Infusion Brands International 10Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D. C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

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

Commission file number 000-51599

OmniReliant Holdings, Inc.

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

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

14375 Myerlake Circle

Clearwater, Florida 33760

(Address of principal executive offices)

(727) 230-1031

(Issuer's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to the filing requirements for the past 90 days. Yes x No ¨

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Exchange Act). Yes ¨ No x

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

QUARTERLY PERIOD ENDED MARCH 31, 2009

Table of Contents

Part	Item and Description	Page

Part I	Financial Information
	Forward-Looking Statements	3
	Item 1. Financial Statements	4
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	68
	Item 3. Quantitative and Qualitative Disclosures about Market Risks	85
	Item 4T. Controls and Procedures	86

Part II	Other Information
	Item 1. Legal Proceedings
	Item 1A. Risk Factors	87
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	87
	Item 3. Defaults Upon Senior Securities	87
	Item 4. Submission of Matters to a Vote of Security Holders	87
	Item 5. Other Information	87
	Item 6. Exhibit Index	87
		87
Signatures		88

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

PART I - FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

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

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

ITEM 1 – FINANCIAL STATEMENTS

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2009			June 30, 2008
	(unaudited)

ASSETS

Current assets:
Cash and cash equivalents	$	8,904,137		$	4,435,814
Accounts receivable, net of $60,165 in allowances		238,794			48,231
Inventories		678,397			232,425
Investments		170,587			—
Prepaid expenses and other current assets		107,506			69,200
Total current assets		10,099,421			4,785,670

Property and equipment, net		2,669,499			—
Investments		1,339,999			426,558
Intangible assets, net		1,321,219			1,278,512
Other assets		982,593			1,078,237
Total assets	$	16,412,731		$	7,568,977

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

Current liabilities:
Accounts payable	$	347,580		$	110,381
Current maturities of long-term debt		32,691			—
Derivative liabilities		5,752,553			6,361,100
Total current liabilities		6,132,824			6,471,481

Long-term debt		1,954,160			—
Security deposits on leases		11,734			—
Total liabilities		8,098,718			6,471,481

Minority interest		238,467			—
Redeemable preferred stock		45,969,634			35,969,634
Commitments and contingencies (Note 8)		—			—
Stockholders' (deficit):
Series E convertible preferred stock, $0.00001 par value; $1.00 stated value; 13,001,000 shares authorized; none issued (Note 4)		—			—
Common stock, $0.00001 par value 500,000,000 shares authorized, 14,509,225 shares issued and outstanding		145			145
Paid-in capital		32,720,476			32,332,804
Other stockholders’ deficiency		(70,614,709	)		(67,205,087	)
Total stockholders' (deficit)		(37,894,088	)		(34,872,138	)
Total liabilities and stockholders' (deficit)	$	16,412,731		$	7,568,977

See accompanying notes.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2009 AND 2008

	Three Months Ended March 31,
	2009			2008
	(unaudited)			(unaudited)
Revenues:
Product sales	$	2,585,582		$	84,846
Rental revenue		58,314			—
Licensing revenues		—			328,150
		2,643,896			412,996
Operating costs and expenses:
Cost of product sales		1,473,776			34,341
Other operating expenses		2,424,660			396,188
		3,898,436			430,529

Loss from operations		(1,254,540	)		(17,533	)

Other income (expense):
Derivative income (expense)		(2,071,646	)		11,996,024
Interest expense		(55,280	)		(2,154	)
Interest income		26,751			7,858
Other income (expense), net		(19,022	)		(181,224	)

Income (loss) before minority interests		(3,373,737	)		11,802,971
Minority interest in loss of subsidiary		20,623			—

Net income (loss)	$	(3,353,114	)	$	11,802,971

Reconciliation of net income (loss) to income (loss) applicable to common stockholders
Net income (loss)	$	(3,353,114	)	$	11,802,971
Preferred stock dividends and accretion		(2,958,350	)		—
Income (loss) applicable to common stockholders	$	(6,311,464	)	$	11,802,971

Income (loss) per common share:
Basic	$	(0.43	)	$	0.83
Diluted	$	(0.43	)	$	0.27
Weighted average common shares—basic		14,509,225			14,232,908
Weighted average common shares—diluted		14,509,225			44,030,174

See accompanying notes.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED MARCH 31, 2009 AND 2008 AND

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

	Nine Months Ended March 31,						Inception to March 31,
	2009			2008			2009
	(unaudited)			(unaudited)			(unaudited)
Revenues:
Product sales	$	3,756,840		$	274,519		$	4,180,293
Rental revenues		190,420			—			190,420
Licensing revenues		—			546,917			546,917
		3,947,260			821,436			4,917,630
Operating costs and expenses:
Cost of product sales		2,086,495			144,220			2,374,853
Other operating expenses		4,936,377			2,418,904			13,500,058
		7,022,872			2,563,124			15,874,911

Loss from operations		(3,075,612	)		(1,741,688	)		(10,957,281	)

Other income (expense):
Derivative income (expense)		2,703,891			5,248,398			4,242,045
Interest expense		(180,918	)		(152,569	)		(601,167	)
Interest income		84,590			12,637			117,771
Other income (expense), net		(19,022	)		—			(832,207	)
Loss on exchange of redeemable preferred		—			(26,247,007	)		(26,247,007	)
Impairment of investments		—			—			(5,776,917	)
Registration payments		—			(309,137	)		—
Equity in losses of ResponzeTV		—			(288,448	)		—
Extinguishment of other liabilities		—			(271,109	)		—

Income (loss) before minority interests		(487,071	)		(23,748,923	)		(40,054,763	)
Minority interest in loss of subsidiary		81,533			—			81,533

Net income (loss)	$	(405,538	)	$	(23,748,923	)	$	(39,973,230	)

Reconciliation of net income (loss) to (loss) applicable to common shareholders:
Net income (loss)	$	(405,538	)	$	(23,748,923	)	$	(39,973,230	)
Preferred stock dividends and accretion		(2,958,350	)		(6,400,000	)		(29,066,090	)
Income (loss) applicable to common shareholders	$	(3,363,888	)	$	(30,148,923	)	$	(69,039,320	)

Income (loss) per common share:
Basic	$	(0.23	)	$	(2.14	)	$	(4.89	)
Diluted	$	(0.23	)	$	(2.14	)	$	(4.89	)
Weighted average common shares—basic		14,501,318			14,080,464			14,108,827
Weighted average common shares—diluted		14,501,318			14,080,464			14,108,827

See accompanying notes.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED MARCH 31, 2009 AND 2008 AND

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

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

Cash flows from investing activities:
Purchases of property and equipment		(2,811,901	)		—			(2,811,901	)
Purchases of investments		(1,139,944	)		(200,000	)		(8,746,755	)
Minority shareholders investment in subsidiary		320,000			—			320,000
Payments for licenses		(300,000	)		—			(1,306,010	)
Investment in ResponzeTV		—			(5,100,000	)		—
Payment for patents		—			(31,811	)		—
Net cash flow from investing activities		(3,931,845	)		(5,331,811	)		(12,544,666	)

Continued on the next page.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED MARCH 31, 2009 AND 2008 AND

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

(CONTINUED)

	Nine Months Ended March 31,						Inception to March 31,
	2009			2008			2009
	(unaudited)			(unaudited)			(unaudited)
Cash flows from financing activities:
Proceeds from sale of preferred stock		9,136,994			5,814,078			24,471,072
Proceeds from long-term debt, net of $60,964 of direct loan costs		1,994,694			—			1,994,694
Payments on long-term debt		(7,844	)		—			(7,844	)
Purchase and retirement of common stock		—			—			(475,813	)
Net cash flow from financing activities		11,123,844			5,814,078			25,982,109

Net change in cash and cash equivalents		4,468,323			(375,210	)		8,904,137
Cash and cash equivalents at beginning of period		4,435,814			711,484			—
Cash and cash equivalents at end of period	$	8,904,137		$	336,274		$	8,904,137

SUPPLEMENTAL CASH FLOW INFORMATION

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

See accompanying notes

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)

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

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

See accompanying notes.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)

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

(CONTINUED)

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

See accompanying notes.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)

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

(CONTINUED)

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

See accompanying notes.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS:

Organization

Willowtree Advisor, Inc. ("the Company" or “OmniReliant Holdings, Inc”) was incorporated on June 16, 2004 under the laws of the State of Nevada to offer landscape advisory services. On November 22, 2006, Willowtree Advisor, Inc. entered into a Securities Purchase Agreement with OmniReliant Corporation (“OmniReliant”) and Cynthia Allison, pursuant to which OmniReliant purchased 5,000,000 shares of the Company's common stock from Ms. Allison for $475,813. Pursuant to the Common Stock Purchase Agreement, OmniReliant transferred the 5,000,000 shares to the Company for cancellation. The transaction with Ms. Allison was accounted for as a reduction of additional paid in capital.

Also on November 22, 2006, Willowtree entered into an exchange agreement pursuant to which the Company acquired one hundred percent (100%) of the equity of OmniReliant from, the stockholders of OmniReliant. Contemporaneously, the Company entered into to a securities purchase agreement with an accredited investor for the sale of convertible preferred stock and warrants for an aggregate purchase price of $3,000,000. As a result of the Exchange Agreement, OmniReliant became a wholly-owned subsidiary of the Company and the Company succeeded to the business of OmniReliant as its sole business.

The Exchange Transaction is deemed to be a reverse acquisition. In accordance with the Accounting and Financial Reporting Interpretations and Guidance provided by the staff of the U.S. Securities and Exchange Commission, WillowTree (the legal acquirer) is considered the accounting acquiree and OmniReliant (the legal acquiree) is considered the accounting acquirer. A reverse merger is accounted for as the issuance of shares of the accounting acquirer for the net-monetary assets or liabilities of the accounting acquiree, accompanied by a recapitalization of stockholders’ equity. The consolidated financial statements of the combined entity will, in substance, be those of the accounting acquiree, OmniReliant, which, as discussed below, was organized on August 21, 2006.

Effective December 29, 2006, the Registrant’s name changed from Willowtree Advisor, Inc. to OmniReliant Holdings, Inc. ("the Company").

Nature of Business

OmniReliant Corporation was incorporated on August 21, 2006 under the laws of the State of Florida. The Company is in the development stage and has realized only minor revenues from its planned operations. OmniReliant Corporation (“OmniReliant”) engages in the creation, design, distribution, and sale of affordable luxury products. OmniReliant makes these products available to both domestic and international consumers through infomercials, live shopping networks, ecommerce, direct mail and traditional retail channels. OmniReliant will first focus on bringing the Kathy Hilton “Private Beauty Spa” product line to market, after which OmniReliant plans to develop other personalities and designer licenses. Ms. Hilton, who is the wife of Rick Hilton, the grandson of the Hilton Hotel founder, has agreed to appear in television segments and infomercials.

Until the Company’s products are successfully marketed on a live shopping network or via infomercials, we will not generate significant revenues and may not be successful. If we cannot generate sufficient revenues to continue operations, we will be forced to suspend or cease operations.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Going Concern

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

NOTE 2 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements as of March 31, 2009 and for the three and nine months ended March 31, 2009 and 2008, and the period from August 21, 2006 (inception) to March 31, 2009 are unaudited, but have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Accordingly, they do not include all the information and footnotes required for complete financial statements. However, the unaudited condensed consolidated financial information included in this report includes all adjustments which are, in the opinion of management, necessary to fairly present the consolidated financial position and the consolidated results of operations for the interim periods presented. The operations for the three and nine months ended March 31, 2009 are not necessarily indicative of the results for the year ending June 30, 2009.

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

Principles of consolidation – The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, OmniReliant Corporation and OmniResponse Corporation, and its 60.0% owned subsidiary OmniComm Studios LLC. All significant intercompany accounts, profits and transactions have been eliminated in consolidation. Entities where the Company does not have voting control but has significant influence over its operations are accounted for under the equity method.

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

Revenue recognition – Revenue is recognized when evidence of the arrangement exists, the product is shipped to a customer, or in the limited circumstances, at destination, and when terms provide that title passes at destination. Estimated amounts for sales returns and allowances are recorded at the time of sale. License revenue is recorded over the term of the license arrangement, as it is earned.

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

Inventories – Inventories consist of merchandise that is in its finished form and ready for sale to end-user customers. Inventories are recorded at the lower of average cost or market. In-bound freight-related costs from our vendors are included as part of the net cost of merchandise inventories. Other costs associated with acquiring, storing and transporting merchandise inventories are expensed as incurred and included in cost of goods sold.

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Derivative financial instruments – Derivative financial instruments, as defined in Statement 133 consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets. See Note 11 for additional information.

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENTS:

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

	March 31, 2009		June 30, 2008
Current Investments:
Available-for-sale investments:
Valcom, face value $100,000, 10.0% convertible note receivable, due January 2010 (Cost basis $100,000)	$	97,118	$	—
Wine Harvest, face value $73,000, 10% convertible note Receivable, due March 2009 (Cost basis $73,000)		73,469		—
Total current investments	$	170,587	$	—

Non-Current Investments
Available-for-sale investments:
Abazias, Inc., face value $500,000, 10.0% convertible note receivable, due December 31, 2009 (Cost basis: $500,000)	$	595,434	$	—
Carolyn & Company, face value $450,000, 6.0% convertible note receivable, due February 2010 (Cost basis: $450,000)		438,587		426,558
Total available-for-sale type investments		1,034,021		426,558
Other investments, at cost		305,978		—
Total non-current investments	$	1,339,999	$	426,558

Valcom, Inc.:

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

Wineharvest, Inc.:

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENTS (CONTINUED):

Abazias, Inc:

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

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENTS (CONTINUED):

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

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

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

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

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENTS (CONTINUED):

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENTS (CONTINUED):

Carolyn & Company:

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

NOTE 5 – PROPERTY AND EQUIPMENT:

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – INTANGIBLE ASSETS:

The Company’s intangible assets consisted of the following on March 31, 2009 and June 30, 2008:

	March 31, 2009			June 30, 2008
Patent costs	$	1,169,412		$	1,169,412
License agreement		953,502			653,005
Other fully-amortized intangibles		79,402			79,402
		2,202,316			1,901,819
Less accumulated amortization		(881,097	)		(623,307	)
	$	1,321,219		$	1,278,512

Aggregate Amortization Expense:
Three months ended March 31, 2009	$	118,932
Nine months ended March 31, 2009	$	257,293
Inception (August 21, 2006) to March 31, 2009	$	881,097

Estimated Amortization Expense:
Period from April 1, 2009 to June 30, 2009:	$	118,932
Year ending June 30:
2010		75,729
2011		95,021
2012		114,396
2013		88,078
2014		88,078
Thereafter		740,984
	$	1,321,219

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

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

Following the completion of due diligence (which shall be six months from the date of the Agreement), if the Company is satisfied with the Product and intends to offer Product for sale, the Company shall pay to Seller Twenty Five Thousand dollars ($25,000), paid January 22, 2008.

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – INTANGIBLE ASSETS (CONTINUED):

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

The Company estimates the patent pending application will take up to 3 years to go through the approval process. At such time the Company will begin amortizing the cost over 20 years, the useful life of the asset. In the event additional assistance is required with the patent pending application or development of a product the members of Product & Technology Partners, LLC have agreed to work with the Company on a consulting basis.

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

Annual		Minimum
Period	Dates	Royalty

1	Effective Date to 12/31/07	$	1,000,000
2	1/1/08 to 12/31/08	$	400,000
3	1/1/09 to 12/31/09	$	400,000
4	1/1/10 to 12/31/10	$	400,000
5	1/1/11 to 12/31/11	$	400,000
6	1/1/12 to 12/31/15	$	400,000

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – INTANGIBLE ASSETS (CONTINUED):

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

For purposes of the agreement, Adjusted Gross Collected Revenues (“AGCR”) means ORH’s Gross Revenue from sales of the Products, less all of the following:

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – LONG-TERM DEBT:

The Company’s long-term debt consisted of the following at March 31, 2009:

	Amount
Initial $2,000,000 six-year, variable rate mortgage note, with interest at the Wall Street Prime Rate, plus 1.5%, with a floor of 6.5% and a cap 7.75% during the first three years and a floor of 6.75% and a cap of 8.75% during the second three years; principal and interest payments of $13,507 are payable over the six year term based upon a twenty-five year amortization schedule, with $1,766,016 payable at maturity; secured by real estate; guaranteed by related parties.	$	1,986,851

Less current maturities		(32,691	)
Long-term debt	$	1,954,160

Maturities of long-term debt are as follows:
Three months ending June 30, 2009	$	7,973
Year ending June 30:
2010		33,230
2011		35,477
2012		37,876
2013		40,437
2014		43,172
Thereafter		1,788,686
	$	1,986,851

The Company has concluded that the interest rate collar is clearly and closely related to the host debt instrument and, accordingly, it does not require bifurcation and recognition at fair value. The interest rate in effect during the current quarterly period was at the 6.5% floor. Interest paid in cash during the quarterly period amounted to $54,387.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - COMMITMENTS & CONTINGENCIES:

Consulting Agreement - On October 1, 2006 the Company entered into a six month consulting agreement with Harrington Business Development, LLC (“HBD”) to provide services related to the creation, production, and editing of infomercials and also to consult the Company on marketing and distribution of its products. In consideration for the services performed the Company will compensate HBD $15,000 per month. On April 1, 2007 the Company verbally extended the term of the Harrington Business Development, LLC consulting agreement for an additional three months. The agreement was not renewed subsequent to June 30, 2007. The shareholders of HBD are also shareholders of the Company. Further, on July 14, 2008 the Company entered into a one year consulting agreement with HBD to provide services related to, but not be limited to, the media production related to The Franklin Mint, Inc., media purchase and management, supervision of editing and dubbing of productions, shipping of tapes or DVDs to television or radio networks and stations, assistance in website development, assistance in establishing call centers and scripting for inbound calls, tracking of media results, and any other assistance that is needed from the Company. In consideration for the services performed the Company will compensate HBD $50,000 per month net of $5,000 for office rent. The Company has right to extend the term of the Harrington Business Development, LLC consulting agreement for an additional year.

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

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

International Distribution Agreement - - On March 19, 2007, the Company entered into an International Distribution Agreement with Reliant International Media LLC. Pursuant to the Agreement, the Company has granted Reliant the exclusive right to represent the Company with respect to sales of certain products through retail distribution channels in the United Kingdom, Japan and Korea. The products covered by the agreement include any and all products marketed by the Company under the Kathy Hilton name, likeness or brand, excluding all perfume and perfume related products. In consideration for Reliant’s marketing services, the Company has agreed to pay to Reliant a royalty equal to ten percent of the Company’s gross revenues. The shareholders of Reliant International Media are also shareholders of the Company.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - COMMITMENTS & CONTINGENCIES (CONTINUED):

Public Relations Agreement - On April 27, 2007 the Company entered into a three year consulting agreement with a public relations firm. Pursuant to the terms of the agreement the Company will pay the following as compensation for services: $7,500 payable each month; 1,000,000 warrants with a term of 3 years, issued at the onset, entitling the holder to purchase shares of the Company’s common stock at an exercise price of $1.00 per share; exclusive rights to all future public relation contracts awarded to the Company for Kathy Hilton licenses; and compensation at the rate of 3% of projected gross wholesale sales per year on all future Kathy Hilton licenses awarded to the Company. For the year ended June 30, 2007 the Company recognized $2,490,151 of expense related to this agreement, of which $2,471,401 was associated with the 1,000,000 warrants which were issued. The value of the warrants was determined by using the Black-Scholes option pricing model. The Company used a volatility percentage of 23.6%, a risk free interest rate of 5.00%, and an expected life of 1 ½ years in calculating the fair value. In January 2008, the Company notified the public relations firm of their desire to terminate their agreement early. The Company believes it has no further obligation pursuant to this agreement.

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT):

Change in Authorized Shares:

Effective August 25, 2008, the Company amended its articles of incorporation to increase the number of authorized shares from 100,000,000 to 500,000,000, including 100,000,000 authorized shares of preferred stock.

Common Stock Purchase Agreement:

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

Exchange Agreement:

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

	Number of
Name	Shares

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):

Stock Options and Warrants:

The following table summarizes the activity related to all Company stock options and warrants for the period from August 21, 2006 (inception) through March 31, 2009:

													Weighted Average
							Exercise Price						Exercise Price
				Stock			Per Share						Per Share
	Warrants			Options			Warrants			Options			Warrants			Options
Outstanding at August 21, 2006		—			—		$	—		$	—		$	—		$	—
Outstanding at June 30, 2006		—			—												—
Granted		9,004,000			—			1.00-3.75			—			2.13			—
Exercised		—			—			—			—			—			—
Cancelled or Expired		—			—			—			—			—			—
Outstanding at June 30, 2007		9,004,000			—			1.00-3.75			—			2.13			—
Granted		—			—			—			—			—			—
Exercised		—			—			—			—			—			—
Cancelled or Expired		—			—			—			—			—			—
Outstanding at September 30, 2007		9,004,000			—			1.00-3.75			—			2.13			—
Granted		23,092,171			350,000			0.75-2.00			1.00			1.72			1.00
Exercised		—			(50,000	)		—			(1.00	)		—			(1.00	)
Outstanding at December 31, 2007		32,096,171			300,000			0.75-3.75			1.00			1.70			1.00
Granted		—			—			—			—			—			—
Exercised		(96,000	)		—			(1.25-3.75	)		—			(2.29	)		—
Outstanding at March 31, 2008		32,000,171			300,000			0.75-3.75			1.00			1.46			1.00
Granted		30,100,000			—			0.50-0.75			—			0.74			—
Exercised		(139,200	)		—			(075-3.75	)		—			(1.69	)		—
Cancelled or expired		—			—						—						—
Outstanding at June 30, 2008		61,960,971			300,000			0.75-3.75			1.00			0.63			1.00
Granted		—			—			—			—			—			—
Exercised		—			—			—			—			—			—
Cancelled or expired		—			—			—			—			—			—
Outstanding at September 30, 2008		61,960,971			300,000			0.75-3.75			1.00			0.63			1.00
Granted		—			—			—			—			—			—
Exercised		—			—			—			—			—			—
Cancelled or expired		—			—			—			—			—			—
Outstanding at December 31, 2008		61,960,971			300,000			0.75-3.75			1.00			0.63			1.00
Granted		37,499,999			1,845,000			0.50-1.50			0.50			1.49			0.50
Exercised		—			—			—			—			—			—
Cancelled or expired		—			—			—			—			—			—
Outstanding at March 31, 2009		99,460,970			2,145,000			0.50-3.75			0.50-1.00			0.95			0.57
Exercisable at March 31, 2009		99,460,970			2,145,000			0.50-3.75			0.50-1.00			0.95			0.57

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):

On January 15, 2009, the Company issued 1,845,000 stock options to employees and related parties (1,520,000 to employees and 325,000 to affiliates classified as non-employees). The options have strike prices of $0.50 and expire in five years; the grant date fair market value per common share was $1.00. The awards vest to the benefit of each recipient upon grant. Total grant date fair value of these options amounted to $344,339, using the Black-Scholes-Merton valuation technique, and was recorded as compensation in the period of grant. This amount is included in other operating expenses in the accompanying statements of operations. We used the remaining contractual term for the expected term, volatility ranging from 45.73% to 49.17% and risk-free rates ranging from 0.73% to 1.36%.

2007 Long Term Incentive Plan:

On November 21, 2007 the Company established a Long Term Incentive Plan (the “2007 Incentive Plan”) for the purposes of advancing the interests of the Company and our shareholders by providing incentives to certain of our employees and other key individuals who perform services for us, including those who contribute significantly to the strategic and long-term performance objectives and growth of the Company. The 2007 Incentive Plan is administered by a committee (the “Committee”) appointed by the Board of Directors. Currently, the Committee is comprised of all members of the Board of Directors acting as a group. The Committee has the power to interpret the 2007 Incentive Plan and to prescribe rules, regulations and procedures in connection with the operations of the 2007 Incentive Plan. The Committee may delegate administrative responsibilities under the 2007 Incentive Plan to any one or more of its members or other persons, except as may otherwise be required under applicable law or listing standards for an exchange on which the Company’s common stock may be listed. The 2007 Incentive Plan provides for the granting of several types of awards, including stock options, performance grants and other awards deemed by the Committee to be consistent with the purposes of the 2007 Incentive Plan. Awards may be granted alone, or in conjunction with one or more other awards, as determined by the Committee.

The 2007 Incentive Plan was effective as of November 21, 2007, and was approved by the Company’s board of directors. The Company’s shareholders have not voted on approval of the 2007 Incentive Plan. A maximum of two million shares (2,000,000) of common stock has been authorized to be issued under the 2007 Incentive Plan in connection with the grant of awards, subject to adjustment for corporate transactions, including, without limitation, any stock dividend, forward stock split, reverse stock split, merger or recapitalization. Of this amount, no more than two million (2,000,000) shares of common stock may be issued as incentive stock options. Common stock issued under the 2007 Incentive Plan may be either newly issued shares, treasury shares, reacquired shares or any combination thereof. If common stock issued as restricted stock, restricted stock units or otherwise subject to repurchase or forfeiture rights is reacquired by us pursuant to such rights, or if any award is cancelled, terminates, or expires unexercised, the common stock which would otherwise have been issuable pursuant to such awards will be available for issuance under new awards. All awards under the 2007 Incentive Plan shall be granted within 10 years of the date the plan was adopted.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):

The Committee has exclusive discretion to select to whom awards will be granted; to determine the type, size, terms and conditions of each award; to modify or waive, within certain limits, the terms and conditions of any award; to determine the time when awards will be granted; to establish performance objectives; to prescribe the form of documents representing awards under the 2007 Incentive Plan; and to make all other determinations which it deems necessary, advisable or desirable in the interpretation and administration of the 2007 Incentive Plan. At the discretion of the Committee, awards may be made under the 2007 Incentive Plan in assumption of, or in substitution for, outstanding awards previously granted by the Company, any predecessor or a company acquired by the Company or with which it combines. The Committee has the authority to administer and interpret the 2007 Incentive Plan, and its decisions are final, conclusive and binding. We anticipate that all of our employees and directors will be eligible to participate in the 2007 Incentive Plan.

Common Stock Equivalents:

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

	Common
	Equivalents
Securities:
Series C Preferred Stock		20,619,128
Series D Preferred Stock		14,000,000
Series F Preferred Stock		8,333,333
Warrants:
Class A-1 Warrants		3,000,000
Class A-2 Warrants		3,000,000
Class B-1 Warrants		480,000
Class B-2 Warrants		480,000
Class BD-1 Warrants		300,000
Class BD-2 Warrants		300,000
Class BD-3 Warrants		300,000
Class BD-4 Warrants		1,600
Class BD-5 Warrants		1,600
Class BD-6 Warrants		1,600
Class BD-7 Warrants		821,333
Class BD-8 Warrants		821,333
Class BD-9 Warrants		821,333
Class BD-10 Warrants		700,000
Class BD-11 Warrants		1,400,000
Class BD-12 Warrants		833,333
Class BD-13 Warrants		3,333,333
Warrant issued to consultants		1,000,000
Class C-1 Warrants		10,266,086
Class C-2 Warrants		10,266,086
Class D-1 Warrants		28,000,000
Class E Warrants (issued with Series F Preferred)		33,333,333
Employee Stock Options		2,145,000
Total common stock equivalent shares		144,558,431

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):

Series E Convertible Preferred Stock:

On December 3, 2008, we designated 13,001,000 shares of our newly designated $0.00001 par value, $1.00 stated value, Series E Convertible Preferred Stock (the “Series E Preferred Stock”) which we currently plan to use in connection with our impending acquisition of Abazias (see Note 4). The Series E Preferred Stock will vote with the common shareholders on an if-converted basis. The Series E Preferred Stock does not provide for either a liquidation preference or a dividend right. The Series E Preferred Stock is initially convertible into common stock on a one-for-one basis. However, this conversion rate is subject to a one-time adjustment, on the closing date of the Abazias purchase, where the conversion price is adjusted downward on a pro rata basis for common market values below $1.20, subject to a floor of $0.50. In addition to the conversion adjustment, the Series E Preferred Stock provides for down-round price protection in the event that we sell shares or indexed securities below $1.20 during the two year period following issuance. In the event of a down-round financing, the conversion price is adjusted similarly to the one-time adjustment described above. That is, on a pro rata basis for down round financings at less than $1.20. This protection has a floor of $0.50. The Series E Preferred Stock conversion price is otherwise subject to adjustment for traditional reorganizations, such as stock splits, stock dividends and similar restructuring of equity. Finally, OmniReliant is precluded from changing the designations of the Series E Preferred Stock without the approval of at least 80% of the holders.

The embedded conversion feature in the Series E Preferred Stock has been evaluated for derivative classification under Statement of Financial Accounting Standards No. 133 Accounting for Derivative Financial Instruments and Hedging Activities (“SFAS 133”). A requisite consideration for applying SFAS 133 is making a determination regarding whether the contract is more akin to an equity instrument or more akin to a debt instrument based upon all features, terms and conditions in the contract. Applying the guidance of EITF D-109 Determining the Nature of a Host Contract Related to a Hybrid Financial Instrument Issued in the Form of a Share under FASB Statement No. 133 we concluded that Series E Preferred Stock was more akin to an equity instrument on the basis that it has no redemption requirements, no dividend requirements and no features that would indicate credit or interest risk components. As an “akin-to-equity” instrument, the embedded conversion feature is clearly and closely related to the risks of the contract and derivative classification is not required.

The Series E Preferred Stock was also evaluated for classification under Statement of Financial Accounting Standards No. 150 Accounting for Financial Instruments with Characteristics of Both Equity and Liabilities (“SFAS 150”) and EITF D-98 Classification and Measurement of Redeemable Securities (EITF D-98). Generally, these standards require financial instruments that are mandatorily redeemable, including instances where contingent redemption events may be beyond the control of management, to be classified outside of stockholders’ equity in liabilities or mezzanine, respectively. As a result of our evaluation, the Series E Preferred does not embody any terms or features that require or could contingently require redemption.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED):

Series E Convertible Preferred Stock:

Finally, the Series E Preferred Stock will be evaluated for the presence of a beneficial conversion feature under the guidance of EITFs 98-5 and 00-27 Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (EITF 98-5) on the closing date of the Abazias purchase. A beneficial conversion feature is present when the effective conversion price of the convertible instrument is lower than the fair value of the common shares to which it is indexed.

Our purchase of Abazias has not yet occurred as of the filing of this quarterly report and is contingent upon the approval of both shareholder groups.

NOTE 10 – REDEEMABLE PREFERRED STOCK:

Redeemable preferred stock consists of the following as of March 31, 2009 and June 30, 2008:

	March 31, 2009		June 30, 2008
Series A 10% Convertible Preferred Stock, 3,000 shares issued, none outstanding	$	—	$	—
Series B 10% Convertible Preferred Stock, 1,000 shares issued, none outstanding		—		—
Series C Convertible Preferred Stock, 10,620,000 shares issued and outstanding (liquidation value $10,620,000)		28,969,634		28,969,634
Series D Convertible Preferred Stock, 7,000,000 shares issued and outstanding (liquidation value $7,000,000)		7,000,000		7,000,000
Series F Convertible Preferred Stock, 10,000,000 shares issued and outstanding (liquidation value $10,000,000)		10,000,000		—
	$	45,969,634	$	35,969,634

See Note 9 for information on our Series E Convertible Preferred Stock.

Terms, Features and Conditions of our Redeemable Preferred Stock:

Series	Date of Designation	Number of Shares		Par Value		Stated Value		Liquidation Value		Dividend Rate			Initial Conversion		Current Conversion
A	11/22/2006		3,000	$	0.00001	$	1,000	$	1,000		10	%	$	1.00		—
B	5/25/2007		1,000	$	0.00001	$	1,000	$	1,000		10	%	$	1.25		—
C	10/18/2007		10,620,000	$	0.00001	$	1.00	$	1.00		—		$	0.75	$	0.50
D	4/30/2008		7,000,000	$	0.00001	$	1.00	$	1.00		—		$	0.50	$	0.50
F	2/12/2009		10,000,000	$	0.00001	$	1.00	$	1.00		—		$	1.20	$	1.20

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

Conversion price adjustments: The conversion prices of our outstanding convertible preferred stock are subject to adjustment for anti-dilution protection for (i) traditional capital restructurings, such as splits, stock dividends and reorganizations (traditional restructuring events), and (ii) sales or issuances of common shares or contracts to which common shares are indexed at less than the stated conversion prices (down-round protections). As it relates to adjustments to conversion prices arising from down-round financing triggering events, we account for the incremental value to convertible preferred stock classified as liabilities by charging earnings. For convertible preferred stock classified in stockholders’ equity or redeemable preferred stock (mezzanine classification) we charge the incremental value to accumulated deficit as a deemed dividend.

Commencing July 1, 2009, the first day of our fiscal year ending June 30, 2010, we will be required to reevaluate the classification of the embedded conversion options in our outstanding convertible preferred stock under EITF 07-05 Determining Whether and Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock (EITF 07-05). EITF 07-5 addresses the determination of whether an equity-linked financial instrument (or embedded feature, such as is the case with our convertible preferred stock) is indexed to our common stock, and is an important consideration in determining the instrument's ongoing accounting classification. The guidance will require us to apply a two-step approach, separately evaluating each preferred instrument's contingent exercise provisions and then the preferred instrument's settlement provisions. Certain common price protection provisions, such as the down-round anti-dilution protection may cause some instruments (or embedded features) to be reclassified to liabilities (or bifurcated, as provided in SFAS 133) and, thereafter, marked-to-market through earnings. Our preliminary, based upon the current terms and conditions of our convertible preferred stock, is that bifurcation will not be required. Generally, we believe that the hierarchy in the application of the fragmented standards surrounding accounting for financial instruments continues to require the evaluation of whether preferred instruments are more akin to debt or equity for purposes of establishing the embedded conversion feature as akin-to-debt or akin-to-equity. As discussed further in this section, our outstanding convertible preferred instruments, in their hybrid form, are currently considered akin-to-equity contracts. Accordingly, the embedded conversion features in these contracts, in the absence of changes or amendments, will continue to be considered clearly and closely related for purposes of exempting the conversion option for further consideration under existing standards for bifurcation (that is, SFAS 133).

Dividend features: As discussed in more detail in this footnote, the Series A and B Preferred Stock were exchanged for Series C Preferred Stock and Warrants. Holders of the Company’s Series A Preferred and the Series B Preferred (collectively the “Series A and B Preferred”) were entitled to cumulative dividends at the rate per share of 10% per annum, payable quarterly on January 1, April 1, July 1 and October 1. Dividends were payable in cash or common stock, as follows: (a) if funds were legally available and certain equity conditions, described below, have not been met during the preceding five consecutive trading days payment must be in cash; (b) if funds were available and the equity conditions have been met during the five preceding trading days the payment may be made, at the sole election of the Company, in either cash or common shares (at a 10% discount to the trading market price, as defined in the Certificate of Designation). The Certificate of Designation provided that dividends were cumulative and unconditionally payable, even in the absence of a Board declaration. Accordingly, while these instruments were outstanding we accrued dividends as they were earned.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

As of October 18, 2007, (the date the Series A and B Preferred were exchanged for Series C Preferred), we had paid $194,468 in dividends related to the Series A and B Preferred shares. Preferred stock dividends are recorded as a reduction of stockholders’ equity. However, we also reflected preferred stock dividends as a reduction of our net loss for purposes of calculating income (loss) applicable to common stockholders and our net loss per common share.

Redemption features: The Series C, Series D and Series F Preferred are redeemable for cash in an amount representing the stated value. The following events give rise to a redemption triggering event:

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

Unless specifically addressed elsewhere in this Certificate of Designation as a Triggering Event, the Corporation shall fail to observe or perform any other covenant, agreement or warranty contained in the Certificate of Designation, and such failure or breach shall not, if subject to the possibility of a cure by the Corporation, have been cured within 20 calendar days after the date on which written notice of such failure or breach shall have been delivered;

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

There shall have occurred a Bankruptcy Event or Material Monetary Judgment;

If the Company fails to pay the Triggering Redemption amount on the date it is due, interest will accrue at a rate equal to the lesser of 18% per year, or the maximum rate permitted by applicable law, accruing daily from the date of the Triggering event until the amount is paid in full.

Events that may result in the redemption for cash of preferred stock, and that are not within a company’s control, are required to be classified outside of stockholders’ equity (in the mezzanine section), as required in EITF D-98 Classification and Measurement of Redeemable Securities (EITF D-98). The specific triggering event presumed not to be within our control is the change of control redemption event. Accordingly, these instruments are recorded in our balance sheet in the caption Redeemable Preferred Stock, which is outside of stockholders’ equity.

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

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

	Series A			Series B			Total
Gross proceeds	$	3,000,000		$	600,000		$	3,600,000
Financing costs paid in cash		(475,000	)		(95,000	)		(570,000	)
Net proceeds	$	2,525,000		$	505,000		$	3,030,000

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

	Series A			Series B			Total
Common shares indexed to financial instruments (upon inception):
Series A and B Preferred		3,000,000			480,000			3,480,000
Investor warrants:
Tranche A/B-1		3,000,000			480,000			3,480,000
Tranche A/B-2		3,000,000			480,000			3,480,000
Placement agent warrants		900,000			144,000			1,044,000
		9,900,000			1,584,000			11,484,000
Reduction in indexed shares resulting From the exchange of Series A and B Preferred Stock for Series D Preferred		(3,000,000	)		(480,000	)		(3,480,000	)
		6,900,000			1,104,000			8,004,000

The following table illustrates the terms of the warrants:

Warrant terms:	Strike Price Original/Reset		Term
Tranche A-1	$	1.50/—	5 years
Tranche A-2	$	1.00/—	10 years
Tranche B-1	$	1.87/—	3 years
Tranche B-2	$	3.75/—	5 years
Placement agents:
Series A Financing	$	1.00-$3.00/$0.50	10 years
Series B Financing	$	1.25-$3.75/$0.50	10 years

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

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

Series B Preferred—May 25, 2007—The Series B Preferred has terms and features consistent with those embodied in the Series A Preferred. However, as more fully discussed below, on the issuance date the Company’s ability to share settle any of its share-indexed financial instruments was not within its control, due to the triggering of the variable-share-indexed conversion feature in the Series A Preferred. Because share settlement was not within the Company’s control, net cash settlement was assumed and the Series B Preferred was initially classified in liabilities, at fair value.

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

In considering the application of SFAS 133, we identified those specific terms and features embedded in the contracts that possess the characteristics of derivative financial instruments. Those features included the conversion option, redemption features and other equity-indexed terms and conditions. In evaluating the respective classification of these embedded derivatives, we are required to determine whether the host contract (the Series A and B Preferred) is more akin to a debt or equity instrument in regards to the risks. This determination is subjective. However, in complying with the guidance provided in EITF D-109 Determining the Nature of a Host Contract Related to a Hybrid Financial Instrument Issued in the Form of a Share under SFAS 133 we concluded, based upon the preponderance and weight of all terms, conditions and features of the host contracts, that the Series A Preferred was more akin to an equity instrument for purposes of considering the clear and close relation of the embedded feature to the host contract. Based upon this conclusion, we further concluded that (i) the equity indexed and settled embedded features did require derivative liability classification and (ii) certain redemption features (that is, features that afford the investor the right to put the instruments for cash) required bifurcation and classification as compound embedded derivative liabilities, at fair value on the inception date. These amounts are reflected in the table above as derivative put liabilities and are valued using multiple, probability-weighted cash flow outcomes and market discount rates that are commensurate with our estimated credit risk.

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

In determining how the basis of the hybrid instruments would be allocated to the host contracts, detachable warrants, and the embedded conversion features, we utilized the guidance of Statement 133 Implementation Issue No. B-6 (“DIG Issue B6”) provided by the Derivatives Implementation Group. DIG Issue B6 provides that the initial carrying values of the host contract component and the embedded derivative components of a hybrid instrument should be determined by recording the embedded derivative at fair value and determining the initial carrying value assigned to the host contract as the difference between the basis of the hybrid instrument and the fair value of the embedded derivatives (a “with and without” method based on the fair value of the embedded derivative). Since there were warrants issued concurrently with the host instrument and a BCF calculated upon inception, these components also needed to be considered when calculating the value to be assigned to the host instrument.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

When we evaluated the warrants, we concluded that equity classification was not appropriate for the investor warrants under EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (EITF 00-19). Accordingly the proceeds from the issuance of the debt and the detachable warrants was first allocated to the debt and the warrants based on their relative fair values as described in APB 14. The embedded derivatives in the debt instrument that required bifurcation (put liability) were then bifurcated at their fair values from the proceeds allocated to the debt under APB 14 and then the BCF was calculated. After the allocation process, any residual proceeds would be allocated to the debt host, however, the aggregate fair values of the warrants, put and BCF exceeded the gross proceeds so we recognized a day-one derivative loss as indicated.

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

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

The following table illustrates the activity with respect to each of the Series A and Series B Preferred from their respective inception dates to October 18, 2007 (date of exchange):

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

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

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

The shares underlying the placement agent warrants are not subject to the registration rights. Accordingly, the placement agent warrants issued with the Series A Preferred Financing were afforded equity classification. On May 21, 2007, however, our ability to share-settle our share-indexed financial instruments was placed out of our control because the number of shares necessary to share-settle the Series A Preferred became indeterminate and we potentially could have insufficient authorized shares to settle all of our share-indexed financial instruments. On that date, the warrants issued with the Series A Preferred required reclassification to liabilities. Subsequently, on May 25, 2007, the placement agent warrants issued with the Series B Preferred Financing did not achieve equity classification for this reason. The Series A and Series B Preferred Stock were exchanged for Series C Preferred Stock and warrants on October 18, 2007, as discussed in the following section. Upon the exchange of the Series A and B Preferred Stock for Series C Preferred Stock, there was no longer a variable conversion rate associated with the Preferred Stock Financings. Accordingly, share settlement was again determined to be within the Company’s control and the placement agent warrants from the Series A and B Financings were reclassed to equity.

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

Sale and Exchange of Series C Preferred Stock:

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

	Series C Financing			Series C Exchange		Total
Gross proceeds	$	6,400,000		$	—	$	6,400,000
Financing costs paid in cash		(340,000	)		—		(340,000	)
Net proceeds	$	6,060,000		$	—	$	6,060,000

Common shares indexed to financial instruments:
Series C Preferred		8,533,333			5,212,752		13,746,085
Investor warrants:
Tranche C-1		8,533,334			5,212,752		13,746,086
Tranche C-2		8,533,334			5,212,752		13,746,086
Placement agent warrants		2,559,999			—		2,559,999
		28,160,000			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.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

Warrant terms:	Strike Price Original/Reset		Term
Tranche C-1	$	1.50/$0.50	5 years
Tranche C-2	$	2.00/$0.50	10 years
Placement agents	$	0.75-$2.00/$0.50	10 years

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

Fair value of Series C Preferred	$	13,553,155
Fair value of Series C investor warrants		17,796,834
		31,349,989
Carrying 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		1,999,771
Total carrying values		(4,831,873	)
Excess of fair values over carrying values	$	26,518,116

Allocation of excess:

Extinguishment of redeemable preferred	$	26,247,007
Extinguishment of other liabilities		271,109
Excess of fair values over carrying values	$	26,518,116

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

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

October 18, 2007:		A-1			A-2			B-1			B-2
Trading market price	$	2.60		$	2.60		$	2.60		$	2.60
Strike or exercise price:
Contract price	$	1.50		$	1.00		$	1.87		$	3.75
Repriced	$	0.75		$	0.75		$	0.75		$	0.75
Expected term in years	4.10yrs			9.10yrs			2.60yrs			4.60yrs
Volatility		39.73	%		50.03	%		34.98	%		40.08	%
Risk-free rate		4.17	%		4.52	%		3.98	%		4.17	%

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

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

Sales of Series D Preferred Stock and Warrants:

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

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

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

Classification	Series D
Redeemable Preferred Stock (Mezzanine)	$	—

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

Although, as described above, the embedded conversion feature did not require liability classification under Statement 133, we were required to consider if the hybrid preferred contracts embodied beneficial conversion features (“BCF”). A BCF is present when the “effective” conversion price ascribed to the conversion feature has intrinsic value. Further, a BCF is accounted for as a component of paid-in capital on the inception date. As reflected in the tables above, the Series D Preferred was found to have a BCF. The aggregate BCF at its intrinsic value amounted to $38,460,136. This amount gives effect to the (i) the trading market price on the contract dates and (ii) the effective conversion price of each preferred issuance after allocation of proceeds to all financial instruments sold based upon their relative fair values. Notwithstanding, BCF was limited to the value ascribed to the remaining hybrid contract (using the relative fair value approach). Accordingly, the BCF allocated to paid-in capital amounted to $2,839,864.

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

Series F Preferred Stock and Warrant Financing Arrangement:

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

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

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

	Fair Value		Allocated Value		Allocation of Cash Costs			Allocation of Warrant Costs
Gross consideration			$	10,000,000
Cash financing costs					$	( 863,006	)
Warrant financing costs (fair value)								$	( 253,750	)

Financial instruments sold:

Series F Convertible Preferred	$	10,002,594	$	7,970,000	$	( 717,410	)	$	( 210,940	)

Investor warrants		2,030,000		2,030,000		(145,596	)		(42,810	)

	$	12,032,594	$	10,000,000	$	( 833,006	)	$	( 253,750	)

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

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

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REDEEMABLE PREFERRED STOCK (CONTINUED):

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

Direct Financing Costs:

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – DERIVATIVE FINANCIAL INSTRUMENTS:

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

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

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – DERIVATIVE FINANCIAL INSTRUMENTS:

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

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

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

Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high estimated historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, our income will reflect the volatility in these estimate and assumption changes.

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – DERIVATIVE FINANCIAL INSTRUMENTS:

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

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

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – RELATED PARTY TRANSACTIONS:

Consulting Agreement - On October 1, 2006 the Company entered into a six (6) month consulting agreement with Harrington Business Development, LLC (“HBD”). The shareholders of HBD are also shareholders of the Company. This agreement was not renewed subsequent to June 30, 2007 and therefore The Company did not recognize any expense related to this agreement for the quarter ended March 31, 2009 or the nine months ended March 31, 2009. On July 14, 2008 the Company entered into a one (1) year consulting agreement with HBD.

Licensing Agreement - On October 13, 2006, the Company entered into a licensing agreement with a shareholder of the Company. On November 22, 2006 the Company made a payment of $850,000 pursuant to the agreement. On January 10, 2007, pursuant to the agreement, the Company paid the remaining balance due of $150,000. The Company has recognized expense related to this agreement in the amount of $106,579 for the quarter ended March 31, 2009. See “Licensing agreement” above for further details.

Assignment of Contract - On November 10, 2006 the Company entered into an agreement with Reliant International Media, LLC (“RIM”). The members of RIM are also shareholders of the Company. See “Assignment of Contract” above for further details.

Preferred Stock Purchase Agreement - - Midtown Partner & Co. LLC, served as the Company's placement agent in connection with the Series A, B and C Preferred Stock Purchase Agreements. Midtown Partners & Co. LLC received an aggregate placement agent fee related to Series A Preferred Stock Purchase agreement of approximately $300,000, as well as the following common stock purchase warrants: (a) series BD-1 common stock purchase warrants entitling Midtown Partners to purchase 300,000 shares of the Company's common stock at an exercise price of one dollar ($1.00) per share, (b) series BD-2 common stock purchase warrants entitling Midtown Partners to purchase 300,000 shares of the Company's common stock at an exercise price of one dollar and fifty cents ($1.50) per share, and (c) series BD-3 common stock purchase warrants entitling Midtown Partners to purchase 300,000 shares of the Company's common stock at an exercise price of three dollars ($3.00) per share. The Series BD warrants have a term of ten years.

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – RELATED PARTY TRANSACTIONS (CONTINUED):

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

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

Consulting Agreement - On December 8, 2006 the Company entered into a verbal arrangement with TotalCFO, LLC. TotalCFO, LLC is owned by a shareholder of the Company. The Company has recognized $99,413 and $233,994 of expense related to this arrangement for the quarter and nine-month periods ended March 31, 2009.

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – TRANSACTIONS WITH RESPONZETV:

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

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

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

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

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

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

The substance of the above series of transactions is that of a sublicense arrangement between us and ResponzeTV; that is, a revenue arrangement. Our accounting for the activity arising from this arrangement, which will commence in the second fiscal quarter of our year ending June 30, 2008, provides for recognition of deferred revenue to the extent of the consideration received for the sublicense, which amounts will be recognized in our earnings when amounts are earned. As of March 31, 2009 we had recognized $546,917 of earnings.

Investment in ResponzeTV:

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – TRANSACTIONS WITH RESPONZETV (CONTINUED):

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

NOTE 14 – SEGMENT INFORMATION:

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

	Retail Products and Licensing			Real Estate			Consolidated

	Three Months Ended March 31, 2009

Revenues from external customers	$	2,585,582		$	58,314		$	2,643,896
Depreciation expense		4,157			34,716			38,873
Income (loss) from operations		(1,202,121	)		(52,419	)		(1,254,540	)
Capital expenditures		6,714			—			6,714

	Nine Months Ended March 31, 2009

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

	March 31, 2009

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

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

OMNIRELIANT HOLDINGS, INC. & SUBSIDIARIES

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – SUBSEQUENT EVENT:

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

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

Strathmore’s not being in default under any indebtedness;

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

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

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

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

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

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

Our ability to generate customer demand for our services;

The intensity of competition; and

General economic conditions.

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

Overview

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

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

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

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

It is the Company’s intention to design, manufacture, market and distribute prestige fragrances and related products. In addition, the Company has an agreement to market and distribute hair straightening irons. The Company plans to engage contract packagers and professionals in the field. In the United States, our plan is to enter into agreements to distribute our products through a targeted group of department and specialty stores, such as Macy's, Foley's, Marshall Fields, Famous Barr, Belks, Elder Beerman, Carson Pirie Scott, and Filenes. In international markets, we plan to distribute our products through established prestige distribution channels. We hope to sell products under private label that have already reached its market entry point.

As a development stage company, we may not be successful in implementing our plan to manufacture, market and distribute prestige fragrances and related products. Until our products are successfully manufactured and marketed on a live shopping network or via infomercials, we will not generate significant revenues and may not be successful. If we cannot generate sufficient revenues to continue operations, we will be forced to suspend or cease operations, and may forfeit our rights under license agreements.

We do not expect to make any significant purchases of equipment nor do we expect a significant change in the number of our employees.

Our officers and directors will handle our administrative duties with the help of a consultant, TotalCFO, LLC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

We are in our development stages and have reported recurring losses while devoting substantially all of its efforts to raising capital, identifying and pursuing businesses opportunities and developing our retail products and distribution networks. During our development period, we have used cash of $2,723,676 and $857,477 during the nine months ended March 31, 2009 and 2008, respectively, and $4,533,306 since our inception. These conditions raise substantial doubt about our ability to continue as a going concern for a reasonable period. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuing operations, realization of assets and liquidation of liabilities in the ordinary course of business. Our ability to continue as a going concern is dependent upon its ability to raise sufficient capital to implement a successful business plan and to generate profits sufficient to become financially viable. To the extent that it becomes necessary to raise additional cash in the future as our current cash and working capital resources are depleted, we will seek to raise it through the public or private sale of debt or equity securities, the procurement of advances on contracts or licenses, funding from joint-venture or strategic partners, debt financing or short-term loans, or a combination of the foregoing. We also may seek to satisfy indebtedness without any cash outlay through the private issuance of debt or equity securities.

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

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

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

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

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

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

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

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

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

Abazias Purchase Transaction:

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

Segment Reporting:

	Retail Products and Licensing			Real Estate			Consolidated

	Three Months Ended March 31, 2009

Revenues from external customers	$	2,585,582		$	58,314		$	2,643,896
Depreciation expense		4,157			34,716			38,873
Income (loss) from operations		(1,202,121	)		(52,419	)		(1,254,540	)
Capital expenditures		6,714			—			6,714

	Nine Months Ended March 31, 2009

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

	March 31, 2009

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

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

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. For a description of those estimates, see Note 3, Summary of Significant Accounting Policies, contained in the explanatory notes to our audited financial statements for the nine months ended March 31, 2009 attached to this Form 10-Q. On an on-going basis, we evaluate our estimates, including those related to reserves, deferred tax assets and valuation allowance, impairment of long-lived assets, fair value of equity instruments issued to consultants for services and estimates of costs to complete contracts. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.

Effect of Recently Issued Accounting Pronouncements:

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

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

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

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

ITEM 4T – CONTROLS AND PROCEDURES

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

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

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

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

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

ITEM 1A – RISK FACTORS

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

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

None.

ITEM 3 – DEFAULTS UPON SENIOR SECURITES

None.

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

None.

ITEM 5 – OTHER MATTERS

None.

ITEM 6 – EXHIBIT INDEX

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

SIGNATURES

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

	OmniReliant Holdings, Inc.

Date: May 20, 2009	By:	/s/ Paul Morrison
		Paul Morrison
		Chief Executive Officer and Chief Financial Officer (Principal Accounting Officer

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Infusion Brands International (INBI) Inactive 10-Q2009 Q1 Quarterly report

Content analysis