UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q





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


For
      the
      quarterly period ended September 30, 2008.





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 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





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.





Large
                accelerated filero
            Accelerated
                fileroNon-accelerated
              filer  o(Do
              not check if a smaller reporting company)
            Smaller reporting
              company  x




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





As
      of
      September 30, 2008, there were 44,597,792 shares of the Registrant’s common
      stock issued and outstanding.





**INDEX**





**Page****PART
                I - FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements
            3Consolidated
                Balance Sheets –September 30, 2008 and March 31, 2008
            3Consolidated
                Statements of OperationsFor
                the Three and Six Months ended September 30, 2008 and 2007
            4Consolidated
                Statements of Cash FlowsFor
                the Three and Six Months ended September 30, 2008 and 2007
            5Notes
                to Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition andResults
                of Operations
            15Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            23Item
                4
            Controls
                and Procedures
            23**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            23Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            24Item
                3.
            Defaults
                Upon Senior Securities
            24Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            24Item
                5.
            Other
                Information
            24Item
                6.
            Exhibits
            24SIGNATURES
            25


2


**PART
      I — FINANCIAL INFORMATION**





**Item
      1. Financial Statements**




**RG
      Global Lifestyles, Inc.**


**Consolidated
      Balance Sheets**


**(unaudited)**





**As of September 30,**
            
            **As of March 31,****2008**
            
            **2008****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            18,572
            
            $
            12,319Accounts
                receivable
            
            
            5,816
            
            
            6,087Inventory
                - finished goods
            
            
            77,596
            
            
            86,864Federal
                income tax refund receivable
            
            
            -
            
            
            143,775Prepaids
                and other current assets
            
            
            37,063
            
            
            -Total
                current assets
            
            
            139,047
            
            
            249,045Property
                and equipment, net
            
            
            2,758,155
            
            
            3,060,884Intangible
                assets, net
            
            
            4,030,041
            
            
            4,195,645Other
                assets
            
            
            270,205
            
            
            252,613**Total
                Assets**
            
            $
            7,197,448
            
            $
            7,758,187**Liabilities
                and Stockholders' Equity**Current
                liabilities:Accounts
                payable
            
            $
            1,224,634
            
            $
            954,500Accrued
                liabilities
            
            
            998,585
            
            
            459,273State
                income taxes payable
            
            
            97,890
            
            
            97,890Convertible
                notes payable
            
            
            586,296
            
            
            864,074Notes
                payable - related party
            
            
            113,397
            
            
            102,700Notes
                payable
            
            
            410,500
            
            
            410,500Total
                current liabilities
            
            
            3,431,302
            
            
            2,888,937Accrued
                liabilities-Long Term
            
            
            70,000
            
            
            70,000Total
                Liabilities
            
            
            3,501,302
            
            
            2,958,937Stockholders'
                equityPreferred
                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 44,597,792
                and
                36,400,410 issued, 44,415,521 and 34,500,410 outstanding,
                respectively
            
            
            44,416
            
            
            34,501Common
                stock to be issued
            
            
            168,000
            
            
            2,113,904Additional
                paid-in capital
            
            
            35,753,003
            
            
            32,159,232Accumulated
                deficit
            
            
            (32,269,273
            )
            
            (29,508,387
            )Total
                stockholders' equity
            
            
            3,696,146
            
            
            4,799,250**Total
                Liabilities and Stockholders' Equity**
            
            $
            7,197,448
            
            $
            7,758,187





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


3


**RG
      Global Lifestyles, Inc.**


**Consolidated
      Statements of Operations**


**(unaudited)**





For the 3 Months Ended
            
            For the Six Months EndedSeptember 30
            
            September 302008
            
            2007
            
            2008
            
            2007Revenue:Product
                sales
            
            $
            6,851
            
            $
            68,595
            
            $
            36,469
            
            $
            146,643Water
                treatment related
            
            
            -
            
            
            469,049
            
            
            90,419
            
            
            678,208Total
                revenues
            
            
            6,851
            
            
            537,644
            
            
            126,888
            
            
            824,851Cost
                of revenues:Product
                sales
            
            
            3,653
            
            
            55,498
            
            
            33,088
            
            
            120,854Water
                treatment related
            
            
            215,227
            
            
            436,022
            
            
            433,280
            
            
            631,401Total
                cost of revenue
            
            
            218,880
            
            
            491,520
            
            
            466,368
            
            
            752,255Gross
                profit (loss)
            
            
            (212,029
            )
            
            46,124
            
            
            (339,480
            )
            
            72,596Expenses:General
                and administrative
            
            
            769,721
            
            
            1,244,507
            
            
            1,986,430
            
            
            2,588,308Selling
                and marketing
            
            
            13,940
            
            
            56,655
            
            
            46,860
            
            
            91,739Project
                cost
            
            
            62,364
            
            
            -
            
            
            240,534
            
            
            -Total
                expenses
            
            
            846,025
            
            
            1,301,162
            
            
            2,273,824
            
            
            2,680,047Operating
                loss
            
            
            (1,058,054
            )
            
            (1,255,038
            )
            
            (2,613,304
            )
            
            (2,607,451
            )Other
                income (expense):Interest
                income
            
            
            64
            
            
            591
            
            
            64
            
            
            3,609Interest
                income (expense) - related party
            
            
            -
            
            
            (22,891
            )
            
            -
            
            
            (25,643
            )Interest
                expense
            
            
            (104,689
            )
            
            (605,467
            )
            
            (153,620
            )
            
            (2,037,503
            )Change
                in fair value of derivative liabilities
            
            
            -
            
            
            3,588,421
            
            
            -
            
            
            4,530,506Other
                income (expense)
            
            
            (995
            )
            
            (4,119
            )
            
            5,974
            
            
            (4,091
            )Total
                other income (expense)
            
            
            (105,620
            )
            
            2,956,535
            
            
            (147,582
            )
            
            2,466,878Net
                income (loss) before provision for income taxes
            
            
            (1,163,674
            )
            
            1,701,497
            
            
            (2,760,886
            )
            
            (140,573
            )Provision
                for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                income (loss) before minority interest
            
            
            (1,163,674
            )
            
            1,701,497
            
            
            (2,760,886
            )
            
            (140,573
            )Minority
                interest
            
            
            -
            
            
            18,585
            
            
            -
            
            
            18,585Net
                income (loss)
            
            $
            (1,163,674
            )
            $
            1,720,082
            
            $
            (2,760,886
            )
            $
            (121,988
            )Weighted
                average number of common shares:Basic
            
            
            44,319,500
            
            
            28,769,302
            
            
            43,772,751
            
            
            27,572,656Diluted
            
            
            44,319,500
            
            
            45,461,968
            
            
            43,772,751
            
            
            27,572,656Net
                income (loss) per share:Basic
            
            $
            (0.03
            )
            $
            0.06
            
            $
            (0.06
            )
            $
            (0.00
            )Diluted
            
            $
            (0.03
            )
            $
            0.04
            
            $
            (0.06
            )
            $
            (0.00
            )





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


4


**RG
      Global Lifestyles, Inc.**


**Consolidated
      Statements of Cash Flows**


**(unaudited)**





For the Six Months EndedSeptember 302008
            
            2007**Cash
                flows from operating activities:**Net
                loss
            
            $
            (2,760,886
            )
            $
            (121,988
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Amortization
                of debt discounts related to beneficial conversion features and
                warrants
            
            
            22,222
            
            
            300,822Change
                in fair value of derivative liabilities
            
            
            -
            
            
            (4,530,506
            )Stock
                issued for services
            
            
            110,197
            
            
            -Fair
                value of common stock in excess of notes payable forgiven
            
            
            94,890
            
            
            1,656,152Depreciation
                and amortization
            
            
            468,333
            
            
            162,810Stock-based
                compensation
            
            
            764,392
            
            
            1,499,793Minority
                interest in subsidiary
            
            
            -
            
            
            (18,585
            )Change
                is operating assets and liabities:Accounts
                receivable
            
            
            271
            
            
            (745,478
            )Inventory
            
            
            9,268
            
            
            (32,185
            )Income
                tax refund
            
            
            143,775Prepaid
                expenses
            
            
            (37,063
            )
            
            25,676Accounts
                payable
            
            
            270,134
            
            
            275,492Accrued
                liabilities
            
            
            539,312
            
            
            393,416Deferred
                revenues
            
            
            -
            
            
            501,792Income
                taxes payable
            
            
            -
            
            
            1,681Net
                cash used in operating activities
            
            
            (375,155
            )
            
            (631,108
            )**Cash
                flows from investing activities:**Purchase
                of fixed assets
            
            
            -
            
            
            (31,874
            )Construction
                in progress
            
            
            -
            
            
            (41,629
            )Other
                assets
            
            
            (17,592
            )
            
            13,568Net
                cash used in investing activities
            
            
            (17,592
            )
            
            (59,935
            )**Cash
                flows from financing activities:**Proceeds
                from notes payable
            
            
            -
            
            
            250,000Cash
                received for stock to be issued
            
            
            168,000
            
            
            -Common
                stock issued for cash
            
            
            231,000
            
            
            -Proceeds
                from exercise of stock options
            
            
            -
            
            
            62,500Net
                cash provided by financing activities
            
            
            399,000
            
            
            312,500Net
                increase (decrease) in cash
            
            
            6,253
            
            
            (378,543
            )Cash
                - beginning of period
            
            
            12,319
            
            
            502,278Cash
                - ending of period
            
            $
            18,572
            
            $
            123,735SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATIONCash
                paid during the period for:Interest
            
            $
            -
            
            $
            -Income
                taxes
            
            $
            -
            
            $
            -Non-cash
                investing and financing activities:Issuance
                of common stock in settlement of notes payable and accrued
                interest
            
            $
            300,000
            
            $
            331,095Issuance
              of common stock for tangible and intangible assets
            
            $
            
            
            $
            474,828Issuance
              of OC Energy, Inc.'s interests for tangible and intangible
              assets
            
            $
            
            
            $
            43,903Construction
              in progress recorded in accounts payable
            
            $
            
            
            $
            742,502





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,
        2008
        included in the Company's annual report on Form 10-KSB. The Company follows
        the
        same accounting policies in the preparation of interim reports. The financial
        statements for the three and six months ended September 30, 2008, are not
        necessarily indicative of the results expected for the full year.
 
 **Estimates**
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenue and expenses during the reporting period.
        Significant estimates include the valuation of derivatives, equity instruments
        such as options and warrants, and the percentage of completion related to
        construction contracts. Actual results could differ from those estimates.
 
 **Concentrations**
 
 *Customers*
 During
        the three and six months ended September 30, 2008, one customer made up zero
        and
        71%, respectively, of all revenues from water treatment royalties. The loss
        of
        this customer could have a significant impact on the Company’s financial
        statements.
 
 *Vendors*
 During
        the quarter ended September 30, 2008, 50% of the equipment used to generate
        water treatment revenues was manufactured by one vendor. The loss of this
        vendor
        could have a significant impact on the Company’s financial
        statements.
 
 **Inventory**
 
 At
        September 30, 2008, the Company had inventory consisting of chemicals,
        flavorings, and bottles related to the OC Energy Drink, Inc. segment of the
        Company. Inventory is valued at cost in the amount of $77,596. Inventory
        is
        recorded at lower of cost (first-in, first-out) or net realizable market
        value.
 
 **Net
        Income (Loss) Per Share**
 
 Net
        loss
        per share is provided in accordance with SFAS No. 128 “Earnings Per Share”
(“SFAS 128”). Basic loss per share is computed by dividing losses available to
        common stockholders by the weighted average number of common shares outstanding
        during the period, after giving effect to dilutive common stock equivalents,
        such as stock options, warrants and convertible debt. 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 six months ended September 30, 2008 and 2007:
  6
  **RG
        GLOBAL LIFESTYLES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  For
                  the six
                months
                  ended
                September
                  30,
                2008
              
              For
                  the six
                months
                  ended
                September
                  30,
                2007Common
                  stock options
              
              
              3,520,215
              
              
              8,294,430Common
                  stock warrants
              
              
              3,582,433
              
              
              11,378,940Secured
                  convertible notes
              
              
              -
              
              
              9,738,046Totals
              
              
              7,102,648
              
              
              29,411,416
 
 There
        were no outstanding securities that would have been considered dilutive for
        the
        three months ended September 30, 2008.
  The
        following is a summary of outstanding securities which have been included
        in the
        calculation of diluted net income per share for the three months ended
        September 30, 2007.
 Basic
                
                
                28,769,302Common
                    stock options
                
                
                2,783,270Common
                    stock warrants
                
                
                4,171,350Secured
                    convertible notes
                
                
                9,738,04616,692,666Totals
                
                
                45,461,968
 **Note
        2 – Going Concern**
 
 The
        accompanying financial statements have been prepared assuming the Company
        will
        continue as a going concern. As shown in the accompanying financial statements,
        the Company during the quarter ended September 30, 2008, has limited revenues,
        incurred an operating loss before income taxes of $1,163,674 and used cash
        from
        operations of $375,155. As of September 30, 2008, the Company had a working
        capital deficit of $3,292,255. These conditions raise substantial doubt about
        the Company’s ability to continue as a going concern.
 
 The
        future of the Company is dependent upon its ability to obtain equity and/or
        debt
        financing and ultimately achieving profitable operations from the development
        of
        its new business opportunities. During the quarter ended September 30, 2008,
        the
        Company funded operations through equity offerings. The Company does not
        have
        any commitments or assurances for additional capital. In addition, during
        the
        second quarter the Company announced it intention to sell the OC Energy
        subsidiary. However, the Company is no longer actively looking for a buyer
        due
        to the testing of the product with a potential customer. Thus, the assets
        and
        liabilities of OC Energy have been included in continuing operations. Subsequent
        to September 30, 2008, the Company commenced discussions to potentially sell
        its
        only existing water treatment plant to generate cash to continue operations.
        All
        discussions are preliminary, an offer has not been received, nor has the
        Company
        made a formal determination that the water treatment plant will be held for
        sale. There can be no assurance that the revenue from the sale of the plant
        will
        be sufficient for the Company to achieve profitability in its operations,
        and it
        is possible that additional equity or debt financing may be required to continue
        as a going concern. Without such additional capital, there is some doubt
        as to
        whether the Company will continue as a going concern. The Company estimates
        the
        current cash reserves are expected to fund operations through Q3 of fiscal
        2009.
  7
  **RG
        GLOBAL LIFESTYLES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 The
        financial statements do not include any adjustments relating to the
        recoverability and classification of recorded assets, or the amounts of and
        classification of liabilities, which might be necessary in the event the
        Company
        cannot continue in existence.
 
 **Note
        3 – Property and Equipment**
 
 Property
        and equipment as of September 30, 2008 and March 31, 2008 consisted of the
        following:
 
 September
                30, 2008
              
              March 31,
                2008Water
                  treatment plant
              
              $
              3,016,261
              
              $
              3,016,261Office
                  equipment, computer software, and furniture and fixtures
              
              
              64,175
              
              
              57,974Accumulated
                  depreciation
              
              
              (322,281
              )
              
              (13,351
              )Total
              
              $
              2,758,155
              
              $
              3,060,884
 
 During
        the six months ended September 30, 2008 and 2007, the Company recorded
        depreciation expense of $308,930 and $2,004, respectively.
 
 During
        the three months ended September 30, 2008, the Company’s water treatment plant
        was semi operational due to the outflow pond needing repairs from a wash
        out from a burst pipe and the required ongoing draining. The Company is
        currently addressing the issue. Due to the delays in production and current
        market conditions, management believes it should evaluate the carrying value
        of
        its water treatment plant and Catalyx technology to determine if an impairment
        is necessary. Management expects to complete the analysis during the third
        quarter of fiscal 2009.
 
 *Asset
        Retirement Obligations*
 
 The
        Company recognizes asset retirement costs under SFAS 143 in the period in
        which
        they are incurred. Under a water treatment contract with a customer, the
        Company’s owns the building and equipment but does not own the land. At the term
        of the contract, the Company is required to return the land to its original
        condition. At September 30, 2008, the balance of the Company’s asset retirement
        obligation was $70,000.
 
 **Note
        4 – Catalyx Technology**
 
 The
        Company entered into a series of agreements with Catalyx Fluid Solutions,
        Inc.
        (“Catalyx”) pursuant to which the Company acquired certain technology, know-how,
        and patent rights related to water treatment for use in the oil and gas
        industry. In
        addition, per the terms of the acquisition agreement the initial $200,000
        paid
        will be offset against future royalties of $0.01 per barrel of water treated
        and
        5% of equipment sold based on the Catalyx technology. Royalties earned by
        Catalyx during the three and six months ended September 30, 2008 were $4,566
        and
        were offset against the prepaid.
  8
  **RG
        GLOBAL LIFESTYLES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 During
        the six month period ended September 30, 2008 and 2007, the Company recorded
        amortization expense of $165,604 and $160,806, respectively.
 
 **Note
        5 – Certain Balance Sheet Elements**
 
 *Other
        Assets*
 
 At
        September 30, 2008 and March 31, 2008, the Company had deposits with various
        vendors comprised of the following:
 
 September,
                30, 2008
              
              March 31,
                2008Rental
                  deposits
              
              $
              32,056
              
              $
              32,557Deposit
                  future Catalyx royalty
              
              
              195,434
              
              
              200,000Other
              
              
              42,715
              
              
              20,056Total:
              
              $
              270,205
              
              $
              252,613
 
 *Accrued
        Liabilies*
 
 At
        September 30, 2008 and March 31, 2008, the Company had accrued expenses as
        follows:
 
 September,
                30, 2008
              
              March 31,
                2008Salaries
                  and wages
              
              $
              570,780
              
              $
              239,384Deposits
                  for preferred stock subscriptions
              
              
              217,483
              
              
              -Accrued
                  interest
              
              
              42,338
              
              
              44,663Other
              
              
              167,984
              
              
              175,226Total:
              
              $
              998,585
              
              $
              459,273
 
 During
        the six months ended September 30, 2008, the Company received proceeds of
        $217,483 for the purchase of 1,499,888 shares of preferred stock. As of
        September 30, 2008, the Company has recorded the proceeds received as a
        liability as the proper preferred stock designations have not been filed
        with
        the State of California. The Company intends to issue this stock once the
        State
        of California authorizes the designations.
 
 **Note
        6 – Notes Payable**
 
 *2007
        Notes Payable*
 On
        January 12, 2007, the Company entered into a note agreement with an accredited
        investor for proceeds totaling $350,000. This note matured on January 12,
        2008
        and is currently in default as the holder had demanded payment. In connection
        with the default, the interest rate increased to 11% per annum. As of September
        30 2008, accrued interest recorded in accrued liabilities related to this
        note
        was $5,367. See Note 9 for discussion of a lawsuit filed by holder of the
        note
        against the Company and the payment of accrued interest by Company.
 
 *$600,000
        Promissory Note*
 In
        connection with the settlement of the $2,000,000 secured convertible notes
        in
        fiscal 2008, the Company issued a $600,000 promissory note with an interest
        rate
        of 10%, with payments due in 12 equal $50,000 monthly payments commencing
        on
        March 3, 2008. In addition, the Company issued 2,000,000 shares of common
        stock
        to an escrow account in which secures the promissory note. The promissory
        note
        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 equal
        to
        $55,000 divided by the lesser of the weighted average price (“VWAP”) over the
        five days preceding the due date of payment or the day on which the note
        is
        transmitted to the escrow agent. If the VWAP is lower than $0.10 or the there
        are insufficient shares in escrow the Company cannot settle the monthly
        obligation in common shares.
  9
  **RG
        GLOBAL LIFESTYLES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 Since
        the
        $600,000 promissory note does not incur interest the Company recorded a discount
        of $44,444 to the promissory notes. During the three and six months ended
        September 30, 2008, the Company amortized $11,111 and $22,222 respectively,
        of
        the discount to interest expense. As of September 30, 2008, the remaining
        discount was $13,704.
 
 During
        the six months ended September 30, 2008, the Company issued 1,717,729 of
        common
        stock from the escrow account to satisfy payments for the six months ending
        September 30, 2008 totaling $300,000. As of September 30, 2008, 182,271 shares
        of common stock are held in escrow.
 
 *Note
        Payable to Vendor*
 On
        January 29, 2008, the Company the issued a promissory note to a vendor in
        settlement of $780,500 in accounts payable. The vendor manufactured and
        installed the Company’s water treatment facility. The note bears interest at 10%
        per annum and is secured by the Company’s contract with Yates Petroleum
        Corporation and the equipment that was manufactured by the vendor. The note
        calls for an initial payment of $270,000 due on February 1, 2008 with monthly
        principal payments of $100,000 due each month until paid off. The balance
        due on
        this note at September 30, 2008 was $410,500 with accrued interest of $29,650.
        The Company did not make its July, August or September 2008 payment and is
        technically in default on this note.
 
 **Note
        7 – Stockholders’ Deficit**
 
 During
        the six months ended September 30, 2008, the Company sold 770,000 shares
        of
        common stock to accredited investors at a price of $0.30 per share for total
        net
        cash proceeds of $231,000. As of September 30, 2008, the Company has not
        issued
        560,000 shares of common stock related to subscriptions of $168,000. 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 $164,628 based upon the Black Scholes
        valuation model using the following weighted average estimates: 3.34% risk
        free
        rate, 303% volatility, an expected life of five years and no dividends.
 
 During
        the six months ended September 30, 2008, the Company issued 380,800 shares
        of
        common stock for services rendered by consultants and employees. The services
        related to general corporate duties and equipment purchased for the Yates
        plant.
        The Company valued the shares on the date of issuance as there were no future
        performance conditions. The shares were valued at $127,179 based on the closing
        market price of the Company’s common stock on the date of issuance.
 
 During
        the six months ended September 30, 2008, the Company issued 1,717,729 shares
        of
        common stock for payment on notes payable due to the NIR Group. The shares
        were
        valued at $384,193 based on the closing market price of the Company’s common
        stock on the date of issuance which resulted in additional interest expense
        of
        $84,193.
 
 See
        Notes
        6 and 8 for discussion of common stock issuances and other items impacting
        stockholders’ deficit during the six month period ending September 30, 2008 and
        2007.
  10
  **RG
        GLOBAL LIFESTYLES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Note
        8 – Options and Warrants**
 
 **Options**
 On
        May 3,
        2006 and December 26, 2006, the Company’s Board of Directors adopted the 2006
        and 2007 Incentive and Non-statutory Stock Option Plan (“2006 Plan”) for
        issuance of stock options to employees and others. Compensation expense for
        these plans recorded during the three and six months ended September 30,
        2008
        was $313,684 and $747,392, respectively. Compensation expense for these plans
        recorded during the three and six months ended September 30, 2007 was $655,042
        and $1,431,072, respectively.
 
 The
        following is a summary of activity of outstanding stock option activity for
        the
        six months ended September 30, 2008:
  Numberof
                  SharesBalance,
                  March 31, 2008
              
              
              7,903,579Options
                  granted
              
              
              300,000Options
                  exercised
              
              
              -Options
                  cancelled or forfeited
              
              
              (300,000
              )Balance,
                  September 30, 2008
              
              
              7,903,579
 
 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.
 
 **Warrants**
 
 Along
        every dollar received from an investor for the purchase of its common stock,
        the
        Company grants the investor a warrant to purchase additional shares of the
        Company’s common stock. The warrants, which have an exercise price of $0.40 per
        share and a vesting period of two to three years, have an expiration date
        of
        five years after the date of issuance. The following is a summary of activity
        of
        outstanding common stock warrants for the six months ended September 30,
        2008:
 
 NumberOf
                  SharesBalance,
                  March 31, 2008
              
              
              17,163,344Warrants
                  granted
              
              
              399,000Warrants
                  exercised
              
              
              (1,606,904
              )Balance,
                  September 30, 2008
              
              
              15,955,440
 
 **Note
        9 – Commitments and Contingencies**
 
 **Legal
        Proceedings**
 
 On
        June
        11, 2008, the Company and Grant King was served a lawsuit from one of its
        note
        holders claiming that the Company defaulted on repayment on a note payable
        in
        the amount of $350,000 plus interest at 8%. The complaint asks for payment
        of
        these amounts plus damages. On August 12, 2008, the parties agreed to stipulated
        order whereby Grant King was dismissed from the lawsuit and the Company was
        granted a 90-day extension to respond to the complaint (until November 10,
        2008)
        in exchange the Company paid $49,530 which represents the interest due on
        the
        note through July 18, 2008. No amounts for damages have been accrued in the
        accompanying consolidated financial statement other than the note payable
        and
        accrued interest.
  11
  **RG
        GLOBAL LIFESTYLES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 On
        July
        11, 2008, the Company received notice that one of the Company’s vendors used in
        the construction of the Company’s water treatment facility filed a lien against
        the project for past due amounts. As of September 30, 2008, the vendor is
        due
        $136,691, which is included in accounts payable.
 
 **Water
        Treatment Contracts**
 
 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.
 
 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 of which there were none during the three
        and six
        month periods ended September 30, 2008 due to the limited
        production.
 
 **Note
        10 – Segment Reporting and Concentrations**
 
 The
        Company’s segments consist of the sale of energy drinks and the licensing of
        water treatment technology. Currently, the Company operates in a single
        geographical segment.
 
 The
        following is a summary of revenues generated by segment for the three months
        and
        six months ended September 30, 2008:
 
 Three
                Months
                Ended
                September
                30, 2008
              
              Six Months
                Ended
                September
                30, 2008Water
                  treatment revenues
              
              $
              -
              
              $
              $36,469Energy
                  drink sales
              
              
              6,851
              
              
              90,419Total
              
              $
              6,851
              
              $
              126,888
 
 During
        the three and six months ended September 30, 2008 and 2007, one customer
        accounted for 100% of water treatment revenues.
  12
  **RG
        GLOBAL LIFESTYLES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 A
        summary
        of operating loss by segment for the three and six months ended September
        30,
        2008 is as follows:
 
 Three
                Months
                Ended
                September
                30, 2008
              
              Six Months
                Ended
                September
                30, 2008Water
                  treatment segment
              
              $
              (277,592
              )
              $
              (583,394
              )OC
                  energy drink segment
              
              
              (97,059
              )
              
              (253,605
              )Corporate
                  segment
              
              
              (683,403
              )
              
              (1,776,305
              )Total
              
              $
              (1,058,054
              )
              $
              (2,613,304
              )
 
 A
        summary
        of the net assets as of September 30, 2008 related to the Company’s segments,
        after eliminating all inter-company assets, are as follows:
  Water
                  treatment segment
              
              $
              6,687,411OC
                  energy drink segment
              
              
              363,543Corporate
                  segment
              
              
              146,494Total
              
              $
              7,197,448
 
 A
        summary
        of revenues generated by segment for the three and six months ended September
        30, 2007, is as follows:
 Three Months
                    EndedSeptember 30, 2007
                
                Six Months EndedSeptember 30, 2007Water
                    treatment segment
                
                $
                469,049
                
                $
                678,208OC
                    energy drink segment
                
                
                68,595
                
                
                146,643Total
                
                $
                537,644
                
                $
                824,851
  A
        summary
        of operating loss by segment for the three and six months ended September
        30, 2007, is as follows:
 Three Months
                    EndedSeptember 30, 2007
                
                Six Months EndedSeptember 30, 2007Water
                    treatment segment
                
                $
                24,750
                
                $
                (136,369
                )OC
                    energy drink segment
                
                
                (92,929
                )
                
                (184,996
                )Corporate
                    segment
                
                
                (1,186,859
                )
                
                (2,286,086
                )Total
                
                $
                (1,255,038
                )
                $
                (2,607,451
                )
  During
        the quarter ended September 30, 2007, sales to a single customer were 100%
        and
        58.1% of total sales for revenues related to water-treatment technology and
        revenues related to OC energy drink product sales, respectively.
 
 **Note
        11 – Related Party Transactions**
 
 On
        February 11, 2008, Grant King, Chief Executive Officer, made a payment of
        $100,000 towards a note from a vendor and recorded it as a loan payable to
        a
        related party. On March 4, 2008, the Company repaid Grant King $30,000 against
        the loan. On March 14, 2008, the Company received an additional $32,700 from
        Grant King for operating purposes. The loan accrues interest at 11% and is
        due
        upon demand. Interest expense accrued on this loan for the six months ended
        September 30, 2008 was $7,320. The total loan outstanding from Grant King
        as of
        September 30, 2008 is $113,397 and accrued interest of $7,320.
  13
  **RG
        GLOBAL LIFESTYLES, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 During
        the fiscal year ended March 31, 2008, 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. As of September 30, 2008, amounts due to Catalyx included in accounts
        payable were $280,000.
 
 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.
        The
        term of the lease is 18 months at a base monthly rent of $7,200. During the
        six
        months ended September 30, 2008, payments to CEI for rent were
        $36,000.
 
 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 expenses incurred by the Company
        with
        CEI during the six months ended September 30, 2008 were $2,944. As of September
        30, 2008, amounts due to CEI included in accounts payable were
        $23,368.
 
 In
        previous periods, the Company utilized Fusion Solutions (“Fusion”) for
        manufacturing of product and promotional items for it OC Energy drink products.
        Fusion is partially owned by Mariano Fusco, a former owner and former CEO
        of the
        Company’s subsidiary, OC Energy and Albert Guerra, a partial owner of OC Energy.
        As of September 30, 2008, amounts due to Fusion included in accounts payable
        were $99,807.
 
 During
        the three months ended September 30, **** 2008,
        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 subsidiary. Glaser is owned by Robert Glaser, a partial owner and
        President of OC Energy. For the six months ended September 30, 2008, amounts
        expensed under this arrangement were $12,378. As of September 30, 2008, amounts
        due to Glaser included in accounts payable were $32,201.
 
 **Note
        12 – Subsequent Events**
 
 Subsequent
        to September 30, 2008, the Company generated $252,500 of additional cash
        from
        the sales of 1,683,333 shares of preferred stock to 9 accredited
        investors.
  14




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:




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





The
      following discussion should be read in conjunction with the historical financial
      statements and related notes thereto of R.G. Global Lifestyles, Inc., including
      Form 10-KSB as of March 31, 2008.




**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.





15




**OVERVIEW**
  During
        the past year RG Global Lifestyles management has prepared the company for
        a
        transition that would generate revenue without the heavy cash requirements
        that
        have currently inhibited the growth of the company. In transitioning from
        a
        build/own/operate (B/O/O) business model, for their CBM water treatment process,
        to that of strategic licensing, RG Global Lifestyles will be able to move
        from
        competing in the CBM water treatment business, to a supporting partner of
        new
        technology; to some of the largest names in the industry. This move has allowed
        management to refocus the company’s direction through advanced research and
        development for strategic acquisitions of both technology and synergistic
        partners. This enhanced business model will benefit the company and its
        shareholders through diversification as well as an ability to compete globally
        through responsible principles of Sustainable Development.
  **RG
        Global Lifestyles**
  RG
        Global
        Lifestyles is a company dedicated to responsible resource utilization through
        the strategic balance of Environmental, Societal and Economic growth. We
        will
        achieve this through advanced research and development for strategic
        acquisitions of both technology and synergistic partners. The benefit will
        be to
        our shareholders, the longevity of our planet and future generations through
        the
        protection and refinement of our most valuable resources.
  
  With
        strategic partnerships, through prominent global manufacturers and distributors,
        we have access to a worldwide distribution network. We have assembled a
        successful management team with a marketing history and expertise to develop
        and
        bring our cutting edge technology to market.
  Catalyx
        Fluid Solutions (CFS) Technology:
  RG
        Global
        Lifestyles Inc., through its wholly-owned division Catalyx Fluid Solutions,
        has
        patented technology developed for use in reclamation of Coal Bed Methane
        (CBM)
        discharge water. Our technology allows us to reduce the environmental impact
        of
        CBM mining and process the discharged water directly into local streams and
        rivers; at a significant savings compared to other technologies currently
        being
        utilized in this industry. The end result is a technology that solves a major
        environmental issue while providing a tremendous economic advantage in the
        CBM
        industry.
  CBM
        is
        the fastest growing alternative energy sector. CBM gas is processed though
        the
        removal of trapped gas located between the coal and water table. The gas
        is
        pumped out at very low operating cost, with a very high purity level. The
        only
        restricting factor has been the disposal or processing of the discharge water
        that is perpetually produced as a byproduct of the CBM gas extraction. By
        2010
        experts expect there to be more than 50,000 wells in Wyoming alone. Each
        well
        produces an average of 6.2 million gallons of discharge water per
        year.
  **OC
        Energy**
  OC
        Energy
        receives global brand recognition through “The Real Housewives of Orange
        County,” a syndicated TV show on the Bravo Network, which airs in over 114
        countries around the world. Even with this benefit, OC Energy has still been
        unable to compete with the endless marketing budgets of the Energy Drink
        leaders. These budgets combined with the growth of the energy shot industry
        have
        resulted in OC Energy redirecting its focus on the energy shot market. This
        refinement of the product line will minimize the future financial and resource
        impacts on RG Global lifestyles while increasing the possibility for the
        sale of
        OC Energy.
  Recently
        the “OC Energy Shot + ”
was
        launched in a major Drug Store Chain. Energy Shots have several key advantages
        over traditional energy drinks. With a 2oz. shot, you get the same amount
        of
        energy as an entire 8oz. can. This increased potency means less liquid that
        needs to be ingested, which has an appeal to a variety of professionals.
        Truck
        drivers can travel longer without restroom breaks, doctors can pound a quick
        shot between patients, and the busy office professional can get help through
        their afternoon slump. Energy shots have nightlife appeal as well. Shots
        can be
        used straight or easily added to a drink, providing just the right boost
        to keep
        the night going. Their convenient size allow them to be transported easily
        in a
        purse or pocket, something not possible with regular energy drinks. It is
        clear
        that energy shots are the next big player in the beverage industry.
  Because
        the Company has a controlling interest in OC Energy Drink, Inc., its results
        of
        operations are included in the Company's 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.





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





RESULTS
      OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2008 AND
      2007.





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 September 30,2008
            
            2007INCOME
                STATEMENT DATARevenue
            
            $
            6,851
            
            $
            537,644Gross
                profit (loss)
            
            $
            (212,029
            )
            $
            46,124Loss
                from operations
            
            $
            (1,
                058,054
            )
            $
            (1,255,038
            )Net
                income/loss
            
            $
            (1,
                163,674
            )
            $
            1,720,082Net
                income/loss per weighted average common share
            
            $
            (0.03
            )
            $
            0.06


16




REVENUES




For the quarter ended September 30,
            
            Increase/(Decrease)2008
            
            2007
            
            $
            
            %Revenues
            
            $
            6,851
            
            $
            537,644
            
            $
            (530,793
            )
            
            (99
            )%





During
      the quarter ended September 30, 2008, revenue associated with the Company's
      energy drink sales accounted for 100% of its total revenues. During the quarter
      ended September 30, 2007, the Company’s primary source of revenues was sales of
      its water treatment technology, which accounting for $469,049 of total revenue.
      The decrease in water treatment sales as compared to the same period in 2007
      was
      resulted from the Company shutting down the Yates plant after its first initial
      operation to make adjustments and modifications deemed necessary to reduce
      unexpected amounts of residual waste produced in the outflow pond during the
      filtration of the waste water. The decrease in energy drink revenues was due
      to redirecting the company focus from energy drinks to energy shot market.
 This refinement resulted in an increase to the inventory costs that were
      required to re-launch the product into a major drug chain.





GROSS
      PROFIT (LOSS)




For the quarter ended September 30,
            
            Increase/(Decrease)2008
            
            2007
            
            $
            
            %Gross
                profit (loss)
            
            $
            (212,029
            )
            $
            46,124
            
            $
            (258,153
            )
            
            (560)
            %





During
      the quarter ended September 30, 2008, gross profit (loss) associated with the
      Company's water treatment technology was $(215,227) and the gross profit from
      OC
      Energy Drink products was $3,198. The resulting loss During the quarter ended
      September 30, 2008, the Company was due primarily to its inability to operate
      the plant at full capacity because of the excessive amounts of waste water
      produced by the plant in the outflow pond. Included in its cost of sales were
      labor costs and depreciation expense of approximately $215,227. The lower profit
      level from the OC Energy drink line was the result of costs associated with
      eliminating the existing line, its related inventory, and re-launching the
      reformulated energy shot. The gross profit from the Company’s results for the
      quarter ended September 30, 2007 resulted primarily from deferred revenue
      recorded on the Black Diamond project and profitable sales of its OC Energy
      Drink products.





TOTAL
      OPERATING EXPENSES




For the quarter ended September 30,
            
            Increase/(Decrease)2008
            
            2007
            
            $
            
            %Total
                Operating Expenses
            
            $
            846,025
            
            $
            1,301,162
            
            $
            (455,137
            )
            
            (35)
            %





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 September 30, 2008 as compared to the quarter ended September
      30,
      2007 was primarily the result of a decrease in stock-based
      compensation.





OTHER
      INCOME (EXPENSE)




For the quarter ended September 30,
            
            Increase/(Decrease)2008
            
            2007
            
            $
            
            %Other
                Income (Expense)
            
            $
            (105,620
            )
            $
            2,956,535
            
            $
            (3,062,155
            )
            
            (103.6)
            %


17





The
      decrease in other income during the quarter ended September 30, 2008 as compared
      to the quarter ended September 30, 2007 resulted primarily from reduced interest
      expense for notes converted to stock in 2007, a reduction in the change in
      the
      fair value of common stock issued in connection with convertible notes in 2007
      and a reduction in the change in fair value of derivative liabilities in 2007.





RESULTS
      OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2008 AND
      2007.





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





Six Months Ended September 302008
            
            2007INCOME
                STATEMENT DATARevenue
            
            $
            126,888
            
            $
            824,851Gross
                profit (loss)
            
            $
            (339,480
            )
            $
            72,596Loss
                from operations
            
            $
            (2,613,304
            )
            $
            (2,607,451
            )Net
                loss
            
            $
            (2,760,886
            )
            $
            (121,988
            )Net
                loss per weighted average common share
            
            $
            (0.06
            )
            $
            (0.00
            )





As of September 302008
            
            2007BALANCE
                SHEET DATATotal
                assets
            
            $
            7,197,448
            
            $
            7,021,428Total
                liabilities
            
            $
            3,501,302
            
            $
            12,274,786Stockholders'
                equity (deficit)
            
            $
            3,696,146
            
            $
            (5,253,358
            )





REVENUES




For the six months ended September 30,
            
            Increase/(Decrease)2008
            
            2007
            
            $
            
            %Revenues
            
            $
            126,888
            
            $
            824,851
            
            $
            (697,963
            )
            
            (84.6
            )%





During
      the six months ended September 30, 2008, royalty revenue associated with the
      Company's water treatment technology accounted for 71% of its total revenues.
      This revenues related solely to the treatment and purification of approximately
      450,000 barrels of waste water at the Yates plant. The Company recorded $36,469
      in sales of OC Energy Drink products during the six months presented. During
      the
      six months ended September 30, 2007, the Company’s primary source of revenues
      was sales of its water treatment technology, which accounting for $678,208
      of
      total revenue. The decrease in water treatment sales was due to one of the
      Company’s current customers (Black Diamond Energy) request that the construction
      of its plant be delayed until it could obtain additional funding. In addition,
      the Company shut down the Yates plant after its first initial operation to
      make
      adjustments and modifications deemed necessary to reduce unexpected amounts
      of
      residual waste produced in the outflow pond during the filtration of the waste
      water. The decrease in energy drink revenues was due to a lack of sales at
      OC
      Energy resulting from its inability to market the product or obtain any
      contracts to place its products with retailers.





GROSS
      PROFIT (LOSS)




For the six months ended September 30,
            
            Increase/(Decrease)2008
            
            2007
            
            $
            
            %Gross
                profit (loss)
            
            $
            (339,480
            )
            $
            72,596
            
            $
            (412,076
            )
            
            (568)
            %




18




During
        the quarter ended September 30, 2008, gross profit (loss) associated with
        the
        Company's water treatment technology was $(342,861) and the gross profit
        from OC
        Energy Drink products was $3,381. During the quarter ended September 30,
        2008,
        the Company was unable to operate the plant at full capacity. Included in
        its
        cost of sales were labor costs and depreciation expense of approximately
        $433,280. The lower profit level from the OC Energy
        drink line was the result of costs associated with eliminating the existing
        line, its related inventory, and re-launching the reformulated energy
        shot. The
        gross profit from the Company’s results for the six months ended September 30,
        2007 was primarily the result from deferred revenue recorded on the Black
        Diamond project and profitable sales of its OC Energy Drink
        products.


TOTAL
      OPERATING EXPENSES




For the six months ended September 30,
            
            Increase/(Decrease)2008
            
            2007
            
            $
            
            %Total
                Operating Expenses
            
            $
            2,273,824
            
            $
            2,680,047
            
            $
            (406,223
            )
            
            (15
            )%





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
      six
      months ended September 30, 2008 as compared to the six months ended September
      30, 2007 was primarily the result of a decrease in stock-based
      compensation..





OTHER
      INCOME (EXPENSE)




For the six months ended September 30,
            
            Increase/(Decrease)2008
            
            2007
            
            $
            
            %Other
                Income (Expense)
            
            $
            (147,582
            )
            $
            2,466,878
            
            $
            (2,614,460
            )
            
            (106)
            %





The
      decrease in other income during the six months ended September 30, 2008 as
      compared to the six months ended September 30, 2007 resulted primarily from
      reduced interest expense for notes converted to stock in 2007, a reduction
      in
      the change in the fair value of common stock issued in connection with
      convertible notes in 2007and a reduction in the change in fair value of
      derivative liabilities in 2007.





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 September 30, 2008, the Company had cash and cash
      equivalents of $18,572, accounts payable of $1,224,634, accrued liabilities
      of
      $998,585 and notes payable outstanding of $1,110,193.





The
      Company believes that cash expected to be 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
      December 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.
      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.


19





In
      addition, if needed the Company would potentially sell it’s only existing water
      treatment plant and move to a more royalty based revenue stream to generate
      cash
      to continue operations. There can be no assurance that the revenue from the
      sale
      of the plant will be sufficient for the Company to achieve profitability in
      its
      operations.





For
      the
      six month period ended September 30, 2008, the Company funded operations
      primarily through sales of its common stock to investors in the amount of
      $399,000.





OPERATING
      ACTIVITIES





Operating
      cash flows used during the six months ended September 30, 2008, amounted to
      $375,155. The primary use of operating cash was to pay consultants and salaries
      and wages. This was the result of a net loss of $2,760,886 offset by non-cash
      and non-operating items (depreciation, amortization of intangible assets,
      stock-based compensation and interest expense from the amortization of debt
      discounts) totaling $1,460,034 and net changes in current assets and liabilities
      of $925,697.





INVESTING
      ACTIVITIES





Investing
      cash flows used during the six months ended September 30, 2008, amounted to
      ($17,592) used primarily for minor capitalized costs and deposits.





FINANCING
      ACTIVITIES





Financing
      cash flows during the six months ended September 30, 2008, amounted to $399,000
      and consisted entirely of, sales of its common stock to investors.





CRITICAL
      ACCOUNTING POLICIES





We
      prepare our consolidated financial statements in accordance with accounting
      principles generally accepted in the United States of America (US GAAP). 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.


20


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.





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.





STOCK-BASED
      COMPENSATION





On
      June
      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 June 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.
      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 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 September 30, 2008
      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 September 30,
      2008
      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.


21


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.





RECENT
      ACCOUNTING PRONOUNCEMENTS





In
      September 2007, 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, 2008. We plan
      to
      adopt the provisions of SFAS 157 on April 1, 2009 and are currently assessing
      the impact of the adoption of SFAS 157 on our results of operations and
      financial condition.





In
      February 2008, 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, 2008. We are currently assessing the impact
      of
      adopting SFAS 159 on our results of operations and financial
      condition.





In
      December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS
      141(R)"), which replaces FAS 141. SFAS 141(R) establishes principles and
      requirements for how an acquirer in a business combination recognizes and
      measures in its financial statements the identifiable assets acquired, the
      liabilities assumed, and any controlling interest; recognizes and measures
      the
      goodwill acquired in the business combination or a gain from a bargain purchase;
      and determines what information to disclose to enable users of the financial
      statements to evaluate the nature and financial effects of the business
      combination. FAS 141(R) is to be applied prospectively to business
      combinations.





In
      December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
      Consolidated Financial Statements", which is an amendment of Accounting Research
      Bulletin ("ARB") No. 51. This statement clarifies that a noncontrolling interest
      in a subsidiary is an ownership interest in the consolidated entity that should
      be reported as equity in the consolidated financial statements. This statement
      changes the way the consolidated income statement is presented, thus requiring
      consolidated net income to be reported at amounts that include the amounts
      attributable to both parent and the noncontrolling interest. This statement
      is
      effective for the fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008. Based on current conditions, the
      Company does not expect the adoption of SFAS 160
      to
      have a significant impact on its results of operations or financial
      position.


22


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.





**Item
      3. Quantitative and Qualitative Disclosures About Market Risk
–** Not
      Applicable





**Item
      4. Controls and Procedures**





During
      its year end procedures, the Company noted several weaknesses in its internal
      controls. No steps have been taken to address these control
      weaknesses.





As
      required by SEC Rule 13a-15 or Rule 15d-15, our Chief Executive and Principal
      Accounting Officers carried out an evaluation under the supervision and with
      the
      participation of our management, of the effectiveness of the design and
      operation of our disclosure controls and procedures as of the end of the period
      covered by this report. In the course of the previous fiscal quarter ended
      September 30, 2008, our chief executive officer and principal accounting 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
      Principal Accounting officer, as appropriate, to allow timely decisions
      regarding required disclosure.





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting will necessarily prevent all fraud
      and
      material error. Our disclosure controls and procedures are designed to provide
      reasonable assurance of achieving our objectives and our Chief Executive Officer
      and Principal Accounting Officer concluded that our disclosure controls and
      procedures are effective at that reasonable assurance level. Further, the design
      of a control system must reflect the fact that there are resource constraints,
      and the benefits of controls must be considered relative to their costs. Because
      of the inherent limitations in all control systems, no evaluation of controls
      can provide absolute assurance that all control issues and instances of fraud,
      if any, within the Company have been detected. 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 internal control. The design
      of
      any system of controls also is based in part upon certain assumptions about
      the
      likelihood of future events, and there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions.
      Over time, control may become inadequate because of changes in conditions,
      or
      the degree of compliance with the policies or procedures may
      deteriorate.





Internal
      Control Over Financial Reporting





Pursuant
      to Rule 13a-15(d) or Rule 15d-15(d) of the Exchange Act, our management, with
      participation with the Company’s Chief Executive and Principal Accounting
      Officers, is responsible for evaluating any change in the company's internal
      control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f)
      under the Exchange Act), that occurred during each of the issuer's fiscal
      quarters that has materially affected, or is reasonably likely to materially
      affect, the company's internal control over financial reporting.





Based
      on
      the foregoing evaluation, the Company has concluded that there was no change
      in
      our internal control over financial reporting that occurred during the fiscal
      quarter ended September 30, 2008, that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.




23




**PART
        II — OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings**
 
 O n
        June
        11, 2008, the Company and Grant King was served a lawsuit from one of its
        note
        holders claiming that the Company defaulted on repayment on a note payable
        in
        the amount of $350,000 plus interest at 8%. The complaint asks for payment
        of
        these amounts plus damages. On August 12, 2008 the parties agreed to stipulated
        order whereby Grant King was dismissed from the lawsuit and the Company was
        granted a 90 day extension to respond to the complaint (until November 10,
        2008)
        and in exchange the Company paid $49,530 which represents the interest due
        on
        the note through July 18, 2008. On November 19, 2008, the parties agreed
        to a
        stipulated order whereby and the Company was granted a 60 day extension to
        for
        the court's hearing on Plaintiff's motion for default judgment and Defendant's
        answer (until January 21, 2009) and in exchange the Company paid approximately
        $11,000 which represents the interest due on the note through November 10,
        2008,
        the Plaintiffs waived any right to recovery of legal fees incurred in this
        litigation through November 10, 2008, and the Defendant agreed to Plaintiff's
        conversion of their existing warrant to purchase 350,000 shares of the
        Defendant's common stock with a waiver of the existing purchase price of
        $0.20
        per share. No amounts for damages have been accrued in the accompanying
        consolidated financial statement other than the note payable and accrued
        interest (see Note 9).
 On
          July
          11, 2008, the Company received notice that Claude's Welding Service, Inc.,
          one
          of the Company's vendors, filed a lien against the Company's water treatment
          plant for past due amounts due to the vendor. On September 4, 2008, the
          plaintiff filed a lawsuit against the Company and its division Catalyx
          Fluid
          Solutions in the District Court of the Fourth Judicial District in the
          State of
          Wyoming, County of Johnson, CV-2008-0102, for payment of $140,310. The
          Company
          is planning to answer the complaint and counterclaim for damages.
 
 As
          of
          September 30, 2008, the Company has included $136,691 is included in accounts
          payable, although the Company is disputing such amount in the
          lawsuit .





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




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





During
      the quarter ended September 30, 2008, 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 $394,000 in this offering
      from
      16 accredited investors, and, therefore, has incurred the obligation to issue
      1,313,333 shares of common stock and warrants to purchase 394,000 shares of
      common stock. The securities were sold to the investors in reliance on Section
      4(2) under the Securities Act of 1933, as amended. During
      the six months ended September 30, 2008, the Company received proceeds of
      $217,483 for the purchase of 1,499,888 shares of preferred stock. As of
      September 30, 2008, the Company has recorded the proceeds received as a
      liability as the proper preferred stock designations have not been filed with
      the State of California. The Company intends to issue this stock once the State
      of California authorizes the designations .





**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-Q:





Exhibit
              Number
            
            Description of Document31.1
            
            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





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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
            November
                14, 2008/s/
                  Richard LambrightRichard
                Lambright
            
            Principal
                Accounting Officer
            November 14,
                2008


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