UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington
      D. C. 20549





FORM
      10-QSB/A





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


EXCHANGE
      ACT OF 1934





For
      the
      quarterly period ended March 31, 2007





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


EXCHANGE
      ACT OF 1934


For
      the
      transition period from





Commission
      file number 000-51599




OmniReliant
      Holdings, Inc.


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





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




4218
      West
      Linebaugh Avenue


Tampa,
      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 May 14, 2007
      was 13,800,000.





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 March 31, 2007, which was filed
      with the Securities and Exchange Commission (“SEC”) on May 22, 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 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


March
      31,
      2007 (Restated)





ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            608,062Prepaid
                expenses
            
            
            35,057Total
                current assets
            
            
            643,119Intangible
                assets, net of accumulated amortization of $226,970
            
            
            1,131,541Deferred
                financing costs, net of accumulated amortization of
                $126,592
            
            
            1,772,283Total
                assets
            
            $
            3,546,943LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            16,333Preferred
                stock dividends, in arrears
            
            
            75,854Registration
                payments
            
            
            91,125Derivative
                warrant liabilities
            
            
            16,185,000Put
                liability
            
            
            723,723Total
                current liabilities
            
            
            17,092,035Redeemable
                preferred stock
            
            
            3,000,000Stockholders'
                equity (deficit):Common
                stock, $0.00001 par value; 100,000,000 sharesauthorized;
                13,800,000 shares issued and outstanding.
            
            
            138Additional
                paid-in capital
            
            
            2,661,236Deficit
                accumulated during development stage
            
            
            (19,206,466
            )Total
                shareholders' equity (deficit)
            
            
            (16,545,092
            )Total
                liabilities and shareholders' equity (deficit)
            
            $
            3,546,943




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





4





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENT OF OPERATIONS




Three months ended
              March 31,
              2007
            
            Nine months
              ended March 31,
              2007
            
            August 21, 2006
              to
              March 31, 2007(Restated)
            
            (Restated)
            
            (Restated)License
                revenue
            
            $
            —
            
            $
            2,640
            
            $
            2,640Product
                sales
            
            
            —
            
            
            1,320
            
            
            1,320Total
                revenue
            
            
            —
            
            
            1,320
            
            
            1,320Costs
                and other operating expenses:Professional
                and consulting
            
            
            150,596
            
            
            299,882
            
            
            299,882Amortization
                expense
            
            
            171,869
            
            
            226,970
            
            
            226,970Salaries
                and wages
            
            
            51,195
            
            
            102,169
            
            
            102,169General
                and administrative
            
            
            26,656
            
            
            45,658
            
            
            45,658Total
                operating expenses
            
            
            400,316
            
            
            674,679
            
            
            674,679Operating
                loss
            
            
            (400,316
            )
            
            (673,359
            )
            
            (673,359
            )Other
                income (expense)Derivative
                fair value adjustments
            
            
            2,470,712
            
            
            (15,082,233
            )
            
            (15,082,233
            )Interest
                expense
            
            
            (94,944
            )
            
            (126,592
            )
            
            (126,592
            )Registration
                payments
            
            
            (91,125
            )
            
            (91,125
            )
            
            (91,125
            )Total
                other expense
            
            
            2,284,643
            
            
            (15,299,950
            )
            
            (15,299,950
            )Loss
                before provision for income taxes
            
            
            1,884,327
            
            
            (15,973,309
            )
            
            (15,973,309
            )Provision
                for income taxes
            
            
            —
            
            
            —
            
            
            —Net
                income (loss)
            
            $
            1,884,327
            
            $
            (15,973,309
            )
            $
            (15,973,309
            )Reconciliation
                of net loss to loss applicable to common shareholdersNet
                loss
            
            $
            1,884,327
            
            $
            (15,973,309
            )
            $
            (15,973,309
            )Accretion
                of preferred stock to redemption value
            
            
            —
            
            
            (3,000,000
            )
            
            (3,000,000
            )Preferred
                stock dividends, in arrears
            
            
            (41,687
            )
            
            (75,854
            )
            
            (75,854
            )Loss
                applicable to common shareholders
            
            $
            1,842,640
            
            $
            (19,049,163
            )
            $
            (19,049,163
            )Income
                (loss) per common shareBasic
            
            $
            0.11
            
            $
            (1.62
            )Diluted
            
            $
            0.10
            
            $
            (1.62
            )Weighted
                average shares outstanding —Basic
            
            
            16,792,833
            
            
            11,787,398Diluted
            
            
            19,318,751
            
            
            11,787,398





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





5





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


UNAUDITED
      CONSOLIDATED STATEMENTS OF CASH FLOWS




Nine Months Ended
              March 31, 2007
            
            August 21, 2006 to
              March 31, 2007(Restated)
            
            (Restated)Cash
                flows from operating activities:Net
                loss
            
            $
            (15,973,309
            )
            $
            (15,973,309
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Derivative
                fair value adjustments
            
            
            15,082,233
            
            
            15,082,233Amortization
                of intangible assets
            
            
            226,970
            
            
            226,970Amortization
                of deferred finance costs
            
            
            126,592
            
            
            126,592Registration
                payments
            
            
            91,125
            
            
            91,125Share-based
                payments
            
            
            15,000
            
            
            15,000Prepaid
                expenses
            
            
            (35,057
            )
            
            (35,057
            )Accounts
                payable and accrued expenses
            
            
            16,333
            
            
            16,333Net
                cash used for operating activities
            
            
            (450,113
            )
            
            (450,113
            )Cash
                flows from investing activities:Payments
                for licenses
            
            
            (1,006,010
            )
            
            (1,006,010
            )Net
                cash used for investing activities
            
            
            (1,006,010
            )
            
            (1,006,010
            )Cash
                flows from financing activities:Proceeds
                from sale of preferred stock
            
            
            2,540,000
            
            
            2,540,000Purchase
                of common stock
            
            
            (475,815
            )
            
            (475,815
            )Net
                cash provided by financing activities
            
            
            2,064,185
            
            
            2,064,185Net
                increase in cash and cash equivalents
            
            
            608,062
            
            
            608,062Cash
                and cash equivalents at beginning of year
            
            
            -
            
            
            -Cash
                and cash equivalents at end of year
            
            $
            608,062
            
            $
            608,062Supplemental
                cash flow information:Interest
                paid in cash
            
            $
            -
            
            $
            -Income
                taxes paid in cash
            
            $
            -
            
            $
            -Common
                stock issued for license
            
            $
            352,500
            
            $
            352,500Accretion
                of Series A Preferred
            
            $
            3,000,000
            
            $
            3,000,000





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 March 31, 2007 (Restated)





Common Stock
            
            Paid-in
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            Deficit
            
            TotalBalance,
                November 22, 2006 (unaudited)
            
            
            6,485,000
            
            $
            65
            
            $
            254,264
            
            $
            (254,329
            )
            $
            -Recapitalization
            
            
            7,300,000
            
            
            73
            
            
            (400,215
            )
            
            254,329
            
            
            (145,813
            )Beneficial
                conversion on Series A Preferred offering (1)
            
            
            -
            
            
            -
            
            
            1,173,510
            
            
            -
            
            
            1,173,510Allocation
                of deferred finance costs (2), (1)
            
            
            -
            
            
            -
            
            
            (911,135
            )
            
            (157,303
            )
            
            (1,068,438
            )Placement
                agent warrants (1)
            
            
            -
            
            
            -
            
            
            2,492,312
            
            
            -
            
            
            2,492,312Accretion
                to redemption value (1)
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,000,000
            )
            
            (3,000,000
            )Accrual
                of dividends on Series A Preferred
            
            
            -
            
            
            -
            
            
            -
            
            
            (34,167
            )
            
            (34,167
            )Net
                loss for the three months ended December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            (17,857,636
            )
            
            (17,857,636
            )Balance,
                December 31, 2006
            
            
            13,785,000
            
            $
            138
            
            $
            2,608,736
            
            $
            (21,049,106
            )
            $
            (18,440,232
            )Issuance
                related to license agreement
            
            
            15,000
            
            
            -
            
            
            52,500
            
            
            -
            
            
            52,500Accrual
                of Series A Preferred dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            (41,687
            )
            
            (41,687
            )Net
                income for the three months ended March 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            1,884,327
            
            
            1,884,327Balance,
                March 31, 2007
            
            
            13,800,000
            
            $
            138
            
            $
            2,661,236
            
            $
            (19,206,466
            )
            $
            (16,545,092
            )





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.




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




7





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 $475,815. 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.




8




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





*Going* *Concern*





The
      Company is in its development stage and has incurred losses and has used cash
      in
      its operating activities while devoting substantially all of its efforts to
      raising capital and identifying and pursuing businesses opportunities. The
      Company's total liabilities exceed its total assets and the Company's liquidity
      is substantially dependent on raising capital. These factors raise substantial
      doubt about the Company's ability to continue as a going concern.
      The accompanying consolidated financial statements have been prepared on a going concern
      basis, which contemplates continuing operations, realization of assets and
      liquidation of liabilities in the ordinary course of business. The Company's
      ability to continue as a going concern
      is dependent upon its ability to raise sufficient capital to implement a
      successful business plan and to generate profits sufficient to become
      financially viable. The consolidated financial statements do not include
      adjustments relating to the recoverability of recorded assets or liabilities
      that might be necessary should the Company be unable to continue as a going concern.





NOTE
      2-
      BASIS OF PRESENTATION:





The
      accompanying unaudited consolidated financial statements for the three month
      period ended March 31, 2007, the nine month period ended March 31, 2007, and
      the
      period from August 21, 2006 (inception) to March 31, 2007 have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America for interim financial information and pursuant to the rules and
      regulations of the Securities and Exchange Commission for Form 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 March 31, 2007, the nine month period ended March 31, 2007, and
      the
      period from August 21, 2006 (inception) to March 31, 2007 are not necessarily
      indicative of the results of the full fiscal year.





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.





*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 March 31, 2007 (as restated), the nine month period
      ended March 31, 2007 (as restated), and the period from August 21, 2006
      (inception) through March 31, 2007 (as restated) was $171,869, $226,970, and
      $226,970, respectively.




9




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





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).





*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.





10




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





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 Arrangements* –
      Certain financial instruments, including convertible preferred stock and the
      related freestanding warrants issued in connection with those convertible
      instruments, are subject to registration rights agreements, which impose
      penalties for our failure to register the underlying common stock by a defined
      date. These potential cash penalties, which are referred to as registration
      payment arrangements, are recorded when payments are both probable and
      reasonably estimable, in accordance with FAS No. 5, Accounting
      for Contingencies .
      As of
      June 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.





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.





11





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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





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.





Accounting
      for Stock-Based Compensation —
As
      of
      December 31, 2006, 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 six months ended December 31, 2006 since no options were
      granted.





12




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      4 -
      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”. No
      stock-based employee compensation cost was recognized in the Statement of
      Operations for the three and nine months ended March 31, 2007. 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
      three
      and nine month periods ended March 31, 2007 since no options were
      granted.





*Stock
      Options and Warrants* :




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




Weighted AverageStock
            
            Exercise Price Per Share
            
            Exercise Price Per ShareWarrants
            
            Options
            
            Warrants
            
            Options
            
            Warrants
            
            OptionsBalances
                at August 21, 2006 (inception)
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Granted
            
            
            6,900,000
            
            
            —
            
            $
            1.00-3.00
            
            
            —
            
            $
            2.20
            
            
            —Exercised
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cancelled
                or expired
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Outstanding
                at March 31, 2007
            
            
            6,900,000
            
            
            —
            
            $
            1.00-3.00
            
            
            —
            
            $
            2.20
            
            
            —Exercisable
                at March 31, 2007
            
            
            6,900,000
            
            
            —
            
            $
            1.00-3.00
            
            
            —
            
            $
            2.20
            
            
            —




The
      warrants expire at various dates ranging from January 2011 through March
      2016.





13




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      5 -
      LOSS PER SHARE:




Three Months Ended
              March 31,2007
            
            Nine Months Ended
              March 31,2007(Restated)
            
            (Restated)Income
                (loss) applicable to common shareholders
            
            $
            1,842,640
            
            $
            (19,049,163
            )Weighted
                average shares outstanding:Basic
            
            
            16,792,833
            
            
            11,787,398Diluted
            
            
            19,318,751
            
            
            11,787,398Earnings
                per common share:Basic
            
            $
            0.11
            
            $
            (1.62
            )Diluted*
            
            $
            0.10
            
            $
            (1.62
            )





Diluted
      weighted average per share outstanding for three and nine month periods ended
      March 31, 2007 does not include the effect of dilutive Series A Preferred Stock
      and Series A-1, A-2, BD-1, BD-2, BD-3 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.





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





CommonStockSecurities
            
            EquivalentsSeries
                A Preferred
            
            
            3,000,000Warrants:Class
                A-1 Warrants
            
            
            3,000,000Class
                A-2 Warrants
            
            
            3,000,000Class
                BD-1 Warrants
            
            
            300,000Class
                BD-2 Warrants
            
            
            300,000Class
                BD-3 Warrants
            
            
            300,000Total
                common stock equivalent shares
            
            
            9,900,000





14





OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 – INTANGIBLE ASSETS:





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





Carrying
            
            AccumulatedIntangible
                Assets:
            
            Amount
            
            AmortizationLicense
                agreement
            
            $
            1,306,010
            
            $
            (220,407
            )Patent
                costs
            
            
            52,501
            
            
            (6,563
            )Total
            
            $
            1,358,511
            
            $
            (226,970
            )




Aggregate
                Amortization ExpenseQuarter
                ended March 31, 2007
            
            $
            171,869




Estimated
                Amortization ExpensePeriod
                from March 31, 2007 through June 30, 2007
            
            $
            184,993Year
                ending June 30:2008
            
            
            687,4702009
            
            
            111,2202010
            
            
            61,2202011
            
            
            61,2202012
            
            
            25,418Thereafter
            
            
            —




*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
                Period
            
            Dates
            
            Minimum
                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.





15







OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 –
INTANGIBLE ASSETS (CONTINUED):





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





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





For
      the
      quarter ended March 30, 2007 the Company recognized $165,305 of expense related
      to this agreement.





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





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





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


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


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





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


16


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      6 –
INTANGIBLE ASSETS (CONTINUED):





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





For
      the
      quarter ended March 31, 2007 the Company recognized $171,869 of amortization
      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 March 31, 2007 the Company recognized $45,000 of expense related
      to this agreement.




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





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


17


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      7 -
      COMMITMENTS & CONTINGENCIES (CONTINUED):




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





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 $475,815. Pursuant to the Common
      Stock Purchase Agreement, OmniReliant transferred the 5,000,000 shares to the
      Company for cancellation. The transaction with Ms. Allison was accounted for
      as
      a reduction of additional paid in capital.





*Exchange
      Agreement*





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





Name
            
            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


18


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




This
      footnote includes (i) the details of our redeemable preferred stock, (ii) our
      accounting for the Series A Financing Transaction on the inception date and
      thereafter, (iii) our consideration related to and accounting for warrants
      issued in this transaction and (iv) registration payment arrangements extended
      to the investors.





*Series
      A Convertible Preferred Stock:*





The
      Company is authorized to sell or issue 100,000,000 shares of preferred stock.
      Redeemable preferred stock included in mezzanine under Statement 150 consists
      of
      the following at March 31, 2007:





Series
                A 10% Convertible Preferred Stock, par value $0.0001, 3,000 shares
                designated, 3,000 shares issued and outstanding
            
            $
            3,000,000





On
      November 22, 2006, we designated 3,000 shares of our preferred stock as Series
      A
      10% Convertible Preferred Stock (“Series A Preferred”). Series A Preferred Stock
      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
      are
      immediately convertible into our common stock at stated conversion prices of
      $1.00, 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 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).


19


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
      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 March 31, 2007,
      we
      had accrued $75,854 in dividends related to the Series A Preferred shares.
      Preferred stock dividends are recorded as a reduction of stockholders’ equity.
      However, we also reflect preferred stock dividends as a reduction of our net
      loss for purposes of calculating income (loss) applicable to common stockholders
      and our net loss per common share.





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 Preferred is 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 180th day 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;


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):




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


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


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


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


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


·
            There
                shall have occurred a Bankruptcy Event;


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


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





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





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





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




Classification
            
            Series ARedeemable
                preferred stock (mezz)
            
            $
            —Redeemable
                preferred stock (liability)Derivative
                warrants (investor warrants)
            
            
            (16,342,550
            )Beneficial
                conversion feature
            
            
            (1,173,510
            )Derivative
                put liability
            
            
            (834,826
            )Day-one
                derivative loss
            
            
            15,350,886Gross
                proceeds
            
            $
            (3,000,000
            )


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):




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





As
      an
      initial consideration, we are required to consider whether the Series A
      Preferred Stock is, by the terms, a financial instrument that requires liability
      classification under Statements on Financial Accounting Standards No. 150
      Accounting for Certain Financial Instruments with Characteristics of both Equity
      and Liability. Statement 150 generally provides that financial instruments
      that
      are issued in the form of shares that are mandatorily redeemable on a fixed
      or
      determinable date or upon an event certain to occur be classified as
      liabilities. The Series A Preferred does not provide for a redemption on fixed
      or determinable date. In addition, events that could give rise to cash
      redemption are conditional and not certain to occur.





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.





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.


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 ):




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.


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):




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.


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):




*Subsequent
      and Ongoing Classification Considerations:*





The
      evaluation of the classification of the Series A 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).


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





The
      following table illustrates the activity with respect to each of the Series
      A
      Preferred from their respective inception dates to May 21, 2007:





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





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.


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):




Note:
      In
      accordance with SFAS 150, the carrying amount of the Series A Preferred Stock
      was measured at fair value when the instrument was classified as a liability.
      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.





*Warrant
      Considerations*





The
      overall accounting for the Series A Preferred Financing 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.





o
            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.


o
            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.


26


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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




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





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





March
                31, 2007:
            
            
            A-1
            
            
            A-2Trading
                market price
            
            $
            3.50
            
            $
            3.50Strike
                or exercise price
            
            $
            1.50
            
            $
            1.00Expected
                term in years
            
            $
            4.65
            
            $
            9.65Volatility
            
            
            41.93
            %
            
            51.58
            %Risk-free
                rate
            
            
            4.54
            %
            
            4.65
            %Expected
                dividend rate
            
            $
            0.00
            
            $
            0.00





The
      fair
      value of the warrants issued to placement agents in connection with the Series
      A
      financing transaction amounted to $2,492,312. The fair values were calculated
      using the Black-Scholes-Merton (“BSM”) valuation technique. Significant
      assumptions included award date trading market values of $3.50, volatility
      percentage of 43.91%, and risk-free rate of 4.57%. 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 Preferred financing amounted to
      $2,967,313. 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 12, the Series A Preferred Stock was included in an
      exchange 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 Preferred Stock when calculating the
      excess of the fair value of the Series C Preferred Stock over the carrying
      value
      of the instruments exchanged.


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):




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





Classification
            
            Series ADeferred
                financing costs (asset)
            
            $
            1,898,875Paid-in
                capital
            
            
            911,135Accumulated
                deficit (deemed dividend)
            
            
            157,303Cash,
                liability and equity finance costs
            
            $
            2,967,313





Derivative
      Financial Instruments




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





Financing Transaction:
            
            Warrant
              DerivativesSeries
                A Convertible Preferred Financing—Investor warrants
            
            $
            (16,185,000
            )Series
                A Convertible Preferred Financing—Redemption put (forward)
            
            
            (723,723
            )$
            (16,908,723
            )Common
                shares indexed to derivative warrants
            
            
            6,900,000





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 Preferred Stock would
      continue to require liability classification. The instrument had a fair value
      of
      $723,723 as related to the Series A Preferred, as of March 31,
      2007.





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





Financing Transactions:
            
            Embedded
              Derivatives
            
            Warrants
              Derivatives
            
            TotalSeries
                A Financing
            
            
            111,104
            
            
            157,550
            
            
            268,654Day-one
                derivative loss
            
            
            (15,350,887
            )
            
            —
            
            
            (15,350,887
            )Total
                derivative income (expense)
            
            
            (15,239,783
            )
            
            157,550
            
            
            (15,082,233
            )


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):




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





For
      forward contracts that contingently require net-cash settlement as the principal
      means of settlement, we project and discount future cash flows applying
      probability-weightage to multiple possible outcomes. Estimating fair values
      of
      derivative financial instruments requires the development of significant and
      subjective estimates that may, and are likely to, change over the duration
      of
      the instrument with related changes in internal and external market factors.
      In
      addition, option-based techniques are highly volatile and sensitive to changes
      in the trading market price of our common stock, which has a high estimated
      historical volatility. Since derivative financial instruments are initially
      and
      subsequently carried at fair values, our income will reflect the volatility
      in
      these estimate and assumption changes.





*Registration
      Rights Agreements:*





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


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):




*Registration
      Rights Agreements (continued):*





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





As
      of
      March 31, 2007 we accrued $91,125 for liquidated damages associated with the
      Series A Preferred Stock, representing our best estimate of registration related
      payments that we will be required to make to the investors under the
      registration rights agreement.





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 $135,000 for the year ended June 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 $171,869
      for
      the quarter ended March 31, 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.




30




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      10 -
      RELATED PARTY TRANSACTIONS (CONTINUED):





*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-1 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-2 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-3 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.





*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 $15,225 of expense related to this agreement for the quarter ended
      March 31, 2007.





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





NOTE
      11 —
RESTATEMENTS





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





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 Preferred Stock and related warrants were restated to reflect
                the
                accountingrequired
                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.


31


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED):





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





As Originally
              Filed
            
            Adjustments
            
            
            
            As Restated**Balance
                sheet:**Current
                assets
            
            $
            643,119
            
            
            —
            
            
            
            
            $
            643,119License
            
            
            651,346
            
            
            480,195
            
            
            a
            
            
            1,131,541Deferred
                financing costs
            
            
            —
            
            
            1,772,283
            
            
            b
            
            
            1,772,283Total
                assets
            
            $
            1,294,465
            
            
            2,252,478
            
            
            
            
            $
            3,546,943Accounts
                payable and accrued expenses
            
            $
            16,332
            
            
            1
            
            
            
            
            $
            16,333Preferred
                stock dividends
            
            
            —
            
            
            75,854
            
            
            
            
            
            75,854Registration
                payments
            
            
            —
            
            
            91,125
            
            
            
            
            
            91,125Derivative
                liabilities
            
            
            —
            
            
            16,185,000
            
            
            c
            
            
            16,185,000Put
                liability
            
            
            —
            
            
            723,723
            
            
            d
            
            
            723,723Total
                liabilities
            
            
            16,332
            
            
            17,075,703
            
            
            
            
            
            17,092,035Redeemable
                preferred stock
            
            
            —
            
            
            3,000,000
            
            
            
            
            
            3,000,000Common
                stock
            
            
            138
            
            
            —
            
            
            
            
            
            138Preferred
                stock
            
            
            300
            
            
            (300
            )
            
            
            
            
            —Additional
                paid in capital
            
            
            2,131,249
            
            
            529,987
            
            
            e,
                f
            
            
            2,661,236Stockholders’
                deficit
            
            
            (853,554
            )
            
            (18,352,912
            )
            
            e,
                g
            
            
            (19,206,466
            )Total
                stockholders’ deficit
            
            
            1,278,133
            
            
            (17,823,225
            )
            
            
            
            
            (16,545,092
            )Liabilities
                and stockholders’ deficit
            
            $
            1,294,465
            
            
            2,252,478
            
            
            
            
            $
            3,546,943





Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $407,165 to $226,970.
                The correction of estimated lives of these assets gave rise to this
                adjustment. There was also an addition of $300,000 related to license
                fees
                for Kathy Hilton which had not been recorded in the original
                filing.


b.
            Our
                previously filed financial statements did not give effect to finance
                charges. Finance costs arise from the Series A Preferred Financing
                Transaction. As more fully disclosed in Note 9, the financing costs
                were
                allocated to deferred assets, mezzanine and stockholders’ equity based
                upon the relative fair values of the related financial instruments.
                Amortization of the deferred financing costs included in this adjustment
                amounts to $126,591. (Amortization
                of the deferred financing costs was recorded as a debit to interestexpense
                and a credit to deferred financing costs of $229,519.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 and a redemption put 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 $268,654 were recorded.
                In
                addition, our financing transactions gave rise to a day-one derivative
                loss of $15,350,887 because the fair value of derivative financial
                instruments sold in the transactions exceeded the proceeds
                received.


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.




32




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 –
RESTATEMENTS (CONTINUED):





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


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




To
                reverse the initial recording of preferred stock at par with the
                excess to
                APIC
            
            $
            (2,999,700
            )To
                reverse incorrect entry to record deferred finance costs
            
            
            475,000To
                properly record finance costs allocated to Additional paid in
                capital
            
            
            2,754,687To
                properly record common stock issued as part of the license
                purchase
            
            
            300,000Restatement
                entry for additional paid in capital
            
            $
            529,987





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






To
                record the fair value adjustments on preferred stock
            
            $
            (15,082,233
            )Entry
                to record finance costs allocated to retained earnings
            
            
            (157,302
            )Entry
                to record the accretion of the Series A Preferred Stock
            
            
            (3,000,000
            )Entry
                to record the dividends on the preferred stock
            
            
            (75,854
            )Entry
                to record registration penalties related to the preferred
                stock
            
            
            (91,125
            )Entries
                related to the overall impact on the net loss for the period related
                to
                adjustments to amortization expense and amortization of deferred
                finance
                costs
            
            
            53,602Restatement
                entry for accumulated deficit
            
            $
            (18,352,912
            )




33




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 March 31, 2007, as originally filed
      and as restated.





As Originally
              Filed
            
            Adjustments
            
            
            
            As
                Restated**Statement
                of operations:**Revenues
            
            $
            —
            
            
            —
            
            
            
            
            $
            —Costs
                and expenses
            
            
            (435,311
            )
            
            34,995
            
            
            a
            
            
            (400,316
            )Other
                income (expense):Derivative
                fair value adjustments
            
            
            —
            
            
            2,470,712
            
            
            b
            
            
            2,470,712Interest
                expense
            
            
            —
            
            
            (94,944
            )
            
            c
            
            
            (94,944
            )Registration
                payments
            
            
            —
            
            
            (91,125
            )
            
            
            
            
            (91,125
            )Total
                other expenses
            
            
            —
            
            
            2,284,643
            
            
            
            
            
            2,284,643Net
                income (loss)
            
            $
            (435,311
            )
            
            2,319,638
            
            
            
            
            $
            1,884,327Income
                (loss) applicable to common shareholders:Net
                income (loss)
            
            $
            (435,311
            )
            
            2,319,638
            
            
            
            
            $
            1,884,327Accretion
                of preferred
            
            
            —
            
            
            —
            
            
            
            
            
            —Preferred
                stock dividends
            
            
            —
            
            
            (41,687
            )
            
            
            
            
            (41,687
            )Income
                (loss) applicable to common shareholders
            
            $
            (435,311
            )
            
            2,277,951
            
            
            
            
            $
            1,842,640Income
                (loss) per common share:Basic
            
            $
            (0.03
            )
            
            0.14
            
            
            
            
            $
            0.11Diluted
            
            $
            (0.03
            )
            
            0.13
            
            
            
            
            $
            0.10





Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $206,864 to $171,869.
                The correction of estimated lives of these assets gave rise to this
                adjustment.The
                correction of estimated lives of these assets gave rise to a debit
                to
                licenses and a credit to amortization expense in the amount of
                $34,995.


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


c.
            Our
                previously filed financial statements did not give effect to finance
                charges. Finance costs arise from the Series A Preferred Financing
                Transaction. As more fully disclosed in Note 9, the financing costs
                were
                allocated to deferred assets, mezzanine and stockholders’ equity based
                upon the relative fair values of the related financial instruments.
                Amortization of the deferred financing costs was recorded as a debit
                to
                interest expense and a credit to deferred financing costs of $94,944.




34




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 nine month period ended March 31, 2007, as originally filed
      and as restated.





As Originally
              Filed
            
            Adjustments
            
            
            
            As
                Restated**Statement
                of operations:**Revenues
            
            $
            2,640
            
            
            —
            
            
            
            
            $
            2,640Costs
                and expenses
            
            
            (856,194
            )
            
            180,195
            
            
            a
            
            
            (675,999
            )Other
                expenses:Derivative
                fair value adjustments
            
            
            —
            
            
            (15,082,233
            )
            
            b
            
            
            (15,082,233
            )Interest
                expense
            
            
            —
            
            
            (126,592
            )
            
            c
            
            
            (126,592
            )Registration
                payments
            
            
            —
            
            
            (91,125
            )
            
            
            
            
            (91,125
            )Total
                other expenses
            
            
            —
            
            
            (15,299,950
            )
            
            
            
            
            (15,299,950
            )Net
                loss
            
            $
            (853,554
            )
            
            (15,119,755
            )
            
            
            
            $
            (15,973,309
            )Loss
                applicable to common shareholders:Net
                loss
            
            $
            (853,554
            )
            
            (15,119,755
            )
            
            
            
            $
            (15,973,309
            )Accretion
                of preferred
            
            
            —
            
            
            (3,000,000
            )
            
            
            
            
            (3,000,000
            )Preferred
                stock dividends
            
            
            —
            
            
            (75,854
            )
            
            
            
            
            (75,854
            )Loss
                applicable to common shareholders
            
            $
            (853,554
            )
            
            (18,195,609
            )
            
            
            
            $
            (19,049,163
            )Loss
                per common share:Basic
            
            $
            (0.09
            )
            
            (1.53
            )
            
            
            
            $
            (1.62
            )Diluted
            
            $
            (0.09
            )
            
            (1.53
            )
            
            
            
            $
            (1.62
            )





Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $407,165 to $226,970.
                The correction of estimated lives of these assets gave rise to this
                adjustment.


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


c.
            Our
                previously filed financial statements did not give effect to finance
                charges. Finance costs arise from the Series A Preferred Financing
                Transaction. As more fully disclosed in Note 9, the financing costs
                were
                allocated to deferred assets, mezzanine and stockholders’ equity based
                upon the relative fair values of the related financial instruments.
                Amortization of the deferred financing costs was recorded as a debit
                to
                interest expense and a credit to deferred financing costs of $126,592.


35


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 March 31, 2007,
      as
      originally filed and as restated.





As Originally
              Filed
            
            Adjustments
            
            
            
            As
                Restated**Statement
                of operations:**Revenues
            
            $
            2,640
            
            
            —
            
            
            
            
            $
            2,640Costs
                and expenses
            
            
            (856,194
            )
            
            180,195
            
            
            a
            
            
            (675,999
            )Other
                expenses:Derivative
                fair value adjustments
            
            
            —
            
            
            (15,082,233
            )
            
            b
            
            
            (15,082,233
            )Interest
                expense
            
            
            —
            
            
            (126,592
            )
            
            c
            
            
            (126,592
            )Registration
                payments
            
            
            —
            
            
            (91,125
            )
            
            
            
            
            (91,125
            )Total
                other expenses
            
            
            —
            
            
            (15,299,950
            )
            
            
            
            
            (15,299,950
            )Net
                loss
            
            $
            (853,554
            )
            
            (15,119,755
            )
            
            
            
            $
            (15,973,309
            )Loss
                applicable to common shareholders:Net
                loss
            
            $
            (853,554
            )
            
            (15,119,755
            )
            
            
            
            $
            (15,973,309
            )Accretion
                of preferred
            
            
            —
            
            
            (3,000,000
            )
            
            
            
            
            (3,000,000
            )Preferred
                stock dividends
            
            
            —
            
            
            (75,854
            )
            
            
            
            
            (75,854
            )Loss
                applicable to common shareholders
            
            $
            (853,554
            )
            
            (18,195,609
            )
            
            
            
            $
            (19,049,163
            )





Notes
      to
      the tables:





a.
            Amortization
                expense on the intangible assets was corrected from $407,165 to $226,970.
                The correction of estimated lives of these assets gave rise to this
                adjustment.The
                correction of estimated lives of these assets and additional amortization
                related to the Kathy Hilton licensing fee gave rise to a debit to
                licenses
                and a credit to amortization expense in the amount of
                $180,195.


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


c.
            Our
                previously filed financial statements did not give effect to finance
                charges. Finance costs arise from the Series A Preferred Financing
                Transaction. As more fully disclosed in Note 9, the financing costs
                were
                allocated to deferred assets, mezzanine and stockholders’ equity based
                upon the relative fair values of the related financial instruments.
                Amortization of the deferred financing costs was recorded as a debit
                to
                interest expense and a credit to deferred financing costs of $126,592.




36




OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      SUBSEQUENT EVENTS:





*Sale
      of Series B Convertible Preferred Stock:*





On
      May
      25, 2007, we sold 600 Series B Preferred shares, 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
                BGross
                proceeds
            
            $
            600,000Financing
                costs paid in cash
            
            
            (95,000
            )Net
                proceeds
            
            $
            505,000Common
                shares indexed to financial instruments:Series
                B Preferred
            
            
            480,000Investor
                warrants:Tranche
                B-1
            
            
            480,000Tranche
                B-2
            
            
            480,000Placement
                agent warrants
            
            
            144,0001,584,000





The
      following tables illustrate (i) how the net proceeds arising from each of the
      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:





Series
                BClassificationRedeemable
                preferred stock (mezz)
            
            $
            —Redeemable
                preferred stock (liability)
            
            
            (780,000
            )Derivative
                warrants (investor warrants)
            
            
            (1,655,567
            )Day-one
                derivative loss
            
            
            1,835,567Gross
                proceeds
            
            $
            (600,000
            )





The
      Series B Preferred Stock, although possessing terms and conditions similar
      to
      those of the Series A Preferred was not afforded equity (or mezzanine)
      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.
      Accounting for the Series B Preferred Financing is reflected in the financial
      statements of the period in which the transaction arose.


37


OMNIRELIANT
      HOLDINGS, INC. & SUBSIDIARY


(A
      Development Stage Company)


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      SUBSEQUENT EVENTS (CONTINUED):





*Sale
      and Exchange of Series C Preferred Stock:*





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





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





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





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




38


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
            )
            $
            (11,231,874
            )





Deferred
                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




39





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.




40




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.




41




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”).




42




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.


43







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





FORWARD
      LOOKING STATEMENTS





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





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




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




3.
      The
      intensity of competition; and




4.
      General economic conditions.




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


44




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.


45





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.





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 months ended March 31, 2007, the nine months ended March
      31, 2007 and for the period from August 21, 2006 (inception) through March
      31,
      2007 of $0, $2,640 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 months ended March 31, 2007, the nine months ended
      March 31, 2007 and for the period from August 21, 2006 (inception) through
      March
      31, 2007 amounted to $0, $1,320 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 months ended March 31, 2007,
      the nine months ended March 31, 2007 and for the period from August 21, 2006
      (inception) through March 31, 2007 amounted to $150,596, $299,882 and $299,882,
      respectively.





*Amortization
      –* Amortization
      expense related to our intangible assets for the three months ended March 31,
      2007, the nine months ended March 31, 2007 and for the period from August 21,
      2006 (inception) through March 31, 2007 amounted to $171,869, $226,970 and
      $226,970, 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 March 31, 2007,
      and
      through the date of this report, we concluded that our intangible assets were
      recoverable and that our estimated useful lives continued to be appropriate.
      However, given the developmental nature of our operations, we will continue
      to
      evaluate these assets as of each future reporting period. Our operations will
      continued to reflect amortization of these intangible assets over the remaining
      estimated useful lives.


46





*Salaries
      and Wages –* Salaries
      and wages paid to our employees for the three months ended March 31, 2007,
      the
      nine months ended March 31, 2007 and for the period from August 21, 2006
      (inception) through March 31, 2007 amounted to $51,195, $102,169 and $102,169,
      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 months ended March 31, 2007, the nine months ended March 31, 2007 and
      for
      the period from August 21, 2006 (inception) through March 31, 2007 amounted
      to
      $26,656, $45,658 and $45,658, 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 months ended March 31, 2007,
      the
      nine months ended March 31, 2007 and for the period from August 21, 2006
      (inception) through March 31, 2007 amounted to (expense) $2,470,712,
      ($15,082,233) and ($15,082,233), 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.





Our
      derivative fair value adjustments for the three months ended March 31, 2007,
      the
      nine months ended March 31, 2007 and for the period from August 21, 2006
      (inception) through March 31, 2007 include (expense) (i) ($15,350,887) related
      to day-one losses from the establishment of derivatives arising from financing
      transactions at their fair values on the financing inception dates, (ii)
      $157,550 related to decreases in fair value of derivative warrants and (iii)
      $111,104 related to decreases in fair value of forward derivative contracts
      associated with redemption puts. Because we are required to carry our derivative
      financial instruments at fair value, our income will continue to reflect the
      volatility in the value of these financial instruments until they are settled
      or, if ever, modified to achieve equity classification. Further, changes in
      fair
      value are largely predicated in the changes in the assumptions underlying the
      valuation techniques and changes in our trading market prices (as to
      share-indexed derivatives), such as the warrants.





We
      note
      that all share-indexed financial instruments previously and subsequently issued
      will require derivative liability classification, unless otherwise exempted
      under Statement 133, 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 –* There
      were no fair value adjustments during the period from inception through March
      31, 2007 related to our Series A Preferred Stock





*Finance
      Costs –* Finance
      costs, which represent amortization of asset-classified finance costs arising
      from our Series A Preferred Stock and Warrant financing transactions for the
      three months ended March 31, 2007, the nine months ended March 31, 2007 and
      for
      the period from August 21, 2006 (inception) through March 31, 2007 amounted
      to
      $94,944, $126,592 and $126,592, respectively. We will continue to amortize
      deferred financing costs over the terms of the liability classified financial
      instruments.


47





*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 period August 21, 2006 (inception) to March 31, 2007 amounted
      to $91,125 and may continue to accrue and increase if we are not able to satisfy
      our requirements under the registration rights agreements.





*Net
      Income (Loss) –* Our
      net
      income (loss) for the three months ended March 31, 2007, the nine months ended
      March 31, 2007 and for the period from August 21, 2006 (inception) through
      March
      31, 2007 amounted to $1,884,327, ($15,973,309) and ($15,973,309), 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.





*Income
      (loss) Applicable to Common Shareholders –* Income
      (loss) applicable to common stockholders represents our net income (loss) as
      adjusted for cumulative dividends and accretions of discounts on our Series
      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 March 31, 2007 and the nine month period ended March 31, 2007 amounted
      to
      $1,842,640, $0.11 and $0.10, and ($19,049,163), ($1.62) and ($1.62),
      respectively. We will continue to reflect the preferred dividends as they
      accumulate in our future calculations of loss applicable to common stock and
      loss per common share until the Series A Preferred Stock is settled or
      redeemed.





Liquidity
      and Capital Resources





*Liquidity*  *and
      Going Concern* –
Cash
      and cash equivalents amounted to $608,062 as of March 31, 2007. The Company
      has
      a working capital deficiency of $(16,448,916). Included in the working capital
      deficiency is $(16,908,723) of derivative financial instruments because (i)
      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 ($450,113) in our operating activities during the period
      from August 21, 2006 (inception) to March 31, 2007. Our cash flow gives effect
      to our net loss, as adjusted for non-cash charges and credits to income,
      including fair value adjustments to derivatives, share-based payments and
      amortization. Our net operating liabilities decreased to ($16,333) during the
      period, which gives effect to, among other things, our purchase of inventories
      and increases in our payables and accrued expenses.


48





*Cash
      Flow from Investing Activities* –
We
      used
      cash of ($1,006,010) in our investing activities to purchase intangible assets
      including our license agreement. Our license agreement requires guaranteed
      minimum payments to the licensor amounting to approximately $1,000,000 annually,
      less royalty payments for sales of licensed product. We otherwise have no
      commitment to purchase long-lived assets.





*Cash
      Flow from Financing Activities* –
We
      received $2,064,185 in cash from our financing activities that principally
      relate to the sale of Series A Preferred Stock and Warrants.





Critical
      Accounting Policies





Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our financial statements, which have been prepared in accordance
      with
      accounting principles generally accepted in the United States of America. The
      preparation of these consolidated financial statements requires us to make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosures of contingent assets and
      liabilities. For a description of those estimates, see Note 3, Summary of
      Significant Accounting Policies, contained in the explanatory notes to our
      audited financial statements for the three months ended March 31, 2007, the
      nine
      months ended March 31, 2007 and for the period from August 21, 2006 (inception)
      through March 31, 2007 attached to this Form 10-QSB. On an on-going basis,
      we
      evaluate our estimates, including those related to reserves, deferred tax assets
      and valuation allowance, impairment of long-lived assets, fair value of equity
      instruments issued to consultants for services and estimates of costs to
      complete contracts. We base our estimates on historical experience and on
      various other assumptions that we believe to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying value of assets and liabilities that are not readily apparent
      from
      other sources. Actual results may differ from these estimates under different
      assumptions or conditions; however, we believe that our estimates, including
      those for the above-described items, are reasonable.





Recent
      Accounting Pronouncements





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





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





In
      September 2006, the Securities and Exchange Commission issued SAB No. 108
      "Considering the Effects of Prior Year Misstatements When Quantifying
      Misstatements in Current Year Financial Statements", which provides interpretive
      guidance on how the effects of the carryover or reversal of prior year
      misstatements should be considered in quantifying a current year misstatement.
      The guidance is applicable beginning fiscal 2008. The adoption of this statement
      did not have a material impact on the Company’s consolidated financial position
      or results of operations.  49





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 March 31,
      2007
      since no options were granted.





Off
      Balance Sheet Arrangements— None.


50




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 Quarterly Report on Form 10-QSB
      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.


51




*(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





On
      March
      12, 2007, the Company issued 15,000 shares of its common stock to Brett
      Saevitzon, with a fair market value of $22,500, for services provided. The
      shares of common stock issued to Mr. Saevitzon were deemed to be exempt under
      Section 4(2) of the Securities Act of 1933, as amended.




As
      previously disclosed, on November 22, 2006, we entered into a Preferred Stock
      Purchase Agreement with an Accredited Investor, pursuant to which that Investor
      purchased 3,000 shares of our series A 10% convertible preferred stock (the
      “Preferred Stock”), 3,000,000 Series A-1 and 3,000,000 Series A-2 common stock
      purchase warrants (collectively, the “Warrants”) for an aggregate purchase price
      of $3,000,000.





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:
                September 25, 2008
            By:
            /s/*Paul
                Morrison*Title: 
                Chief Executive Officer,
              Chief Financial Officer


54