**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-KSB**

 

**ý****  ANNUAL REPORT PURSUANT TOSECTION13 OR 15(d) OF THE SECURITEIS EXCHANGE ACT OF 1934**

 

**for thefiscal year ended MARCH 31, 2005**

 

**OR**

 

**o****  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGEACT OF 1934**

 

**for the transitionperiod from              to              **

 

**CommissionFile Number: 000-254888**

 

**RG GLOBAL LIFESTYLES, INC.**

(Name of smallbusiness issuer in its charter)

 

**California**

(State orother jurisdiction of incorporation or organization)

 

**33-0230641**

(I.R.S.Employer Identification No.)

 
| **17751  Mitchell Avenue, Irvine, CA**    | ** ** | **92614**  |
|-------------------------------------------|------------|------------|
| (Address of  principal executive offices) |       | (Zip Code) |

 

Issuer’stelephone number: **(949) 486-6666**

 

Securitiesregistered under Section 12(b) of the Act:  **None**

 

Securitiesregistered under Section 12(g) of the Act:

 

**CommonStock, $.001 par value**

(Title ofClass)

 

Check whether the issuer (1) filed allreports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the issuer wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý      No o

 

Check if there is no disclosure of delinquentfilers pursuant to Item 405 of Regulation S-B contained in this form, and nodisclosure will be contained, to the best of issuer’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-KSB, or any amendment to this Form 10-KSB.  o

 

The issuer’s revenues for the most recentfiscal year were 5,504,036.

 

The aggregate market value of the votingstock held by non-affiliates as of June 27, 2005 was $27,201,845.

 

The number of shares outstanding of theissuer’s Common Stock as of March 31, 2005 was 25,150,000.

 

Transitional Small Business Disclosure Format(Check One): Yes o    No ý

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

The following documents are incorporated by reference herein: (i) L.L.Knickerbocker Co., Inc. Form SB-2 Registration Statement No. 33-85230-LAas filed on October 13, 1994; (ii) L.L. Knickerbocker Co. Inc. Form 10-KSBas filed on March 29, 1995; (iii) to L.L. Knickerbocker Co., Inc.Form 10-K as filed on April 14, 2000; (iv) the Company’s Form 8-Kas filed August 23, 2004; and (v) the Company’s Form 8-K asfiled June 10, 2005.

 

 

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**TABLE OFCONTENTS**

 
| **PART I**                                                                                                                                 | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                            |       |
| ITEM 1.   DESCRIPTION OF BUSINESS                                                                                                     |       |
|                                                                                                                                            |       |
| ITEM 2.   DESCRIPTION OF  FACILITIES                                                                                                  |       |
|                                                                                                                                            |       |
| ITEM 3.   LEGAL PROCEEDINGS                                                                                                           |       |
|                                                                                                                                            |       |
| ITEM 4.   SUBMISSION OF MATTERS  TO A VOTE OF SECURITY HOLDERS                                                                        |       |
|                                                                                                                                            |       |
| **PART II**                                                                                                                                | ** ** |
|                                                                                                                                            |       |
| ITEM 5.   MARKET FOR COMMON  EQUITY AND RELATED STOCKHOLDER MATTERS                                                                   |       |
|                                                                                                                                            |       |
| ITEM 6.   MANAGEMENT’S DISCUSSION  AND ANALYSIS OR PLAN OF OPERATION                                                             |       |
|                                                                                                                                            |       |
| ITEM 7.   FINANCIAL STATEMENTS                                                                                                        |       |
|                                                                                                                                            |       |
| ITEM 8.   CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                       |       |
|                                                                                                                                            |       |
| ITEM 8A.   CONTROLS AND  PROCEDURES                                                                                                   |       |
|                                                                                                                                            |       |
|  ITEM 8B.   OTHER  INFORMATION                                                                                                   |       |
|                                                                                                                                            |       |
| **PART III**                                                                                                                               | ** ** |
|                                                                                                                                            |       |
| ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS,  PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE  EXCHANGE ACT |       |
|                                                                                                                                            |       |
| ITEM 10.   EXECUTIVE COMPENSATION                                                                                                     |       |
|                                                                                                                                            |       |
| ITEM 11.   SECURITY OWNERSHIP OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                            |       |
|                                                                                                                                            |       |
| ITEM 12.   CERTAIN RELATIONSHIPS  AND RELATED TRANSACTIONS                                                                            |       |
|                                                                                                                                            |       |
| ITEM 13.   EXHIBITS                                                                                                                   |       |
|                                                                                                                                            |       |
| ITEM 14.  PRINCIPAL ACCOUNTANT FEES  AND SERVICES                                                                                          |       |

 

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**PART I**

 

**ITEM 1.  DESCRIPTION OF BUSINESS**

 

**Development of Business**

 

Form andYear of Organization 

 

R.G. Global Lifestyles, Inc. (the “Company”),was originally incorporated in California on July 12, 1985 as InternationalBeauty Supply Ltd.  The name of the corporation was changed on May 28,1993 to L.L. Knickerbocker Co., Inc., and thereafter on January 9,2003 to the present name, R.G. Global Lifestyles, Inc.

 

Bankruptcy 

 

Since its inception, the Company, under priormanagement teams, was involved in several businesses and engaged in variousconsumer, retail and commercial ventures, which ultimately proved unsuccessful. On August 15, 2002, the Company’s Chapter 11 Debtor in Possessionreorganization plan with the US Bankruptcy Court, Central District ofCalifornia was approved after an involuntary petition was filed by certain ofthe Company’s creditors. The Company liquidated its assets in full satisfactionof its creditors’ claims and was discharged from the bankruptcy on September 6,2002.  The Company ceased filing reports with the Securities and ExchangeCommission in 2001 and became delinquent in its filing obligations after its September 30,2001 quarterly financial report.

 

Reverse Merger

 

Subsequent to the bankruptcy reorganization,the Company sought alternative business opportunities and worked to develop theCompany’s new business plan through merger and consolidation with otherentities.   In furtherance of this plan, in July of 2004, the Companyentered into an Agreement and Plan of Reorganization, (the “Plan ofReorganization”), among Amerikal International Holding, Inc. (“AIH”), theCompany, Horst Geicke, and the shareholders of Amerikal International Holding, Inc.(the “AIH Shareholders”).  Pursuant to the Plan of Reorganization, theCompany acquired all of the outstanding shares of AIH from the AIH Shareholdersin exchange for the issuance by the Company to the AIH Shareholders of anaggregate of 1,934,880 shares of the Company’s common stock (“Common Stock”). The Plan of Reorganization also provided for the transfer by an entitycontrolled by Horst Geicke to the AIH Shareholders of an aggregate of16,630,607 shares of the Company’s Common Stock held by the entity in exchangefor nominal consideration.  Prior to the consummation of the transactionscontemplated by the Plan of Reorganization, Horst Geicke beneficially held 90%of the outstanding Common Stock of the Company.  Immediately following thetransactions, the Company had an aggregate of 21,462,000 shares of Common Stockissued and outstanding, and the AIH Shareholders held an aggregate of18,530,607 shares, or 86.34%, of the Company’s Common Stock issued andoutstanding.  Thus, at the close of the transactions, the formershareholders of AIH controlled the voting power of a majority of the Company’s CommonStock.  The Common Stock issued in the course of the reverse mergertransaction was recorded at the net book value of the Company’s assets on theacquisition date.

 

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As a result of the reverse merger, theCompany caused AIH to be merged with and into the Company pursuant to aCertificate of Ownership filed with the California Secretary of State on August 12,2004 and Articles of Merger filed with the Nevada Secretary of State on August 17,2004.  The Company continued as the surviving entity in the reversemerger.  Thus, Amerikal Nutraceutical Corporation (“ANC”), formerly thedirect, wholly-owned subsidiary of AIH and the indirect subsidiary of AIH,became the direct, wholly-owned subsidiary of the Company.  ANC and itsoperations comprise the primary assets of the Company which has no othermaterial operations.

 

Reinstatement on OTC Bulletin Board

 

In January 2005, the Company receivedclearance for quotation of its Common Stock on the over-the counter BulletinBoard (“OTC Bulletin Board”), under the symbol “RGBL.”

 

**Business of Issuer**

 

Amerikal Nutraceutical Corporation 

 

The business of the Company’s wholly ownedsubsidiary, Amerikal Nutraceutical Corporation (“ANC”), is to manufacture, selland distribute dietary supplements, health and beauty aid products.  Theprimary markets for the Company’s products are South East Asia and Asia,including Singapore, Indonesia, Malaysia, Thailand, Taiwan, Hong Kong andJapan. The Company intends to expand its sales by use of an aggressiveinfomercial marketing plan.

 

Through ANC, the Company has introduced theLifeDerma (TM) cosmetic line in the United States and Asia.  The Lifederma (TM) family of products is acollagen gel anti-wrinkle cream developed from a variety of all-natural organicextracts as formulated by Dr. Michael Elam, M.D.  In February 2005, the Company commenced aweb-based marketing campaign strategy to introduce LifeDerma to the U.S.market.  In order to further expand itsmarketing campaign for LifeDerma and other nutraceutical products developed bythe Company, the Company entered into advertising agreements withCoolSavings.com and Google.com in March and April of 2005respectively.

 

Aquair, Inc.

 

In October of 2004 the Company formedAquair, Inc., a California corporation, (“Aquair”) to diversify theCompany’s product-lines.   In June 2005, Aquair was named anexclusive distributor, marketer and reseller of atmospheric water generatorsproduced by Munters, Inc., a Swedish corporation (“Munters”).  This agreement grants to Aquair the exclusiveright to market and sell the Munters patented water generation equipment tocustomers in the oil and gas industry (including both drilling and refinerysectors), residential building industry, private and commercial shippingindustries, and government agencies.  Inaddition, Aquair has been granted the exclusive right to sell the watergeneration equipment to companies that will bottle water for resale.  This agreement is effective for the UnitedStates, Europe and most countries in Asia with the exception of Indonesia,Malaysia, Thailand and Singapore. The 16 new models produced by Munters and marketedand distributed through Aquair are industrial and commercial atmospheric watergenerators which are capable of producing between 85 and 3,500 

 

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gallons of water per day. The Company has notyet earned revenue from sales pursuant to its agreement with Munters and theCompany cannot predict with certainty if or when material sales will occur.

 

On Line Surgery, Inc.

 

On January 13, 2005, the Company enteredinto an agreement to acquire Onlinesurgery.com in exchange for 200,000 restrictedshares of the Company’s Common Stock. The fair market value of this transactionas of January 13, 2005 was $10,000. Onlinesurgery.com features links tomedical news, articles and live surgery over the Internet.  The site also hosts auctions of health andbeauty aid products and offers contests for free surgeries.  Onlinesurgery.com will function as a portal,search engine and doctor locator service. The Company’s strategy is to further develop the site as a venue tolaunch the sales and marketing of its 200 branded products in America, which werepreviously only sold in Asian countries. On May 02, 2005, the Companyincorporated On Line Surgery, Inc. as a wholly owned subsidiary.

 

**Distribution**

 

On July 1, 2004, the Company entered intoto a distribution agreement with PT Pacific Image Internasional, a company inIndonesia, (“PT Pacific”) in order to distribute the Company’s products inIndonesia through the use of PT Pacific’s permits. The purchase price paid bythe Company for the use of PT Pacific’s permits was $300,000, paid in cash,which sum represents the fair market value of the transaction.

 

**Status of Publicly Announced New Products andServices**

 

During the fiscal quarter ending March 31,2005, the Company launched its web marketing program for sales of its LifeDermaTMproducts, by entering into marketing agreements with OptinRealBig.Com, LLC and JamesSierra.  The Company initially posted acash deposit of $7,500 with OptinRealBig.Com, LLC, which was subsequentlyincreased to $25,000 during the course of the marketing campaign.  Between the launch of the web marketingcampaign in February, 2005 and June 2005, the Company also entered intomarketing agreements with Google.com and CoolSavings.com.  In order to satisfy the demand for shipmentof orders generated by the web marketing campaign, the Company also enteredinto a Fulfillment Agreement with Specialized Marketing Systems (“SMS”) ofIrvine, California.  Pursuant to thefulfillment agreement, the Company delivers its finished goods inventory toSMS, which packs and ships the products to customers identified through the webmarketing campaign.  As of June 24,2005, the Company had completed the test phase of its web marketing campaign.  The Company is now compiling and studyingdata for further implementation of its web marketing strategy.

 

An additional step in the Company’s webmarketing strategy involves the use of its new web portal, Onlinesurgery.com,as a web marketing mechanism.  TheCompany completed the acquisition of the rights to this web portal in January 2005.  The Company plans to develop this site to marketand sell its nutraceutical products as well as to sell advertising. Becausethis strategy is still in the development phase, there can be no assurance thatthe web portal will be profitable in the future.

 

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**Competition**

 

The international market for dietarysupplements, health and beauty-aid products is a multi-billion dollar marketsegment.  There are numerous companies that currently sell proprietary,natural dietary supplements, health and beauty-aid products.  Companiessuch as Schering-Plough HealthCare Products, Inc., Pfizer, Inc.,Aventis Pharmaceuticals, Inc., Natural Organics, Inc., Blackmores(Australia) and GlaxoSmithKline are just a few of the Company’s competitors. Many of these competitors have established histories of operation andgreater financial resources than the Company, enabling them to financeacquisitions and development opportunities, to pay higher prices for the sameopportunities, and to develop and support their own operations.  Inaddition, many of these companies have greater name recognition.  Thesecompanies might be willing to sacrifice profitability to capture a greaterportion of the market for products similar to those manufactured or distributedby the Company or pay higher prices than the Company would for the sameexpansion and development opportunities. Consequently, the company may encounter significant competition in itsefforts to achieve its growth objectives.

 

**Sources and Availability of Raw Material andPrincipal Suppliers**

 

Through it’s wholly owned subsidiary, Amerikal NutraceuticalCorporation (“ANC”), the Company conducts its operations through the followingmethods: (1) the Company acquires natural products from various domesticsources in the United States, combines them using formulations created by theCompany and produces the final product for shipment to the customer throughcontract manufacturers who operate facilities that meet the requisiteproduction standards of the United Stated Food and Drug Administration (“FDA”);or  (2) the Company producesproducts formulated by customers or others pursuant to distribution rights agreementsand subsequently sells those products pursuant to the distribution agreements.

 

The raw materials used by the Company in the foregoing processes are inplentiful supply in the United States and are available at competitive prices.  If a product requires a component notgenerally available within the United States, the Company may be required toobtain the raw materials from sources in Europe or Asia.  The importation of such raw material maycause significant delays in production due to FDA regulatory proceduresregarding imported substances.

 

The Company periodically reviews its system for the award of contractsand purchase orders to contract manufacturers in order to ensure quality,timeliness of production and competitive pricing.  In addition, the Company requires allcontract manufacturers that produce its products to show evidence of compliancewith all applicable FDA and state regulatory standards.

 

**Dependence on Major Customers**

 

During the fiscal year ending March 31, 2005, the Company’s principaloperating subsidiary, Amerikal Nutraceutical Corporation (“ANC”), sold itsproducts primarily to 

 

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customers in Asia.  More thaneighty percent of total sales of the ANC’s nutraceutical products were shippedto various countries in Asia, either directly to or at the direction of the ANC’sprincipal customer, LifePharm, Inc., a Singapore corporation.  In order to diversify its customer base, theCompany has been developing relationships with other customers and suppliers inAsia, as well as acquiring distribution rights in other countries.  However, the vast majority of sales of ANC’sproducts shall remain concentrated with this major customer and reliance uponthis customer shall continue into the foreseeable future.  There can be no assurance that this customerwill continue to purchase ANC’s products either in the same quantities or atthe same profit margins in the future.  IfLifePharm, Inc. decreases or discontinues its purchase of the ANC’s productsor re-negotiates the pricing of products purchased from ANC, the Company will mostlikely experience a reduction in gross revenue and profit.

 

In addition to the plan for diversification of its customer base withinthe nutraceutical product market, the Company has been developing a domesticweb marketing strategy to target distribution of its products to customerswithin the United States through Onlinesurgery.com in order to reduce itsreliance upon one major customer.  TheCompany is also expanding its product lines through Aquair, Inc., theCompany’s wholly owned subsidiary, which will market and distribute watergeneration equipment to customers and industries throughout the world.

 

**Intellectual Property**

 

The technology underlying Aquair, Inc.’sAtmospheric Water Generator is protected by three patent owned by Munters andothers pending.  Amerikal NutraceuticalCorporation owns numerous live trademarks including but not limited to the wordmarks “AQUAIR,” “AMERIKAL” and “LIFEDERMA.”

 

**Government Regulation**

 

Government regulation in the United States isa significant factor in the production and marketing of new drugs.  TheFDA must approve all new over-the counter and prescription drugs, including anynew uses of substances previously used safely for different purposes.  Inthe United States., companies are subject to rigorous requirements in order toengage in various types of human testing. Companies must comply with mandatory procedures and safety standardsestablished by the FDA.  The natural food supplement industry, bycontrast, is not subjected to the same level of FDA regulation. However, themanufacturing facilities used by the Company’s contract manufacturers toproduce the Company’s products are required to maintain their facilities inaccordance with standards promulgated by the FDA and monitored and inspectedthrough various state agencies.

 

**Effect of Any Existing or Proposed GovernmentRegulations**

 

Not applicable, see “Government Regulation”above.

 

**Employees**

 

As of the date hereof, the Company employs sixemployees comprised of one full time officer and five full or part timeemployees.  The Company hires consultantson an as needed basis and may need to hire additional employees during the fiscalyear ending March 31, 2006.

 

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**Research and Development Costs**

 

Not applicable.

 

**Cost and Effects of Compliance withEnvironmental Laws and Regulations**

 

Notapplicable.

 

**ITEM 2.DESCRIPTION OF FACILITIES**

 

On April 28, 2003, AmerikalNutraceutical Corporation, the Company’s wholly owned subsidiary, entered intoa month-to-month rental agreement with Pharmaxx, Inc. for office spacelocated at 17751 Mitchell Avenue, Irvine, CA 92614 for the sum of $2,500 per month. This agreement is not binding and may be cancelled by either party atany time.

 

On October 1, 2004, Aquair Inc., theCompany’s wholly owned subsidiary, entered into a month-to-month rentalagreement with Pinnacle International, Inc, a California Corporation which iswholly owned by Louis Knickerbocker, the Chief Executive Officer and Chairmanof the Board of Directors of the Company. The agreement is for 1000 square feet of office space located at 30021Tomas, Rancho Santa Margarita, California 92688 and office support services ata fair market rate of $6,000 per month.

 

**ITEM 3.  LEGAL PROCEEDINGS**

 

On August 15, 2002, the Company’spetition for Chapter 11 Debtor in Possession reorganization with the USBankruptcy Court, Central District of California was approved after the Companywas subjected to an involuntary petition filed by certain of its creditors. Pursuant to the Chapter 11 reorganization, the Company liquidated itsassets in full satisfaction of its creditors’ claims and was discharged frombankruptcy on September 6, 2002.

 

Presently, neither the Company nor its whollyowned subsidiaries are party to any litigation and the Company is not aware oflitigation, either pending or threatened. Neither the Company nor its subsidiaries has been the defendant orplaintiff in any litigation, since the discharge from bankruptcy of the Companyattributable to its predecessor L.L. Knickerbocker Company, Inc.

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS**

 

The Company is in the process of preparingand filing a Form 14a notice to security holders in order to hold anannual meeting, during which matters to be submitted for approval will includethe amendment of the Articles of Incorporation to conform the par value of theCompany to $.001, as the Articles of Incorporation currently state a par valueof zero.

 

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**PART II**

 

**ITEM 5.  MARKET FOR COMMON EQUITY ANDRELATED STOCKHOLDER MATTERS**

 

The Company’sCommon Stock previously traded on the OTC Bulletin Board. However, the Companywas delinquent in its reporting obligations since its filing with theCommission for the quarter ended September 30, 2001, which was filed on November 19,2001.  As a result of this prolonged delinquency, the Company’s CommonStock was suspended from trading on the OTC Bulletin Board and there was anextremely limited or no market for the Company’s shares.  By bringing itsfinancial reports current with the Commission and submitting the informationrequired by Rule 15c2-11 to the NASD to obtain listing and resume tradingof the Company’s Common Stock on the OTC Bulletin Board, the Company was ableto obtain reinstatement as a fully reporting company.

 

In January 2005, the Company receivedclearance from the NASD for quotation of the Company’s $0.001 par value CommonStock on the OTC Bulletin Board, under the symbol “RGBL.”   The high sales price of the Company’s CommonStock for the quarter ending March 2005 was $3.50; the low, $0.05.

 

On June 22, 2005, theclosing sale price was $4.55.

 

**Holders**

 

There were approximately 3,200 holders ofrecord of the Company’s Common Stock as of March 31, 2005.

 

**Dividends**

 

The Company has not paid any dividends on itsCommon Stock since emerging from the Chapter 11 bankruptcy proceeding in September 2002and does not anticipate paying dividends in the foreseeable future.  Thereare no restrictions on the Company’s present ability to pay dividends toshareholders of its Common Stock, other than those prescribed by Californialaw.

 

**Stock Based Compensation**

 

**In August,2004 the Company issued an aggregate of 3,000,000 restricted shares of its CommonStock to officers, directors and consultants in lieu of cash compensation.  The fair market value of such shares at thetime of issuance was $0.05 per share. During the fiscal year ending March 31, 2005, the Company expensedapproximately $104,000 of stock based compensation to officers and directors ofthe Company and approximately $46,000 in stock based compensation toConsultants. The officer and director recipients of the stock based compensationare further detailed in Item 10 of this report.**

 

**Recent Sales of Unregistered Securities**

 

InJuly of 2004, pursuant to its Plan of Reorganization, the Companyacquired all of the outstanding shares of AIH from the AIH Shareholders inexchange for the issuance by the Company to the AIH Shareholders of anaggregate of 1,934,880 shares of the Company’s 

 

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Common Stock.  These shares were issued without registrationpursuant to available exemptions from registration under both sate and federalsecurities laws and are subject to certain restrictions and limitations ontransferability.

 

**Purchasesof Equity Securities**

 

[None.]

 

**ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSISOR PLAN OF OPERATION**

 

THE FOLLOWING INFORMATION CONTAINS CERTAINFORWARD-LOOKING STATEMENTS OF OUR MANAGEMENT. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING OFFUTURE EVENTS AND ARE NOT BASED ON HISTORICAL FACT.  FORWARD-LOOKING STATEMENTS MAY BEIDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS “MAY,” “COULD,” “EXPECT,”“ESTIMATE,” “ANTICIPATE,” “PLAN,” “PREDICT,” “PROBABLE,” “POSSIBLE,” “SHOULD,” “CONTINUE,”OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSETERMS.  THE FORWARD-LOOKING STATEMENTSSPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN COMPILED BY OUR MANAGEMENT ONTHE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BEREASONABLE.  OUR FUTURE OPERATINGRESULTS, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, ORWARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.

 

The following discussion should be read in conjunction with the historical financial statements of R.G. Global Lifestyles, Inc. (“the Company”) and notes thereto included elsewhere in this Form 10-KSB.

 

**Plan of Operations**

 

Overview

 

Through its primary operating subsidiary, ANC, the Company sells nutraceutical products manufactured in the United States primarily to customers in Asia.

 

The Company’s method of operation involves the formulation and production of natural health, beauty and cosmetic products through FDA-approved contract manufacturing facilities (“Suppliers”).  Historically, the Company has marketed and sold its products to customers in Asia, including Singapore, Malaysia, Indonesia, Thailand, the Philippines, China and Japan.  For the fiscal year ending March 31, 2005, ANC has developed a concentration of over eighty percent (80%) of total sales of its products to or at the direction of one customer, LifePharm Inc., a Singapore corporation.

 

During the fiscal year ended March 31, 2005, the Company embarked upon a marketing strategy to diversify its product lines and its customer base.  The Company formed a new wholly owned subsidiary, Aquair, Inc., to act as a marketer and re-seller of patented water generation equipment.  In addition, the Company launched a web-based marketing strategy to sell the Company’s natural cosmetic products to customers in the United States through Onlinesurgery.com. These new strategies have only recently been implemented, and there can be no assurance of their profitability or success.

 

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Changes in Plan of Operations

 

In order to diversify its markets and its customer base, the Company acquired the rights to an internet web portal known as Onlinesurgery.Com In addition to generating advertising revenue form the maintenance and operation of the website, the Company intends to use this web portal in the marketing and distribution of the Company’s nutraceutical products.  The nutraceutical industry, the sale of water generating equipment and web-based marketing, in general, are all industries marked by strong competition.  In order to achieve the Company’s projected financial goals, the Company will most likely be required to procure capital and generate future cash flows from operations. If the Company is unable to obtain such financing, the Company will be forced to reduce operations, which could have an adverse effect on its financial condition and results of operation.  The Company is taking steps that it believes will be sufficient to provide the Company with the ability to continue in existence, and the Company is seeking additional equity or debt financing. There can be no assurances that sufficient financing will be available on terms acceptable to the Company.  In the event that the Company is not successful in obtaining the necessary financing, the Company will be required to discontinue some or all of its existing operations.

 

**Management’s Discussion and Analysis of Financial Condition and Results of Operations**

 
| ** **                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| **Income  Statement Data**           |       |     |       |     |       |
| Revenue from  operations             |       | $        | 5,504,036  |     | $          | 3,743,941 |   |
| Gross profit  (Loss)                 |       | $        | 2,790,547  |     | $          | 2,059,990 |   |
| Income  (Loss) from operations       |       | $        | 1,015,846  |     | $          | (104,603 | ) |
| Net Income  (Loss)                   |       | $        | 502,413    |     | $          | (106,947 | ) |
| Net Income  (Loss) per Share         |       | $        | .02        |     | $          | (0.01 | ) |
| **Balance  Sheet Data**              |       |     |       |     |       |
| Total Assets                         |       | $        | 1,149,753  |     | $          | 514,483 |   |
| Total  Liabilities                   |       | $        | 512,680    |     | $          | 624,894 |   |
| Stockholders’  Equity (deficit) |       | $        | 637,073    |     | $          | (110,411 | ) |

 

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Year Ended March 31, 2005 Compared to Year Ended March 31, 2004

 

The net income for the fiscal year ended March 31, 2005 was $502,413 compared with a Net Loss of ($106,947) for the fiscal year ended March 31, 2004. The primary reason for the increase was that the Company experienced a strong demand for its nutraceutical products in the current fiscal year, as the result of the expenditure of significant advertising and marketing funds in the fiscal year ending March 31, 2004.  The Company generated gross revenues of $5,504,036 during the twelve months ended March 31, 2005 compared with gross revenues of $3,743,941 in the previous fiscal year ended March 31, 2004.

 

The Company expensed approximately $150,000 in stock based compensation issued to officers, directors, founders and consultants for services rendered.

 

The Company expended cash of $249,438 for salaries and wages during fiscal year ended March 31, 2005 as compared to $25,623 during the fiscal year ended March 31, 2004.  In addition, the Company paid cash of $218,317 for outside consulting services during the current fiscal year, which represents a significant increase in expense compared to $67,458 spent in this category during the prior fiscal year.  The Company believes that it is likely to continue to hire consultants on an as-needed basis in the future, which trend will likely be reflected in a continued increase in this category of expense.

 

By contrast to the foregoing, general and administrative expenses decreased to $256,201 in the current fiscal year from $311,658 a year prior. Also, the Company paid $300,000 in cash to acquire the right to distribute the Company’s products in Indonesia, which was the fair value of the rights on the date of purchase. The Company is amortizing the value of this asset over a period of three (3) years, which is the useful life of the distribution agreement.  During the fiscal year ended March 31, 2005, the Company deducted $74,999 of amortization expense in connection with this asset.  The Company also spent approximately $19,777 to acquire office furniture and equipment during the year ended March 31, 2005 and deducted $1,430 in depreciation expense during the fiscal year.

 

Among other notable trends that may have an effect upon future results, the Company spent less in advertising and marketing in fiscal year ending March 31, 2005, spending only $588,074 on this area of expenditure as compared to $1,217,113 in the previous fiscal year.  While this contributed to the Company’s positive cash flow during the current year, the Company recognizes that the growth in sales experienced during the current fiscal year bears a relationship to the amount of advertising and marketing expenditures in the preceding year.  The Company’s reduction in expenditures for advertising and marketing may therefore have an adverse impact upon future sales growth.

 

As a result of the net income from operations generated during the fiscal year ending March 31, 2005, the Company has made a provision for federal and state income taxes in the amount of $440,364, as compared to no income tax expense for the previous fiscal year.

 

The Company experienced a non-recurring loss on investment in the amount of ($70,536) during fiscal year ending March 31, 2005, compared to a zero net loss in the prior year.  Also during the fiscal year ending March 31, 2005, the Company had interest expense of 

 

10

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$3,903 compared to $2,409 in the previous fiscal year.  Interest and Dividend income and other income increased from $65 in the previous fiscal year to $1,370 during the fiscal year ending March 31, 2005.

 

Liquidity and Capital Resources

 

At March 31, 2005, the Company had retained earnings of $342,767 as compared to a retained earnings deficit on March 31, 2004 of ($159,646) for the fiscal year ended March 31, 2004.  Net cash provided by operating activities was $328,822 for the fiscal year ended on March 31, 2005, compared to $162,898 of net cash provided by operating activities for the year ended March 31, 2004.

 

In fiscal year ending March 31, 2005, the Company expended $319,777 to acquire fixed and intangible assets, compared to no such expenditures in the next previous fiscal year. Net cash used by financing activities in the fiscal year ending 3-31-05 was ($30,429) as compared to net cash provided by financing activities of $11,368 in fiscal year ended 3-31-04.  The primary reason for this change was that the Company used net cash generated from operations to repay a $40,000 note during the current fiscal year.

 

Until the present date, the Company has not borrowed from any source to supplement its cash flow requirements.  However, in view of the demand for the Company’s nutraceutical products, the launch of the web-based marketing programs, and the diversification of the Company’s product lines to include water generating equipment under Aquair, Inc., it is anticipated that the Company will be required to seek out additional sources of financing in the near future.  Again, there can be no assurance that the Company will be successful in locating such alternate sources of financing or that the terms of any such financing will be favorable to the Company.  If the Company is not successful in obtaining the financing, it may be forced to curtail its existing or planned future operations.

 

**Off-Balance Sheet Arrangements**

 

The Company does not have any off-balancesheet arrangements, that have or are reasonably likely to have a current orfuture effect on the Company’s financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources that are material to investors.

 

**ITEM 7.  FINANCIAL STATEMENTS**

 

Thefinancial statements required to be filed pursuant to this Item 7 begin on page F-1of this report.

 

**ITEM 8. CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

11

----

 

**ITEM 8A. CONTROLS AND PROCEDURES**

 

The Company’s Chief Executive Officer andChief Financial Officer (the “Certifying Officers”) are responsible forestablishing and maintaining our disclosure controls and procedures.  The Certifying Officers have designed suchdisclosure controls and procedures to ensure that material information is madeknown to them, particularly during the period in which this report wasprepared.  The Certifying Officers haveevaluated the effectiveness of our disclosure controls and procedures as of theend of the period covered by this report and believe that our disclosurecontrols and procedures are effective based on the required evaluation.  During the period covered by this report,there were no changes in internal controls that materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

**ITEM 8B. OTHER INFORMATION**

 

None.

 

**PART III**

 

**ITEM 9. DIRECTORS, EXECUTIVE OFFICERS,PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THEEXCHANGE ACT**

 

**Identification of Directors and ExecutiveOfficers of the Company**

 
| **NAME**               | ** ** | **AGE** | ** ** | **POSITION**        | ** ** | **TERM(S) OF OFFICE**               |
|------------------------|------------|---------|------------|---------------------|------------|-------------------------------------|
| Louis L. Knickerbocker |       | 65      |       | Chairman, CEO       |       | August 17, 2004 to the present |
| Grant King             |       | 54      |       | Director, COO       |       | August 17, 2004 to the present |
| Horst Geicke           |       | 49      |       | Director            |       | August 12, 2004 to the present |
| William C. Hitchcock   |       | 55      |       | Treasurer, CFO      |       | August 17, 2004 to the present |
| Herrie Tantono         |       | 44      |       | Director, Secretary |       | August 17, 2004 to the present |
| Bruce E. Thomsen       |       | 65      |       | Director            |       | August 17, 2004 to the present |
| Budy Hartono           |       | 39      |       | Director            |       | August 17, 2004 to the present |

 

12

----

 

Biographies of Officer and Directors

 

**Louis L. Knickerbocker, Chief ExecutiveOfficer and Chairman of the Board**, is experienced inmanagement, sales and marketing, and real estate sales and finance. He founded L.L.Knickerbocker Co., Inc. in 1987, the Company’s predecessor which completedChapter 11 Debtor in Possession reorganization with the US Bankruptcy Court,Central District of California in 2001. From 2001 to 2002 he served as Chief Financial Officer of AmericanBankers.  From 2002 to the present Mr. Knickerbockerhas served as Chief Executive Officer of Pinnacle International.  Mr. Knickerbocker is a graduate of SantaMonica College with a major in Economics and is currently a licensed realtorand broker.

 

**Grant King, Director and Chief OperationsOfficer**, has served as General Manager and ManagingDirector of two major manufacturing and export companies in Bangkok since 1990. From 1997 to July 2003, he served for six years as president and CEOof L.L. Knickerbocker (Thai) Co. Ltd. in Thailand.  He was responsible for the day-to-dayoperations that included planning, business development, fiscal controls, andsales and marketing.   Mr. King has had contact with manyinternationally based public companies and is well known within the businesscommunity of several South East Asian countries.

 

**William C. Hitchcock, Chief Financial Officerand Director**, holds an LL.M in taxation andinternational studies from New York University, and a J.D. degree from theUniversity of California at Davis.  Mr. Hitchcock served as adirector of Amerikal International Holdings from February 2004 to July 2004,when it merged with the Company’s predecessor. From July 1999 to the present he has owned and operated a full servicetax preparation and tax representation business under the name Bottom LineFinancial, LLC.  In addition, he has served as a director of Al BarkerInsurance since September1999.

 

**Horst Geicke, Director**,obtained an MBA from Hamburg State University in Germany in 1977.  He wasa commodity trader in food in Germany, the UK and Brazil and then moved to theFar East in 1981.  He founded Geicke HKLtd. in 1981 and Pacific Alliance Group, which handles corporate finance andfund management, in 1994, and he currently runs these holding companies.  He has served as President of the GermanChamber of Commerce in Hong Kong in 1995, 1996, 2003 and 2004 and has been aDirector of the Hong Kong –Thailand Business Council as well as the GermanBusiness Association of Hong Kong since 2002. He has also been a member of the Advisory committee of the Secretary ofIndustry of Hong Kong Government since 2004.

 

**Herrie Tantono, Director and Secretary,**obtained an MBA in Marketing Management and a BA in Management InformationSystems from California State University at Turlock.  From January 2000to July 2002, he served as President of Image Lab in northernCalifornia.  Most recently, from August 2002to the present he has served as President of Amerikal Nutraceutical Corporation,now a wholly owned subsidiary of the Company, in Irvine California.

 

13

----

 

**Bruce E. Thomsen, Director,**spent 12 years in management positions with Fortune 50 companies in the USAincluding E. I. DuPont, Dow Badische and Food Machinery Chemical (FMC) forwhich he served as Division Manager of Textile Fibres. Upon leaving FMC heestablished a marketing and advertising agency in 1975.  In November 1982he sold this business and has since been involved as a consultant tocorporations and government in the United States, Europe, Singapore, Hong Kongand Mainland China.  Since August 2003,he served as an advisor to Amerikal Nutraceutical Corporation, currently awholly owned subsidiary of the Company.

 

**Budy Hartono, Director,**spent more than 20 years in executive management for a regional-based companyin South East Asia, overseeing the operations of their health and beautybusiness group, where his experience included forecasting, planning andcreative marketing.  Since January 2000 he has served as Director ofPT Pacific Image Internasional, a marketing company.

 

Directors serve until thenext annual meeting or until their successors are qualified and elected.  Officers serve at the discretion of the Boardof Directors.

 

**LegalProceedings**

 

Neither theCompany nor any of its officers and directors is party to current or pendinglegal proceedings.

 

**Code of Ethics**

 

The Company’sBoard of Directors has adopted a Code of Ethics which applies to every officer,director and employee of the Company. The Code of Ethics, attached hereto as Exhibit 14.0 is also postedon the Company’s website at rgglife.com.

 

**Audit Committee**

 

The Company’sBoard of Directors has determined that the Company shall have one auditcommittee financial expert serving on its audit committee.  The name of this independent audit committeefinancial expert is David L. Koontz CPA.

 

**Section 16(a) Beneficial********Ownership Reporting Compliance.**

 

Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the “1934 Act”), as amended the following reports required to be filed pursuant to the 1934 Act with respect to transactions in our Common Stock through March 31, 2005 were untimely:  Form 4 Changes in Beneficial Ownership filings reflecting the acquisition of Common Stock pursuant to Written Consent of the Board of Directors by William C. Hitchcock, Bruce Thomsen, Herrie Tantono, Grant King, Louis L. Knickerbocker and Budy Hartono. These acquisitions were subsequently reported on Form 5 Annual Statements of Beneficial Ownership, which Form 5 filings were untimely filed by all officers and directors previously listed with the addition of Horst Geicke.

 

14

----

 

** **

**ITEM10.  EXECUTIVE COMPENSATION**

 

Currently, William C. Hitchcockreceives monthly compensation of $3,000 per month for part time services asChief Financial Officer.  Herrie Tantonois the Company’s only full time employee receiving a salary of $5,199 permonth.  No other officers or directors ofthe Company are paid salaries.

 
| ** **             | ** ** | ** **                    | ** ** | **ANNUAL  COMPENSATION** | ** ** | **LONG TERM COMPENSATION** | ** ** | ** **                             | ** ** |
|------------------------|------------|-------------------------------|------------|--------------------------|------------|----------------------------|------------|----------------------------------------|------------|
| ** **             | ** ** | ** **                    | ** ** | ** **               | ** ** | ** **                 | ** ** | ** **                             | ** ** | **Awards** | ** ** | **Payouts** | ** ** | ** ** | ** ** |
| ** **             | ** ** | **Fiscal  Year End O3/31/05** | ** ** | **Salary  ($)**          | ** ** | **Bonus  ($)**             | ** ** | **Other  Annual  Compen-  sation ($)** | ** ** | **Restricted Stock  Awards  (Common Stock)** | ** ** | **Securities  Underlying  Options/SARs  (#)** | ** ** | **LTIP  Payouts  ($)** | ** ** | **All Other  Compen-  sation ($)** | ** ** |
|                   |       |                          |       |                     |       |                       |       |                                   |       |   |   |   |   |   |   |   |   |
| Bruce E. Thomsen       |       |                          |       |                     |       |                       |       |                                   |       | 120,000 shares | * |   |   |   |   | $ | 15,000 | (1) |
| Herrie Tantono         |       | 2005                          |       | 43,433                   |       |                       |       |                                   |       | 520,000 shares | * |   |   |   |   |   |   |
| Grant King             |       |                          |       |                     |       |                       |       |                                   |       | 520,000shares | * |   |   |   |   |   |   |
| William C. Hitchcock   |       | 2005                          |       | 9,000                    |       |                       |       |                                   |       | 280,000 shares | * |   |   |   |   |   |   |
| Louis L. Knickerbocker |       |                          |       |                     |       |                       |       |                                   |       | 520,000 shares | * |   |   |   |   |   |   |
| Budy Hartono           |       |                          |       |                     |       |                       |       |                                   |       | 120,000 shares | * |   |   |   |   |   |   |
|                        |            |                               |            |                          |            |                            |            |                                        |            |  |  |  |  |  |  |  |  |  |

 

----

* Fair Market Value at the timeof award is the equivalent of $.05 per share.

(1) Payments for consulting services.

 

**ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

The following table setsforth certain information regarding our shares of outstanding Common Stockbeneficially owned as of the date hereof by (i) each of our directors andexecutive officers, (ii) all directors and executive officers as a group, and(iii) each other person who is known by us to own beneficially more than 5% ofour Common Stock based upon 25,150,000 issued common shares.

 
| **NAME AND  ADDRESS(1)**              | ** ** | **NUMBER OF  SHARES** | ** ** | **PERCENTAGE  OWNED** | ** ** |
|---------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| Louis L. Knickerbocker*+              |       | 4,480,834             |       | 17.8                  | %          |
| Grant King*                           |       | 520,000               |       | 2.1                   | %          |
| Horst Geicke*+                        |       | 1,338,000             |       | 5.3                   | %          |
| William C. Hitchcock                  |       | 280,000               |       | 1.1                   | %          |
| Herrie Tantono*                       |       | 520,000               |       | 2.1                   | %          |
| Bruce E. Thomsen*                     |       | 120,000               |       | 0.5                   | %          |
| Budy Hartono*+                        |       | 2,887,466             |       | 11.5                  | %          |
| All Officers and Directors as a Group |       | 10,146,300            |       | 40.3                  | %          |

 

----

(1) C/o the Company’s address, 17751 Mitchell Ave., Irvine, CA92614, unless otherwise noted.

* Denotes Director of the Company

+ includes 5% beneficial ownership interest

 

15

----

 

There are no arrangements knownto the Company, including any pledge by any person of securities of theCompany, the operation of which may at a subsequent date result in a change ofcontrol of the Company.

 

**ITEM 12.  CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS**

 

On October 1, 2004, Aquairentered into an agreement with a company wholly owned by Louis Knickerbocker,the Chief Executive Officer and Chairman of the Board of Directors of theCompany.  The agreement provides foroffice space as well as administrative services at a rate of $6,000 per month.  The agreement is non-binding and may beterminated by either party at any time.

 

Prior to the Reverse Mergerwherein ANC became a wholly owned subsidiary of the Company, ANC entered intoan agreement with PT Pacific Image Internasional of Indonesia (“PT Pacific”).  Mr. Budy Hartono was not involved with eitherANC or the Company at the time of negotiation and finalization of thisagreement.  Subsequently, he became ashareholder and director of the Company.  Pursuant to the agreement between ANC and PT Pacific, ANC agreed to pay$300,000 to PT Pacific for the rights to use PT Pacific’s permits forimportation of goods into Indonesia for a three-year term.  The value of services received pursuant tothis transaction is fair market value. Mr. Budy Hartono currently serves as a director of PT Pacific in additionto serving as a director of the Company.

 

**ITEM 13.   EXHIBITS**

 
| **Exhibit Number** | ** ** | **Description** |
|--------------------|------------|-----------------|
|               | 2.0        |            | Agreement  and Plan of Reorganization dated July 8, 2004.(1) |
|               | 3.1        |            | Articles of  Incorporation of International Beauty Supply Ltd. (“IBS”) filed July 12,  1985.(2) |
|               | 3.2        |            | Amendment to  Articles of Incorporation of IBS filed May 28, 1993.(2) |
|               | 3.3        |            | Certificate  of Amendment to Articles of Incorporation of the L.L. Knickerbocker Company  Inc. (“LLK”) filed June 27, 1994.(2) |
|               | 3.4        |            | Certificate  of Amendment to Articles of Incorporation of LLK filed September 29, 1994.(2) |
|               | 3.5        |            | Certificate  of Amendment of the Articles of Incorporation of LLK, filed September 1,  1995, filed herewith. |
|               | 3.6        |            | Certificate  of Amendment of the Articles of Incorporation of LLK, filed June 19, 1996,  filed herewith. |
|               | 3.7        |            | Certificate  of Amendment to the Articles of Incorporation of LLK filed April 22, 1999.(3) |

 

----

(1) Incorporated by reference to the Company’s report on Form 8-K as filedAugust 23, 2004.

(2)  Incorporated by reference tothe L.L. Knickerbocker Co., Inc. Form SB-2 Registration Statement No.33-85230-LA as filed on October 13, 1994.

(3)  Incorporated by reference to L.L.Knickerbocker Co., Inc. Form 10-K as filed on April 14, 2000.

 

16

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|   | 3.8   |   | Certificate  of Amendment to the Articles of Incorporation of the L.L. Knickerbocker  Company Inc. filed January 9, 2003, filed herewith.                                                  |
|--------|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 3.9   |   | Bylaws of  the L.L. Knickerbocker Company Inc.(4)                                                                                                                                          |
|   | 10.1  |   | Agreement between ANC and Dover  Heights Enterprises, Ltd., dated March 10, 2003, filed herewith.                                                                                          |
|   | 10.2  |   | Agreement to Lease between ANC  and Pharmaxx Inc., dated April 28, 2003, filed herewith.                                                                                                   |
|   | 10.3  |   | Distribution Rights Agreement  between ANC and PT Pacific Image Internasional, dated July 1, 2004, filed  herewith.                                                                        |
|   | 10.4  |   | Rental Agreement between Aquair  and Pinnacle International, Inc., dated October 1, 2004, filed herewith.                                                                                  |
|   | 10.5  |   | Marketing Agreement between ANC  and Sierra Group Marketing dated November 11, 2004, filed herewith.                                                                                       |
|   | 10.6  |   | Private Label Agreement between  Aquair, Inc. and Ahoy Network Association, Ltd, dated November 20, 2004,  filed herewith.                                                                 |
|   | 10.7  |   | Advertising Agreement between  ANC and OptinRealBig.com, LLC dated December 17, 2004, filed herewith.                                                                                      |
|   | 10.8  |   | Agreement of Purchase and Sale  between the Company and First Strike, Inc., dated January 13, 2005, filed  herewith.                                                                       |
|   | 10.9  |   | Professional Services Agreement  between ANC and Specialized Marketing Services, Inc., dated February 25,  2005, filed herewith.                                                           |
|   | 10.10 |   | Advertising Agreement between  ANC and CoolSavings, Inc., dated March 4, 2005, filed herewith.                                                                                             |
|   | 10.11 |   | Exclusive Sales and Marketing  Agreement between Aquair, Inc. and Munters Corporation, dated June 8, 2005,  filed herewith.                                                                |
|   | 14.1  |   | Code of Ethics, filed herewith.                                                                                                                                                            |
|   | 21.1  |   | Subsidiaries                                                                                                                                                                               |
|   | 31.1  |   | Certification of Chief  Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules  13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
|   | 31.2  |   | Certification of Chief  Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules  13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
|   | 32    |   | Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant  to Section 906 of the Sarbanes Oxley Act of 2002                                                                     |

 

----

(4) Incorporated by reference to the L.L. Knickerbocker Co., Inc. AnnualReport on Form 10-KSB as filed on March 29, 1995.

 

17

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**ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

**Beckstead& Watts, LLP, Certified Public Accountants (“Beckstead”)**

 

Beckstead was our independentauditor and examined our financial statements for the fiscal years ending March31, 2004 and March 31, 2005.  Becksteadperformed the services listed below and was paid the fees listed below for thefiscal years ended March 31, 2004 and March 31, 2005.

 

**Kelloggand Anderson, Certified Public Accountants (“Kellogg”)**

 

Kellogg was our tax advisor forthe fiscal year ending March 31, 2005. Kellogg performed services listed below and was paid the fees listedbelow for the fiscal year ended March 31, 2005.

 

**Audit Fees**

 

Beckstead was paid aggregate fees of approximately$30,000 for the fiscal year ended March 31, 2004 and approximately $90,000 forthe fiscal year ended March 31, 2005 for professional services rendered for theaudit of our annual financial statements and for the reviews of the financialstatements included in our quarterly reports on Form 10-QSB during these fiscalyears.

 

**Audit Related Fees**

 

Beckstead was not paidadditional fees for either of the fiscal years March 31, 2004 or March 31, 2005for assurance and related services reasonably related to the performance of theaudit or review of our financial statements.

 

**Tax Fees**

 

Kellogg was paid fees of $5,000for the fiscal year ended March 31, 2005 for professional services rendered fortax compliance, tax advice and tax planning during these fiscal years.

 

**All Other Fees**

 

Neither Beckstead nor Kelloggwas paid any other fees for professional services during the fiscal years endedMarch 31, 2004 and March 31, 2005.

 

**AuditCommittee**

 

Pursuant to the requirements ofthe Sarbanes-Oxley Act of 2002, the Company constituted an Audit Committee inSeptember 2004. The audit committee consists of six (6) members, including oneoutside Director, an outside financial expert, the CFO, CEO, COO and theSecretary of the Company.  The AuditCommittee functions independently of Management of the Company, pursuant to itsCharter, and there is no delegation of audit committee responsibilities to management.

 

18

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The Audit Committee met twiceduring the fiscal year 2004-2005, on November 4, 2004 and March 4, 2005.  The Audit Committee has four (4) scheduledmeetings for the fiscal year 2005-2006. During Audit Committee meetings, byvote of the majority of members of the Committee, various members were assignedto investigate and report to the Committee regarding different areas ofinternal controls and accounting oversight matters.  The Internal Controls Memorandum was dividedamong all members, for review, response, discussion and eventualcompilation.  This Internal ControlsMemorandum has been reviewed and updated by members of the Audit Committeethree (3) times since the inception of the Company.

 

Among the policies andprocedures adopted by the Audit Committee is the requirement that Mr. DavidKoontz, CPA, outside financial expert to the Audit Committee, is charged withthe responsibility for investigation, contact, and negotiation with the independentauditor regarding audit and review fees incurred during the fiscal year.  In accordance with the requirements ofparagraph (c) (7) (i) of Rule 2-01 of Reg S-X, Mr. Koontz made all necessarycontact, inquiry, and recommendations to the Audit Committee, in order toenable the Committee to approve all (100%) of the independent auditing fees andquarterly review fees, in advance, for the conduct of the audit for fiscal2004-2005, and for the quarterly reviews for the periods ending June 30,September 30, and December 31, 2006. Subsequent to the association of Mr. Koontz as the outside FinancialExpert, no part of the pre-approval policies and procedures for the foregoingspecified services has been delegated to management.

 

SIGNATURES

 

In accordance with Section 13 or15(d) of the Exchange Act, the registrant caused this report to be signed onits behalf by the undersigned, duly authorized.

 
|                       |   | R G GLOBAL  LIFESTYLES, INC. |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Dated:  June 24, 2005 |   | /s/ Louis L.  Knickerbocker  |   |
|                       |   | By: Louis L.  Knickerbocker, |
|                       |   | Chief  Executive Officer,    |
|                       |   | Chairman of  the Board       |

 

In accordance with the ExchangeAct, this report has been signed below by the following persons on behalf ofthe registrant and in the capacities and on the dates indicated.

 
| **Signature**               | ** ** | **Title**                | ** ** | **Date**       |
|-----------------------------|------------|--------------------------|------------|----------------|
|                        |       |                     |       |           |
| /s/ Louis L.  Knickerbocker |       | Chairman of  the Board,  |       | June 24,  2005 |
| Louis L.  Knickerbocker     |       | Chief  Executive Officer |       |           |
|                        |       |                     |       |           |
| /s/ William  C. Hitchcock   |       | Chief  Financial Officer |       | June 24,  2005 |
| William C.  Hitchcock       |       |                     |       |           |

 

19

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**R.G. Global Lifestyles, Inc. and subsidiaries**

 

##### **ConsolidatedBalance Sheets**

**as of**

**March 31, 2005 and 2004**

 

**and**

 

**Consolidated Statement of Operations,**

**Stockholders’ Equity, and**

**Cash Flows**

**For the years ended**

**March 31, 2005 and 2004**

 

20

----

 

**Index to Financial Statements**

 
| Independent  Registered Public Accounting Firm Report |   |   |
|-------------------------------------------------------|--------|--------|
|                                                  |   |   |
| Consolidated Balance Sheets                           |   |   |
|                                                  |   |   |
| Consolidated Statements of Operations                 |   |   |
|                                                  |   |   |
| Statement of Changes in Stockholders’  Equity    |   |   |
|                                                  |   |   |
| Consolidated Statements of Cash Flows                 |   |   |
|                                                  |   |   |
| Footnotes                                             |   |   |

 

21

----

 

**Becksteadand Watts, LLP**

***Certified Public Accountants***

2425 W Horizon Ridge Parkway

Henderson, NV 89052

702.257.1984 (tel)

702.362.0540 (fax)

** **

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

We have audited theaccompanying consolidated balance sheet of R.G. Global Lifestyles, Inc. andsubsidiaries (the “Company”), as of March 31, 2005 and 2004, and the relatedconsolidated statement of operations, stockholders’ equity, and cash flows forthe years then ended.  These consolidatedfinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audit.

 

We conducted our audit inaccordance with the standards of Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the consolidated financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audit provides a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of R.G. Global Lifestyles, Inc. andsubsidiaries as of March 31, 2005 and 2004, and the results of its operationsand cash flows for the years then ended, in conformity with U.S. generallyaccepted accounting principles.

 

 
| /s/  Beckstead and Watts, LLP |   |
|-------------------------------|--------|
| June 24,  2005                |

 

22

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**R.G. Global Lifestyles, Inc.**

**(formerly L.L. Knickerbocker Company, Inc.)**

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                                       | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------|------------|
| ** **                                                                                                                                                       | ** ** | **2005**      | ** ** | **2004** | ** ** |
| **Assets**                                                                                                                                                       |       |          |       |   |   |
|                                                                                                                                                             |       |          |       |   |   |
| Current assets:                                                                                                                                                  |       |          |       |   |   |
| Cash and cash equivalents                                                                                                                                        |       | $             | 159,661    |   | $ | 181,045 |   |
| Accounts receivable                                                                                                                                              |       | 506,813       |       | 170,094 |   |
| Inventory                                                                                                                                                        |       | 154,865       |       | 110,710 |   |
| Prepaid expenses                                                                                                                                                 |       | 7,967         |       | 52,634 |   |
| Total current assets                                                                                                                                             |       | 829,306       |       | 514,483 |   |
|                                                                                                                                                             |       |          |       |   |   |
| Fixed assets, net                                                                                                                                                |       | 18,347        |       | — |   |
|                                                                                                                                                             |       |          |       |   |   |
| Intangible assets, net                                                                                                                                           |       | 235,000       |       | — |   |
| Deposits held                                                                                                                                                    |       | 67,100        |       | — |   |
| Total other assets                                                                                                                                               |       | 302,100       |       | — |   |
|                                                                                                                                                             |       |          |       |   |   |
|                                                                                                                                                             |       | $             | 1,149,753  |   | $ | 514,483 |   |
|                                                                                                                                                             |       |          |       |   |   |
| **Liabilities and Stockholders’ Equity**                                                                                                                    |       |          |       |   |   |
|                                                                                                                                                             |       |          |       |   |   |
| Current liabilities:                                                                                                                                             |       |          |       |   |   |
| Accounts payable                                                                                                                                                 |       | 249,462       |       | 578,402 |   |
| Accrued liabilities                                                                                                                                              |       | 263,218       |       | 6,492 |   |
| Total current liabilities                                                                                                                                        |       | 512,680       |       | 584,894 |   |
|                                                                                                                                                             |       |          |       |   |   |
| Long-term debt                                                                                                                                                   |       | —        |       | 40,000 |   |
|                                                                                                                                                             |       |          |       |   |   |
| Total liabilities                                                                                                                                                |       | 512,680       |       | 624,894 |   |
|                                                                                                                                                             |       |          |       |   |   |
| Stockholders’ equity (deficit):                                                                                                                             |       |          |       |   |   |
|                                                                                                                                                             |       |          |       |   |   |
| Preferred stock, $0.001 par value,  10,000,000 shares authorized, no shares issued and outstanding                                                               |       | —        |       | — |   |
| Common stock, $0.001 par value, 100,000,000  shares authorized, 25,150,000 and 19,965,120 shares issued and outstanding as  of 3/31/05 and 3/31/04, respectively |       | 25,150        |       | 19,965 |   |
| Additional paid-in capital                                                                                                                                       |       | 269,156       |       | 29,270 |   |
| Retained earnings (deficit)                                                                                                                                      |       | 342,767       |       | (159,646 | ) |
|                                                                                                                                                             |       | 637,073       |       | (110,411 | ) |
|                                                                                                                                                             |       |          |       |   |   |
|                                                                                                                                                             |       | $             | 1,149,753  |   | $ | 514,483 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

23

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**R.G. Global Lifestyles, Inc.**

**(formerly L.L. Knickerbocker Company, Inc.)**

**Consolidated Statements of Operations**

 
| ** **                                                                      | ** ** | **For the years ended** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                      | ** ** | **March 31,**           | ** ** |
| ** **                                                                      | ** ** | **2005**                | ** ** | **2004** | ** ** |
|                                                                            |       |                    |       |   |   |
| Revenue                                                                         |       |                    |       |   |   |
| Product sales                                                                   |       | $                       | 5,504,036  |   | $ | 3,743,941 |   |
| Cost of sales                                                                   |       | 2,713,489               |       | 1,683,951 |   |
|                                                                            |       |                    |       |   |   |
| Gross profit                                                                    |       | 2,790,547               |       | 2,059,990 |   |
|                                                                            |       |                    |       |   |   |
| Expenses:                                                                       |       |                    |       |   |   |
| Advertising and marketing                                                       |       | 588,074                 |       | 1,217,113 |   |
| Commissions                                                                     |       | 24,671                  |       | 542,741 |   |
| Consulting services                                                             |       | 218,317                 |       | 67,458 |   |
| Depreciation and amortization                                                   |       | 76,430                  |       | — |   |
| General and administrative expenses                                             |       | 256,201                 |       | 311,658 |   |
| Professional fees                                                               |       | 211,570                 |       | — |   |
| Salaries and wages                                                              |       | 249,438                 |       | 25,623 |   |
| Stock-based compensation - consulting  services                                 |       | 46,000                  |       | — |   |
| Stock-based compensation - related party                                        |       | 104,000                 |       | — |   |
| Total expenses                                                                  |       | 1,774,701               |       | 2,164,593 |   |
|                                                                            |       |                    |       |   |   |
| Net income (loss) from operations                                               |       | 1,015,846               |       | (104,603 | ) |
|                                                                            |       |                    |       |   |   |
| Other income (expense)                                                          |       |                    |       |   |   |
| Interest and dividend income                                                    |       | 1,370                   |       | 65 |   |
| Interest expense                                                                |       | (3,903                  | )          | (2,409 | ) |
| Unrealized (loss) on investments                                                |       | (70,536                 | )          | — |   |
| Total other (expense)                                                           |       | (73,069                 | )          | (2,344 | ) |
|                                                                            |       |                    |       |   |   |
| Net income (loss) before income tax                                             |       | 942,777                 |       | (106,947 | ) |
|                                                                            |       |                    |       |   |   |
| Income tax expense                                                              |       |                    |       |   |   |
| Current federal                                                                 |       | 346,477                 |       | — |   |
| Current state                                                                   |       | 93,887                  |       | — |   |
|                                                                            |       | 440,364                 |       | — |   |
|                                                                            |       |                    |       |   |   |
| Net income (loss)                                                               |       | $                       | 502,413    |   | $ | (106,947 | ) |
|                                                                            |       |                    |       |   |   |
| Weighted average number of common shares  outstanding - basic and fully diluted |       | 23,069,135              |       | 19,965,120 |   |
|                                                                            |       |                    |       |   |   |
| Net income (loss) per share - basic and  fully diluted                          |       | $                       | 0.02       |   | $ | (0.01 | ) |

 

The accompanying notes are an integral part of these financialstatements.

 

24

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**R.G. Global Lifestyles, Inc.**

**(formerly L.L. Knickerbocker Company, Inc.)**

**Statement of Changes in Stockholders’ Equity**

 
| ** **                                               | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **             | ** ** | **Total**            | ** ** |
|----------------------------------------------------------|------------|------------------|------------|-------------|------------|----------------|------------|------------------------|------------|----------------------|------------|
| ** **                                               | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Retained**   | ** ** | **Stockholders’** | ** ** |
| ** **                                               | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings (Deficit)** | ** ** | **Equity (Deficit)** | ** ** |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| May 1, 2002 Shares issued for cash                       |       | 1,500            |       | $           | —     |           | $          | 2                      |       | $                    | —     |   | $ | 2 |   |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Donated capital                                          |       |             |       |        |       | 100            |       |                   |       | 100                  |       |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Net (loss) April 30, 2002 (inception) to March  31, 2003 |       | —           |       | —      |       | —         |       | (8,770                 | )          | (8,770               | )          |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Balance, March 31, 2003                                  |       | 1,500            |       | —      |       | 102            |       | (8,770                 | )          | (8,668               | )          |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Recapitalization adjustment due to merger                |       | 19,963,620       |       | 19,965      |       | 29,168         |       | (43,929                | )          | 5,204                |       |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Net (loss) for the year ended March 31,  2004            |       |             |       |        |       |           |       | (106,947               | )          | (106,947             | )          |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Balance, March 31, 2004                                  |       | 19,965,120       |       | 19,965      |       | 29,270         |       | (159,646               | )          | (110,411             | )          |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Shares issued pursuant to merger                         |       | 1,934,880        |       | 1,935       |       | 7,636          |       |                   |       | 9,571                |       |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Shares issued for services                               |       | 3,000,000        |       | 3,000       |       | 147,000        |       |                   |       | 150,000              |       |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Shares issued for assets                                 |       | 200,000          |       | 200         |       | 9,800          |       |                   |       | 10,000               |       |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Shares issued for legal services                         |       | 50,000           |       | 50          |       | 75,450         |       |                   |       | 75,500               |       |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Net income for the year ended March 31,  2005            |       |             |       |        |       |           |       | 502,413                |       | 502,413              |       |
|                                                     |       |             |       |        |       |           |       |                   |       |                 |       |
| Balance, March 31, 2005                                  |       | 25,150,000       |       | $           | 25,150     |           | $          | 269,156                |       | $                    | 342,767    |   | $ | 637,073 |   |

 

25

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**R.G. Global Lifestyles, Inc.**

**(formerly L.L. Knickerbocker Company, Inc.)**

**Consolidated Statements of Cash Flows**

 
| ** **                                                                                | ** ** | **For the years ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                | ** ** | **March 31,**           | ** ** |
| ** **                                                                                | ** ** | **2005**                | ** ** | **2004** | ** ** |
| **Cash flows from operating activities**                                                  |       |                    |       |   |   |
| Net income (loss)                                                                         |       | $                       | 502,413    |   | $ | (106,947 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |       |                    |       |   |   |
| Depreciation & amortization                                                           |       | 76,430                  |       | — |   |
| Stock compensation - related party                                                        |       | 104,000                 |       | — |   |
| Stock compensation - consulting services                                                  |       | 46,000                  |       | — |   |
| Stock compensation - legal                                                                |       | 75,500                  |       | — |   |
| Changes in operating assets and  liabilities:                                             |       |                    |       |   |   |
| (Increase) in account receivable                                                          |       | (336,719                | )          | (111,690 | ) |
| (Increase) in inventory                                                                   |       | (44,155                 | )          | (76,646 | ) |
| (Increase) in deposits held                                                               |       | (67,100                 | )          | — |   |
| (Increase) decrease in prepaid expenses                                                   |       | 44,667                  |       | (52,634 | ) |
| Increase (decrease) in accounts payable                                                   |       | (328,940                | )          | 507,635 |   |
| Increase in accrued expense                                                               |       | 256,726                 |       | 3,180 |   |
| Net cash provided by operating activities                                                 |       | 328,822                 |       | 162,898 |   |
|                                                                                      |       |                    |       |   |   |
| **Cash flows from investing activities:**                                                 |       |                    |       |   |   |
| Purchase of fixed assets                                                                  |       | (19,777                 | )          | — |   |
| Purchase of intangible assets                                                             |       | (300,000                | )          | — |   |
| Net cash (used) by investing activities                                                   |       | (319,777                | )          | — |   |
|                                                                                      |       |                    |       |   |   |
| **Cash flows from financing activities**                                                  |       |                    |       |   |   |
| Payments on notes payable                                                                 |       | (40,000                 | )          | — |   |
| Donated capital                                                                           |       | 9,571                   |       | 11,368 |   |
| Net cash provided (used) by financing  activities                                         |       | (30,429                 | )          | 11,368 |   |
|                                                                                      |       |                    |       |   |   |
| Net increase (decrease) in cash                                                           |       | (21,384                 | )          | 174,266 |   |
| Cash - beginning                                                                          |       | 181,045                 |       | 6,779 |   |
| Cash - ending                                                                             |       | $                       | 159,661    |   | $ | 181,045 |   |
|                                                                                      |       |                    |       |   |   |
| Supplemental disclosures:                                                                 |       |                    |       |   |   |
| Interest paid                                                                             |       | $                       | 3,903      |   | $ | — |   |
| Income taxes paid                                                                         |       | $                       | 184,839    |   | $ | — |   |
|                                                                                      |       |                    |       |   |   |
| Non-cash investing and financing  activities:                                             |       |                    |       |   |   |
| Shares issued for services provided -  related party                                      |       | $                       | 104,000    |   | $ | — |   |
| Number of shares issued for services -  related party                                     |       | 2,080,000               |       | — |   |
|                                                                                      |       |                    |       |   |   |
| Shares issued for consulting services  provided                                           |       | $                       | 46,000     |   | $ | — |   |
| Number of shares issued for consulting  services                                          |       | 920,000                 |       | — |   |
|                                                                                      |       |                    |       |   |   |
| Shares issued for legal services provided                                                 |       | $                       | 75,500     |   | $ | — |   |
| Number of shares issued for legal services                                                |       | 50,000                  |       | — |   |

 

The accompanying notes are an integral part of these financialstatements.

 

26

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**R.G. Global Lifestyles, Inc.**

**(**Formerly L.L Knickerbocker Company, Inc.)

Notes to consolidated financial statements

 

**Note 1 –Significant accounting policies and procedures**

 

Organization and History

R.G. Global Lifestyles, Inc. (the “Company”), was originallyincorporated in California on July 12, 1985 as International Beauty Supply Ltd. The name of the corporation was changed on May 28, 1993 to L.L.Knickerbocker Co., Inc., and thereafter on January 9, 2003 to the present name,R.G. Global Lifestyles, Inc.  Since inception, the Company, throughpredecessor management teams, has been involved in several businesses andengaged in various consumer, retail and commercial ventures, which ultimatelyproved unsuccessful.

 

The Company through its subsidiary, Amerikal NutraceuticalCorporation, manufactures, sells and distributes dietary supplements, healthand beauty aid products.  The primarymarkets are South East Asia and Asia.

 

Also, the Company through its subsidiary, Aquair, Inc.,distributes, markets and resells atmospheric water generators.

 

Additionally, the Company through its subsidiary, Magna-1,USA, Inc., manufactures, sells and distributes dietary supplements, health andbeauty aid products.  The primary marketis the United States of America.

 

The consolidated financial statements include the accounts ofthe Company, its wholly owned subsidiaries, Amerikal Nutraceutical Corporation,Aquair, Inc. and Magna-1 USA, Inc.  Allsignificant inter-company transactions and balances have been eliminated inconsolidation.

 

Chapter 11 Bankruptcy

On August 15, 2002, the Company filed forChapter 11 — “Debtor in Possession” reorganization with the US BankruptcyCourt, Central District of California. Pursuant to the “Plan of Reorganization”, the Company liquidated itsassets in full satisfaction of its creditors’ claims.

 

CashEquivalents

For the purpose of theaccompanying financial statements, all highly liquid investments with amaturity of three months or less are considered to be cash equivalents.

 

Inventory

At March 31, 2005 and 2004, theCompany had inventory consisting of finished goods in the amount of $154,865and $110,710 respectively. Inventory is recorded at the lower of cost(first-in, first-out) or net realizable market value.

 

Fixed Assets

Fixed assets are recorded atcost and depreciation is provided over the estimated useful lives of therelated assets using the straight-line method for financial statement purposes.The estimated lives of property and equipment are as follows:

 

| Office  equipment       |   | 5 years |
|-------------------------|--------|---------|
| Computer  software      |   | 3 years |
| Furniture  and fixtures |   | 7 years |

 

27

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Impairment ofLong-Lived Assets

The Company has adoptedStatement of Financial Accounting Standards No. 144 (“SFAS 144”). The Statementrequires that long-lived assets and certain identifiable intangibles held andused by the Company be reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Events relating to recoverability may include significantunfavorable changes in business conditions, recurring losses, or a forecastedinability to achieve break-even operating results over an extended period. TheCompany evaluates the recoverability of long-lived assets based upon forecastedundercounted cash flows. Should impairment in value be indicated, the carryingvalue of intangible assets will be adjusted, based on estimates of futurediscounted cash flows resulting from the use and ultimate disposition of theasset.  SFAS No. 144 also requires assetsto be disposed of be reported at the lower of the carrying amount or the fairvalue less costs to sell.

 

RevenueRecognition

For revenue from product sales,the Company recognizes revenue in accordance with Staff Accounting Bulletin No.104, Revenue Recognition (“SAB104”), which superceded Staff Accounting BulletinNo. 101, Revenue Recognition in Financial Statements (“SAB101”).  SAB 101 requires that four basic criteriamust be met before revenue can be recognized: (1)  persuasive evidence of an arrangement exists;(2)  delivery has occurred; (3)  the selling price is fixed and determinable;and (4)  collectibility is reasonably assured.  Determination of criteria (3) and (4) arebased on management’s judgments regarding the fixed nature of the sellingprices of the products delivered and the collectibility of those amounts.  Provisions for discounts and rebates tocustomers, estimated returns and allowances, and other adjustments are providedfor in the same period the related sales are recorded.

 

AdvertisingCosts

The Company expenses all costsof advertising as incurred.  There wereno advertising costs included in selling, general and administrative expensesfor the years ended March 31, 2005 and 2004, respectively.

 

Loss Per Share

Net loss per share is providedin accordance with Statement of Financial Accounting Standards No. 128 (SFAS#128) “Earnings Per Share”.  Basic lossper share is computed by dividing losses available to common stockholders bythe weighted average number of common shares outstanding during theperiod.  The Company had no dilutivecommon stock equivalents, such as stock options or warrants as of March 31, 2005,and 2004, respectively.

 

Estimates

The preparation of financialstatements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenue andexpenses during the reporting period. Actual results could differ from those estimates.

 

Fair Value ofFinancial Instruments

Fair value estimates discussedherein are based upon certain market assumptions and pertinent informationavailable to management as of March 31, 2005 and 2004, respectively.  The respective carrying value of certain on-balance-sheetfinancial instruments approximated their fair values. These financialinstruments include cash and accounts payable. Fair values were assumed toapproximate carrying values for cash and payables because they are short termin nature and their carrying amounts approximate fair values or they arepayable on demand.

 

28

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SegmentReporting

The Company has adoptedStatement of Financial Accounting Standards No. 131, Disclosures about Segmentsof an Enterprise and Related Information (“SFAS 131”) in the years endedDecember 31, 2001 and subsequent years. SFAS 131 establishes standards forreporting information regarding operating segments in annual financialstatements and requires selected information for those segments to be presentedin interim financial reports issued to stockholders.  SFAS 131 also establishes standards forrelated disclosures about products and services and geographic areas. Operatingsegments are identified as components of an enterprise about which separatediscrete financial information is available for evaluation by the chiefoperating decision maker, or decision making group, in making decisions on howto allocate resources and assess performance.

 

Dividends

The Company has not yet adoptedany policy regarding payment of dividends. No dividends have been paid or declared since inception.

 

Income Taxes

The Company follows Statementof Financial Accounting Standard No. 109, “Accounting for Income Taxes” (“SFASNo. 109”) for recording the provision for income taxes.  Deferred tax assets and liabilities arecomputed based upon the difference between the financial statement and incometax basis of assets and liabilities using the enacted marginal tax rateapplicable when the related asset or liability is expected to be realized orsettled.  Deferred income tax expenses orbenefits are based on the changes in the asset or liability each period.  If available evidence suggests that it ismore likely than not that some portion or all of the deferred tax assets willnot be realized, a valuation allowance is required to reduce the deferred taxassets to the amount that is more likely than not to be realized.  Future changes in such valuation allowanceare included in the provision for deferred income taxes in the period of change.

 

Deferred income taxes may arisefrom temporary differences resulting from income and expense items reported forfinancial accounting and tax purposes in different periods.  Deferred taxes are classified as current ornon-current, depending on the classification of assets and liabilities to whichthey relate.  Deferred taxes arising fromtemporary differences that are not related to an asset or liability areclassified as current or non-current depending on the periods in which thetemporary differences are expected to reverse.

 

RecentPronouncements

In November 2004, the FinancialAccounting Standards Board (FASB) issued SFAS 151, Inventory Costs—an amendmentof ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43,Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amountsof idle facility expense, freight, handling costs, and wasted material(spoilage).  Paragraph 5 of ARB 43,Chapter 4, previously stated that “. . . under some circumstances, items suchas idle facility expense, excessive spoilage, double freight, and rehandlingcosts may be so abnormal as to require treatment as current periodcharges.  . . .” This Statement requiresthat those items be recognized as current-period charges regardless of whetherthey meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed productionoverheads to the costs of conversion be based on the normal capacity of theproduction facilities.  This Statement iseffective for inventory costs incurred during fiscal years beginning after June15, 2005. Management does not believe the adoption of this Statement will haveany immediate material impact on the Company.

 

29

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In December 2004, the FASBissued SFAS No.152, “Accounting for Real Estate Time-Sharing Transactions—anamendment of FASB Statements No. 66 and 67” (“SFAS 152) The amendments made byStatement 152 This Statement amends FASB Statement No.  66, Accounting for Sales of Real Estate, toreference the financial accounting and reporting guidance for real estatetime-sharing transactions that is provided in AICPA Statement of Position (SOP)04-2, Accounting for Real Estate Time-Sharing Transactions.  This Statement also amends FASB Statement No.67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,to state that the guidance for (a) incidental operations and (b) costs incurredto sell real estate projects does not apply to real estate time-sharingtransactions.  The accounting for thoseoperations and costs is subject to the guidance in SOP 04-2.  This Statement is effective for financialstatements for fiscal years beginning after June 15, 2005 with earlierapplication encouraged. The Company does not anticipate that the implementationof this standard will have a material impact on its financial position, resultsof operations or cash flows.

 

On December  16, 2004, the Financial Accounting StandardsBoard (“FASB”) published Statement of Financial Accounting Standards No. 123(Revised 2004), Share-Based Payment (“SFAS 123R”).  SFAS 123R requires that compensation costrelated to share-based payment transactions be recognized in the financialstatements.  Share-based paymenttransactions within the scope of SFAS 123R include stock options, restrictedstock plans, performance-based awards, stock appreciation rights, and employeeshare purchase plans. The provisions of SFAS 123R are effective as of the firstinterim period that begins after June 15, 2005. Accordingly, the Company willimplement the revised standard in the third quarter of fiscal year 2005.Currently, the Company accounts for its share-based payment transactions underthe provisions of APB 25, which does not necessarily require the recognition ofcompensation cost in the financial statements. Management is assessing theimplications of this revised standard, which may materially impact the Company’sresults of operations in the third quarter of fiscal year 2005 and thereafter.

 

On December 16, 2004, FASBissued Statement of Financial Accounting Standards No. 153, Exchanges ofNon-monetary Assets, an amendment of APB Opinion No. 29, Accounting forNon-monetary Transactions (“ SFAS 153”). This statement amends APB Opinion 29to eliminate the exception for non-monetary exchanges of similar productiveassets and replaces it with a general exception for exchanges of non-monetaryassets that do not have commercial substance. Under SFAS 153, if a non-monetary exchange of similar productive assetsmeets a commercial-substance criterion and fair value is determinable, thetransaction must be accounted for at fair value resulting in recognition of anygain or loss.  SFAS 153 is effective fornon-monetary transactions in fiscal periods that begin after June 15, 2005.  The Company does not anticipate that theimplementation of this standard will have a material impact on its financialposition, results of operations or cash flows.

 

Year-end

The Company has selected March31 as its year-end.

 

**Note 2 –Reverse acquisition agreement with Amerikal International Holding, Inc. (“AIH”)**

 

On July 28, 2004, the Companyentered into an agreement with Amerikal International Holding, Inc. (“AIH”)whereby the Company transferred 1,934,880 of its $0.001 par value common stockin exchange for all the outstanding shares of AIH’s $0.001 par value commonstock.  The acquisition closed and theshares were exchanged on July 28, 2004. The acquisition was accounted for using the purchase method of accountingas applicable to reverse acquisitions because the former stockholders of AIHcontrolled the Company’s common stock immediately upon conclusion of thetransaction.  Under reverse acquisitionaccounting, the post-acquisition entity was accounted for as a recapitalizationof the Company.  The common stock issuedwas recorded at the net book value of the Company’s assets on the acquisitiondate.  As a result of the merger, thefinancial statements for all periods prior to the merger will be those of AIH.

 

30

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**Note 3 –Income taxes**

 

For the years ended March 31,2005 and 2004, the Company incurred net operating income and losses and,accordingly, no provision for income taxes has been recorded. In addition, nobenefit for income taxes has been recorded due to the uncertainty of therealization of any tax assets. At March 31, 2005, the Company had approximately$342,767 of federal and state net operating income. The net operating losscarryforwards, if not utilized, will begin to expire in 2023.

 

The components of the Company’sdeferred tax asset are as follows:

 
| ** **                                          | ** ** | **As of March 31,** | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|
| ** **                                          | ** ** | **2005**            | ** ** | **2004** | ** ** |
| Deferred tax assets:                                |       |                |       |   |   |
| Net operating loss carryforwards                    |       | -0-                 |       | 159,646 |   |
| Total deferred tax assets                           |       | -0-                 |       | 159,646 |   |
|                                                |       |                |       |   |   |
| Net deferred tax assets before valuation  allowance |       | -0-                 |       | 159,646 |   |
| Less: Valuation allowance                           |       | (-0-                | )          | (159,646 | ) |
| Net deferred tax assets                             |       | $                   | -0-        |   | $ | -0- |   |
|                                                     |            |                     |            |  |  |  |  |

 

For financial reportingpurposes, the Company has incurred a loss in each period since its inception.Based on the available objective evidence, including the Company’s history oflosses, management believes it is more likely than not that the net deferredtax assets will not be fully realizable. Accordingly, the Company provided fora full valuation allowance against its net deferred tax assets at March 31,2005 and 2004.

 

A reconciliation between theamount of income tax benefit determined by applying the applicable U.S. andState statutory income tax rate to pre-tax loss is as follows:

 
| ** **                                            | ** ** | **Year Ended March 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------------|------------|
| ** **                                            | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| Federal and state statutory rate                      |       | $                        | (-0-       | ) | $ | (53,940 | ) |
| Change in valuation allowance on deferred  tax assets |       | -0-                      |       | 53,940 |   |
|                                                       |            |                          |            |  |  |  |  |

 

As of March 31, 2005, thefederal and state income tax payable was $203,103 and $53,879,respectively.  During the year ended March31, 2005, the total federal and state income taxes paid was $141,724 and$41,431, respectively.

 

**Note 4 –Fixed assets**

 

Fixed assets as of March 31, 2005 and 2004consisted of the following:

 
| ** **               | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|
| Office Equipment         |       | $        | 19,776     |     | $          | — |   |
| Accumulated depreciation |       | (1,430   | )          | (—  | )          |
|                     |       | $        | 18,346     |     | $          | — |   |

 

During the years ended March 31, 2005 and2004, the Company recorded depreciation expense of $1,430 and $0, respectively.

 

31

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**Note 5 –Intangible assets**

 

On July 1, 2004, the Companyentered an agreement to distribute products developed by another company. Thepurchase price paid for the distribution rights was $300,000 in cash, whichrepresents its fair value. The amount was recorded as an intangible asset andis being amortized over the period of its estimated benefit period of threeyears.

 

On January 13, 2005, theCompany entered into an agreement to acquire a website/internet portal inexchange for 200,000 shares of its $0.001 par value common stock valued at thefair market value of the shares of $10,000. At March 31, 2005, accumulated amortization for this asset was $75,000.

 

During the years ended March 31, 2005 and2004, the Company recorded amortization expense of $75,000 and $0,respectively.

 

**Note 6 –Deposits**

 

At March 31, 2005 and 2004, theCompany has deposits with various vendors which comprised of the following:

 
| ** **                               | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| Deposit for future purchase of inventory |       | $        | 59,600     |     | $          | — |   |
| Deposit Marketing Services Agreement     |       | 7,500    |       | —   |       |
| Total                                    |       | $        | 67,100     |     | $          | — |   |

 

# **Note 7 – Stockholders’ equity**

 

The Company is authorized to issue100,000,000 shares of $0.001 par value common stock and 10,000,000 shares of$0.001 par value preferred stock.

 

On July 28, 2004, the Companyissued 1,934,880 shares of its $0.001 par value common stock pursuant to thereverse acquisition agreement with Amerikal International Holding, Inc.

 

On August 31, 2004, the Companyentered into stock compensation agreements with its officers and directorswhereby the Company issued 2,080,000 shares of its $0.001 par value commonstock to the related parties. Pursuant to amendments of these agreements as ofDecember 28, 2004, the fair market value of services is deemed by the Companyto be equal to the book value of the shares as of the date of the amendments,namely $0.05 per share.  During the yearended March 31, 2005, the Company expensed $104,000 as stock compensation torelated parties.

 

On August 31, 2004, the Companyentered into consulting agreements with various individuals and companies. Perthe agreements, the Company issued 46,000 shares of its $0.001 par value commonstock in exchange for the consulting services to be amortized over a term ofthree years. As of December 28, 2004, the Company amended the agreements to providefor the outright grant of the shares at the then-book value of the shares.  During the year ended March 31, 2005, thecompany expensed $46,000 of consulting services per the agreements.

 

In January 2005 the Companyissued 200,000 shares of its $0.001 par value common stock in exchange for therights to a web portal known as “On Line Surgery”, which represents the fairmarket value of the rights as of the date of acquisition.  The fair market value of rights is deemed bythe Company to be equal to the book value of the shares as of the date of theagreement, namely $0.05 per share

 

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On March 23, 2005 the Companyissued 50,000 shares of its $0.001 par value common stock, then trading on theNASD Over the Counter Bulletin Board at $1.51 per share, to two attorneys incompensation for legal services rendered to the company.  The Company expensed as legal expenses thefair market value of the shares on the date of issuance.

 

There have been no otherissuances of shares by the Company in the year ended March 31, 2005.

 

**Note 8 –Warrants and options**

 

As of March 31, 2005 and 2004, there were nowarrants or options outstanding to acquire any additional shares of commonstock.

 

**Note 9 –Segment reporting**

 

The Company operates in a single businesssegment that includes the manufacture and sale of natural supplements, healthand beauty aid products for the nutraceutical industry. The following tablesummarizes the Company’s revenues and long-lived assets in different geographiclocations:

 
| ** **               | ** ** | **For the year ended** | ** ** |
|--------------------------|------------|------------------------|------------|
| ** **               | ** ** | **March 31, 2005**     | ** ** | **March 31, 2004** | ** ** |
|                     |       |                   |       |   |   |
| Revenues:                |       |                   |       |   |   |
| United States            |       | $                      | 168,974    |   | $ | — |   |
| Singapore                |       | 4,436,253              |       | 3,088,751 |   |
| Other Foreign Countries  |       | 898,809                |       | 655,190 |   |
| Total                    |       | $                      | 5,504,036  |   | $ | 3,743,941 |   |
|                     |       |                   |       |   |   |
| Long-Lived Assets (net): |       |                   |       |   |   |
| United States            |       | $                      | 253,347    |   | $ | — |   |
| Singapore                |       | —                 |       | — |   |
| Other Foreign Countries  |       | —                 |       | — |   |
| Total                    |       | $                      | 253,347    |   | $ | — |   |

 

Geographic area data is based upon productshipment destination.  Export sales as apercentage of revenues were 96.93% for the year ended March 31, 2005, and100.0% for the year ended March 31, 2004.

 

In 2005 and 2004, sales to a single customerwere 80.59% and 82.49% of total sales, respectively.

 

The geographic summary of long-lived assetsis based in part upon physical location, as to the net physical assets($18,347) and in part upon the location of the holder of the intangible rights(in the instance of the intangible Distribution Rights Agreement for thecountry of Indonesia, net of amortization, in the amount of $235,000.

 

The Company manufactures its products in theUnited States but derives most of its revenues from shipments of its productsto Singapore, Indonesia, Thailand, and other countries in South East Asia.  These areas have, in the past, experiencevarying degrees of illiquidity, volatile currency exchange rates, reducedeconomic activity, and in some instances, war, revolution or insurrection.  The Company may be adversely affected for theforeseeable future by economic conditions in these regions, although it is notpossible to determine the extent of the effects.

 

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**Note 10 –Related party transactions**

 

During the fiscal year endedMarch 31, 2005, the Company entered into an agreement with a company whollyowned by an officer and director of the Company. The agreement provides foroffice space as well as administrative services at a fair market rate of $6,000per month. The agreement is not binding and may be cancelled by either party atany time.  During the year, the Companyexpensed $36,000 under this agreement.

 

**Note 11 –Subsequent events**

 

On May 2, 2005, the Companyformed one wholly owned subsidiary, On Line Surgery, Inc. for the purpose ofdiversifying its market. The consolidated financial statements include theaccounts of the Company and its wholly owned subsidiaries after elimination ofall material intercompany accounts, transactions and profits.

 

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