96,970
            
            
            —Income
                applicable to common shareholders
            
            $
            1,502,055
            
            
            1,223,759
            
            $
            2,725,814Income
                (loss) per common share:Basic
            
            $
            0.11
            
            
            0.08
            
            $
            0.19Diluted
            
            $
            0.07
            
            
            0.06
            
            $
            0.13




Notes
      to
      the tables:




a.  Amortization
      expense on the intangible assets was corrected from $158,465 to $184,723 due
      to
      amortization expense related to a licensing fee for Kathy Hilton which had
      been
      omitted from the original amortization and a correction in the correction of
      the
      remaining estimated life of the Licensing Agreements from 15 months to 20 months
      due to an amendment of the terms of the agreement. See Note 6 for additional
      information related to this amendment and additional amortization related to
      the
      Kathy Hilton licensing fee gave rise to a debit to licenses and a credit to
      amortization expense in the amount of $26,258.


b.  Our
      previously filed financial statements did not give effect to finance charges.
      Finance costs arise from the Series A and Series B Preferred Financing
      Transactions. As more fully disclosed in Note 9, the financing costs were
      allocated to deferred assets, mezzanine and stockholders’ equity based upon the
      relative fair values of the related financial instruments. Total financing
      costs
      allocated to deferred finance costs amounted to $2,377,908. Amortization of
      the
      deferred financing costs was recorded as a debit to interest expense and a
      credit to deferred financing costs of $215,865.


c.  Our
      previously filed financial statements did not separately disclose our derivative
      financial instruments. Derivative financial instruments represent derivative
      warrants that are carried at fair value. See Note 9 for a summarization of
      the
      components of the derivative liability account. Changes in the fair value of
      derivative liabilities are reflected in our income. During the period, fair
      value adjustments of $3,678,669 were recorded.


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


37




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED):





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





As
                Originally
              Filed
            
            Adjustments
            
            As
                RestatedStatement
                of operations:Revenues
            
            $
            161,463
            
            
            —
            
            $
            161,463Costs
                and expenses
            
            
            (4,473,419
            )
            
            338,755
            a
            
            (4,134,664
            )Other
                expenses:Derivative
                fair value adjustments
            
            
            —
            
            
            (16,477,601
            )c
            
            (16,477,601
            )Preferred
                fair value adjustments
            
            
            (17,847,742
            )
            
            17,847,742
            d
            
            —Interest
                expense
            
            
            —
            
            
            (445,385)
            b
            
            (445,385
            )Registration
                payments
            
            
            (542,080
            )
            
            —
            
            
            (542,080
            )Total
                other expenses
            
            
            (18,389,822
            )
            
            924,756
            
            
            (17,465,066
            )Net
                loss
            
            $
            (22,701,778
            )
            
            1,263,511
            
            $
            (21,438,267
            )Loss
                applicable to common shareholders:Net
                loss
            
            $
            (22,701,778
            )
            
            1,263,511
            
            $
            (21,438,267
            )Accretion
                of preferred
            
            
            (3,600,000
            )
            
            600,000
            
            
            (3,000,000
            )Preferred
                stock dividends
            
            
            (291,438
            )
            
            96,969
            
            
            (194,469
            )Loss
                applicable to common shareholders
            
            $
            (26,593,216
            )
            
            1,960,480
            
            $
            (24,632,736
            )





Notes
      to
      the tables:





a)
            Amortization
                expense on the intangible assets was corrected from $935,619 to $596,864.
                The correction of estimated lives of these assets gave rise to this
                adjustment.


b)
            Our
                previously filed financial statements did not give effect to finance
                charges. Finance costs arise from the Series A and Series B Preferred
                Financing Transactions. As more fully disclosed in Note 9, the financing
                costs were allocated to deferred assets, mezzanine and stockholders’
                equity based upon the relative fair values of the related financial
                instruments. Amortization of the deferred financing costs included
                in this
                adjustment amounts to $445,385. Amortization is included in interest
                expense.


c)
            Our
                previously filed financial statements did not separately disclose
                our
                derivative financial instruments. Derivative financial instruments
                represent derivative warrants that are carried at fair value. Changes
                in
                the fair value of derivative liabilities are reflected in our income.
                During the period, fair value adjustments of $708,854 were recorded.
                In
                addition, our financing transactions gave rise to a day-one derivative
                loss of ($17,186,455) because the fair value of derivative financial
                instruments sold in the transactions exceeded the proceeds
                received.


d)
            Our
                prevous financial statements combined our derivative warrants with
                the
                redeemable preferred stock. In addition, the values of the warrants
                and
                the redeemable preferred stock required revision. This entry gives
                effect
                to the reclassification of derivates to their proper classification
                and
                the revaluation using proper assumptions and
                techniques.


38


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      SUBSEQUENT EVENTS:




*Sale
      and Exchange of Series C Preferred Stock:*





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





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





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





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





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




39


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      SUBSEQUENT EVENTS (CONTINUED):





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





Series C
              Financing
            
            Series C
              Exchange
            
            TotalRedeemable
                preferred stock (mezzanine)
            
            $
            —
            
            $
            (13,553,155
            )
            $
            (13,553,155
            )Beneficial
                conversion feature (paid-in capital)
            
            
            (2,766,833
            )
            
            —
            
            
            (2,766,833
            )Derivative
                put liability
            
            
            (399,150
            )
            
            —
            
            
            (399,150
            )Sub-total
                redeemable preferred
            
            
            (3,165,983
            )
            
            (13,553,155
            )
            
            (16,719,138
            )Paid-in
                capital (investor warrants)
            
            
            (3,633,167
            )
            
            (17,796,834
            )
            
            (21,430,001
            )Loss
                on extinguishment of redeemable preferred stock
            
            
            —
            
            
            26,247,006
            
            
            26,247,006Day-one
                derivative loss
            
            
            399,150
            
            
            —
            
            
            399,150Loss
                on extinguishment of other liabilities
            
            
            —
            
            
            271,109
            
            
            271,109Gross
                proceeds financing basis exchange
            
            $
            6,400,000
            
            $
            4,831,874
            
            $
            11,231,874Deferred
                financing costs (asset)
            
            $
            43,079
            
            $
            —
            
            $
            43,079Paid-in
                capital
            
            
            4,998,925
            
            
            —
            
            
            4,998,925Redeemable
                preferred stock
            
            
            496,793
            
            
            —
            
            
            496,793Cash
                and equity finance costs
            
            $
            5,538,797
            
            $
            —
            
            $
            5,538,797





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 exceeded the carrying values of the Series
      A and
      B Preferred (included in liabilities). The following table illustrates the
      calculations related to the Exchange.





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


40





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      SUBSEQUENT EVENTS (CONTINUED):





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





The
      Series C Preferred Financing and Exchange transactions are to be reported in
      our
      amended quarterly report on Form 10QSB/A for the quarterly period ended December
      31, 2007.





*Transactions
      with ReponzeTV:*





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
      arrangement was structured to allow for the tax free transfer of the sublicense,
      as follows:





·
            We
                created a wholly-owned subsidiary named KHL Holdings, Inc. with minimal
                capitalization on October 12, 2007. The subsidiary had no operations,
                nor
                was there 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
                exchanged for 10,000,000 shares of ResponzeTV common stock, which
                had a
                value of $6,538,240 based upon ResponzeTV’s trading market
                price.


·
            On
                October 19, 2007, in order to convey the rights to the sublicense
                agreement we executed a formal assignment agreement providing for
                the
                assignment of KHL Holdings, Inc. rights in the sublicense agreement
                to
                ResponzeTV. The assignment was necessary due to the non-assignable
                right
                clause with unrelated parties contained in the original license agreement.





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





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





Investment
      in ResponzeTV:





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





Upon
      the
      completion of the aforementioned sublicense agreement, the purchase and the
      issuance of shares to the brokers, we owned 16.78% of ResponzeTV’s outstanding
      common stock. In addition, two of our directors hold in aggregate 18,160,735
      shares and retain two of the six seats on the board of directors of ResponzeTV.
      The shares held by the directors represented 16.48% of the 110,154,638 shares
      outstanding in ResponzeTV after the transaction.


41


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      SUBSEQUENT EVENTS (CONTINUED):





Investment
      in ResponzeTV (continued):





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).





We
      are
      currently gathering the information necessary to commence accounting for
      ResponzeTV under the Equity Method of Accounting upon our investment in the
      second fiscal quarter of our year ending June 30, 2008.





*Other
      events:*





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





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





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





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





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





The
      conversion price of the Series D Preferred Stock and the exercise price of
      the
      Series D Warrants are subject to full ratchet and anti-dilution adjustment
      for
      subsequent lower price issuances by the Company, as well as customary
      adjustments provisions for stock splits, stock dividends, recapitalizations
      and
      the like. Additionally, outstanding warrants issued in connection with previous
      financings and adjusted to full ratchet anti-dilution protection required
      adjustments to exercise prices as a result of the Series D financing
      transaction.


42


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      SUBSEQUENT EVENTS (CONTINUED):





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





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





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





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





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





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


43


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      SUBSEQUENT EVENTS (CONTINUED):





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





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





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





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





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





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





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:


44





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      SUBSEQUENT EVENTS (CONTINUED):





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.


45


OVERVIEW





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





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




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





Plan
      of
      Operation





Based
      upon the net proceeds of $1,855,813 we received in connection with the Preferred
      Stock Purchase Agreement we completed on November 22, 2006 and cash from
      financing activities we believe we can satisfy our cash requirements for the
      next 12 months. We will not be conducting any product development or research.
      We hope to sell products under private label that have already reached its
      market entry point. 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
      two consultants, Harrington Business Development, LLC and TotalCFO,
      LLC.




As
      a
      result of the Exchange Agreement, (i) OmniReliant Corporation became a
      wholly-owned subsidiary of the Company and (ii) the Company succeeded to the
      business of OmniReliant Corporation as its sole business. Because of the
      Company's acquisition of the OmniReliant business, management does not believe
      that it is informative or useful to compare the results of operations for the
      quarter ended March 31, 2007, on an unaudited basis, giving effect to the
      acquisition of OmniReliant, as compared to the quarter ended December 31, 2005
      on an unaudited basis. This discussion and analysis should be read in
      conjunction with the financial statements included with this Report.





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. We will first
      focus on bringing the Kathy Hilton “Private Beauty Spa” product line to market,
      after which we plan to develop other personalities and designer
      licenses.





We
      are
      seeking to enter into an agreement with a live shopping network which would
      permit us to begin marketing our first products in the second quarter of 2007.
      We expect that our costs will be limited as inventory would be purchased by
      the
      live shopping network.





Until
      our
      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 can not generate sufficient revenues to continue operations,
      we will be forced to suspend or cease operations.


46





Limited
      Operating History- Need for Additional Capital





There
      is
      limited historical information about us upon which to base an evaluation of
      our
      performance. We are a development stage operation and have had limited revenues.
      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. We believe cash from operations, cash equivalents, and cash from
      financing activities will be sufficient to meet working capital requirements
      for
      the next 12 months.





To
      become
      profitable and competitive, we will have to successfully launch our products
      through infomercials, live shopping networks and retail outlets.





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.





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.





*Period
      from August 21, 2006 (inception) to fiscal year ended March 31,
      2007*





*Net
      Revenues –* We had
      revenues for the three month period ended September 30, 2007, for the period
      from August 21, 2006 (inception) through September 30, 2007, and for the period
      from August 21, 2006 (inception) through September 30, 2006 of $158,823,
      $161,463 and $2,640 respectively. These levels of revenues reflect our current
      status as a development stage enterprise. However, we have certain valuable
      revenue producing assets, such as our license agreement, for which our
      management is actively developing sales channels and other uses. If we are
      unable to implement our plan to manufacture, market and distribute, or license,
      our products and rights, our revenues will not significantly increase during
      the
      upcoming fiscal year.





*Cost
      of Sale –* Cost
      of
      goods sold for the three month period ended September 30, 2007, for the period
      from August 21, 2006 (inception) through September 30, 2007 and for the period
      from August 21, 2006 (inception) through September 30, 2006 amounted to $98,426,
      $99,746 and $1,320 respectively. If, as described under revenues, we are
      successful in implementing our plan to increase manufacturing and distribution
      of our products, our cost of goods sold will significantly increase during
      the
      upcoming fiscal year. If we are unable to implement our plan to manufacture,
      market and distribute, or license, our products and rights, our revenues will
      not significantly increase during the upcoming fiscal year.





*Professional
      and Consulting –* Our
      professional and consulting expenses for
      the
      three month period ended September 30, 2007, for the period from August 21,
      2006
      (inception) through September 30, 2007 and for the period from August 21, 2006
      (inception) through September 30, 2006 amounted
      to $130,953, $2,955,035 and $0, respectively. ** Inception
      to date expenses reflects significant costs incurred under a public relations
      consultancy contract.





*Amortization
      –* Amortization
      expense related to our intangible assets for
      the
      three month period ended September 30, 2007, for the period from August 21,
      2006
      (inception) through September 30, 2007 and for the period from August 21, 2006
      (inception) through September 30, 2006 amounted
      to $184,723, $596,864, and $0, respectively. We amortize our intangible assets
      using the straight-line method over periods of future benefit. We also consider
      our intangible assets for impairment when circumstances, if any, arise that
      indicates that we may not recover these assets through future revenue streams.
      During the period from August 21, 2006 (inception) through September 30, 2007,
      and through the date of this report, we concluded that our intangible assets
      were recoverable and that our estimated useful lives continued to be
      appropriate. However, given the developmental nature of our operations, we
      will
      continue to evaluate these assets as of each future reporting period. Our
      operations will continued to reflect amortization of these intangible assets
      over the remaining estimated useful lives.


47





*Salaries
      and Wages –* Salaries
      and wages paid to our employees for
      the
      three month period ended September 30, 2007, for the period from August 21,
      2006
      (inception) through September 30, 2007 and for the period from August 21, 2006
      (inception) through September 30, 2006 amounted
      to $52,479, $207,373 and $0, respectively. We may incur additional salaries
      and
      wages in future periods as we build our internal resources. In these
      circumstances, we would expect our consulting expenses, as discussed above,
      to
      decrease. In addition, we intend to use share-based payments to compensate
      employees in the future. We are required to recognize share-based payments,
      when
      and if they are made, at their fair values on the grant date over the vesting
      period of the related awards.





*General
      and Administrative –* Our
      general and administrative expenses for
      the
      three month period ended September 30, 2007, for the period from August 21,
      2006
      (inception) through September 30, 2007 and for the period from August 21, 2006
      (inception) through September 30, 2006 amounted
      to $120,095, $275,646 and $4,032, respectively. We may incur higher levels
      of
      general and administrative expenses when our operations become established
      and
      increase.





*Derivative
      Fair Value Adjustments –* Our
      derivative fair value adjustments for
      the
      three month period ended September 30, 2007, for the period from August 21,
      2006
      (inception) through September 30, 2007 and for the period from August 21, 2006
      (inception) through September 30, 2006 amounted
      to $3,678,669, ($16,477,601) and $0, respectively. ** Derivative
      financial instruments, as defined in Financial Accounting Standard No. 133
      consist of financial instruments or other contracts that contain a notional
      amount and one or more underlying (e.g. interest rate, security price or other
      variable), require no initial net investment and permit net settlement.
      Derivative financial instruments may be free-standing or embedded in other
      financial instruments. Further, derivative financial instruments are initially,
      and subsequently, measured at fair value and recorded as liabilities or, in
      rare
      instances, assets. We generally do not use derivative financial instruments
      to
      hedge exposures to cash-flow, market or foreign-currency risks. However, we
      have
      entered into certain other financial instruments and contracts, such as
      redeemable preferred stock arrangements and freestanding warrants with features
      that are either (i) not afforded equity classification, (ii) embody risks not
      clearly and closely related to host contracts, or (iii) may be net-cash settled
      by the counterparty. As required by Statement 133, these instruments are
      required to be carried as derivative liabilities, at fair value, in our
      financial statements.





We
      note
      that all share-indexed financial instruments previously and subsequently issued
      will require derivative liability classification, unless otherwise exempted
      under Statement 133, so long as the Series A Preferred Stock embodies its
      current variable share-indexed redemption because, under these circumstances,
      share-settlement is presumed not to be within our control and net-cash
      settlement is assumed.





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





*Finance
      Costs –* Finance
      costs, which represent amortization of asset-classified finance costs arising
      from our Series A Preferred Stock, Series B Preferred Stock and Warrant
      financing transactions for
      the
      three month period ended September 30, 2007, for the period from August 21,
      2006
      (inception) through September 30, 2007 and for the period from August 21, 2006
      (inception) through September 30, 2006 amounted
      to $215,865, $445,385 and $0, respectively. We will continue to amortize
      deferred financing costs over the terms of the liability classified financial
      instruments.





*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
      three months ended September 30, 2007 and the period August 21, 2006 (inception)
      to September 30, 2007 amounted to $309,137 and $542,080 respectively and may
      continue to accrue and increase if we are not able to satisfy our requirements
      under the registration rights agreements.


48





*Net
      Income (Loss) –* Our
      net
      income (loss) for
      the
      three month period ended September 30, 2007, for the period from August 21,
      2006
      (inception) through September 30, 2007 and for the period from August 21, 2006
      (inception) through September 30, 2006 amounted
      to $2,725,814, ($21,438,267) and ($2,712), respectively. This gives effect
      to
      the components of our operational income and costs and expenses and our other
      income and expense categories as discussed above.





*Loss
      Applicable to Common Shareholders –* Loss
      applicable to common stockholders represents our net loss as adjusted for
      cumulative dividends and accretions of discounts on our Series A Preferred
      Stock. Our income (loss) applicable to common shareholders and our income (loss)
      per common share (basic and diluted) for
      the
      three month period ended September 30, 2007, for the period from August 21,
      2006
      (inception) through September 30, 2007 and for the period from August 21, 2006
      (inception) through September 30, 2006 amounted
      to $2,725,814, $0.19 and $0.13, ($24,632,736) and ($2,712) and ($0.00),
      respectively.





Liquidity
      and Capital Resources





*Liquidity*  *and
      Going Concern* –
Cash
      and cash equivalents amounted to $405,310 as of September 30, 2007. The Company
      has a working capital deficiency of ($29,238,870). Included in the working
      capital deficiency is $23,020,264 of derivative financial instruments because
      net cash settlement is assumed with respect to certain share-indexed financial
      instruments, principally warrants.





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





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





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





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





*Cash
      Flow from Operating Activities* –
We
      used
      cash of ($302,839), ($1,079,707) and $6,416 in our operating activities during
      the three months ended September 30, 2007, for the period from August 21, 2006
      (inception) through September 30, 2007 and for the period from August 21, 2006
      (inception) through September 30, 2007, respectively .
      Our
      cash flow gives effect to our net loss or income, 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 ($3,335), ($1,034,345) and ($3,776) in our investing activities during
      the three month period ended September 30, 2007, for the period from August
      21,
      2006 (inception) through September 30, 2007 and for the period from August
      21,
      2006 (inception) through September 30, 2006, respectively . 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.


49





*Cash
      Flow from Financing Activities* –
We
      received $2,519,187 in cash from our financing activities during the period
      from
      August 21, 2006 (inception) through September 30, 2007 related principally
      to
      the sale of Series A Preferred Stock, Series B 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 September 30, 2007
      and
      for the period from August 21, 2006 (inception) through September 30, 2007,
      2007
      attached to this Form 10-QSB/A. On an on-going basis, we evaluate our estimates,
      including those related to reserves, deferred tax assets and valuation
      allowance, impairment of long-lived assets, fair value of equity instruments
      issued to consultants for services and estimates of costs to complete contracts.
      We base our estimates on historical experience and on various other assumptions
      that we believe to be reasonable under the circumstances, the results of which
      form the basis for making judgments about the carrying value of assets and
      liabilities that are not readily apparent from other sources. Actual results
      may
      differ from these estimates under different assumptions or conditions; however,
      we believe that our estimates, including those for the above-described items,
      are reasonable.





**Recent
      Accounting Pronouncements**





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





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





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


50




**Accounting
      for Stock-Based Compensation**





As
      of
      March 31, 2007, the Company had not yet created a stock incentive plan which
      authorizes the issuance of options to purchase common stock. Prior to January
      1,
      2006, the Company accounted for Stock Options and Stock Based Compensation
      under
      the recognition and measurement provisions of APB Opinion No. 25, “Accounting
      for Stock Issued to Employees”, and related Interpretations, as permitted by
      FASB Statement No. 123, “Accounting for Stock-Based Compensation”. Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS No. 123(R), Share-Based Payment, using the modified-prospective-transition
      method. Under that transition method, compensation cost for all share-based
      payments granted prior to, but not yet vested as of January 1, 2006 are based
      on
      (a) the grant date fair value estimated in accordance with the original
      provisions of SFAS No. 123, and (b) compensation cost for all share-based
      payments granted subsequent to January 1, 2006 are based on the grant-date
      fair
      value estimated in accordance with the provisions of SFAS No.123(R). Results
      for
      prior periods have not been restated.





The
      adoption of SFAS No.123(R) on January 1, 2006 did not have any effect on the
      Company's net income and earnings per share for the quarter ended September
      30,
      2007 since no options were granted.





**Off
      Balance Sheet Arrangements**





None.


51




Item
        3.
        Controls and Procedures
 
 *(a)
        Evaluation of disclosure controls and procedures.*
 
 The
        Company, under the supervision and with the participation of its management,
        including the principal executive officer and principal financial officer,
        has
        evaluated the effectiveness of the design and operation of its disclosure
        controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange
        Act of 1934, as amended (the “Act”) as of the end of the period covered by this
        report (the “Disclosure Controls”). Based upon the Disclosure Controls
        evaluation, the principal executive officer and principal financial officer
        have
        concluded that the Company’s disclosure controls and procedures were not
        effective in connection with preparing this Annual Report on Form 10-KSB
        due to
        a material weakness in the Company’s internal control over financial reporting,
        mainly its financial closing, review and analysis process. The Company
        determined that a restatement of its financial statements was necessary due
        to
        the issuance of convertible preferred stock and warrants (collectively, the
        “Securities”) in various private placements over the last two years. This
        restatement is required to properly reflect the Company’s financial results (i)
        to revise the amortization expense associated with intangible assets to provide
        for amortization over the contractual terms of the assets and (ii) to reflect
        the proper accounting required under FAS 133 and 150 and other related
        pronouncements and standards related to our Series A and Series B Preferred
        Stock Financings. The financial instruments associated with the financings
        were
        revalued using reasonable techniques and correct assumptions.
  The
        Company believes that the issues surrounding the restatement of these reports,
        mainly the internal controls related to the financial closing, review, and
        analysis process have been addressed by the restatement of the financial
        statements.  The Company has taken additional steps to avoid the
        reoccurrence of this condition by implementing additional procedures for
        all
        future financing and investing transactions. The new procedures will require
        a
        statement be prepared and presented to the board of directors for approval
        with
        any future financing or investment agreements. The statement will address
        the
        following items: a completed derivatives checklist (when applicable), assessment
        of the appropriate accounting treatment, and a review of accounting personnel
        required to accurately account for and report the transactions. The Company
        believes that these additional efforts taken by management will strengthen
        the
        Company’s internal controls and will be effective in future periods.
  A
        control
        system, no matter how well conceived and operated, can provide only reasonable,
        not absolute, assurance that the objectives of the control system are met.
        Further, the design of a control system must reflect the fact that there
        are
        resource constraints, and the benefits of controls must be considered relative
        to their costs. Because of the inherent limitations in all control systems,
        no
        evaluation of controls can provide absolute assurance that all control issues
        and instances of fraud, if any, within the Company have been detected. Because
        of the inherent limitations in a cost-effective control system, misstatements
        due to error or fraud may occur and not be detected.
  The
        Company’s internal control over financial reporting has been modified by adding
        additional resources to address deficiencies in the financial closing, review
        and analysis process, which has materially improved the Company’s internal
        control over financial reporting.
  *(b)* *Changes
        in internal control over financial reporting.*
  We regularly
        review our system of internal control over financial reporting and make changes
        to our processes and systems to improve controls and increase efficiency,
        while
        ensuring that we maintain an effective internal control environment. Changes
        may
        include such activities as implementing new, more efficient systems,
        consolidating activities, and migrating processes.
  We
        made
        the changes as specified above in our internal control over financial reporting
        that occurred during the period covered by this Quarter Report on Form 10-QSB/A
        that have materially affected, or are reasonably likely to materially affect,
        our internal control over financial reporting.
  
  52





PART
      II -
      OTHER INFORMATION




Item
      1.
      Legal Proceedings





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





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





None.





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 and Reports on Form 8-K





a.
      Exhibit Index


31.1
      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 pursuant
      to Section 302 of the Sarbanes-Oxley Act of 2002.





32.1
      Certification by Chief Executive Officer and Chief Financial Officer, required
      by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of
      Chapter 63 of Title 18 of the United States Code, promulgated pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.


53





SIGNATURES





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




OMNIRELIANT
                HOLDINGS, INC.Date:
                October 1, 2008
            By:
            /s/
                Paul MorrisonName:
                Paul Morrison
              Title: 
                 Chief Executive Officer,
              Chief Financial Officer


54