<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-QSB/A

                                 Amendment No. 1

|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

               For the quarterly period ended September 30, 2006.

|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                       Commission File Number: 000-254888

                           RG GLOBAL LIFESTYLES, INC.
                           --------------------------
        (Exact Name of small business issuer as specified in its charter)

          California                                    33-0230641
          ----------                                    ----------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

30021 Tomas, Ste 200, Rancho Santa Margarita, CA             92688
------------------------------------------------             -----
    (Address of principal executive offices)              (Zip Code)

                    Issuer's telephone number: (949) 888-9500

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes |X| No |_|

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of the issuer's Common Stock as of November 17,
2006 was 17,900,000.

Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|



<PAGE>

                                EXPLANATORY NOTE

This Amendment No. 1 to the Company's Form 10-QSB for the quarterly period ended
September 30, 2006 is being filed in conjunction with our decision to restate
the financial statements contained in our report on Form 10-QSB for the
quarterly period ended September 30, 2006, filed with the Securities and
Exchange Commission on November 20, 2006. Our board of directors determined on
July 6, 2006 that the original financial statements for the periods in question
should no longer be relied upon. We have filed a Form 8-K on Item 4.02
Non-Reliance on Previously Issued Financial Statements or a Related Audit Report
or Completed Interim Review for the restatement.


                                      INDEX
                                      -----

                                                                            PAGE

                         PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited)                                   3

           Consolidated Balance Sheet -September 30, 2006 (restated)          3

           Consolidated Statements of Operations -
           For the Three and Six Months ended September 30, 2006 (restated)
           and 2005                                                           4

           Consolidated Statements of Cash Flows
           For the Six Months ended September 30, 2006 (restated) and 2005    5

           Notes to Financial Statements                                      6

Item 2.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations                                             19

Item 3.    Controls and Procedures                                           28

                           PART II - OTHER INFORMATION
                                                                             30
Item 1.    Legal Proceedings                                                 31
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds       32
Item 3.    Defaults Upon Senior Securities                                   32
Item 4.    Submission of Matters to a Vote of Security Holders               32
Item 5.    Other Information                                                 32
Item 6.    Exhibits                                                          32

SIGNATURES


                                      -2-


<PAGE>
<TABLE>

                              PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                               R.G. GLOBAL LIFESTYLES, INC.
                        (FORMERLY L.L. KNICKERBOCKER COMPANY, INC.)
                                CONSOLIDATED BALANCE SHEET
                                        (UNAUDITED)

                                                                           September 30
                                                                               2006
                                                                           ------------
                                                                            As restated
<S>                                                                        <C>
ASSETS

Current assets:
    Cash and cash equivalents                                              $    320,294
    Accounts receivable                                                             900
    Prepaid expenses                                                            165,978
                                                                           ------------
      Total current assets                                                      487,172
                                                                           ------------

    Fixed assets, net                                                             5,369

    Intangible assets, net                                                      196,895
    Debt Issuance Costs                                                         698,802
    Deposits held                                                               162,016
                                                                           ------------
    Total other assets                                                        1,057,713

                                                                           ------------
Total Assets                                                               $  1,550,254
                                                                           ============

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

Current Liabilities
    Accounts payable                                                             70,704
    Payroll taxes payable                                                         1,233
    Accrued liabilities                                                         139,482
    Notes payable-related party ($708,132 net of $48,318 discount)              659,814
    Notes payable others ($905,808 net of $126,384 discount)                    779,424
                                                                           ------------
      Total current liabilities                                               1,650,657
                                                                           ------------

Long term liabilities
    Liability associated with detachable warrants-conv. notes                 3,756,361
    Accrued derivative liability-convertible notes                            4,218,846
    Convertible notes payable ($1,300,000 net of $1,189,174 discount)           110,826
                                                                           ------------
Total long term liabilities:                                                  8,086,033
                                                                           ------------

        Total liabilities                                                     9,736,690
                                                                           ------------

STOCKHOLDERS' (DEFICIT)

    Preferred stock, $0.001, 10,000,000 shares
      authorized, no shares issued and outstanding                                   --
    Common stock, $0.001 par value, 100,000,000 shares
      authorized, 17,650,000 shares issued
      and outstanding as of September 30, 2006                                   17,650
    Additional paid-in capital                                                2,747,653
    Accumulated (deficit)                                                   (10,951,739)
                                                                           ------------
        Total stockholders' (deficit)                                        (8,186,436)
                                                                           ------------

        Total Liabilities & Stockholders' (deficit)                        $  1,550,254
                                                                           ============

        The accompnaying notes are an integral part of these financial statements.

                                           -3-


<PAGE>

                                                   R.G. GLOBAL LIFESTYLES, INC.
                                            (FORMERLY L.L. KNICKERBOCKER COMPANY, INC.)
                                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                                            (UNAUDITED)


                                                                     For the Three Months ended        For the Six Months ended
                                                                            September 30                     September 30
                                                                    ----------------------------     -----------------------------
                                                                       2006             2005             2006             2005
                                                                   ------------     ------------     ------------     ------------
                                                                    As restated                       As restated
Revenue
   Product Sales                                                   $         --     $      6,240     $        425     $     10,840
   Cost of sales                                                         58,600            7,150           64,528            9,381
                                                                   ------------     ------------     ------------     ------------
     Gross profit                                                       (58,600)            (910)         (64,103)           1,459

Expenses:
   Advertising and marketing                                             21,714               --           25,058               --
   Commissions                                                           15,000           16,081           15,000           28,081
   Consulting services                                                 (317,901)          66,380          434,929           79,937
   Depreciation and amortization                                          3,314               --            3,344               --
   General and administrative expenses                                  170,170           16,370          273,608            9,274
   Professional fees                                                    134,362           77,519          214,692          141,692
   Rent - related party                                                  51,915           18,000           93,715           36,000
   Salaries and wages                                                    69,221               --           93,721               --
   Stock compensation - related party                                   417,679               --          616,038               --
                                                                   ------------     ------------     ------------     ------------
     Total expenses                                                     565,474          194,350        1,770,105          294,984
                                                                   ------------     ------------     ------------     ------------

Operating (loss)                                                       (624,074)        (195,260)      (1,834,208)        (293,525)
                                                                   ------------     ------------     ------------     ------------

Other income (expense)
   Interest Income                                                           --              284               --              284
   Income tax refund                                                         --               --               --            1,551
   Change in Fair value of warrants re: convertible notes                75,256               --          268,312               --
   Change in fair value of derivative liability-convertible notes     1,893,704               --        1,899,967               --
   Interest and Financing related to convertible notes                  470,258               --        4,629,440               --
   Interest and financing expense-related party                         133,665               --          261,810               --
   Interest and financing expense-other                                 220,302          (12,133)         363,379          (12,133)
                                                                   ------------     ------------     ------------     ------------
Total other income (expense)                                         (2,793,185)         (11,849)      (7,422,908)         (10,298)

                                                                     (3,417,259)        (207,109)      (9,257,116)        (303,823)
                                                                   ------------     ------------     ------------     ------------

Provision for income taxes
   Current state                                                             --               --             (800)          (1,865)
                                                                   ------------     ------------     ------------     ------------
     Total income taxes                                                      --               --             (800)          (1,865)

Net (loss) from continuing operations                                (3,417,259)        (207,109)      (9,257,916)        (305,688)
                                                                   ------------     ------------     ------------     ------------

Discontinued operations
   Income (loss) from discontinued operations, net of tax                    --          385,611               --          406,828
   Loss on distribution of discontinued operations, net of tax               --               --               --
                                                                   ------------     ------------     ------------     ------------
Net income (loss) from discontinued operations                               --          385,611               --          406,828
                                                                   ------------     ------------     ------------     ------------

Net income (loss)                                                  $ (3,417,259)    $    178,502     $ (9,257,916)    $    101,140
                                                                   ============     ============     ============     ============

Weighted average number of
   common shares outstanding - basic and fully diluted               17,650,000       25,150,000       17,650,000       25,150,000
                                                                   ============     ============     ============     ============

Net income (loss) per share - basic and fully diluted
   Continuing Operations                                           $      (0.19)    $      (0.01)    $      (0.52)    $      (0.01)
   Discontinued Operations                                                   --             0.02               --             0.02
                                                                   ------------     ------------     ------------     ------------
                                                                   $      (0.19)    $       0.01     $      (0.52)    $       0.00
                                                                   ============     ============     ============     ============

                            The accompnaying notes are an integral part of these financial statements.

                                                               -4-


<PAGE>

                                    R.G. GLOBAL LIFESTYLES, INC.
                             (FORMERLY L.L. KNICKERBOCKER COMPANY, INC.)
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (UNAUDITED)



                                                                         For the six months ended
                                                                               September 30
                                                                       -----------------------------
                                                                          2006               2005
                                                                       -----------       -----------
                                                                       As restated
CASH FLOWS FROM OPERATING ACTIVITIES
CONTINUING OPERATIONS
Net (loss) from continuing operations                                  $(9,257,916)      $  (305,688)
                                                                       -----------       -----------
Adjustments to reconcile net loss from continuing operations to         (9,257,916)         (305,688)
    net cash (used) by continuing operations:
      Depreciation & amortization                                           64,578                --
      Warrants Discount amortization-related party                         233,211                --
      Warrants Discount amortization-unrelated party                       257,226                --
      Non-cash expenses associated with convertible debt                 5,249,229                --
      Stock based compensation - consultants and legal                     189,410                --
      Change in Fair Value of warrant liability                            268,312                --
      Change in Derivative liability                                     1,899,968                --
      (Increase) decrease in prepaid compensation                               --           (26,123)
Changes in operating assets and liabilities:
      (Increase) decrease in inventory                                          --            12,278
      (Increase) decrease in prepaid expenses                               10,044           (32,642)
      (Increase) decrease in deposits held                                    (481)         (149,990)
      Increase in accounts payable                                          21,859            13,775
      Increase in accrued liabilities                                       92,919            32,995
      (Decrease) in payroll tax payable                                       (148)               --
      Increase (decrease) in due to affiliate                                   --          (239,062)
                                                                       -----------       -----------
Net cash (used) in continuing operations                                  (971,789)         (694,457)
Net cash provided (used) in discontinued operations                             --           (73,939)
                                                                       -----------       -----------
Net cash provided (used) by operating activities                          (971,789)         (768,396)
                                                                       -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of fixed assets                                                (5,608)             (350)
    Purchase of intangible assets                                         (200,000)
                                                                       -----------       -----------
Net cash provided (used) in continuing operations                         (205,608)             (350)
Net cash (used) in discontinued operations
                                                                       -----------       -----------
Net cash provided (used) by investing activities                          (205,608)             (350)
                                                                       -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from notes payable                                          1,300,000           600,000
    Payment of debt issuance costs                                        (148,970)
    Donated capital                                                                           96,443
                                                                       -----------       -----------
Net cash provided by financing in continuing operations                  1,151,030           696,443
Net cash provided (used) in discontinued operations                             --
                                                                       -----------       -----------
Net cash provided (used) by financing activities                         1,151,030           696,443
                                                                       -----------       -----------

Net increase (decrease) in cash provided by continuing operations          (26,367)          (72,303)
Cash - beginning                                                           346,661           159,661
                                                                       -----------       -----------
Cash - ending                                                          $   320,294       $    87,358
                                                                       ===========       ===========


             The accompnaying notes are an integral part of these financial statements.
</TABLE>

                                                -5-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements



NOTE 1 - BASIS OF PRESENTATION

The financial statements included herein, presented in accordance with United
States generally accepted accounting principles and stated in US dollars, have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.

These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated interim financial statements be read in conjunction with the
financial statements and notes thereto of the Company for the year ended March
31, 2006 included in the Company's 10-KSB annual report. The Company follows the
same accounting policies in the preparation of interim reports.

NOTE 2 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

During fiscal 2008, the Company determined that the manner in which it
historically accounted for debt issuance costs related to the convertible debt
that was issued during fiscal 2007 was not in accordance with generally accepted
accounting principles of the United States of America. The Company determined
that the costs incurred related to is offering of convertible notes, should be
properly capitalized on the consolidated balances and then amortized on a
straight-line basis to interest expense over the term of the convertible debt.
The Company had previously not capitalized the debt issuance costs, but rather
expensed them in the period incurred.

During fiscal 2008, the Company determined that the manner in which it
historically accounted for its derivative liability associated with the
beneficial conversion feature of its convertible notes issued during fiscal 2007
was not in accordance with SFAS No. 133, as amended, and EITF Issue No. 00-19.
Any change in fair value was required to be recorded as non-operating, non-cash
income or expense at each balance sheet date. If the fair value of the
derivatives was higher at the subsequent balance sheet date, the Company was
required to record a non-operating, non-cash charge. If the fair value of the
derivative was lower at the subsequent balance sheet date, the Company was
required to record non-operating, non-cash income. Accordingly, in connection
with the restatement adjustments, the Company has appropriately reflected the
non-operating, non-cash income or expense resulting from the changes in fair
value. The Company had previously not recorded the correct fair value of the
derivative instrument.

During fiscal 2008, the Company determined that it had historically disclosed
amounts related to deferred stock based compensation not in accordance with
generally accepted accounting principles of the United States of America. The
Company determined that such amounts should not be recorded as an off-set to the
Company's equity balances, but rather recorded to expense over the requisite
service period. The Company had previously recorded such amounts to prepaid
stock based compensation in the equity section of the consolidated balance
sheet.

During fiscal 2008, the Company determined that the sales it had recorded to IMN
during the three months ended September 30, 2006 was not properly recorded. As a
result the Company reversed the sale to IMN as part of its restatement of the
financial statements as of and for the three and six months ended September 30,
2006.

                                      -6-


<PAGE>
<TABLE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements

The following tables present a summary of effects of the restatement adjustments
on the Company's consolidated balance sheet at September 30, 2006, the
consolidated statements of operations for three months and six months ended
September 30, 2006, and the consolidated statement of cash flows for the six
months ended September 30, 2006:

                                                      Consolidated Balance Sheet
                                                      As Previously
                                                      Reported            Adjustments        As Restated
---------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>                <C>
As of September 30, 2006
Accounts receivable                                   $    120,600       $   (119,700)      $        900
Total current assets                                  $    606,872       $   (119,700)      $    487,172
Debt issuance costs                                              $       $    698,802       $    698,802
Total other assets                                    $    358,911       $    698,802       $  1,057,713
Total assets                                          $    971,152       $    579,102       $  1,550,254
Accrued derivative liability - convertible notes      $  2,416,798       $  1,802,048       $  4,218,846
Total long term liabilities                           $  6,283,985       $  1,802,047       $  8,086,032
Total liabilities                                     $  7,934,642       $  1,802,048       $  9,736,690
Additional paid in capital                            $  8,682,011       $ (5,934,358)      $  2,747,653
Prepaid share-based compensation - related party      $ (5,919,177)      $  5,919,177       $         --
Prepaid share-based compensation                      $    (15,180)      $     15,180       $         --
Accumulated (deficit)                                 $ (9,728,794)      $ (1,222,945)      $(10,951,739)
Total stockholders' (deficit)                         $ (8,186,436)      $         --       $ (8,186,436)
Total liabilities & stockholders' (deficit)           $    971,152       $    579,102       $  1,550,254


                                                           Consolidated Statement of Operations
                                                           As Previously
                                                           Reported           Adjustments      As Restated
----------------------------------------------------------------------------------------------------------
Three months ended September 30, 2006
Product sales                                              $   119,700       $  (119,700)      $        --
Gross profit (loss)                                        $    61,100       $  (119,700)      $   (58,600)
Consulting services                                        $   293,135       $  (611,036)      $  (317,901)
Total expenses                                             $ 1,176,510       $  (611,036)      $   565,474
Operating (loss)                                           $(1,115,410)      $ 1,053,336       $   (62,074)
Change in fair value of derivative liability -
  convertible notes                                        $    91,657       $ 1,802,047       $ 1,893,704
Interest and financing related to convertible notes        $   558,024       $   (87,766)      $   470,258
Total other income (expense)                               $(1,078,904)      $(1,714,281)      $(2,793,185)
Net (loss) before provision for income taxes               $(2,194,314)      $(1,222,945)      $(3,417,259)
Net (loss) from continuing operations                      $(2,194,314)      $(1,222,945)      $(3,417,259)
Net income (loss)                                          $(2,194,314)      $(1,222,945)      $(3,417,259)
Net income (loss) per share - basic and fully diluted
  Continuing operations                                    $     (0.12)      $     (0.07)      $     (0.19)


                                      -7-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements


                                                           Consolidated Statement of Operations
                                                           As Previously
                                                           Reported           Adjustments       As Restated
-----------------------------------------------------------------------------------------------------------
Six months ended September 30, 2006
Product sales                                              $   120,125       $  (119,700)      $       425
Gross profit (loss)                                        $    55,597       $  (119,700)      $   (64,103)
Consulting services                                        $ 1,045,964       $  (611,036)      $   434,928
Total expenses                                             $ 2,381,140       $  (611,035)      $ 1,770,105
Operating (loss)                                           $(2,325,543)      $   491,335       $(1,834,208)
Change in fair value of derivative liability -
  convertible notes                                        $    97,920       $ 1,802,047       $ 1,899,967
Interest and financing related to convertible notes        $ 4,717,206       $   (87,766)      $ 4,629,440
Total other income (expense)                               $(5,708,627)      $(1,714,281)      $(7,422,908)
Net (loss) before provision for income taxes               $(8,034,170)      $(1,222,946)      $(9,257,116)
Net (loss) from continuing operations                      $(8,034,970)      $(1,222,946)      $(9,257,916)
Net income (loss)                                          $(8,034,970)      $(1,222,946)      $(9,257,916)
Net income (loss) per share - basic and fully diluted
  Continuing operations                                    $     (0.46)      $     (0.06)      $     (0.52)



                                                             Consolidated Statement of Cash Flows
                                                             As Previously
                                                             Reported          Adjustments       As Restated
------------------------------------------------------------------------------------------------------------
Six months ended September 30, 2006
Net (loss) from continuing operations                        $(8,034,970)      $(1,222,946)      $(9,257,916)
Depreciation and amortization                                $     3,374       $    61,204       $    64,578
Non-cash expenses associated with convertible debt           $ 4,617,693       $   631,535       $ 5,249,228
Stock based compensation - related party                     $   616,038       $  (616,038)      $        --
Stock based compensation - consultants and legal             $   815,944       $  (626,534)      $   189,410
Change in derivative liability                               $    97,920       $ 1,802,048       $ 1,899,968
(Increase) in accounts receivable                            $  (119,700)      $   119,700       $        --
Net cash (used) in continuing operations                     $(1,120,759)      $   148,970       $  (971,789)
Net cash provided by (used) by operating activities          $(1,120,759)      $   148,970       $  (971,789)
Payment of debt issuance costs                               $        --       $  (149,000)      $  (149,000)
Net cash provided by financing in continuing operations      $ 1,300,000       $  (149,000)      $ 1,151,000
Net cash provided (used) by financing activities             $ 1,300,000       $  (149,000)      $ 1,151,000
</TABLE>


NOTE 3 - DISCONTINUED OPERATIONS

During the fiscal quarter ended December 31, 2005, the Company entered into an
agreement with a group of its shareholders to distribute Amerikal in exchange
for 7,500,000 shares of the Company's common stock. The effective date of this
transaction was October 1, 2005. The distribution of Amerikal qualified for
treatment as discontinued operations in accordance with FASB Statement No. 144
("SFAS No. 144"), Accounting for the Impairment or Disposal of Long-Lived
Assets. Therefore, the operating results of Amerikal were not included in
results from continuing operations. In addition, all operating results of
Amerikal previously reported in the consolidated financial statements were
reflected as "Discontinued Operations" for all periods prior to the effective
date of the distribution. The following is a summary of the net assets
distributed as of the end of the period immediately prior to the effective date
of the Distribution Agreement:

                                      -8-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements

                                                                      As of
                                                                  September 30,
                                                                       2005
                                                                   ----------
Assets Distributed

     Cash and cash equivalents                                     $   45,287
      Accounts receivable                                           1,039,684
      Inventory                                                       131,120
      Property and equipment, net                                      17,037
      Other assets                                                    315,780
                                                                   ----------
         Total assets of discontinued operations
                                                                    1,548,907
                                                                   ----------

Liabilities Distributed
      Accounts payable                                                106,657
      Accrued liabilities                                             240,420
                                                                   ----------
         Total liabilities of discontinued operations                 347,077
                                                                   ----------

Net assets of discontinued operations distributed                  $1,201,830
                                                                   ==========

Net income (loss) from discontinued operations as reported on the consolidated
statements of operations, including the (loss) on the distribution of
discontinued operations, consists of the following:

                                                                    As of
                                                                  Sept. 30,
                                                                    2005
                                                                 -----------
Summary of Income
     Revenues                                                    $ 1,923,877
     Cost of revenues                                                786,964
                                                                 -----------
         Gross profit                                              1,136,913
                                                                 -----------

     Total operating expenses                                        670,655
     Total other (income) expenses                                      (441)
     Provision for income tax                                         94,831
                                                                 -----------

Income from operations of Amerikal, net of tax                   $   371,868
                                                                 ===========

As a result of the foregoing distribution of Amerikal, the Company recognized a
loss from discontinued operations in the quarter ended December 31, 2005 of
($837,768). There were no sales from Amerikal included in the periods from
October 1, 2005 to September 30, 2006.

NOTE 4 - GOING CONCERN

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the accompanying financial
statements, the Company incurred an operating loss from continuing operations
before income taxes and other expenses of $(624,074) for the period ended
September 30, 2006, and had gross sales of $425. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.

The future of the Company is dependent upon its ability to obtain equity and/or
debt financing and upon future profitable operations from the development of its
new business opportunities. The Company has recently completed the raising of
$2,000,000 of invested capital through the placement of convertible notes. See
"Convertible Debt with Detachable Warrants", Note 7, below. During the six


                                      -9-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements

months ended September 30, 2006, the Company issued $1,300,000 of the total of
$2,000,000 planned issuance of convertible notes, and recorded as other expenses
the following: (1) Interest and financing expenses related to convertible notes
in the amount of $4,629,440; (2) Change in fair value of warrants issued re:
convertible notes in the amount of $268,312; and (3) Change in the fair value of
derivative liability re: convertible notes in the amount of $1,899,967. These
expenses total $6,797,719 of the total of "Other Expenses" set forth in the
attached Consolidated Statement of Operations, or 73.4% of the total net loss of
($9,257,916) reported by the Company for the six months ended September 30,
2006. In addition, during the six months ended September 30, 2006, the Company
accrued interest and financing expenses to related parties in the amount of
$261,810 and interest and financing expenses of $363,379, in connection with the
issuance of short term notes payable to related parties and others, for a total
of $625,189. The combined total of interest and financing charges incurred by
the Company and reflected as "Other (expense)" on the Consolidated Statements of
Operations, attached, is $7,422,908 during the six months ended September 30,
2006. The foregoing financing costs combined represent over 80% of the net loss
from continuing operations during the most recent six month period of
operations.

There can be no assurance that this additional capital will be sufficient for
the Company to achieve profitability in its operations, and it is possible that
additional equity or debt financing may be required to continue as a going
concern. Without such additional capital, there is some doubt as to whether the
Company will continue as a going concern. The Company does not yet have a
specific plan to raise additional funds following the issuance of the $2,000,000
in convertible notes.

The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts of and
classification of liabilities, which might be necessary in the event the Company
cannot continue in existence.

 NOTE 5 - FIXED ASSETS

Fixed assets of continuing operations and discontinued operations as of
September 30, 2006 and 2005 consisted of the following:

          Continuing Operations           2006           2005
                                        --------       --------
          Office equipment              $  5,608       $     --
          Accumulated depreciation          (239)            --
                                        --------       --------
                                        $  5,369       $     --
                                        ========       ========

          Discontinued Operations
          Office equipment              $     --       $ 20,873
          Accumulated depreciation            --         (3,836)
                                        --------       --------

                                        $     --       $ 17,037
                                        ========       ========

During the years ended September 30, 2006 and 2005, the Company recorded $239
and $0 of depreciation expense for continuing operations and recorded $0 and
$2,406 for discontinued operations, respectively.

NOTE 6 - AMORTIZATION EXPENSE

During the six months ended September 30, 2006 the Company acquired certain
intangible rights (described below) in the amount of $200,000 and recorded
$3,105 of amortization expense. Additionally during the six months ended
September 30, 2006 the Company recorded $61,234 of amortization expense related
to debt issuance costs to interest expense in the accompanying consolidated
statement of operations. During the six months ended September 30, 2005, the
Company did not record amortization expense for continuing operations. During
the quarters ended September 30, 2006 and 2005, the Company recorded
amortization expense of $0 and $75,000 for discontinued operations,
respectively.

                                      -10-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements

On July 12, 2006, the Company executed a letter of intent with Catalyx, Inc. to
license their patented technology for use in removing excessive sodium from the
water associated with wet bed methane mining in the State of Wyoming. The
Company paid $200,000 cash for this right. The transaction contemplates that
three selected oil companies located in Wyoming will each produce a purchase
order to Aquair, through Catalyx, for the purpose of proving the viability of
the technology for the oil companies. Testing was commenced in the quarter ended
September 30, 2006 and is underway. When testing is successfully completed, it
is anticipated that contracts with one or all three of the oil companies will be
generated for Aquair to process the water on a "charge by the barrel" basis. The
Company has recorded this payment as an intangible asset and is amortizing the
value over a fifteen year life.

NOTE 7 - NOTES PAYABLE

On November 15, 2005, the Company began a private placement offering to
accredited investors only under the terms and conditions of a Note and Warrant
Agreement ("Offering"). The terms of the Offering are a non-convertible
promissory note with an annual interest rate of 8%, with a maturity date of one
year after loan ("Note"); and for each dollar loaned the Company via Note, the
investor is granted a cashless warrant to purchase one share of the Company's
common stock at an exercise price equal to the lowest closing price of the stock
as reported by the OTC:BB for the year following the date of warrant grant
("Warrant"). These sales are exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act of 1933, as amended ("Securities
Act"), or Regulation D of the Securities Act.

As of September 30, 2006, the Company had entered into eight separate
investments totaling $1,613,940 under the terms of the Offering, of which
$613,940 was money already loaned to the Company and then converted into an
investment in the Offering. In each instance, the Company allocated the proceeds
between Notes and Warrants based upon their fair value, using the Black Scholes
method of valuation. For purposes of determining the volatility factor in the
Black Scholes valuation model, the company looked to the lowest price of the
Company's stock over the entire trading history of the Company's stock from
inception to the date of the Warrant grant. The exercise price is re-determined
as of the filing date for each quarter's financial statements, and is based upon
the lowest price for the Company's common stock during the look-back period.

The discounts on the notes payable are being amortized over the period of one
year. During the quarter ended September 30, 2006, the Company expensed $251,161
of interest as finance charges attributable to the Warrant, and reduced the
discounts on the notes payable by a similar amount.

NOTE 8 - CONVERTIBLE DEBT WITH DETACHABLE WARRANTS.

On June 6, 2006, the Company entered into a definitive Securities Purchase
Agreement and ancillary agreements (the "Agreements") with four accredited
investors (the "Investors") for the sale of $2,000,000 of 6.0% callable secured
convertible notes due June 6, 2009 (the "Convertible Notes".) The Convertible
Notes are convertible at the option of the holders at any time prior to the
maturity date into shares of the Company's common stock at a conversion price of
the market price as defined in the agreements. As of September 30, 2006, the
Company had issued $1,300,000 of the Convertible Notes pursuant to the
Agreements. The conversion rate of the Convertible Notes is based upon 50% of
the Market Price of the Company's stock at the time of conversion. Market price
is defined as the average of the lowest three trading prices for the Company's
stock on the OTC Bulletin Board during the twenty day period, ending one trading
day prior to conversion. The Company incurred $53,000 of direct finance charges
and expenses attributable to the placement of the Convertible Notes in the
period ended September 30, 2006. In addition, the Company accrued $17,097 of
interest expense on the $1,300,000 of notes payable during the quarter ended
September 30, 2006. The Company also incurred finance charges attributable to
the issuance of the warrants and the beneficial conversion feature issued in
connection with the second tranche of Convertible Notes in the amount of
$531,464.

                                      -11-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements

Due to the preferential conversion feature of these convertible notes, the
Company has accrued a liability attributable to the beneficial conversion
feature in the amount of $4,218,846, which represented the value of additional
shares that may be issued upon conversion at the market price on the date of
issuance, versus the value of the maximum number of shares that may be issued at
the discounted price. In addition to the foregoing, the Company issued 4,000,000
detached warrants to purchase shares of the Company's common stock to the
convertible note investors. The Company determined the value of these warrants
using the Black Scholes method of valuation, and recorded a liability attributed
to the fair value of the warrants at September 30, 2006 in the amount of
$3,756,361. The warrants may be exercised at any time following issuance. During
the quarter ended September 30, 2006 the Company recorded as other expenses (1)
the change in fair value of the warrants between the date of issuance and
September 30, 2006 in the amount of $75,256, and (2) the change in fair value of
the derivative liability between date of issuance and September 30 in the amount
of $1,893,704.

Related to the issuance of the convertible notes, the Company incurred a total
of $760,036 in debt issuance costs. These costs will be amortized over 36
months. For the six months ended September 30, 2006, the Company recorded
$61,234 related to the amortization of debt issuance costs. These amounts have
been included in interest expense in the accompanying statement of operations.

The Company has performed calculations of the valuation of the maximum shares
issuable to satisfy the convertible notes on the date of issuance and the end of
the reporting period based upon the Black Scholes method of valuation, and
allocated the valuation of the derivative between the convertible note payable
and the value of the derivative as a discount on the note payable. The discount
on the convertible note payable is being amortized over the term of the notes
(three years.) During the period ended September 30, 2006 the Company expensed
$91,655 as finance charges attributable to the amortization of the discounts on
note payable, and reduced the discount on the convertible notes payable in the
same amount. In calculating the value of the above derivative, the Company has
not included any value attributable to the potential penalty of $0.02 per share
that is provided for in the agreements in the event of not being successful in
have an effective Registration statement within 120 days of the issuance of any
of the convertible notes, as the Company has already met the requirement with
respect to the first tranche notes, and has timely filed the second SB-2
Registration Statement and reasonably expects the approval of such statement
within the 120 day time limit . In the event that the 120 day period is reached
without the Registration Statement being declared effective, the Company will
increase the valuation of the derivative to include the penalty provisions.

NOTE 9 - OPTIONS AND WARRANTS

COMMON STOCK: OPTIONS
---------------------

In the quarter ended September 30, 2005, the Company entered into a three-year
agreement with a consultant, who later became a related party (Director of the
Company). As a portion of the compensation due to the consultant under the
agreement, the Company issued options to purchase 100,000 shares of the
Company's common stock vesting at the rate of one-third at the end of each 12
months under the agreement. These options were not issued pursuant to the
Company's 2006 Incentive and Nonstatutory Stock Option Plan, described below.
The Company determined the fair market value of the options as of the date of
the grant at $346,379, using the Black Scholes valuation method with the
following estimates: 4% risk free rate and 100% volatility of the Company's
common stock. In recognition of the equitable obligation to issue the options in
the event of the death or disability of the consultant, the Company has
reflected the portion of the options ratably earned between the anniversary date
of the Agreement and September 30, 2006 in the amount of $23,982 as stock
compensation expense-related party in The accompanying statement of operations
for the period ended September 30, 2006. In July 2006, at the twelve-month
anniversary date of the consulting agreement based upon the vesting of the
options, the Company recorded stock compensation in the amount of the previously
earned options and increased share based compensation to related party in the
amount of $115,460.

                                      -12-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements

On May 3, 2006 the Company's Board of Directors adopted a plan for the issuance
of stock options to employees or others ("The 2006 Incentive and Nonstatutory
Stock Option Plan," hereinafter referred to as the "Plan"). Under the Plan, the
Company has reserved ten million shares for issuance. During the quarter ended
June 30, 2006, the Company granted the following stock options to four members
of the Company's management team and one consultant as compensation:

<TABLE>

DATE ISSUED:    OPTIONEE NAME         NUMBER OF OPTIONS   EXERCISE PRICE       VALUE*     EXPIRATON DATE
------------    -------------         -----------------   --------------       ------     --------------
<S>             <C>                       <C>                  <C>           <C>               <C>
May 3, 2006     Officer and Director      4,008,000            $0.94         $3,073,245    May 3, 2011
May 3, 2006     Officer and Director      1,992,000            $0.50          1,574,630    May 3, 2011
May 3, 2006     Officer                   1,008,000            $0.50            796,801    May 3, 2011
May 3, 2006     Officer and Director      1,008,000            $0.50            796,801    May 3, 2011
May 3, 2006     Outside Consultant          201,600            $0.50            159,360    May 3, 2011
                                          ---------                          ----------
Totals                                    8,217,600                          $6,400,837
                                          =========                          ==========

*The Company determined the fair market value of the options issued above as of
the date of the grant using the Black Scholes valuation method with the
following estimates: 5.25% risk free rate and 145% volatility of the Company's
common stock. The Plan provides for a vesting of the options over a five year
term, with 40% of the options vesting ratably over the first two years (24
months) from the date of issuance. During the quarter ended September 30, 2006,
the Company reduced prepaid share based compensation to related parties by
$302,219 and expensed as stock-based compensation-related party the vested
portion of the options earned in this fiscal quarter by the same amount. In
addition, the Company has reduced prepaid share-based consulting expenses in the
amount of $7,716 and increased stock based compensation-consulting services by
the same amount for the vested portion of consulting options during this fiscal
quarter.

The following is a summary of activity of outstanding stock options:

                                                                     Weighted
                                                                      Average
                                                        Number       Exercise
                                                      Of Shares        Price
                                                      ---------      --------
Balance, March 31, 2006                                 100,000      $   2.00

Options granted                                       8,217,600          0.73
Options exercised                                            --            --
                                                      ---------      --------

Balance, September 30, 2006                           8,317,600          0.73
                                                      =========      ========
Exercisable, September 30, 2006                         701,466      $   0.73
                                                      =========      ========

At March 31, 2006, the range of option prices for shares and the
weighted-average remaining contractual life is as follows:

                                      -13-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements


                                      Options Outstanding                               Options Exercisable
                       --------------------------------------------------         ---------------------------------
                                                            Weighted-
                                          Weighted-          Average                                   Weighted-
     Range of                              Average          Remaining                 Number            Average
      Option            Number of         Exercise         Contractual                  Of              Exercise
 Exercise Prices         Options            Price             Life                    Options            Price
-------------------    -------------    --------------   ----------------         ----------------    -------------
$0.50 - 2.00              8,317,600             $0.73           4.59 yrs                  701,466           $ 0.73
</TABLE>

COMMON STOCK EQUIVALENTS: WARRANTS
----------------------------------

In the third quarter 2005, the Company entered into a legal retainer agreement
with legal counsel providing for the issuance of cashless warrants to purchase
25,000 shares of the Company's common stock at $2.00 per share, in prepayment of
legal services to be rendered by the law firm on behalf of the Company. Pursuant
to the agreement, the warrants vest over ten months from the inception of the
agreement in September, 2005, and expire five years after the vesting date in
July, 2006. The Warrants have been attributed a value of $66,963 using the Black
Scholes method of valuation with the following estimates: 4% risk free rate and
105% volatility of the Company's common stock. At the anniversary vesting date
in September, 2006, the Company reduced prepaid compensation in the amount of
the earned portion of the vested warrants, issued the warrants, and recorded an
expense of $66,963 as legal fees. The legal retainer agreement further provides
that one third of all legal fees will be paid in cash during the legal services
representation, and the balance (including the 25,000 warrants referred to
above) shall be paid in warrants. In the event that the fees exceed the face
value of the warrants already issued or $50,000, additional warrants will be
issued on the same terms and price.

On March 16, 2006 the company entered into an agreement with a consultant to
issue cashless warrants to purchase 120,000 shares of the Company's common
stock, as compensation for services to be rendered over the period of one year.
The warrants vest ratably over the one year agreement period. The Company has
valued the warrants at $64,205 as of the date of the grant, based upon the Black
Scholes method of valuation using the following estimates: 5.25% risk free rate,
138% volatility of the Company's common stock and an expected life of 5 years.
The Company had previously reflected the entire value of the warrant grant as
Prepaid Compensation as of March 31, 2006. During the quarter ended September
30, 2006, the Company recorded $16,051 of consulting expense representing the
vested portion of these warrants.

During the quarter ended September 30, 2006 the Company issued 100,000 and 5,000
warrants respectively to two consultants for past services. The Company valued
these warrants at $90,519 and $4,526 respectively using the Black Scholes method
of valuation using the following estimates: 5.25% risk free interest rate, 163%
volatility of the Company's common stock and an expected life of 5 years. Since
the warrants were vested immediately, the Company recorded an expense in the
amount of the value of the issued warrants as stock-based
compensation-consulting services.

WARRANTS ISSUED IN CONNECTION WITH CONVERTIBLE NOTES:
-----------------------------------------------------

The investors in the convertible note transaction were issued warrants to
purchase 4,000,000 shares of the Company's common stock, concomitant with the
sale of the convertible notes. These warrants have an exercise price of $1.10
per share, and expire on June 6, 2016. These warrants have not yet been
registered through the filing of an SB-2 Registration Statement, but have been
issued and are exercisable at any time during their ten year term. The Company
has determined the valuations of these warrants based upon the Black Scholes
method of valuation, using the following estimates: 5.25% risk free interest
rate, 193% volatility of the Company's common stock, and an expected life of ten
years. The Company recorded a liability in the amount of $3,756,361 as of
September 30, 2006 attributable to the issuance of these warrants.

In addition to the foregoing, pursuant to an engagement agreement for financial
advisory services and as compensation for the Convertible Note financing, the
Company issued 640,000 warrants to purchase shares of the Company's common stock
to Ascendiant Securities, LLC. These warrants bear an exercise price of $0.80
per share, and are exercisable for a term of seven (7) years from the date of
issuance. The Company determined the value of the warrants to be $611,036 based
upon the Black Scholes method of valuation, using the following estimates: 5.25%
risk free interest rate, 150% volatility of the Company's common stock, and an
expected life of 7 years. The value of the warrants was recorded as debt
issuance costs in the accompanying consolidated balance sheet.
(See Note 8.)

                                      -14-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements

The issuance of the warrants was accounted for in accordance with Financial
Accounting Standards Board Statements using the Black-Scholes option pricing
model (with the same assumptions as those used for the options), which resulted
in the recording of discounts to Notes Payable issued in conjunction with
certain warrant grants above, in the amounts equal to the portion of the note
proceeds allocated between the debt and the fair value of the warrants.

The following is a summary of activity of outstanding stock warrants:

                                                                   Weighted
                                                                    Average
                                                  Number           Exercise
                                                Of Shares           Price
                                            ---------------   ---------------
Balance, March 31, 2006                     $     1,758,940   $         0.63

Warrants granted                                  4,745,000             1.02
Warrants exercised                                        -                -
                                            ---------------   ---------------

Balance, September 30, 2006                       6,503,940             0.86
                                            ===============   ===============
Exercisable, September 30, 2006             $     4,745,000   $         1.06
                                            ===============   ===============

At June 30, 2006, the range of warrant prices for shares under warrants and the
weighted-average remaining contractual life is as follows:

<TABLE>
                                     Warrants Outstanding                               Warrants Exercisable
                       --------------------------------------------------         ---------------------------------
                                                            Weighted-
                                          Weighted-          Average                                   Weighted-
     Range of                              Average          Remaining                 Number            Average
     Warrant            Number of         Exercise         Contractual                  Of              Exercise
 Exercise Prices         Warrants           Price             Life                   Warrants            Price
-------------------    -------------    --------------   ----------------         ----------------    -------------
<S>                       <C>                 <C>                <C>                    <C>                <C>
$   0.60 - 2.00           6,503,940           $  0.86            8.7 yrs                4,745,000          $  1.02

</TABLE>

There have been no other issuances of options or warrants by the Company in the
quarter ended September 30, 2006.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

On August 30, 2005, the Company was served with a lawsuit filed as Case No.
05CC09548 in Orange County, California Superior Court. In the complaint,
Universal Communications Systems, Inc. and its subsidiary Atmospheric Water
Technologies, Inc. allege defamation, interference with prospective economic
advantage, and false advertising, and seek compensatory and punitive damages,
and costs against the Company. The Board of Directors believes these claims to
be without merit, and has engaged legal counsel to strongly defend these claims.
Through its legal counsel, the Company has filed an answer and alleged over
twenty affirmative defenses to the remaining charging allegations in the
plaintiff's complaint. Legal counsel for the Company has recently filed a motion
for summary judgment in this case. The hearing on the motion for summary
judgment is scheduled to be heard by the Court in January, 2007. The Company
believes that any liability it may incur in connection with this case will not
have a material adverse effect upon its financial condition or its results of
operations.

                                      -15-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements


On July 7, 2006 the Company was served with a lawsuit for "injunctive and
declaratory relief and damages" filed by plaintiffs H2O Liquid Air, LLC and H2O
Liquid Air of Florida, LLC on June 10, 2006 in the United States district Court,
Southern district of Florida, Miami Division, against the Company and eight
other defendants. The complaint alleges ten "counts" although only three of
these counts are directed against the Company: unfair competition under common
law, statutory infringement under Section 32 of the Lanham Act, and interference
with a distribution agreement. The Company will be defended by legal counsel
engaged by co-defendant Munters Corporation. The Company will strongly defend
these claims through its legal counsel. The Company further believes that any
liability it may incur in connection with this case will not have a material
adverse effect upon its financial condition or its results of operations.

Other than the foregoing, the Company is not aware of any litigation, either
pending or threatened, and has not been the defendant or a plaintiff in any
litigation, since the discharge from bankruptcy attributable to its precedessor
L.L. Knickerbocker Company, Inc.

COMMITMENTS

On June 1, 2006, the company acquired the rights to distribute certain licensed
anti-microbial products, currently sold under the brand name Hydrosil, from
Apcan Distribution, LLC. The Agreement provides for the exclusive license to
distribute Hydrosil and related licensed technology, over a perpetual term.

On June 1, 2006, the Company engaged Intercontinental Management of Nevada
("IMN" as a consultant to head up sales and marketing, and provide product
support, training and maintenance services to customers of Hydrosil. The
consulting agreement obligates the Company to pay consulting fees of up to
$7,500 per month for the sales, product support, training, and maintenance
services to be performed by IMN over the ten-year term. In addition, the
Agreement provides for commissions on sale of products licensed to the Company
under the Apcan Distributors, LLC agreements discussed above, and provides for
IMN to earn options to purchase common stock of the Company based upon
realization of stated sales objectives.


NOTE 11 - SEGMENT REPORTING AND CONCENTRATIONS

Up until the end of the quarter ended September 30, 2005, the Company operated
in a business segment that included the manufacture and sale of natural
supplements, health and beauty aid products for the nutraceutical industry.
Effective as of the quarter ended December 31, 2005 the Company completed the
distribution of Amerikal, and has subsequently concentrated solely upon Aquair
for its revenue activity. The Company is therefore again operating in a single
business segment for the sales of its products. In the quarter ended September
30, 2006 the Company had no sales of its Hydrosil chemical products.

NOTE 12 - RELATED PARTY TRANSACTIONS

During the fiscal year ended March 31, 2005, the Company entered into an
agreement with a company wholly owned by an officer and director of the Company.
This Agreement continued in force for the entire fiscal year ended March 31,
2006. Effective as of April 1, 2006, the Company amended the previous agreement
between its Aquair subsidiary and the related party, to increase the amount of
monthly rental space and support services provided. The amended agreement
provides for 1000 square feet of office space at a fair market rate of $3.00 per


                                      -16-


<PAGE>

                          R.G. GLOBAL LIFESTYLES, INC.
                   (Formerly L.L Knickerbocker Company, Inc.)
                   Notes to consolidated financial statements


square foot, including maintenance, utilities and base telephone, for a total
rent payment of $4,000 per month, and expanded support services including
administrative and secretarial support staff at a rate of $7,500 per month. In
addition, in order to provide more space for its increased staff, the Company
entered into a new month to month rental and support services agreement with the
same related party, to provide an additional 667 square feet of rental space on
a full service basis, including maintenance, utilities and base telephone, at
the fair market rental rate of $3.00 per square foot, for a total monthly space
rental charge of $3,000 per month. The second rent and support services
agreement also provides for additional support services in the form of
secretarial staff, at a rate of $5,200 per month. The agreements are not binding
and may be cancelled by either party at any time. During the quarter ended
September 30, 2006, the Company expensed $51,915 under this agreement.

As described in detail in Note 6-Notes Payable, above, during the year ended
March 31, 2006, the Company also entered into three transactions with related
parties whereby the Company issued Notes with Warrants to officers and directors
of the Company.

The Company also entered into an agreement to issue options to purchase stock of
the Company with a Consultant who later became a related party (Director of the
Company). The Company expensed as stock based compensation-related party the
vested portion of options issued pursuant to this agreement on the vesting
anniversary date in July, 2006 in the amount of $115,460.

On May 3, 2006, the Company also adopted a stock option plan (the "Plan")
pursuant to which it granted options to four members of its management team,
three of whom are officers and directors, and one of whom is an officer of the
Company. During the quarter ended September 30, 2006 the Company recorded the
vested portion of these options as an expense entitled "Stock-based
compensation-related party" in the amount of $302,219. See Note 9 - Options and
Warrants, above.

NOTE 13 - SUBSEQUENT EVENTS

The Company has filed a shelf resale registration statement on Form SB-2
covering 2,640,000 shares of the Company common stock in connection with the
financing transaction described in Note 8 - Convertible Notes, above - which the
SEC declared effective on October 12, 2006.

On October 20, 2006, the Board of Directors re-priced the exercise price of the
following stock options granted under the Plan:

<TABLE>

DATE ISSUED:    OPTIONEE NAME         NUMBER OF OPTIONS   ORIGINAL EXERCISE PRICE  RE-PRICE
------------    -------------         -----------------   -----------------------  --------
<S>             <C>                       <C>                        <C>            <C>
May 3, 2006     Officer and Director      4,008,000                  $0.94          $0.28
May 3, 2006     Officer and Director      1,992,000                  $0.50          $0.20
May 3, 2006     Officer                   1,008,000                  $0.50          $0.20
May 3, 2006     Officer and Director      1,008,000                  $0.50          $0.20
May 3, 2006     Outside Consultant          201,600                  $0.50          $0.20
</TABLE>

In addition, the Company has commenced product development of a line of natural
energy drinks in connection with its plan to diversify its customers and product
lines.

                                      -17-


<PAGE>

                           FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, including, but not limited to, any
projections of earnings, revenue or other financial items; any statements of the
plans, strategies and objections of management for future operations; any
statements concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements or belief;
and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words "may," "could," "estimate,"
"intend," "continue," "believe," "optimistic," "plan," "aim," "will," "likely,"
"expect" or "anticipate" or other similar words. These forward-looking
statements present our estimates and assumptions only as of the date of this
report. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are
made. Except for our ongoing securities laws, we do not intend, and undertake no
obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and inherent risks and
uncertainties. The factors impacting these risks and uncertainties include, but
are not limited to:

     o    Increased competitive pressures from existing competitors and new
          entrants;
     o    Deterioration in general or regional economic conditions;
     o    Adverse state or federal legislation or regulation that increases the
          costs of compliance, or adverse findings by a regulator with respect
          to existing operations;
     o    Ability to grow business in its Aquair subsidiary and meet or exceed
          its return on shareholders' equity target, which will depend on the
          Company's ability to manage its capital needs and the effect of
          business and/or acquisitions;
     o    Ability to successfully replace revenues of its distributed subsidiary
          Amerikal;
          Any unforeseen liabilities in value beyond the escrowed reserve
          resulting from the Amerikal distribution;
     o    If acquisitions are made, the costs and successful integration of
          acquisitions;
     o    Barriers in trade with foreign countries or tariff regulations and
          other United States and foreign laws;
     o    Political and economic instability and changes in monetary policy of
          the foreign countries we currently do business in;
     o    Loss of customers or sales weakness;
     o    Inability to achieve future sales levels or other operating results;
     o    Ability to locate suitable new products for distribution within our
          business sector, and retain licensing rights to such new products on
          acceptable terms;
     o    The continuation of favorable trends, including the drop in affordable
          potable water globally;
     o    Outcomes and costs associated with litigation and potential compliance
          matters;
     o    Inadequacies in the Company's internal control over financial
          reporting, which could result in inaccurate or incomplete financial
          reporting;
     o    Dilution to Shareholders from convertible debt financings;
     o    Key management or other unanticipated personnel changes;
     o    The unavailability of funds for capital expenditures; and
     o    Operational inefficiencies in distribution or other systems.

                                      -18-


<PAGE>

The following discussion should be read in conjunction with the historical
financial statements of R.G. Global Lifestyles, Inc., including Form 10-KSB as
of March 31, 2006, and those of its predecessor, the L.L. Knickerbocker Company,
Inc., and notes thereto.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW AND OUTLOOK

R.G. Global Lifestyles, Inc. (the "Company") was originally incorporated 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 R.G. Global Lifestyles, Inc.

OPERATING SUBSIDIARY

AQUAIR, INC.

In October, 2004 the Company formed Aquair, Inc. as a wholly owned subsidiary, a
California corporation ("Aquair"). Aquair was formed to fulfill the Company's
initial mission to distribute licensed environmentally friendly water generating
equipment in the United States and Asia that creates purified drinking water
from air for residential and commercial uses. Since that time, the Company has
expanded its vision in the clean water technology sector to include other
related products.

Aquair plans to distribute or sublicense (i) "anti-scaling" water technology;
(ii) potable bottled water generated from commercial and industrial water
generation and filtration technologies; (iii) potable water via mobile air to
water units in geographic regions where no solution exists for purified drinking
water; (iv) energy drinks made with oxygenated water; (v) water desalinization
technology for use in conjunction with wet bed mining; and (vi) other
water-related technologies.


Atmospheric Pure Water Generators:
----------------------------------

Currently, Aquair distributes licensed environmentally-friendly water generating
equipment that creates purified drinking water from air for residential and
commercial uses, and converts brackish, polluted, or grey water to purified
water, and licensed "anti-microbial" water cleaning and filtration products.

Aquair has acquired the rights to market and distribute water generators that
precipitate drinking water from air. The various water generating machine has
been tested in various locations. As of September, 2006, the Company has sold
units to customers in the U.S. and Asia, and anticipates further sales.

Aquair has the right to distribute and sell Munters water generating equipment
products to the commercial residential building industry, government agencies,
shipping industry and oil and gas industry. Additionally, Aquair the right to
bottle water generated by Munters new patented technology. These rights are
effective worldwide, with the exclusion of Thailand, Indonesia, Singapore and
Malaysia.

Aquair has announced that it is the sole worldwide distributor and marketer to
the proprietary air to water filtration products using Peltier technology
manufactured by M&T Technologies LLC. The first product to be manufactured will
be a home/office model atmospheric water generator. Initially Aquair will market
and distribute the products as manufactured by M&T ; at a later date, Aquair
will be granted a license by M&T to manufacture, market and distribute the newly
developed products.

In addition to being supplied by atmospheric water generators by Munters, until
present, the Company had been supplied with its home/office atmospheric water
generators by Dong Yang. However, moving forward the Company intends to have
Hendrx Corp. replace Dong Yang and be the principal suppliers of the Company's


                                      -19-


<PAGE>

atmospheric water generation products for that niche, as well as any other
suppliers that the Company deems appropriate for this product sector and its
other planned technologies. Aquair's marketing strategy for its atmospheric pure
water generators will focus on customers in medical related businesses, home
shoppers via television and internet, pharmaceutical related businesses, large
businesses within office buildings, large construction companies, maritime
vessels and offshore rigs, and large restaurant and grocery store chains.
Additionally, the Company will pursue government agencies through its agent
Policy Impact. Aquair's marketing strategy for its anti-microbial water cleaning
agents will initially focus on residential and commercial pool owners and hotel
chains.

Anti-Microbial Products
-----------------------

The Company has acquired the rights to distribute certain licensed
anti-microbial products, currently sold under the brand name Hydrosil, from
Apcan Distribution LLC. Hydrosil is a substitute for chlorine and bromine.
Revenue generation in the swimming pool and spa industry is expected to grow
rapidly in the face of consumer dislike of traditional halogen chemicals and the
large increases in costs of these chemicals during the past 5 years. Other
applications for the products include, but are not limited to, cooling towers,
surface cleansers, medical equipment sanitation, bottling equipment disinfection
and other industrial applications wherein safe, effective alternatives to
chlorine and bromine are desirable. The Hydrosil broad-spectrum, anti-microbial
disinfectant solution is designed to kill up to a stage-5 airborne virus. In
Europe, Hydrosil is being used to dissolve bio-film in air conditioning units,
to disinfect hospital operating rooms, and as a treatment for municipal water in
the U.K. In the US, tests have been conducted on poultry and fish farms using
Hydrosil to kill the bacteria and viruses in the water, and to stop the spread
of bird flu virus. The Hydrosil product is already in use in over 350
residential pools as a chlorine substitute and is currently undergoing tests by
several major corporations.

The Company has engaged Intercontinental Management of Nevada ("IMN") as a
consultant to head up sales and marketing, and to provide product support,
training and maintenance services to the customers of Hydrosil.

Desalinization Technology for Wet Bed Methane Mining
----------------------------------------------------

On July 12, 2006 the Company executed a letter of intent with Catalyx, Inc. to
license their patented technology for use in removing excessive sodium from the
water associated with wet bed methane mining in the state of Wyoming. The
Company paid $200,000 for this right. The transaction contemplates that selected
oil companies located in Wyoming will test the feasibility of the technology for
the oil companies. Testing commenced during the fiscal quarter ended September
30, 2006 and is underway. If the testing is successfully completed, the Company
plans to enter into contracts with one or more of the oil companies to process
the water on a "charge by barrel" basis.

OC Energy Drinks
----------------

On October 7, 2006 the Company launched its line of "OC ENERGY" tm drinks
fashioned for the OC lifestyle. Aquair began development of the oxygenated water
and the energy drinks in early 2005. presently there are three Energy Drinks and
one Highly Oxygenated Water. The Energy Drinks consist of a 2-oz high-powered
"shot" energy drink ("Insane"tm), a 10-oz energy drink ("KIK-IT"tm) and a 10-oz
diet energy drink ("KIK-IT DIET"tm), in addition to a 17-oz ("O2"tm) bottle of
100% pure oxygenated structured water. Befitting the OC lifestyle, the energy
drinks are low in natural sugar and high in vitamins and minerals. The bottles
are custom-designed. Bulk deliveries of the bottled drinks will commence in
mid-December and sales are not anticipated until first quarter of 2007.

DISCONTINUED OPERATIONS

AMERIKAL NUTRACEUTICAL CORP.

On July 28, 2004 the Company entered into an agreement with Amerikal
International Holding, Inc. ("AIH") whereby the Company acquired all of the
issued and outstanding common stock of AIH in exchange for 1,900,000 voting


                                      -20-


<PAGE>

common shares of the Company's common stock. The acquisition closed and the
shares were exchanged on July 28, 2004. At the close of the transaction, the
former shareholders of AIH controlled a majority of the Company's common stock.
The common stock issued in the course of the reverse merger transaction was
recorded at the net book value of the Company's assets on the acquisition date.
As allowed under SFAS 141, "Business Combinations," we treated this acquisition
as a recapitalization for accounting purposes, in a manner similar to reverse
acquisition accounting.

As a result of the merger, the Company owned and operated Amerikal Nutraceutical
Corp., a California corporation, ("Amerikal") as a wholly-owned subsidiary.
Amerikal's business is to manufacture, sell and distribute dietary supplements,
health and beauty aid products. The primary geographic markets for the Company's
products are in South East Asia and Asia, including Singapore, Indonesia,
Malaysia, Thailand, Taiwan, Hong Kong and Japan.

On November 15, 2005 the Company executed an agreement with an effective date of
October 1, 2005, between the Company and a group of founding shareholders,
pursuant to which the Company distributed its wholly owned subsidiary Amerikal
to such shareholders in exchange for approximately 7,500,000 million shares of
common stock of the Company. The distribution reduced the outstanding shares of
the Company at that time from approximately 25 million to approximately 17
million, and allowed management to concentrate its efforts on implementing and
executing its Aquair business plan. As part of the distribution, the purchasing
shareholders set aside 315,561 shares of Company common stock into an escrow
account as a reserve against any unforeseen liabilities arising from the
distribution. The Company's legal and accounting advisors indicated that the
proposed transaction will qualify as a tax-free distribution of a controlled
corporation and exchange of equity under applicable provisions of the Internal
Revenue Code, and accordingly the Company does not anticipate recognition of
gain or loss as a result of the proposed agreement. As a result of the foregoing
distribution of Amerikal, the company recognized a loss from distribution of
discontinued operations in the quarter ended December 31, 2005 of ($837,768).
There were no sales from the Amerikal subsidiary included in the current fiscal
quarter endedSeptember 30, 2006.

ON LINE SURGERY, INC.

In addition to the foregoing, in January 2005 the Company issued 200,000 shares
of its restricted common stock to acquire rights to an Internet portal known as
On Line Surgery. Subsequently, in the quarter ended June 30, 2005, the Company
formed On Line Surgery, Inc. as a wholly owned subsidiary, a California
Corporation ("On Line Surgery"), to develop the advertising potential of this
web portal for the Company's existing and future nutraceutical products, as well
as to generate advertising revenue from physicians and other potential
customers.

During the quarter ending December 31, 2005, the Company sold its rights to the
url www.onlinesurgery.com, the sole asset related to its subsidiary On Line
Surgery, for $20,000. On Line Surgery Inc. never commenced operations, and is in
the process of being dissolved.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 (RESTATED)
AND 2005

As a result of the distribution of Amerikal and the sale of the rights to the On
Line Surgery website, described above, the following discussion compares results
of continuing operations of the Company only.

                                            Three Months Ended September 30
                                               2006
                                            As restated           2005
                                          ------------------------------------
Product Sales                             $             -  $            6,240

Cost of sales                             $        58,600  $            7,150

Gross Profit                              $      (58,600)  $            (910)

General and
administrative expenses                   $       170,170  $           16,370

Consulting services                       $     (317,901)  $           66,380
Stock based Compensation-related party            417,679                   0
Depreciation and
Amortization                              $         3,314  $                0

Total Expenses                            $       565,474  $          194,350
                                          ------------------------------------

Operating Loss                            $     (624,074)  $        (195,260)
                                          ====================================

                                      -21-


<PAGE>

REVENUES AND COST OF SALES

<TABLE>
                                                                                 INCREASE/(DECREASE)
                                                   2006           2005            $              %
-----------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>               <C>
For the three months ended September 30
Gross Profit                                   $    (58,600)  $       (910)  $   (57,690)      6339.5   %

During the three months ending September 30, 2006, the Company generated gross
(loss) of (58,600) on net product sales of $0 and cost of sales totaling
$58,600, compared to $(910) of gross (loss) on net product sales of $6,240 and
costs of sales of $7,150 in the three months ending September 30, 2005. This
resulted in a decrease in gross profits of $(57,690), or 6339.5%, from the same
period one year ago.
GENERAL AND ADMINISTRATIVE EXPENSES

                                                                                INCREASE/(DECREASE)
                                                    2006          2005            $             %
----------------------------------------------------------------------------------------------------------
For the three months ended September 30
General & Administrative Expenses                $   170,170  $      16,370  $    153,800         939.5%

General and administrative expenses were $170,170 for the three months ended
September 30, 2006 versus $16,370 for continuing operations for the three months
ended September 30, 2005, which resulted in an increase of $153,800 or 939.5%.
General and administrative expenses increased comparatively for the three months
ended September 30, 2006 to the comparative period in 2005 as a result of costs
associated with the diversification of the Company's product line.

TOTAL OPERATING EXPENSES

                                                                                INCREASE/(DECREASE)
                                                  2006           2005             $             %
----------------------------------------------------------------------------------------------------------
For the three months ended September 30
Total Operating Expenses                      $     565,474  $     194,350  $     371,124         190.5%

Our operating expenses for the three months ended September 30, 2006 were
$565,474 compared to $194,350 for the three months ended September 30, 2005. The
primary reason for the increase in operating expense is the stock based
compensation expense of $417,679 recorded by the Company in the current fiscal
quarter, as a result of the issuance of options under the 2006 Non-statutory
Stock option plan and a stock option agreement with a consultant who later
became a related party . For both periods, we incurred expenses for general
management and legal and accounting fees related to continuing operations. For
the three months ended September 30, 2006, the Company expended $51,915 in rent
paid to a related party, and paid $134,362 in legal and accounting fees,
compared to $18,000 and $77,519 respectively for these expenses in the three
months ended September 30, 2005. During the three months ended September 30,
2006, the company incurred total general and administrative expenses of
$170,170, compared to $16,370 of similar expenses in the same period last year.

                                      -22-


<PAGE>

OPERATING (LOSS)

                                                                            INCREASE/(DECREASE)
                                                  2006         2005            $            %
-----------------------------------------------------------------------------------------------------
For the three months ended September 30
Net income                                    $  (624,074) $  (195,260)) $   (428,814)       219.6%

</TABLE>

The net loss from operations for the three months ended September 30, 2006 was
($624,074), versus a net loss of ($195,260) for the three months ended September
30, 2005, an increase in net loss of ($428,814) or 219.6%. The increase in net
loss as compared to the same period in 2005 was due the recording of a
stock-based compensation expense of $417,679 in the current fiscal quarter, and
to costs associated with diversification of the Company's product lines,
expansion of facilities, increased professional fees, and higher general and
administrative expenses.

LIQUIDITY AND CAPITAL RESOURCES (RESTATED)

We had cash and cash equivalents of $320,294 as of September 30, 2006. We also
had $900 of accounts receivable, prepaid expenses of $165,978, and $162,016 of
cash deposits held by others. The Company also had net fixed assets of $5,369,
net intangible assets of $196,895, and debt issuance costs of $698,802 making
our total assets at September 30, 2006 equal to $1,550,254.

Our total current liabilities as of September 30, 2006 consisted of $70,704 of
accounts payable, $140,715 of accrued expenses, and $1,439,238 of Notes Payable.
The Notes payable portion of current liabilities consisted of notes payable to
related parties of $708,132 less discounts of $48,318, and notes payable to
others of $905,808 less discounts of $126,384. The total of current liabilities
at September 30, 2006 was $1,650,657. The company also had long term liabilities
consisting of notes payable to unrelated parties of $110,826 ($1,300,000 less
discounts of $1,189,174), liability attributed to the beneficial conversion
feature of the convertible notes in the amount of $4,218,846, and liability
associated with the issuance of detachable warrants in the amount of $3,756,361.
The total of long- term liabilities at September 30, 2006 was $8,086,032,. The
total liabilities as of September 30, 2006 were $9,736,690.

During the three months ending September 30, 2006, the Company had sales
revenues of $0, and $58,600 of direct costs of operations, resulting in gross
operating (loss) of $(58,600). The Company incurred other expenses of $565,474,
resulting in a net loss from operations of $(624,074).

The Company has financed its operations through new financing in the form of
sale of callable secured convertible notes payable to four accredited investors.
During the fiscal quarter, the Company received proceeds from this financing, as
described in detail in the notes to financial statements. At the end of the
fiscal quarter, the Company had cash and cash equivalents of $320,294. After
taking into account accrued interest expenses and financing costs and other
expenses attributable to the change in fair value of warrants and value of
derivative liability, in the total amount of $2,793,185, the financial net loss
for the three months ended September 30, 2006 was $(3,417,259).

PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.

Over the next twelve months, the Board of Directors has determined to focus the
Company on the development of business under its Aquair subsidiary. The Company
has distributed its Amerikal subsidiary to a group of founding shareholders, and
has sold the rights to the sole asset in its On Line Surgery subsidiary.

                                      -23-


<PAGE>

Currently, Aquair distributes licensed environmentally-friendly atmospheric
water generating equipment that creates purified drinking water from air for
residential and commercial uses, and converts brackish, polluted, or grey water
to purified water, and licensed "anti-microbial" water cleaning and filtration
products.

Aquair plans to distribute or sublicense (i) "anti-scaling" water technology;
(ii) potable bottled water generated from commercial and industrial water
generation and filtration technologies; (iii) potable water via mobile air to
water units in geographic regions where no solution exists for purified drinking
water; (iv) energy drinks made with oxygenated water; (v) water desalinization
technology for use in conjunction with wet bed mining; and (vi) other
water-related technologies.

The Company further plans to increase its sales, marketing, and investor
relations efforts for the Aquair brand and product line by adding personnel
and/or consultants. The fundamental thrust of our marketing strategy will
consist of reaching home shoppers, health related businesses, large business
accounts, the government, hotel industry, residential and commercial pool
owners, and maritime industry through direct response, direct sales, and
strategic partnerships with manufacturers, distributors and sales
agents/consultants. The Company also plans to utilize celebrity spokespersons to
help establish the Aquair brand and sell carbonated energy drink products made
from our technology's pure water.

As of September 30, 2006 we had cash and cash equivalents of $320,294, and
accounts receivable in the amount of $900. In light of the Company's
distribution of its Amerikal subsidiary and its corresponding revenue, in order
to fully execute its business plan for the next twelve months the Company may
need to raise additional funds for the marketing and distribution of its Aquair
products. The Company has not yet decided upon the specific method of raising
additional working capital that may be required to meet its objectives.
Additional working capital funds may be obtained through various means,
including the future sale of the Company's equity securities in private or
public offerings, debt financing, hybrid financing, trade financing, receivables
financing, factoring or any combination of credit, equity and/or debt which the
Company can obtain on terms deemed favorable to the Company by the Board of
Directors.

The Company has continued its research and testing related to Aquair products
and continues to evaluate new products for potential licensing, sale and
distribution. The Company may need to purchase additional plant and equipment
over the next twelve months, but such purchases and the amounts are contingent
upon its business success and overall market conditions. Similarly, the Company
may need to increase its workforce to respond to potentially growing business
needs, but the amounts and timing cannot be ascertained with certainty at this
time.

OFF-BALANCE SHEET ARRANGEMENTS.

None.

GOING CONCERN

The accompanying unaudited consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which contemplate that the Company will continue in business as a
going concern. During the three months ended September 30, 2006 the Company
showed a net loss from continuing operations in the amount of $(624,074). The
financial net loss after provision for income tax, interest and financing
expense is ($3,417,259) for the most recent fiscal quarter.

During the six months ended September 30, 2006 the Company incurred interest
and financing charges related to the issuance of convertible notes and
short-term notes to related parties and others, in the total amount of
$7,422,908. This total financing cost represents over 80% of the total net
(loss) reported by the Company for the six months ended September 30, 2006 on
the attached Consolidated Statements of Operations. The total financial net loss
of the Company for the most recent six months, taking into account the above
financing costs and taxes, was ($9,257,916).

                                      -24-


<PAGE>

The Company can no longer rely on revenues from its distributed subsidiary
Amerikal. Therefore, the Company will be developing revenues through its Aquair
subsidiary. Aquair has commenced sales and anticipate future sales and revenues
from its licensed atmospheric water generators and anti-microbial products. In
addition, the Company has commenced testing of its licensed water processing
technology for the wet bed mining industry, and anticipates sales in this area
on a "charge per barrel" basis. However, there is no certainty as to the
commencement of this revenue.

The consolidated financial statements do not include any adjustments that might
result from the outcome of any uncertainty as to the Company's ability to
continue as a going concern. The consolidated financial statements also do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts, or amounts and classifications of liabilities that might
be necessary should the Company be unable to continue as a going concern.

CRITICAL ACCOUNTING POLICY AND ESTIMATES

This Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these consolidated
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, management evaluates
its estimates and judgments, including those related to revenue recognition,
accrued expenses, financing operations, and contingencies. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. The most
significant accounting estimates inherent in the preparation of the Company's
consolidated financial statements include estimates as to the appropriate
carrying value of certain assets and liabilities which are not readily apparent
from other sources, primarily stock-based compensation. The methods, estimates
and judgments the Company uses in applying these most critical accounting
policies have a significant impact on the results it reports in its consolidated
financial statements.

EQUITY - BASED COMPENSATION

The Company records stock-based compensation to its officers, directors, and
outside consultants at the fair market value of the services in general and
administrative expense. In 2004, prior to being approved for quotation of its
stock on the OTCBB, the Company recorded the expenses of stock based
compensation issued to related parties (officers and directors), as well as
stock based compensation issued to consultants, at $0.05 per share based upon a
valuation study conducted at the request of the Board of Directors. Subsequent
to the listing of the Company's common stock on the OTCBB, it issued shares of
unregistered common stock to two attorneys in exchange for legal services. As of
the date of this share issuance in March 2005, the Company's common stock was
trading at approximately $1.51 per share, and it therefore recorded the stock
issuance as of that date as an expense at the fair market value of the stock
issued.

The Company granted stock options pursuant to a consulting agreement dated July
18, 2005 among the Company, Aquair, Inc. and General Steve Ritchie. In exchange
for sales and marketing services to be rendered for Aquair, Inc. and as partial
compensation for services, General Ritchie was granted an option to purchase
100,000 shares of the Company's common stock, vesting over a three-year period
with one third vesting at twelve months from date of execution of the Agreement,
one third at twenty-four months, and the final third at thirty six months. As of
the date of this agreement, the Company's common stock was trading at


                                      -25-


<PAGE>

approximately $3.00 per share. Based upon the Black Scholes method of
calculation, the Company determined that the fair value of the options granted
would be $346,379. In this quarter, the Company recorded as prepaid compensation
an expense of $23,982 attributable to the grant of these options. At the
anniversary vesting date under the agreement, the Company reduced prepaid
compensation and increased share-based compensation to related party in the
amount of $115,460, representing the vested portion of the options under this
Agreement.

On May 3, 2006 the Company's Board of Directors adopted a plan for issuance of
stock options to employees or others (2006 Incentive and Non-statutory Stock
Option Plan, referred to as the "Plan"). Under the Plan, the Company has
reserved ten million shares for issuance. During the three months ended
September 30, 2006, the Company granted the following stock options to four
members of the Company's management team and one consultant as compensation.

<TABLE>
                                             NUMBER OF     EXERCISE
     DATE ISSUED     OPTIONEE NAME            OPTIONS       PRICE      EXPIRATION DATE
<S>                  <C>                     <C>         <C>                   <C>
     May 3, 2006     Lou Knickerbocker       4,008,000   $    0.94         May 3, 2011
     May 3, 2006     Grant King              1,992,000   $    0.50         May 3, 2011
     May 3, 2006     Will Hitchcock          1,008,000   $    0.50         May 3, 2011
     May 3, 2006     Joseph Murray           1,008,000   $    0.50         May 3, 2011
     May 3, 2006     Scott Olson               201,600   $    0.50         May 3, 2011
-------------------------------------------------------   ---------------------------------
</TABLE>

The Plan provides for a vesting of the foregoing option grants over a five year
term, with 40% of the options vesting ratably over the first two years from the
date of issuance. The Company determined the fair market value of the options
granted under the Plan as of the grant date using the Black Scholes valuation
method. During the period ended September 30, 2006, based upon the portion of
options vested during this period, the Company recorded an expense of $302,219
as stock-based compensation to related parties, and $7,716 of share based
compensation to a consultant under the Plan. See the discussion in Note 9:
"Options and Warrants" in Notes to Financial Statements.

Although management believes its estimate regarding the fair value of the
services to be reasonable, there can be no assurance that all of the subjective
assumptions will remain constant, and therefore the valuation of the services
may not be a reliable measure of the fair value of stock compensation or stock
based payments for consulting services.

FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS

RISKS RELATING WITH OUR BUSINESS AND MARKETPLACE

THE COMPANY IS A RELATIVELY YOUNG COMPANY WITH A MINIMAL OPERATING HISTORY SINCE
BEING REORGANIZED IN 2003.

Since the Company's reorganization in 2003 we have generated revenue from
operations. However, our future operating results will depend on many factors,
including the ability to generate sustained and increased demand and acceptance
of our products, the level of our competition, and our ability to attract and
maintain key management and employees. While management believes its estimates
of projected occurrences and events are within the timetable of its business
plan, there can be no guarantees or assurances that the results anticipated will
occur.

THE COMPANY HAS REDIRECTED ITS BUSINESS PLAN AND IS FOCUSING ON ITS AQUAIR
SUBSIDIARY.

Since the Company has distributed its subsidiary Amerikal and sold the rights to
the sole asset within its subsidiary On Line Surgery, it has redirected its
focus on to its subsidiary Aquair. There can be no assurance that we will be
able to replace revenues generated from the Amerikal subsidiary. While
management believes the potential for revenue growth remains better in its
Aquair business plan, there can be no guarantees that the anticipated results
will occur.

                                      -26-


<PAGE>

IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING, OUR BUSINESS PLAN MAY BE SLOWED
AND IF WE DO OBTAIN ADDITIONAL FINANCING OUR THEN EXISTING SHAREHOLDERS MAY
SUFFER DILUTION.

We will require additional funds to expand our sales and marketing activities,
to support operations, implement our business strategy, and to replace future
revenues lost from the distribution of our Amerikal subsidiary. There can be no
assurance that financing will be available in amounts or on terms acceptable to
us, if at all. The inability to obtain additional capital will restrict our
ability to grow and may reduce our ability to conduct business operations. If we
are unable to obtain additional financing, we will likely be required to curtail
our business plan. Any additional equity financing may involve dilution to our
then existing shareholders.

IF WE ACQUIRE ADDITIONAL COMPANIES OR PRODUCTS IN THE FUTURE, THEY COULD PROVE
DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE OR
ADVERSELY AFFECT OUR OPERATING RESULTS.

We anticipate that we will make other investments in complementary companies or
products. We may not realize the anticipated benefits of any such acquisition or
investment. The success of our acquisition program will depend on our ability to
overcome substantial obstacles, such as the availability of acquisition
candidates, our ability to compete successfully with other acquirers seeking
similar acquisition candidates, the availability of funds to finance
acquisitions and the availability of management resources to oversee the
operation of acquired businesses. Furthermore, we may have to incur debt or
issue equity securities to pay for future acquisitions or investments, the
issuance of which could be dilutive to us or our existing shareholders. In
addition, our profitability may suffer because of acquisition-related costs or
future impairment costs for acquired goodwill and other intangible assets.

WE MAY BE UNABLE TO RETAIN THE SERVICES OF KEY PERSONNEL, AND WE MAY BE UNABLE
TO SUCCESSFULLY RECRUIT QUALIFIED PERSONNEL.

Our success depends to an extent upon the continued service of key personnel;
loss of the services of such personnel could have an adverse effect on our
growth, revenues, and prospective business. In addition, in order to
successfully implement and manage our business plan, we will be dependent upon,
among other things, successfully recruiting qualified managerial and sales
personnel having experience in business. Competition for qualified individuals
is intense. There can be no assurance that we will be able to find, attract and
retain existing employees or that we will be able to find, attract and retain
qualified personnel on acceptable terms.

IF WE CANNOT EFFECTIVELY MANAGE OUR GROWTH, WE MAY INCUR LOSSES.

Any dramatic growth in our business could place a substantial burden on our
production capacity and administrative resources. Businesses, which grow
rapidly, often have difficulty managing their growth. Our management may not be
able to manage our growth effectively or successfully. Rapid growth can often
put a strain on management, financial, and operational resources of a company.
In addition, we would likely need to enhance our operational systems and
personnel procedures. Our failure to meet these challenges could cause our
efforts to expand operations to prove unsuccessful and cause us to incur
operating losses.

RISKS FACTORS RELATING TO OUR COMMON STOCK

OUR COMMON STOCK IS SUBJECT TO SEC "PENNY STOCK" RULES.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the
Securities Exchange Act, it will be more difficult for investors to liquidate
their investment of our common stock. Until the trading price of the common
stock rises above $5.00 per share, if ever, trading in the common stock is
subject to the penny stock rules of the Securities Exchange Act specified in
rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting
transactions in any penny stock, to:

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<PAGE>

     o    Deliver to the customer, and obtain a written receipt for, a
          disclosure document;
     o    Disclose certain price information about the stock;
     o    Disclose the amount of compensation received by the broker-dealer or
          any associated person of the broker-dealer;
     o    Send monthly statements to customers with market and price information
          about the penny stock; and
     o    In some circumstances, approve the purchaser's account under certain
          standards and deliver  written statements to the customer with
          information specified in the rules.

Consequently, the penny stock rules may restrict the ability or willingness of
broker-dealers to sell the common stock and may affect the ability of holders to
sell their common stock in the secondary market and the price at which such
holders can sell any such securities. These additional procedures could also
limit our ability to raise additional capital in the future.

SINCE OUR SHARES ARE TRADING ON THE OTC BULLETIN BOARD, TRADING VOLUMES AND
PRICES MAY BE SPORADIC BECAUSE IT IS NOT AN EXCHANGE.

Our common shares are currently listed for public trading on the
Over-the-Counter Bulletin Board. The trading price of our common shares has been
subject to wide fluctuations. Trading prices of our common shares may fluctuate
in response to a number of factors, many of which will be beyond our control.
The stock market has generally experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of companies with limited business operations. There can be no assurance that
trading prices and price earnings ratios previously experienced by our common
shares will be matched or maintained. Broad market and industry factors may
adversely affect the market price of our common shares, regardless of our
operating performance.

In the past, following periods of volatility in the market price of a company's
securities, securities class-action litigation has often been instituted. Such
litigation, if instituted, could result in substantial costs for us and a
diversion of management's attention and resources.

WE ARE SUBJECT TO SEC REGULATIONS AND CHANGING LAWS, REGULATIONS AND STANDARDS
RELATING TO CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE, INCLUDING THE
SARBANES-OXLEY ACT OF 2002, NEW SEC REGULATIONS AND OTHER TRADING MARKET RULES,
ARE CREATING UNCERTAINTY FOR PUBLIC COMPANIES.

We are committed to maintaining high standards of corporate governance and
public disclosure. As a result, we intend to invest appropriate resources to
comply with evolving standards, and this investment may result in increased
general and administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance activities.

ITEM 3. CONTROLS AND PROCEDURES

As required by SEC rules, the Company regularly evaluates the effectiveness of
disclosure controls and procedures and report its conclusions about the
effectiveness of the disclosure controls quarterly on our Forms 10-QSB and
annually on our Forms 10-KSB.

In the course of the audit of our consolidated financial statements for the
fiscal year ended March 31, 2006, based upon the evaluation for the period ended
December 31, 2005, for the reasons described below, our chief executive officer
and chief financial officer concluded that our disclosure controls and
procedures were not effective, as of the end of the third fiscal quarter for the
period ended December 31, 2005, in ensuring that material information relating
to the Company required to be disclosed by the Company in reports that it files


                                      -28-


<PAGE>

or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and that
such information is accumulated and communicated to management, including the
chief executive officer and the chief financial officer, as appropriate, to
allow timely decisions regarding required disclosure. In the course of the audit
of our consolidated financial statements for the fiscal year ended March 31,
2006, we determined that there were errors in the accounting treatment and
reported amounts in our previously filed consolidated financial statements for
the quarter ended December 31, 2005. Thee errors related to two areas: (1) in
the presentation of the Company's financial statements we recorded a loss on
distribution of the Company's wholly owned subsidiary in the nine months
year-to-date period, but omitted to include the accounting effect of this event
in the three month period ended December 31, 2005. (2) Second, in the course of
the year-end audit of our consolidated financial statements, the Company
determined that the Black Scholes valuation calculation was incorrectly
calculated as to the valuation of certain warrants issued to related parties and
others, as a result of which the allocation of value as between the notes and
the warrants was incorrectly stated. The Company has not yet restated its
consolidated financial statements for the quarter ended December 31, 2005 but
intends to do so. The Company's audit committee has addressed the weaknesses in
its internal controls which allowed the foregoing errors to occur. Pursuant to
the recommendations of the audit committee, we have engaged qualified outside
consultants to review certain financial disclosures and calculations and have
strengthened the internal review process. Until the company has restated its
consolidated financial statements contained in the previously filed Quarterly
Report on Form 10-QSB for the period ended December 31, 2005, such statements
should no longer be relied upon.

Notwithstanding the material weaknesses described below, the Company's
management has concluded that the consolidated financial statements included in
this Report on Form 10-QSB for the period ended September 30, 2006 fairly state,
in all material respects, the Company's financial condition, results of
operations and cash flows for the periods presented in conformity with generally
accepted accounting principles. The reason for this conclusion is that the
Company ascertained the errors associated with the presentation of the financial
information in the course of the audit of its consolidated financial statements
for the fiscal year ended March 31, 2006, filed with the Form 10-KSB on June 30,
2006.

Based upon the definition of "material weakness" in the Public Company
Accounting Oversight Board's Auditing Standard No. 2, An Audit of Internal
Control Over Financial Reporting Performed in Conjunction With an Audit of
Financial Statements, restatement of financing statements in prior filings with
the SEC is a strong indicator of the existence of a "material weakness" in the
design or operation of internal control over financial reporting. The Company
has concluded that it did not maintain effective controls. The Company further
determined that because effective controls were not in place, the recognition of
certain items was inconsistent with its accounting policies and that a material
weakness existed in the Company's internal control over financial reporting, and
disclosed this to the Board of Directors and to the independent registered
public accountants. In addition, the Company has determined that a material
weakness existed in the Company's internal controls over financial reporting
related to the limited number of accounting personnel in the Company. The
Company disclosed this to its Board of Directors and to its independent
registered public accountants.

PLAN FOR REMEDIATION OF MATERIAL WEAKNESSES

As noted above, the Company intends to restate and amend its previously filed
Quarterly report for the affected period ending December 31, 2005. The Company
has completed its internal review of the proposed restatements, and the
amendment and restatement will take place as soon as practicable following the
appropriate accounting review of the proposed restatements.

Subsequent to the discovery and report of the foregoing material weaknesses, the
Company's Audit Committee has met, reviewed the internal controls over financial
reporting and the above material weaknesses, and has made certain
recommendations regarding the use of qualified independent accounting
consultants to assist in the review of financial statements and the calculation
and presentation of complex financial transactions, which the Company has
implemented effective as of the current fiscal quarter.

                                      -29-


<PAGE>

CHANGES IN INTERNAL CONTROLS

Changes in our internal controls are currently being designed and reviewed and
will be implemented on an ongoing basis.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

Our management, including our chief executive officer and chief financial
officer, does not expect that our disclosure controls and internal controls will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, and not absolute assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Due to the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control.

The design of any system of controls is also based in part upon certain
assumptions about the likelihood of future events occurring. There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, a control may become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Due to the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected. Management of the Company is committed to continually review and
redesign its internal controls to ensure compliance by the Company with all
applicable rules and standards regarding disclosures and financial reporting.

                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On August 30, 2005 the Company was served with a lawsuit filed as Case No.
05CC09548 in Orange County, California Superior Court. In the complaint,
Universal Communications Systems, Inc. and its subsidiary Atmospheric Water
Technologies, Inc. allege defamation, interference with prospective economic
advantage, and false advertising, and seek compensatory and punitive damages,
and costs against the Company. The Board of Directors believes these claims to
be without merit, and has engaged legal counsel to strongly defend these claims.
Through our legal counsel, the Company has caused the appropriate legal
pleadings to be filed to dismiss the Complaint in this case. Legal counsel has
filed a motion for summary judgment in this case, which is scheduled to be heard
by the Court in January, 2007. The Company believes that any liability it may
incur in connection with this case will not have a material adverse effect upon
its financial condition or its results of operations.

On July 7, 2006, the Company was served with a lawsuit for "injunctive,
declaratory relief and damages" filed by plaintiffs H2O Liquid Air, LLC and H2O
Liquid Air of Florida, LLC on June 10, 2006 in the United States District Court,
Southern District of Florida, Miami Division against the Company and eight other
defendants. The complaint alleges ten "counts", although only three counts are
directed at the Company: unfair competition under common law, statutory
infringement under section 32 of the Lanham Act, and interference with a
distribution agreement. The Board of Directors believes these claims to be
without merit, and will be defended by legal counsel engaged by co-defendant
Munters Corp. to strongly defend these claims. Through our legal counsel, the
Company will cause the appropriate legal pleadings to be filed to dismiss the
Company from the case. The Company believes that any liability it may incur in
connection with this case will not have a material adverse effect upon its
financial condition or its results of operations.

                                      -30-


<PAGE>

Other than the foregoing incident or occurrence, the Company is not aware of any
litigation, either pending or threatened, and has not been the defendant or
plaintiff in any litigation, since the discharge from bankruptcy attributable to
its predecessor L.L. Knickerbocker Company, Inc.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (RESTATED)

On June 6, 2006, to obtain funding for the purpose of payment of general
corporate and operating purposes, we entered into a definitive Securities
Purchase Agreement and ancillary agreements with four accredited investors for
the sale of $2,000,000 of 6.0% Callable Secured Convertible Notes due June 6,
2009 (the "Notes"). The Notes are convertible at the option of the holder at any
time prior to maturity into shares of our Common Stock at a conversion price of
the market price as defined in the agreements. Our obligations under the notes
are secured by certain of our assets.

The shares of common stock being sold will be issued to the investors upon
conversion of the principal amount plus interest accrued thereon of the Notes in
the collective principal amount of $2,000,000. As of June 30, 2006, we had
issued $700,000 of the total $2,000,000 Notes. On July 26, 2006 an additional
$600,000 of Notes was issued upon the filing of a registration statement for the
shares underlying the Notes, and the remaining $700,000 was issued subsequent to
the close of this fiscal quarter upon the effectiveness of this registration
statement.

The conversion rate of the Notes is based upon 50% of the Market Price of our
stock at the time of conversion. "Market Price" means the average of the lowest
three trading prices for the Common Stock during the twenty day period ending
one trading day prior to conversion as reported on the OTC Bulletin Board. As a
result of the beneficial conversion feature of the Notes, the Company has
determined the valuation of the value of the maximum shares issuable to satisfy
the issued convertible Notes based upon the Black Scholes method of valuation,
and allocated the valuation of the derivative between the Convertible Note
Payable and the Value of the derivative as a discount on the Note payable. The
Company recorded the value attributed to the accrued derivative on the issued
notes as a liability in the amount of $4,218,846. The discount on the
Convertible Note payable in the total amount of $1,189,174 is being amortized
over the term of the notes (three years). During the six months ended September
30, 2006, the Company expensed $110,826 as finance charges attributable to this
amortization, and reduced the discount on convertible Note Payable in a similar
amount.

In addition to the foregoing, the convertible note investors were issued
warrants to purchase 4,000,000 shares of our common stock concomitant with the
sale of the Notes. These warrants have an exercise price of $1.10 per share,
expire on June 6, 2016, and were not registered as a part of the SB-2
Registration Statement filed by the Company during this fiscal quarter. However,
since the warrants may be exercised at any time during their ten year term, the
Company has determined the valuation of these warrants under the Black Scholes
method of valuation and recorded a liability attributable to the warrants in the
amount of $3,756,361. The Company has recorded a finance charge in the current
fiscal quarter in the amount of $558,024 attributable to the issuance of these
warrants.

Pursuant to the engagement agreement for financial advisory services and as
compensation for the Note financing, the Company issued 640,000 warrants, each
to purchase on share of the Company's common stock to Ascendiant Securities,
LLC. Each warrant is exercisable to purchase one share of our common stock for
an exercise price of $0.80, through the date which is seven years from the date
of issuance. The warrants carry standard anti-dilution and protective
provisions. The Company determined the value of the warrants so issued based
upon the Black Scholes method of valuation and capitalized this amount as debt
issuance costs associated with the issuance of the Notes. These debt issuance
costs are being amortized over the three year term of the Notes.

The issuance of the foregoing warrants was accounted for in accordance with
Financial Accounting Standards Board Statements using the Black-Scholes option
pricing model, as further described in Notes to Financial Statements, Note 6
"Notes Payable" and Note 9 "Options and Warrants", attached. Although management
believes its estimate regarding the fair value of the warrants so determined to
be reasonable, there can be no assurance that all of the subjective assumptions
will remain constant, and therefore the valuation of the warrants may not be a
reliable measure of the fair value of the prepaid compensation, accrued
liabilities, and finance charges recorded by the Company.

                                      -31-


<PAGE>

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS.

     3.1  Articles of Incorporation of International Beauty Supply Ltd. ("IBS")
          filed July 12, 1985. (1)

     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. (3)

     3.6  Certificate of Amendment of the Articles of Incorporation of LLK,
          filed June 19, 1996. (3)

     3.7  Certificate of Amendment to the Articles of Incorporation of LLK filed
          April 22, 1999. (2)

     3.8  Certificate of Amendment to the Articles of Incorporation of the L.L.
          Knickerbocker Company Inc. filed January 9, 2003. (3)

     3.9  Bylaws of the L.L. Knickerbocker Company Inc. (4)

     10.1 Consulting Agreement between Aquair, Inc. and Brig. General Steve
          Ritchie dated July 18, 2005, filed November 14, 2005. (5)

     10.2 Master Separation and Distribution Agreement dated November 15, 2005,
          filed November 16, 2005 (6)

     10.3 Distribution Agreement entered into between Aquair, Inc. and Locke
          Media dated August 30, 2005 filed November 14, 2005. (5)

     10.4 Agreement entered into between Aquair and Entech Sales dated November
          2005, filed February 15, 2006. (7)

     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, filed herewith.

                                      -32-


<PAGE>

     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, filed herewith.

     32   Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant
          to Section 906 of the Sarbanes Oxley Act of 2002, filed herewith.

__________________________________________

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

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

(3)  Incorporated by reference to the Company's Form 10-KSB, as filed on June
     29, (2005.)

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

(5)  Incorporated by reference to the Company's Form 10-QSB, as filed on
     November 14, (2005.)

(6)  Incorporated by reference to the Company's Form 8-K, as filed on November
     16, (2005.)

(7)  Incorporated by reference to the Company's Form 10-QSB, as filed on
     February 15, (2006.)

__________________________________________

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

R G Global Lifestyles, Inc.


Signature                            Title                         Date
---------                            -----                         ----

/s/ Grant King
------------------------------
Grant King                           Chief Executive Officer       July 12, 2007

/s/ William C. Hitchcock
------------------------------
William C. Hitchcock                 Chief Financial Officer       July 12, 2007




                                      -33-