UNITED
      STATES


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 December 31, 2007.





o 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)





1200
                N. Van Buren St., Suite A, Anaheim, CA
            
            92807(Address
                of principal executive offices)
            
            (Zip
                Code)





Issuer’s
      telephone number: (714) 630-1805





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 o





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x





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 o





APPLICABLE
      ONLY TO CORPORATE ISSUERS





The
      number of shares outstanding of the issuer’s Common Stock as of December 31,
      2007 was 29,180,644


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




**EXPLANATORY
          NOTE**
  This
          Form
          10-QSB/A No. 1 amends our Form 10-QSB for the period ended December 31,
          2007,
          which was filed with the Securities and Exchange Commission on February
          19, 2008
          (the “Original Filing”). We are filing this Form 10-QSB/A No. 1 to correct a
          footing error on the consolidated statement of cash flows.
  In
          addition, in connection with the filing of this Form 10-QSB/A No. 1 and
          pursuant
          to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934,
          we
          are including with this Form 10-QSB/A No. 1 certain currently dated
          certifications.


**INDEX**





**Page****PART
                I - FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements (Unaudited)
            3Consolidated
                Balance Sheet - December 31, 2007
            3Consolidated
                Statements of Operations -For
                the Three and Nine Months ended December 31, 2007 and 2006
            4Consolidated
                Statements of Cash FlowsFor
                the Nine Months ended December 31, 2007 and 2006
            5Notes
                to Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition andResults
                of Operations
            17Item
                3.
            Controls
                and Procedures
            26**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            27Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            27Item
                3.
            Defaults
                Upon Senior Securities
            27Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            27Item
                5.
            Other
                Information
            27Item
                6.
            Exhibits
            2727SIGNATURES
            28




2


**PART
      I — FINANCIAL INFORMATION**





**Item
      1. Financial Statements**


**RG
        Global Lifestyles, Inc.**
 **Consolidated
        Balance Sheet** **December
          31, 2007**
 **(unaudited)**
  **Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              31,689Resticted
                  cash
              
              
              2,950,000Accounts
                  receivable
              
              
              774,142Inventory
                  - finished goods
              
              
              83,373Federal
                  income tax refund receivable
              
              
              155,000Total
                  current assets
              
              
              3,994,204Construction
                  in progress
              
              
              2,910,335Property
                  and equipment, net
              
              
              101,070Intangible
                  assets, net
              
              
              4,506,575Other
                  assets
              
              
              253,426**Total
                  Assets**
              
              $
              11,765,610**Liabilities
                  and Stockholders' Deficit**Current
                  liabilities:Accounts
                  payable
              
              $
              1,507,350Accrued
                  liabilities
              
              
              1,107,616Deferred
                  revenues
              
              
              558,387State
                  income taxes payable
              
              
              96,681Secured
                  convertible notes payable
              
              
              1,870,433Warrant
                  liability
              
              
              2,038,144Conversion
                  feature liability
              
              
              5,090,832Notes
                  payable (net of discount of $11,507)
              
              
              588,493Total
                  current liabilities
              
              
              12,857,936Preferred
                  stock, $0.001 par value, 10,000,000 shares authorized, none issued
                  and
                  outstanding
              
              
              -Common
                  stock, $0.001 par value, 100,000,000 shares authorized, 29,180,644
                  issued
                  and outstanding
              
              
              29,180Common
                  stock to be issued
              
              
              2,034,404Additional
                  paid-in capital
              
              
              21,097,639Accumulated
                  deficit
              
              
              (24,253,549
              )**Total
                  Liabilities and Stockholders' Deficit**
              
              $
              11,765,610
  The
          accompanying notes are an integral part of these financial
          statements.
 3
  **RG
          Global Lifestyles, Inc.** **Consolidated
            Statements of Operations** **(unaudited)**
  For
                    the Three Months Ended
                
                For
                    the Nine Months EndedDecember
                    31
                
                December
                    312007
                
                2006
                
                2007
                
                2006As
                    restated
                
                
                
                As
                    restatedRevenue:Product
                    sales
                
                $
                85,230
                
                $
                4,243
                
                $
                231,873
                
                $
                4,668Water
                    treatment related
                
                
                59,368
                
                
                -
                
                
                737,576
                
                
                -Total
                    revenues
                
                
                144,598
                
                
                4,243
                
                
                969,449
                
                
                4,668Cost
                    of revenues:Product
                    related revenues
                
                
                53,890
                
                
                1,445
                
                
                174,744
                
                
                65,973Water
                    treatment related revenues
                
                
                305,804
                
                
                -
                
                
                937,205
                
                
                -Total
                    cost of revenue
                
                
                359,694
                
                
                1,445
                
                
                1,111,949
                
                
                65,973Gross
                    profit (loss)
                
                
                (215,096
                )
                
                2,798
                
                
                (142,500
                )
                
                (61,305
                )Expenses:General
                    and administrative, includingstock-based
                    compensation of $581,393 and $2,080,277 (2007) and $1,891,231
                    and
                    $3,445,559 (2006) respectively
                
                
                1,334,584
                
                
                2,408,745
                
                
                3,922,892
                
                
                4,153,791Selling
                    and marketing
                
                
                88,504
                
                
                19,536
                
                
                180,243
                
                
                44,594Total
                    expenses
                
                
                1,423,088
                
                
                2,428,281
                
                
                4,103,135
                
                
                4,198,385Operating
                    loss
                
                
                (1,638,184
                )
                
                (2,425,483
                )
                
                (4,245,635
                )
                
                (4,259,690
                )Other
                    income (expense):Interest
                    income
                
                
                73,885
                
                
                7,985
                
                
                77,494
                
                
                -Interest
                    income (expense) - related party
                
                
                -
                
                
                247,531
                
                
                (25,643
                )
                
                (14,279
                )Interest
                    expense
                
                
                (183,079
                )
                
                -
                
                
                (2,220,582
                )
                
                (355,394
                )Change
                    in fair value of derivative liabilities
                
                
                244,556
                
                
                (8,929,099
                )
                
                4,775,062
                
                
                (11,097,378
                )Proceeds
                    from Key Man life insurance policy
                
                
                3,000,000
                
                
                -
                
                
                3,000,000
                
                
                -Interest
                    and financing related to convertible notes
                
                
                -
                
                
                (4,003,074
                )
                
                -
                
                
                (8,632,514
                )Other
                    income (expense)
                
                
                9,769
                
                
                -
                
                
                5,678
                
                
                -Total
                    other income (expense)
                
                
                3,145,130
                
                
                (12,676,657
                )
                
                5,612,008
                
                
                (20,099,565
                )Net
                    income (loss) before provision for income taxes
                
                
                1,506,946
                
                
                (15,102,140
                )
                
                1,366,373
                
                
                (24,359,255
                )Provision
                    for income taxes
                
                
                -
                
                
                -
                
                
                -
                
                
                (800
                )Net
                    income (loss) before minority interest
                
                
                1,506,946
                
                
                (15,102,140
                )
                
                1,366,373
                
                
                (24,360,055
                )Minority
                    interest
                
                
                25,318
                
                
                -
                
                
                43,903
                
                
                -Net
                    income (loss)
                
                $
                1,532,264
                
                $
                (15,102,140
                )
                $
                1,410,276
                
                $
                (24,360,055
                )Weighted
                    average number of common shares:Basic
                
                
                28,846,155
                
                
                24,182,150
                
                
                27,803,297
                
                
                24,182,150Diluted
                
                
                50,079,463
                
                
                24,182,150
                
                
                46,121,827
                
                
                24,182,150Net
                    income (loss) per share:Basic
                
                $
                0.05
                
                $
                (0.62
                )
                $
                0.05
                
                $
                (1.01
                )Diluted
                
                $
                0.03
                
                $
                (0.62
                )
                $
                0.03
                
                $
                (1.01
                )
  The
          accompanying notes are an integral part of these financial
          statements.
  4
  **RG
          Global Lifestyles, Inc.** **Consolidated
            Statements of Cash Flows** **(unaudited)**
  For
                    the Nine Months EndedDecember
                    312007
                
                2006**Cash
                    flows from operating activities:**
                
                
                
                As
                    restatedNet
                    Income (loss)
                
                $
                1,410,276
                
                $
                (24,360,055
                )Adjustments
                    to reconcile net loss tonet
                    cash used in operating activities:Amortization
                    of debt discounts related to beneficialconversion
                    features and warrants
                
                
                448,630
                
                
                443,949Proceeds
                    from ex-officer's life insurance policy
                
                
                (3,000,000
                )
                
                -Interest
                    and financing charges-related party
                
                
                -
                
                
                14,279Non
                    cash expenses associated with convertible debt
                
                
                -
                
                
                10,428,069Change
                    in fair value of derivative liabilities
                
                
                (4,775,062
                )
                
                10,593,125Change
                    in fair value of warrants
                
                
                
                
                
                504,253Fair
                    value of common stock in excess of notes payable forgiven
                
                
                1,656,152
                
                
                -Depreciation
                    and amortization
                
                
                262,884
                
                
                -Stock-based
                    compensation
                
                
                2,080,277
                
                
                3,447,599Minority
                    interest in subsidiary
                
                
                (43,903
                )
                
                -Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                (774,079
                )
                
                837Subscriptions
                    receivable
                
                
                -
                
                
                (250,000
                )Inventory
                
                
                170,483
                
                
                -Short
                    term notes payable
                
                
                -
                
                
                (1,063,940
                )Prepaid
                    expenses
                
                
                25,976
                
                
                8,550Accounts
                    payable
                
                
                192,462
                
                
                (836
                )Accrued
                    liabilities
                
                
                1,001,181
                
                
                -Deferred
                    revenues
                
                
                442,424
                
                
                -Income
                    taxes payable
                
                
                1,681
                
                
                -Net
                    cash used in operating activities
                
                
                (900,618
                )
                
                (234,170
                )**Cash
                    flows from investing activities:**Purchase
                    of fixed assets
                
                
                (35,359
                )
                
                (11,310
                )Construction
                    in progress
                
                
                (1,677,105
                )
                
                -Other
                    assets
                
                
                (17,411
                )
                
                -Purchase
                    of intangible assets
                
                
                -
                
                
                (200,000
                )Net
                    cash used in investing activities
                
                
                (1,729,875
                )
                
                (211,310
                )**Cash
                    flows from financing activities:**Proceeds
                    from notes payable
                
                
                -
                
                
                700,000Payment
                    of debt issuance costs
                
                
                -
                
                
                (226,280
                )Cash
                    received for stock to be issued
                
                
                2,034,404
                
                
                -Proceeds
                    from key man life insurance policy
                
                
                3,000,000
                
                
                -Payment
                    on notes payable
                
                
                -
                
                
                (223,284
                )Proceeds
                    from exercise of stock options
                
                
                75,500
                
                
                -Net
                    cash provided by financing activities
                
                
                5,109,904
                
                
                250,436Net
                    increase (decrease) in cash
                
                
                2,479,411
                
                
                (195,044
                )Cash
                    - beginning of period
                
                
                502,278
                
                
                346,661Cash
                    - ending of period
                
                $
                2,981,689
                
                $
                151,617SUPPLEMENTAL
                    DISCLOSURES OF CASH FLOW INFORMATIONCash
                    paid during the period for:Interest
                
                $
                -
                
                $
                -Income
                    taxes
                
                $
                -
                
                $
                800Non-cash
                    investing and financing activities:Issuance
                    of common stock in settlement of notes payableand
                    accrued interest
                
                $
                331,095
                
                $
                -Issuance
                    of common stock for tangible and intangible assets
                
                $
                474,828
                
                $
                -Issuance
                    of OC Energy, Inc.'s interests for tangible and intangible
                    assets
                
                $
                43,903
                
                $
                -Construction
                    in progress recorded in accounts payable
                
                $
                1,233,230
                
                $
                -
  The
          accompanying notes are an integral part of these financial
          statements.
 5




**RG
        Global Lifestyles, Inc.**
 Notes
        to
        consolidated financial statements
 (unaudited)
  **Note
        1 - Basis of Presentation and Significant Accounting
        Policies**
 
 The
        consolidated 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 consolidated financial
        statements and notes thereto of the Company for the year ended March 31,
        2007
        included in the Company’s Annual Report on Form 10-KSB. The Company follows the
        same accounting policies in the preparation of interim reports.
 
 Restatements
        For The Three and Nine Months Ended December 31, 2006
 
 Previously,
        the Company restated its consolidated financial statements for the three
        and
        nine month periods ended December 31, 2006. For additional information, see
        the
        amended 10-QSB filed on July 12, 2007 with the SEC.
 
 Revenue
        Recognition
 
 Product
        sales - For revenue from product sales, the Company recognizes revenue in
        accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition”
(“SAB104”), which superseded Staff Accounting Bulletin No. 101, “Revenue
        Recognition in Financial Statements” (“SAB101”). SAB 101 requires that four
        basic criteria must be met before revenue can be recognized: (1) persuasive
        evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
        price is fixed and determinable; and (4) collectibility is reasonably assured.
        Determination of criteria (3) and (4) are based on management's judgments
        regarding the fixed nature of the selling prices of the products delivered
        and
        the collectibility of those amounts. Provisions for discounts and rebates
        to
        customers, estimated returns and allowances, and other adjustments are provided
        for in the same period the related sales are recorded.
 
 Construction
        contracts - In accordance with Statement of Position 81-1 “Accounting for
        Performance of Construction-Type and Certain Production-Type Contracts”, the
        Company uses the percentage completion method for the recognition of revenue
        received in connection with it's engineering, equipment sale and installation
        contracts. In making the estimate of the percentage of revenue to recognize,
        the
        Company compares costs to the total projected cost of the contract. Accordingly,
        the Company recognizes that portion of the revenue and record the balance
        of the
        cash received as deferred revenues, which is included within accrued liabilities
        on the accompanying balance sheet.
  6
 **RG
          Global Lifestyles, Inc.**
 Notes
          to
          consolidated financial statements
 (unaudited)
 Net
        Income (Loss) Per Share
 
 The
        following is a summary of outstanding securities which have been included
        in the
        calculation of diluted net loss per share for the three months and nine months
        ended December 31, 2007:
 
 Three
                  Months Ended December 31, 2007
              
              Nine
                  Months Ended December 31, 2007Basic
              
              
              28,846,155
              
              
              27,803,297Common
                  stock options
              
              
              3,995,543
              
              
              2,769,840Common
                  stock warrants
              
              
              6,838,312
              
              
              5,149,237Secured
                  convertible notes
              
              
              10,399,453
              
              
              10,399,45321,233,308
              
              
              18,318,530Totals
              
              
              50,079,463
              
              
              46,121,827
 
 The
        following is a summary of outstanding securities which have been excluded
        from
        the calculation of diluted net loss per share because the effect would have
        been
        anti-dilutive for the three and nine months ended December 31, 2007 and the
        three and nine months ended December 31, 2006:
 
 Three
                  Months Ended December 31, 2007
              
              Nine
                  Months Ended December 31, 2007
              
              Three
                  and Nine Months Ended December 31, 2006Common
                  stock options
              
              
              450,500
              
              
              200,000
              
              
              8,317,600Common
                  stock warrants
              
              
              4,890,000
              
              
              4,025,000
              
              
              6,503,940Secured
                  convertible notes
              
              
              -
              
              
              -
              
              
              2,736,842Totals
              
              
              5,340,500
              
              
              4,225,000
              
              
              17,558,382
 
 **Note
        2 - Going Concern**
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern. As shown in the accompanying
        consolidated financial statements, the Company has incurred an operating
        loss
        (loss before income taxes and other expenses) of $4,245,635 for the nine
        months
        ended December 31, 2007, and current liabilities in excess of current assets
        of
        $8,863,732 at December 31, 2007. These conditions raise substantial doubt
        about
        the Company's ability to continue as a going concern.
  7
 **RG
          Global Lifestyles, Inc.**
 Notes
          to
          consolidated financial statements
 (unaudited)
 The
        future of the Company is dependent partly upon its ability to perform on
        contracts for wastewater treatment systems not yet completed, and upon its
        ability to realize profit on sales of its energy drinks, as well as upon
        its
        ability to obtain equity and/or debt financing. There can be no assurance
        that
        the Company will be able 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 substantial doubt
        as
        to whether the Company will continue as a going concern.
 
 The
        consolidated 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
        3 - Formation of Subsidiary and Asset Purchase**
 
 On
        June
        16, 2007, the Company changed the name of its wholly-owned subsidiary On
        Line
        Surgery, Inc. to OC Energy Drink, Inc. On September 1, 2007, the Company
        entered
        into a definitive agreement (the “OCE Agreement”) with three individuals to
        acquire certain tangible and intangible assets related to the energy drink
        segment. Pursuant to the OCE Agreement, the Company issued 654,935 shares
        of its
        common stock valued at $474,828 (using the average value of three days prior
        and
        subsequent to date of issuance of approximately $0.73 per share), assumed
        liabilities of $80,000, and issued 24% of the issued and outstanding shares
        of
        the OC Energy Drink, Inc. subsidiary. The Company valued the 24% interest
        in OC
        Energy Drink, Inc. at $43,903. The valuation was determined through using
        the
        future discounted cash flow method using projected results of operations
        of the
        new subsidiary for a five (5) year period, reduced to present value as of
        the
        date of the transaction, at a discount of 5.25%. In accordance with the
        requirements of SFAS 94 “Consolidation of All Majority-Owned Subsidiaries an
        amendment of ARB No. 51, with related amendments of APB Opinion No. 18 and
        ARB
        No. 43, chapter 12”, the Company recorded the value of the minority interest of
        the subsidiary on the date of issuance as $43,903 as a long-term liability.
        The
        purchase price of the assets was allocated as follows: $53,912 to the tangible
        assets consisting of bottling equipment, $80,000 to accrued liabilities and
        $464,819 to the intangible assets. Intangible assets consisted of tooling
        design
        and engineering drawings for bottling equipment, bottle designs, labels,
        logos,
        and artwork. The tangible assets are being depreciated over their estimated
        useful life of five years. The estimated useful life of the intangibles is
        subject to adjustment as further research will be required to more accurately
        establish the estimated life of these intangibles; preliminary research
        indicates that the range of estimated useful life for these certain intangibles
        will likely be between three and seven years.
 
 At
        December 31, 2007 the Company recorded as other income-Minority Interest
        on the
        consolidated statements of operations, the change in value of the subsidiary
        based upon 24% of the subsidiary’s net loss from operations in the period then
        ended, and correspondingly reduced the long term liability. The long term
        liability was reduced to zero as a result of year-to-date losses incurred
        by OC
        Energy Drink, Inc.
 
 8
 **RG
          Global Lifestyles, Inc.**
 Notes
          to
          consolidated financial statements
 (unaudited)
 **Note
        4 - Notes Payable**
 
 As
        of
        December 31, 2007, the Company had the following notes payable and accrued
        interest:
 
 Notes
                Payable
              
              Accrued
                  Interest2007
                  Notes Payable, interest at 8% per annum, due on December 26, 2007
                  and
                  January 12, 2008,face
                  value of $600,000
              
              
              588,493
              
              
              57,096Secured
                  Convertible Notes, interest at 6%, per annum, face value of $2,000,000
              
              
              1,870,433
              
              
              105,461Totals
              
              $
              2,458,926
              
              $
              162,557
 
 *2007
        Notes Payable*
  During
        the three and nine months ended December 31, 2007, the Company amortized
        $147,808 and $448,630, respectively, of the discount resulting from the warrants
        and beneficial conversion feature to interest expense. At December 31, 2007,
        the
        remaining discount relating to these notes was $11,507.
 
 Two
        of
        these notes, with a principal balance totaling $250,000, matured on December
        26,
        2007. Subsequent to that date, the two note holders decided to convert the
        principal amounts due, plus accrued interest totaling $22,740, into 717,736
        shares of the Company’s $0.001 par value common stock, at a purchase price per
        share of $0.38, all in accordance with the terms of the associated
        notes.
 
 The
        third
        note, with a principal balance of $350,000 matured on January 12, 2008. The
        holder of this note has decided not to convert the principal plus accrued
        interest into the Company’s common stock, as allowed under the terms of the
        note, but has asked that the principal plus accrued interest be paid no later
        than March 11, 2008. The note holder has also asked that a “penalty interest”
rate of 11% be applied to all amounts not paid as of the original maturity
        date
        until these amounts are paid in full, in accordance with the terms of the
        note.
 
 Additionally,
        the note holder has asked for a warrant to purchase 50,000 shares of the
        Company’s $0.001 par value common stock at $0.20 per share. The Company is
        currently negotiating the final terms of the extension.
 
 *$2,000,000
        Secured Convertible Notes*
  On
        June
        6, 2006, the Company issued $2,000,000 of 6% callable secured convertible
        notes
        due June 6, 2009 (the “Secured Notes”) and stock purchase warrants to purchase
        4,000,000 shares of the Company’s common stock, vesting immediately and
        exercisable before June 6, 2013, with an exercise price of $1.10 subject
        to
        adjustment upon certain events. The Secured Notes are convertible at the
        option
        of the holder at any time prior to maturity into shares of the Company’s common
        stock at a conversion price based upon the average of the three lowest trading
        prices of the Company’s common stock for the previous 20 trading days, and are
        secured by a security interest in substantially all of the assets of the
        Company.
  9
 **RG
          Global Lifestyles, Inc.**
 Notes
          to
          consolidated financial statements
 (unaudited)
 The
        Company accounts for the embedded conversion feature and the warrants as
        derivatives under SFAS No. 133 "Accounting for Derivative Instruments." Thus
        the
        conversion feature and warrants are being carried at their respective fair
        values with changes in their values recorded in the statements of
        operations.
 
 As
        of
        December 31, 2007, the fair value of the conversion-feature liability related
        to
        Secured Notes was $5,090,832. The Company valued the beneficial conversion
        feature at December 31, 2007, using the Black Scholes method of valuation
        with
        the following variables; a risk free interest rate of 3.20%, an exercise
        price
        of $0.19, a volatility of 297%, a remaining life of 1.50 years and no dividends.
        For the three and nine months ended December 31, 2007, the change in fair
        value
        of the derivative liability was $84,572 and $217,106, respectively.
 
 At
        December 31, 2007, the Company valued the warrants at $2,038,544 based upon
        the
        Black Scholes method of valuation using the following variables; risk free
        interest rate of 3.52%, an exercise price of $1.10, a volatility of 297%,
        an
        estimated remaining life of 5.45 years and no dividends. For the three and
        nine
        months ended December 31, 2007, the change in fair value of the warrants
        was
        $159,984 and $4,557,956, respectively.
 
 In
        January 2007, a dispute arose between the Company and the holders of the
        Secured
        Notes which resulted in litigation between the parties. On January 24, 2008,
        the
        parties dismissed the litigation and Company entered into a settlement agreement
        with the holder of the Secured Notes resulting in the cancellation of the
        Secured Notes. (See Notes 7 and 10 for additional information.)
 
 **Note
        5 - Stockholders’ Equity**
 
 During
        the three months ended December 31, 2007, the Company sold 6,781,346 shares
        of
        its $0.001 par value common stock to nine accredited investors at a price
        of
        $0.30 per share for total cash proceeds of $2,034,404. As of December 31,
        2007,
        the Company has not issued the common shares and thus the proceeds received
        are
        recorded as “common stock to be issued” on the accompanying balance sheet. In
        addition, for each dollar invested the investor received a warrant to purchase
        one share of the Company’s common stock at an exercise price of $0.40 per share.
        The warrants vest immediately and expire in five years. The warrants were
        valued
        at $996,105 based upon the Black Scholes valuation model using the following
        weighted average estimates: 3.45 % risk free rate, 297% volatility, an expected
        life of five years and no dividends. The shares were issued exempt from
        registration pursuant to Section 4(2) of the Securities Act.
 
 See
        Notes
        3, 4, 6 and 10 for a discussion of additional shares of common stock issued
        during the three and nine months ended December 31, 2007 and subsequent period.
  10
 **RG
          Global Lifestyles, Inc.**
 Notes
          to
          consolidated financial statements
 (unaudited)
 During
        the nine months ended December 31, 2006, the Company issued 250,000 shares
        of
        its $0.001 par value common stock to holders of its Secured Convertible Notes
        pursuant to the terms of the agreements with such note holders that allow
        for
        the conversion of the notes to common stock of the Company. Additionally,
        on
        December 26, 2006, the Company incurred an obligation to issue 6,282,150
        shares
        of its $0.001 par value common stock to holders of certain short-term notes
        payable, in payment of $1,256,430 of principal and interest due under the
        terms
        of these notes.
 
 **Note
        6 - Options and Warrants**
 
 **Options**
 
 On
        May 3,
        2006, the Company’s Board of Directors adopted the 2006 Incentive and
        Non-statutory Stock Option Plan (“2006 Plan”) for issuance of stock options to
        employees and others. Under the 2006 Plan, the Company reserved 10,000,000
        shares for issuance. As of December 31, 2007, there were 42,400 options
        available for issuance under the 2006 Plan.
 
 On
        December 26, 2006, the Board of Directors authorized the issuance of up to
        6,000,000 options under its 2007 Incentive and Non-statutory Stock Option
        Plan
        (“2007 Plan”). The 2007 Plan was approved by a vote of the shareholders of the
        Company at the annual meeting of shareholders on October 12, 2007. As of
        December 31, 2007, there were 745,200 options available for issuance under
        the
        2007 Plan.
 
 Compensation
        expense recorded during the three and nine months ended December 31, 2007
        was
        $521,305 and $1,952,372, respectively. At December 31, 2007, the options
        were
        valued based upon the Black Scholes valuation model using the following
        estimates: 5.25% risk free rate, 297% volatility, an expected life of
        approximately five years and no dividends.
 
 The
        following is a summary of activity of outstanding stock option activity for
        the
        nine months ended December 31, 2007:
  Number
                  of
                    SharesBalance,
                  March 31, 2007
              
              
              13,851,230Options
                  granted
              
              
              -Options
                  exercised
              
              
              (632,578
              )Options
                  cancelled or forfeited
              
              
              (5,120,500
              )Balance,
                  December 31, 2007
              
              
              8,098,152
 
 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.
  11
 **RG
          Global Lifestyles, Inc.**
 Notes
          to
          consolidated financial statements
 (unaudited)
 **Warrants**
 
 On
        October 11, 2006, the Company issued a warrant to purchase 300,000 of the
        Company’s $0.001 par value common stock at an exercise price of $0.47 to a
        consultant for services. One third of the warrant shares were vested upon
        issuance, the remaining 200,000 warrant shares vest at annual intervals over
        the
        period of two years. During the nine months ended December 31, 2007, the
        Company
        recorded compensation expense of $28,978 under this agreement. The Company
        recorded compensation expense of $11,278 during the three months ended December
        31, 2007. The Company accounts for this agreement under EITF 96-18 and revalues
        these warrants at each quarter end. At December 31, 2007, the warrants were
        valued based upon the Black Scholes valuation model using the following
        estimates: 5.25 % risk free rate, 297% volatility, an expected life of 3.75
        years and no dividends. (See Note 5 for a discussion of the issuance warrants
        related to the raising of equity capital.)
 
 The
        following is a summary of activity of outstanding common stock warrants for
        the
        nine months ended December 31, 2007:
 
 Number
                  Of
                    SharesBalance,
                  March 31, 2007
              
              
              15,403,940Warrants
                  granted
              
              
              2,034,404Warrants
                  exercised
              
              
              (300,000
              )Balance,
                  December 31, 2007
              
              
              17,138,344
 
 **Note
        7 - Commitments and Contingencies**
 
 **Operating
        Leases**
 
 In
        July
        2007, the Company entered into a lease agreement with a company that is owned
        in
        part by Juzer Jangbarwala, a Company Director and its Chief Technology Officer,
        to sub-lease approximately 7,000 square feet to serve as its new corporate
        office in Anaheim, California. The lease term is for 18 months commencing
        August
        1, 2007, at a rental rate of $7,200 per month and includes office services.
        The
        lease agreement required a security deposit of $7,200 and does not provide
        for
        any renewal options. Payments to the related entity were $14,400 and $36,000,
        respectively, during the three and nine months ended December 31,
        2007.
 
 In
        November 2007, the Company’s OC Energy Drink, Inc. subsidiary entered into a
        lease agreement with a third-party company for approximately 1,100 square
        feet
        for a commercial office suite to serve as its new corporate office in Upland,
        California. The lease term is for 25 months commencing November 1, 2007,
        at a
        rental rate of $1,031 per month for the period November 1, 2007, through
        January
        31, 2008, $2,063 for the period February 1, 2008, through October 31, 2008,
        and
        $2,146 for the period November 1, 2008, through November 30, 2009. It is
        also
        responsible for approximately 2.0% of the overall buildings common area
        maintenance costs. The lease agreement required a security deposit of $3,004
        and
        does not provide for any renewal options. Additionally, performance under
        the
        lease is guaranteed by the President and CEO of OC Energy Drink,
        Inc.
  12
 **RG
          Global Lifestyles, Inc.**
 Notes
          to
          consolidated financial statements
 (unaudited)
 **Legal
        Proceedings**
 
 As
        of
        December 31, 2007, litigation between the Company and its previous investors
        in
        convertible notes, the NIR Group, in New York State Supreme Court, Case No.
        600323/07, was ongoing and entering into the discovery phase. Pursuant to
        a
        court order, the Company had placed $3,000,000 in insurance proceeds it received
        during the three months ended December 31, 2007 from its "key man" life
        insurance policy with AIG American General into an escrow account pending
        resolution of the matter. The amount is classified as restricted cash on
        the
        accompanying balance sheet as of December 31, 2007.
 
 On
        January 24, 2008, the parties dismissed their claims and counterclaims against
        each other pursuant to stipulation, entered into a settlement agreement,
        cancelled the underlying convertible notes and released the monies from escrow,
        part of which was used to satisfy the terms of the settlement. (See Note
        10 for
        additional information.)
 
 **Water
        Treatment Contracts**
 
 In
        August
        2007, the Company invoiced a customer for the third progress payment of $730,000
        in connection with its pending engineering, equipment sale and installation
        contract with the customer. In accordance with the Company’s revenue recognition
        policy, the Company has recorded the revenue on the basis of a percentage
        completion of the pending contract. In the three and nine months ended December
        31, 2007 the Company recognized $59,368 and $737,576 of revenue under this
        contract, respectively. As of December 31, 2007, payments received and invoiced
        in excess of revenues recorded (deferred revenue) under this contract were
        $558,387.
 
 On
        June
        25, 2007, the Company entered into contract with Yates Petroleum Corporation
        (“YPC”) to engineer, design, and install a water treatment system (“System”) of
        Coal Bed Methane (“CBM”) produced water provided by YPC. The Company will own
        and operate the System and regeneration waste pond. The Company will receive
        a
        base rate under the contract of $0.125 (12.50 cents) per barrel (42 US gallons)
        of water discharged by the System. The term of the contract is for 60 months
        from the start of the first billing cycle. The Company received an initial
        deposit of $25,000 which was recorded as a reduction of costs incurred in
        the
        construction of the System. In the quarter ended December 31, 2007, the Company
        incurred capitalized costs in the construction of the System in the amount
        of
        $2,126,204, and total costs to date of $2,910,335, which are reflected as
        construction in progress on the accompanying consolidated balance sheet.
        YPC is
        responsible for constructing the inflow pond and will receive a credit from
        the
        Company of $50,000 each month for the first three months of operation. In
        addition, YPC will receive credits on current billings for future repairs
        and
        maintenance to the inflow pond. As of December 31, 2007, YPC had not earned
        any
        credits.
  13
 **RG
          Global Lifestyles, Inc.**
 Notes
          to
          consolidated financial statements
 (unaudited)
 **OC
        Energy Drink, Inc. Distribution Contracts**
 
 The
        Company’s majority owned subsidiary OC Energy Drink, Inc. has entered into
        various agreements with distributors for the distribution of its OC Energy
        Drink
        products. Some of these agreements include clauses where by the distributor
        has
        the exclusive right to distribute the Company’s products for a particular
        geographical area.
 
 **Note
        8 - Segment Reporting and Concentrations**
 
 Currently
        the Company generates all of its revenues, and incurred all of its expenses
        from
        the sale of OC Energy products and from construction projects related to
        water
        treatment technology. Summaries of revenues generated by segment for the
        three
        and nine months ended December 31, 2007, are as follows:
 
 Three
                    Months Ended
                  December
                    31, 2007
              
              Nine
                    Months Ended
                  December
                    31, 2007Water
                  treatment segment
              
              $
              59,368
              
              $
              737,576OC
                  energy drink segment
              
              
              85,230
              
              
              231,873Total
              
              $
              144,598
              
              $
              969,449
 
 A
        summary
        of operating income or (loss) by segment for the three and nine months ended
        December 31, 2007, is as follows:
 
 Three
                    Months Ended
                  December
                    31, 2007
              
              Nine
                    Months Ended
                  December
                    31, 2007Water
                  treatment segment
              
              $
              (446,594
              )
              $
              (391,510
              )OC
                  energy drink segment
              
              
              (140,507
              )
              
              (325,503
              )Corporate
                  segment
              
              
              (1,051,083
              )
              
              (3,528,622
              )Total
              
              $
              (1,638,184
              )
              $
              (4,245,635
              )
 
 During
        the quarter ended December 31, 2007, sales to a single customer were 100%
        and
        44.0% of total sales for revenues related to water-treatment technology and
        revenues related to OC energy drink product sales, respectively.
 
 As
        of
        December 31, 2007, all assets of the Company’s operating segments are sourced to
        the United States of America. A summary of the net assets related to the
        water
        treatment segment and to the OC Energy drink segment, after eliminating all
        inter-company assets, are as follows:
  Water
                  treatment segment
              
              $
              7,916,226OC
                  energy drink segment
              
              
              678,404Corporate
                  segment
              
              
              3,170,980Total
              
              $
              11,765,610
 
 14
 
 **RG
            Global Lifestyles, Inc.**
 Notes
            to
            consolidated financial statements
 (unaudited)
 **Note
        9 - Related Party Transactions**
 
 During
        the quarter ended December 31, 2007, the Company issued a purchase order
        to
        Catalyx Fluid Solutions, Inc. (“Catalyx”), for the purchase of resin, at the
        approximate cost of $756,000, needed for the operation of the Company’s
        wastewater treatment plant in Wyoming. Catalyx is partially owned by Juzer
        Jangbarwala, a Company Director and its Chief Technology Officer. In addition,
        from time to time Catalyx has paid for various costs related to the wastewater
        treatment plant on behalf of the Company, for which the Company has reimbursed
        Catalyx. Total costs incurred by the Company with Catalyx during the three
        and
        nine months ended December 31, 2007 were $756,000 and $767,049, respectively.
        As
        of December 31, 2007, amounts due to Catalyx included in accounts payable
        were
        $756,000.
 
 In
        July
        2007, the Company entered into a lease agreement with Catalyx Engineering,
        Inc.
        (“CEI”), a company that is owned in part by Juzer Jangbarwala, a Company
        Director and its Chief Technology Officer, to sub-lease approximately 7,000
        square feet to serve as its new corporate office in Anaheim, California.
        (See
        Note 7 for additional information on this lease agreement.)
 
 During
        the quarter ended December 31, 2007, the Company utilized CEI for engineering
        services related to the design and construction of its water treatment plant
        in
        Wyoming. The agreement is verbal and provides engineering services at $75
        per
        hour, which represents a 37.5% discount off of normal CEI rates. Total costs
        incurred by the Company with CEI during the three and nine months ended December
        31, 2007 were $51,091 and $118,157, respectively. As of December 31, 2007,
        amounts due to CEI included in accounts payable were $27,173.
 
 During
        the quarter ended December 31, 2007, the Company utilized Fusion Solutions
        (“Fusion”) for manufacturing of product and promotional items for it OC Energy
        Drink products. Fusion is owned by Mariano Fusco, a partial owner and CEO
        of the
        Company’s subsidiary, OC Energy Drink, Inc., and Albert Guerra, a partial owner
        of OC Energy, Inc. Total costs incurred by the Company with Fusion during
        the
        three and nine months ended December 31, 2007 were $76,971 and $293,437,
        respectively. As of December 31, 2007, amounts due to Fusion included in
        accounts payable were $106,516.
 
 During
        the quarter ended December 31, 2007, the Company utilized Glaser Corporation
        (“Glaser”) for the rental of office space and equipment as well as for
        accounting and administrative services for it OC Energy Drink, Inc. subsidiary.
        Glaser is owned by Robert Glaser, a partial owner and CEO of OC Energy Drink,
        Inc. Total costs incurred by the Company with Glaser during the three and
        nine
        months ended December 31, 2007 were $19,650 and $29,842, respectively. As
        of
        December 31, 2007, amounts due to Glaser included in accounts payable were
        $22,901.
  15
 **RG
          Global Lifestyles, Inc.**
 Notes
          to
          consolidated financial statements
 (unaudited)
 
 **Note
        10 - Subsequent Events**
 
 (a)
              Unregistered
                  Sales of Securities
 
 In
        January 2008, the Company received an additional aggregate of $417,000 for
        the
        sale of its $0.001 par value common stock from twelve accredited investors
        under
        the terms of the offering described in Note 5 above.
 
 (b)
              Legal
                  Proceedings
 
 On
        January 24, 2008, the Company, as defendant, and NIR Group, as plaintiff,
        jointly stipulated to the dismissal of all causes of action in Case No.
        600323/07 in New York State Supreme Court. Under the terms of the concomitant
        settlement, mutual hold harmless provisions were entered into, NIR Group’s
        convertible notes were cancelled and the Company paid $2,100,000 to plaintiffs
        from proceeds it had received from its "key man" life insurance policy with
        AIG
        American General. In addition, the Company has the obligation to pay the
        NIR
        Group $600,000 in 12 equal monthly payments commencing on March 3, 2008.
        The
        obligation can be paid in cash or the Company’s common stock at the election of
        the Company. If paid in common stock, the common stock will be issued at
        a 10%
        discount to its closing price as reported on the OTCBB at the time of payment.
 
 (c)
              Convertible
                  Notes
 
 The
        $2,000,000 secured convertible notes held by NIR Group (see Note 3) were
        cancelled on January 24, 2008 as fully paid under the terms of the settlement
        of
        the litigation between it and the Company.
 
 (d)
              Related
                  Party Transactions
 
 In
        January 2008, the Company paid $476,000 to Catalyx for partial payment of
        the
        purchase order for the resin as described in Note 9(a) above. The Company
        owes
        approximately $280,000 to Catalyx under this purchase order.
 
 In
        January 2008, Grant King, a Company Director and its Chief Executive Officer,
        loaned the Company $100,000, which was placed into escrow by court order
        in the
        litigation with NIR Group (see Note 10(b) above). Upon dismissal of the lawsuit
        on January 24, 2008, the escrow monies were released and the Company repaid
        Mr.
        King the $100,000 in principal without interest.
  16
 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:




l
            Increased
                competitive pressures from existing competitors and new
                entrants;l
            Deterioration
                in general or regional economic conditions;l
            Adverse
                state or federal legislation or regulation that increases the costs
                of
                compliance, or adverse findings by a regulator with respect to existing
                operations;l
            Ability
                to grow business in OC Energy Drink product lines and CFS wastewater
                treatment technology, 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;l
            If
                acquisitions are made, the costs and successful integration of
                acquisitions;l
            Barriers
                in trade with foreign countries or tariff regulations and other United
                States and foreign laws;l
            Loss
                of customers or sales weakness;l
            Effect
                of environmental regulations in the field of wastewater treatment
                associated with coal bed methane mining;l
            Inability
                to achieve future sales levels or other operating
                results;l
            Ability
                to locate suitable new products for distribution within our business
                sector, and retain licensing rights to such new products on acceptable
                terms;l
            The
                continuation of favorable trends, including the drop in affordable
                potable
                water globally;l
            Outcomes
                and costs associated with litigation and potential compliance
                matters;l
            Inadequacies
                in the Company’s internal control over financial reporting, which could
                result in inaccurate or incomplete financial reporting;l
            Dilution
                to Shareholders from convertible debt or equity
                financings;l
            Loss
                of key management or other unanticipated personnel
                changes;l
            The
                unavailability of funds for capital expenditures; andl
            Operational
                inefficiencies in distribution or other
                systems.





The
      following discussion should be read in conjunction with the historical financial
      statements of R.G. Global Lifestyles, Inc., including on Form 10-KSB as of
      March
      31, 2007, 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**





You
      should read the following discussion and analysis of our financial condition
      and
      results of operations together with "Selected Financial Data" and our financial
      statements and related notes appearing elsewhere in this quarterly report.
      This
      discussion and analysis contains forward-looking statements that involve risks,
      uncertainties, and assumptions. The actual results may differ materially from
      those anticipated in these forward-looking statements as a result of certain
      factors, including, but not limited to, those presented under "Risk Factors"
      in
      our prior SEC filings and elsewhere in this quarterly report.




17




OVERVIEW





CFS
      TECHNOLOGY




The
      Company operates CFS as a division. CFS sells and operates plants that utilize
      its proprietary wastewater treatment technology ("CFS Technology") for the
      reclamation of wastewater associated with the production of methane in coal
      bed
      applications. The technology removes sodium and other pollutants from such
      wastewater allowing it to be returned to the environment within compliance
      regulations. The successful removal of the treated wastewater in turn allows
      energy companies to harvest and sell methane associated with coal
      beds.





CFS
      is
      currently finalizing construction on its first CFS Technology plant in Wyoming
      in connection with an agreement with Yates Petroleum and anticipates testing
      of
      the plant to occur in February 2008. This agreement is structured on a “build,
      own and operate” economic model whereby CFS provides a “turnkey” plant to the
      methane producer and charges a royalty on a per barrel of cleaned wastewater.
      Additionally, CFS has commenced the manufacturing process of a CFS Technology
      plant for direct sale to Black Diamond Energy, Inc., another methane producer
      in
      Wyoming.





CFS
      is
      currently pursuing additional energy companies in Wyoming, and other locations
      for current customers, for the lease or sale, construction, use and/or support
      of the CFS Technology.





OC
      ENERGY DRINKS





The
      Company has launched its line of "OC ENERGY" caffeinated energy drinks and
      oxygenated water fashioned for the Orange County lifestyle. 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"), a 10-oz energy drink
      ("KIK-IT") and a 10-oz diet energy drink ("KIK-IT Diet") in addition to a 17-oz
      ("O2") bottle of 100% pure oxygenated structured water. The energy drinks are
      low in natural sugar and high in vitamins and minerals, and come in a
      custom-designed bottle.





The
      Company operates OC Energy Drink, Inc. as a majority owned subsidiary. The
      Company’s percentage of controlling interest requires that operations be
      included in the consolidated financial statements. The percentage of equity
      interest that is not owned by the Company is shown as “Minority interest
      in subsidiary” in the consolidated balance sheets and consolidated statements of
      operations. The change in value of the minority interest in subsidiary is
      reflected as other income in the attached consolidated statements of
      operations.





ATMOSPHERIC
      PURE WATER GENERATORS





Through
      its subsidiary Aquair, the Company pursues its plans to distribute 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.





Aquair
      has acquired the rights to market and distribute water generators that
      precipitate drinking water from air. The various water generating machines
      have
      been tested in various locations. The Company is currently dedicating less
      resources towards the sales of atmospheric water generators than in the past,
      as
      it is focusing on sales and marketing OC Energy Drinks and CFS Technology
      projects.




18




MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





RESULTS
      OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 2007 AND
      2006.





The
      three-month period ended December 31, 2006 was previously restated. For
      additional information see the amended 10-QSB filed on July 12, 2007 with the
      SEC.





The
      following table summarizes the results of continuing operations and balance
      sheet amounts of the Company for the periods and dates shown:




Three
                    Months Ended
                  December
                    31INCOME
                    STATEMENT DATA
                
                2007
                
                2006(As
                    restated)Revenue
                
                $
                144,598
                
                $
                4,243Gross
                    profit (loss)
                
                $
                (215,096
                )
                $
                2,798Loss
                    from operations
                
                $
                (1,638,184
                )
                $
                (2,425,483
                )Net
                    income (loss)
                
                $
                1,532,264
                
                $
                (15,102,140
                )Net
                    income (loss) per weighted average common share
                
                $
                0.05
                
                $
                (0.62
                )




As
                  of
              
              As
                  ofBALANCE
                  SHEET DATA
              
              December
                  31, 2007
              
              March
                  31, 2007Total
                  assets
              
              $
              11,765,610
              
              $
              5,489,626Total
                  liabilities
              
              $
              12,857,936
              
              $
              14,657,142Stockholders'
                  deficit
              
              $
              (1,092,326
              )
              $
              (9,167,516
              )







For
                  the quarter ended
                December
                  31
              
              Increase/(decrease)REVENUES
              
              2007
              
              2006
              
              $
              
              %Revenues
              
              $
              144,598
              
              $
              4,243
              
              $
              140,355
              
              
              3,307.9
              %




During
      the quarter ended December 31, 2007, revenue associated with the Company's
      water
      treatment technology accounted for $59,368 of total revenues. These revenues
      related solely to the Black Diamond construction project. To date the Company
      has not incurred any royalties related to the treatment of the water. Sales
      of
      OC Energy Drink products represented $85,230 of total revenues during the same
      period. During the quarter ended December 31, 2006 (as restated), the Company
      had $4,243 in revenues, all from its OC Energy Drink products. The increase
      in
      revenues resulted from the continuing recognition of revenues related to the
      Company’s water treatment technology and the expanding sales of energy drink
      products.




For
                  the quarter ended
                December
                  31
              
              Increase/(decrease)GROSS
                  PROFIT (LOSS)
              
              2007
              
              2006
              
              $
              
              %Gross
                  profit (loss)
              
              $
              (215,096
              )
              $
              2,798
              
              $
              (217,894
              )
              
              (7,789.5
              )%
  19


During
      the quarter ended December 31, 2007, gross profit (loss) associated with the
      Company's water treatment technology was $(246,436) and the gross profit (loss)
      from OC Energy Drink products was $31,340. During the quarter ended December
      31,
      2006 (as restated), the Company had $2,798 in gross profit, all from its OC
      Energy Drink products. The gross loss from the Company’s water treatment
      technology in the quarter ended December 31, 2007 was primarily the result
      of
      the write-off of $253,854 of certain water production equipment that the Company
      was attempting to resale. The Company determined that the water production
      equipment had limited commercial application and thus, the cost would not be
      recovered. The increase in gross profit from OC Energy Drink products resulted
      from the expanding sales of energy drink products.




For
                  the quarter ended
                December
                  31
              
              Increase/(decrease)TOTAL
                    OPERATING EXPENSES
              
              2007
              
              2006
              
              $
              
              %Total
                  Operating Expenses
              
              $
              1,423,088
              
              $
              2,428,281
              
              $
              (1,005,193
              )
              
              (41.4
              )%




Total
      operating expenses include management and administrative personnel costs
      (including non-cash stock-based compensation), corporate office costs,
      accounting fees, legal expense, information systems expense, and product
      marketing and sales expense. The decrease in total operating expenses in the
      quarter ended December 31, 2007 was primarily the result of recording a
      significant increase in stock-based compensation in the quarter ended December
      31, 2006, as a result of repricing previously-granted stock
      options.




For
                  the quarter ended
                December
                  31
              
              Increase/(decrease)OTHER
                    INCOME (EXPENSE)
              
              2007
              
              2006
              
              $
              
              %Other
                  Income (Expense)
              
              $
              3,145,130
              
              $
              (12,676,657
              )
              $
              15,821,787
              
              
              N/A




The
      increase in other income during the quarter ended December 31, 2007 resulted
      primarily from the difference in the change in the fair value of warrants issued
      in connection with convertible notes of $9,173,655, the change in interest
      and
      financing related to convertible notes of $4,003,074 and the proceeds from
      a key
      man life insurance payment of $3,000,000.




RESULTS
      OF OPERATIONS FOR THE NINE-MONTH PERIODS ENDED DECEMBER 31, 2007 AND
      2006.





The
      nine-month period ended December 31, 2006 was previously restated. For
      additional information see the amended 10-QSB filed on July 12, 2007 with the
      SEC.





The
      following table summarizes the results of continuing operations of the Company
      for the periods shown:




Nine
                  Months Ended
                December
                  31INCOME
                  STATEMENT DATA
              
              2007
              
              2006(As
                  restated)Revenue
              
              $
              969,449
              
              $
              4,668Gross
                  profit (loss)
              
              $
              (142,500
              )
              $
              (61,305
              )Loss
                  from operations
              
              $
              (4,245,635
              )
              $
              (4,259,690
              )Net
                  income (loss)
              
              $
              1,410,276
              
              $
              (24,360,055
              )Net
                  income (loss) per weighted average common share
              
              $
              0.05
              
              $
              (1.01
              )




20




For
                  the nine months ended
                December
                  31
              
              Increase/(decrease)REVENUES
              
              2007
              
              2006
              
              $
              
              %Revenues
              
              $
              969,449
              
              $
              4,668
              
              $
              964,781
              
              
              20,667.0
              %




During
      the nine-month period ended December 31, 2007, revenue associated with the
      Company's water treatment technology accounted for $737,576 of total revenues.
      These revenues related solely to the Black Diamond construction project. To
      date
      the Company has not incurred any royalties related to the treatment of the
      water. Sales of OC Energy Drink products represented $231,873 of total revenues
      during the same period. During the nine-month period ended December 31, 2006
      (as
      restated), the Company had $4,668 in revenues, all from its OC Energy Drink
      products. The increase in revenues resulted from the continuing recognition
      of
      revenues related to the Company’s water treatment technology and the expanding
      sales of energy drink products.




For
                  the nine months ended
                December
                  31
              
              Increase/(decrease)GROSS
                  PROFIT (LOSS)
              
              2007
              
              2006
              
              $
              
              %Gross
                  profit (loss)
              
              $
              (142,500
              )
              $
              (61,305
              )
              $
              (81,195
              )
              
              (132.4
              )%




During
      the nine-month period ended December 31, 2007, gross profit (loss) associated
      with the Company's water treatment technology was $(199,629) and the gross
      profit (loss) from OC Energy Drink products was $57,129. During the nine-month
      period ended December 31, 2006 (as restated), the Company had a gross profit
      (loss) of $(61,305), all from its OC Energy Drink products. The gross loss
      from
      the Company’s water treatment technology in the nine-month period ended December
      31, 2007 was primarily the result of the write-off of $253,854 of certain water
      production equipment that the Company was attempting to resale. The Company
      determined that the water production equipment had limited commercial
      application and thus, the cost would not be recovered. The increase in gross
      profit from OC Energy Drink products resulted from the expanding sales of energy
      drink products.




For
                  the nine months ended
                December
                  31
              
              Increase/(decrease)TOTAL
                  OPERATING EXPENSES
              
              2007
              
              2006
              
              $
              
              %Total
                  Operating Expenses
              
              $
              4,103,135
              
              $
              4,198,385
              
              $
              (95,250
              )
              
              2.3
              %




Total
      operating expenses include management and administrative personnel costs
      (including non-cash stock-based compensation), corporate office costs,
      accounting fees, legal expense, information systems expense, and product
      marketing and sales expense. The decrease in operating expenses during the
      nine
      months ended December 31, 2007, resulted primarily from a decline in
      administrative salaries and benefits, partially offset by an increase in
      amortization of intangible assets associated with the Company’s water treatment
      technology.




For
                  the nine months ended
                December
                  31
              
              Increase/(decrease)OTHER
                  INCOME (EXPENSE)
              
              2007
              
              2006
              
              $
              
              %Other
                  Income (Expense)
              
              $
              5,612,008
              
              $
              (20,099,565
              )
              $
              25,711,573
              
              
              N/A
  21


The
      increase in other income during the nine-month period ended December 31, 2007
      resulted primarily from the difference in the change in the fair value of
      warrants issued in connection with convertible notes of $15,872,440, the change
      in interest and financing related to convertible notes of $8,632,514 and the
      proceeds from a key man life insurance payment of $3,000,000.





LIQUIDITY
      AND CAPITAL RESOURCES





The
      accompanying consolidated financial statements have been prepared on a
      going-concern basis, which contemplates the realization of assets and
      satisfaction of liabilities and other commitments in the normal course of
      business. The report of our independent auditors contains an explanatory
      paragraph expressing substantial doubt about the Company’s ability to continue
      as a going concern as a result of recurring losses and negative cash flows.
      The
      financial statements do not include any adjustments relating to the
      recoverability and classification of recorded asset amounts or the amounts
      and
      classification of liabilities that may be necessary if we are unable to continue
      as a going concern.





The
      Company’s principal sources of liquidity consist of cash and cash equivalents,
      cash generated from product sales and construction contracts, and the issuance
      of equity and/or debt securities. In addition to funding operations, the
      Company’s principal short-term and long-term liquidity needs have been, and are
      expected to be, the debt service requirements of its notes payable, capital
      expenditures and general corporate expense expenses. In addition, as its sales
      and operations continue to increase, the Company anticipates significant
      increases in purchases of equipment for the construction of plants utilizing
      the
      CFS Technology. As of December 31, 2007, the Company had cash and cash
      equivalents of $31,689, restricted cash of $2,950,000 and notes payable
      outstanding of $2,458,926.





The
      Company believes that its existing sources of liquidity, along with cash
      expected to be generated from product sales and construction contracts and
      cash
      generated from the issuance of debt and equity securities, will be sufficient
      to
      fund its operations, anticipated capital expenditures, working capital and
      other
      financing requirements through March 31, 2008. The Company will need to continue
      a focused program of capital expenditures to effectuate its CFS Technology
      project constructions and OC Energy drink production capacity expansion. In
      order to fund capital expenditures or increase working capital above the current
      plan, or complete any acquisitions, the Company may seek to obtain additional
      debt or equity financing. It may also need to obtain additional debt or equity
      financing if it experiences downturns or cyclical fluctuations in its business
      that are more severe or longer than anticipated, or if the Company fails to
      achieve anticipated revenue, experiences significant increases in the costs
      associated with products sales, or if it engages in additional strategic
      transactions. However, the Company cannot provide assurance that such financing
      will be available to it on favorable terms, or at all. If, after utilizing
      the
      existing sources of capital available to the Company, further capital needs
      are
      identified and the Company is not successful in obtaining the financing, it
      may
      be forced to curtail its existing or planned future operations.





For
      the
      nine-month period ended December 31, 2007, the Company funded operations
      primarily through sales of its common stock to investors in the amount of
      $2,034,404 and proceeds from the issuance of short-term notes of $250,000.





OPERATING
      ACTIVITIES





Operating
      cash flows used during the nine months ended December 31, 2007, amounted
      to $900,618. The primary source of operating cash flows was an increase in
      net working capital accounts (other than cash) of $1,060,128. The primary use
      of
      cash, resulted from the Company’s net income of $1,410,276 offset by non-cash
      and non-operating items (depreciation, amortization of intangible assets,
      stock-based compensation, fair value of common stock issued in excess of
      subscription price, non-cash interest expense including the amortization of
      debt
      discounts, proceeds from a key man life insurance payment and the change in
      the
      fair value of derivative instruments) totaling $3,371,022.





INVESTING
      ACTIVITIES





Investing
      cash flows during the nine months ended December 31, 2007, amounted to
      $1,729,875 used primarily for capitalized costs incurred in connection with
      the
      construction of a water treatment system for a customer in Wyoming.




22




FINANCING
      ACTIVITIES





Financing
      cash flows during the nine months ended December 31, 2007, amounted to
      $5,109,904 and consisted primarily of $3,000,000 of proceeds from the payment
      on
      a key man life insurance policy and sales of its common stock to investors
      in the amount of $2,134,404.





CRITICAL
      ACCOUNTING POLICIES





We
      prepare our consolidated financial statements in accordance with accounting
      principles generally accepted in the United States of America. The preparation
      of these financial statements requires the use of estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and the disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amount of revenues and expenses during the reporting period. Our
      management periodically evaluates the estimates and judgments made. Management
      bases its estimates and judgments on historical experience and on various
      factors that are believed to be reasonable under the circumstances. Actual
      results may differ from these estimates as a result of different assumptions
      or
      conditions.





The
      methods, estimates, and judgment we use in applying our most critical accounting
      policies have significant impact on the results we report in our financial
      statements. The SEC has defined "critical accounting policies" as those
      accounting policies that are most important to the portrayal of our financial
      condition and results, and require us to make our most difficult and subjective
      judgments, often as a result of the need to make estimates of matters that
      are
      inherently uncertain. Based upon this definition, our most critical estimates
      are described below under the heading "Revenue Recognition." We also have other
      key accounting estimates and policies, but we believe that these other policies
      either do not generally require us to make estimates and judgments that are
      as
      difficult or as subjective, or it is less likely that they would have a material
      impact on our reported results of operations for a given period. For additional
      information see Note 1, "Summary of Organization and Significant Accounting
      Policies" in the notes to our audited financial statements appearing in our
      annual report on Form 10-KSB. Although we believe that our estimates and
      assumptions are reasonable, they are based upon information presently available,
      and actual results may differ significantly from these estimates.





IMPAIRMENT
      OF LONG-LIVED AND INTANGIBLE ASSETS





The
      Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
      144
      ("SFAS 144"). The Statement requires that long-lived assets and certain
      identifiable intangibles held and used by the Company be reviewed for impairment
      whenever events or changes in circumstances indicate that the carrying amount
      of
      an asset may not be recoverable. Events relating to recoverability may include
      significant unfavorable changes in business conditions, recurring losses, or
      a
      forecasted inability to achieve break-even operating results over an extended
      period. The Company evaluates the recoverability of long-lived assets based
      upon
      forecasted undercounted cash flows. Should impairment in value be indicated,
      the


carrying
      value of intangible assets will be adjusted, based on estimates of future
      discounted cash flows resulting from the use and ultimate disposition of the
      asset. SFAS No. 144 also requires assets to be disposed of be reported at the
      lower of the carrying amount or the fair value less costs to sell.





REVENUE
      RECOGNITION





Product
      sales - For revenue from product sales, the Company recognizes revenue in
      accordance with Staff Accounting Bulletin No. 104, Revenue Recognition
      ("SAB104"), which superseded Staff Accounting Bulletin No. 101, Revenue
      Recognition in Financial Statements ("SAB101"). SAB 101 requires that four
      basic
      criteria must be met before revenue can be recognized: (1) persuasive evidence
      of an arrangement exists; (2) delivery has occurred; (3) the selling price
      is
      fixed and determinable; and (4) collectability is reasonably assured.
      Determination of criteria (3) and (4) are based on management's judgments
      regarding the fixed nature of the selling prices of the products delivered
      and
      the collectability of those amounts. Provisions for discounts and rebates to
      customers, estimated returns and allowances, and other adjustments are provided
      for in the same period the related sales are recorded.




23




Construction
      contracts - In accordance with Statement of Position 81-1"Accounting for
      Performance of Construction-Type and Certain Production-Type Contracts", the
      Company uses the percentage completion method for the recognition of revenue
      received in connection with its engineering, equipment sale and installation
      contracts. In making the estimate of the percentage of revenue to recognize,
      the
      Company compares costs to the total projected cost of the contract. Accordingly,
      the Company recognizes that portion of the revenue and record the balance of
      the
      cash received as deferred revenues, which is included within accrued liabilities
      on the accompanying balance sheet.





STOCK-BASED
      COMPENSATION





On
      December 16, 2004, the FASB published Statement of Financial Accounting
      Standards No. 123 (Revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS
      123R
      requires that compensation cost related to share-based payment transactions
      be
      recognized in the financial statements. Share-based payment transactions within
      the scope of SFAS 123R include stock options, restricted stock plans,
      performance-based awards, stock appreciation rights, and employee share purchase
      plans. The provisions of SFAS 123R were effective as of the first interim period
      that begins after December 15, 2005.





The
      Company has adopted SFAS 123R, which requires disclosure of the fair value
      and
      other characteristics of stock options, and SFAS 148 "Accounting for Stock-Based
      Compensation -- Transition and Disclosure," which requires more prominent
      disclosure about the effects of an entity's accounting policy decisions with
      respect to stock-based compensation on reported net loss. The Company has
      reflected the expense of such stock based compensation based on the fair value
      at the grant date for awards consistent with the provisions of SFAS No. 123R.
      There were no options issued to employees as of March 31, 2006, all other
      options and warrants had been accounted for at fair value using the Black
      Scholes valuation model. Thus, the impact of adopting SFAS 123R was immaterial
      to the Company's financial statements.





In
      connection with the adoption of SFAS 123R, we estimate the fair value of our
      share-based compensation utilizing the Black-Scholes pricing model. The fair
      value of the options granted is amortized as compensation expense on a straight
      line basis over the requisite service period of the award, which is generally
      the vesting period. The fair value calculations involve significant judgments,
      assumptions, estimates and complexities that impact the amount of compensation
      expense to be recorded in current and future periods. The factors include:
      (1)
      The time period our stock-based compensation awards are expected to remain
      outstanding based upon the average of the original award period and the
      remaining vesting period in accordance with SEC Staff Accounting Bulletin 107
      simplified method. Our Company's stock trading history has been relatively
      short
      (since January 2005). Our expected term assumption for awards issued during
      the
      year ended March 31, 2007 was five years. As additional evidence develops from
      our stock's trading history, the expected term assumption will be refined to
      capture the relevant trends. (2) The future volatility of our stock has been
      estimated based upon our entire trading history from inception to the reporting
      date. (3) A dividend yield of zero has been assumed for awards issued during
      the
      quarter ended December 31, 2007 based upon our actual past experience and the
      fact that we do not anticipate paying a dividend on our shares in the near
      future. (4) We have based our risk-free interest rate assumption for awards
      issued during the quarter December 31, 2007 based upon the weighted-average
      yield of 5.25% available on US Treasury debt instruments with an equivalent
      expected term. (5) Forfeiture rates for awards issued during these periods
      have
      not yet been estimated as the Company has only recently issued share based
      awards and no forfeiture data has been available to the Company as a
      result.





The
      Company's accounting policy for equity instruments issued to consultants and
      vendors in exchange for goods and services follows the provisions of Emerging
      Issues Task Force ("EITF") 96-18, "Accounting for Equity Instruments That are
      Issued to Other Than Employees for Acquiring, or in Conjunction with
      Selling,


Goods
      or
      Services." The measurement date for the fair value of the equity instruments
      issued is determined at the earlier of (i) the date at which a commitment for
      performance by the consultant or vendor is reached or (ii) the date at which
      the
      consultant or vendor's performance is complete. In the case of equity
      instruments issued to consultants, the fair value of the equity instrument
      is
      recognized over the term of the consulting agreement.




24




RECENT
      ACCOUNTING PRONOUNCEMENTS





In
      June
      2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in
      Income Taxes, an interpretation of FASB Statement 109" ("FIN 48"). FIN 48
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 is effective for fiscal years beginning in years
      beginning after December 15, 2006. The adoption of FIN 48 did not have a
      significant impact on the consolidated financial statements.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
      157"). SFAS 157 provides accounting guidance on the definition of fair value
      and
      establishes a framework for measuring fair value and requires expanded
      disclosures about fair value measurements. SFAS 157 is effective for
      financial


statements
      issued for fiscal years beginning after November 15, 2007. We plan to adopt
      the
      provisions of SFAS 157 on April 1, 2008 and we are currently assessing the
      impact of the adoption of SFAS 157 on our results of operations and financial
      condition.





In
      February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial Liabilities--Including an amendment of FASB
      Statement No. 115" ("SFAS 159"). SFAS 159 permits entities to choose to measure
      financial instruments and certain other items at fair value. The objective
      is to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. SFAS 159 is effective for financial statements issued for fiscal
      year beginning after November 15, 2007. We are currently assessing the impact
      of
      adopting SFAS 159 on our results of operations and financial
      condition.





OFF-BALANCE
      SHEET ARRANGEMENTS





The
      Company does not have any off-balance sheet arrangements that have or are
      reasonably likely to have a current or future effect on the Company's financial
      condition, changes in financial condition, revenues or expenses, results of
      operations, liquidity, capital expenditures or capital resources that are
      material to investors.





RISK
      FACTORS





Information
      on risk factors can be found in our Annual Report on Form 10-KSB for the year
      ended March 31, 2007 filed with the SEC on July 13, 2007. There have been no
      material changes to our risk factors during the quarter ended December 31,
      2007,
      other than discussed below.





*SHARES
      OF OUR TOTAL OUTSTANDING COMMON STOCK THAT ARE RESTRICTED FROM IMMEDIATE RESALE
      BUT MAY BE SOLD INTO THE MARKET IN THE FUTURE COULD CAUSE THE MARKET PRICE
      OF
      OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING
      WELL.*





As
      of
      December 31, 2007, we had 29,180,644 shares of common stock issued and
      outstanding of which approximately 13,384,507 shares are restricted shares.
      Under the SEC’s recent final rule amending Rule 144, in essence, with adequate
      current public information available concerning our company, a non-affiliate
      holding "restricted securities" for a period of six months may sell such
      securities without volume limitation in a brokerage transaction, and a
      non-affiliate may sell such securities after holding them for one year in a
      brokerage transaction and only an amount every three months equal to the greater
      of (a) one percent of a company's issued and outstanding shares, or (b) the
      average weekly volume of sales during the four calendar weeks preceding the
      sale. After one year, non-affiliates may sell such securities without
      restriction. The sale in the public market of such shares of Common Stock may
      adversely affect prevailing market prices of our Common Stock.




25




**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 fiscal quarter ended December 31, 2007, our chief executive
      officer and chief financial officer concluded that our disclosure controls
      and
      procedures were not effective in ensuring that material information relating
      to
      the Company required to be disclosed by the Company in reports that it files
      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.





The
      Company's management has concluded that the consolidated financial statements
      included in this report on Form 10-QSB for the quarter ended December 31, 2007
      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 review of its consolidated financial
      statements for the quarter ended December 31, 2007.





PLAN
      FOR
      REMEDIATION OF MATERIAL WEAKNESSES





The
      Company's Audit Committee has met, reviewed the internal controls over financial
      reporting 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.





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.




26




**PART
      II — OTHER INFORMATION**





**Item
      1. Legal Proceedings**





On
      January 24, 2008, the Company settled and dismissed its prior litigation with
      certain of its previous investors, the NIR Group. The case had been in the
      discovery phase during the quarter ended December 31, 2007. The settlement
      was
      funded by proceeds the Company received in connection with a claim it had on
      a
      key man life insurance policy, taken out in connection with the financing with
      the NIR Group. NIR Group cancelled its secured convertible notes it previously
      held and both parties received mutual hold harmless protection.





Other
      than the foregoing, the Company is not aware of any litigation, either pending
      or threatened.





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





During
      the quarter ended December 31, 2007, the Company raised investor money through
      an offering of stock and warrants. The terms of this offering are a sale of
      common stock for $0.30 per share with the investor additionally receiving a
      warrant to purchase one share of common stock at $0.40 for every dollar
      invested. During the quarter, the Company raised $1,989,404 in this offering
      from seven accredited investors, and, therefore, has incurred the obligation
      to
      issue 6,631,346 shares of common stock and warrants to purchase 1,989,404 shares
      of common stock. The shares sold and the shares underlying the warrants have
      standard piggyback registration rights. The securities were sold to the
      investors in reliance on Section 4(2) under the Securities Act of 1933, as
      amended.





**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** .





The
      following Exhibits are filed or incorporated by reference as part of this
      Quarterly Report on Form 10-QSB/A:




Exhibit
              Number
            
            Description of Document4.6
            
            Form
                of Investor Securities Purchase Agreement and Warrant31.1
            
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act31.2
            
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act32.1
            
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act32.2
            
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley
                Act




27




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
                KingGrant
                King
            
            Chief
                Executive Officer
            
            February
                19, 2008/s/
                Brian RuttencutterBrian
                Ruttencutter
            
            Chief
                Financial Officer
            
            February
                19, 2008


28