<PAGE>

                                   FORM 10-QSB

                    U. S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


                      For Quarter Ended: DECEMBER 31, 2003


                        Commission File Number: 001-04026


                           LIFESTYLE INNOVATIONS, INC.
                           ---------------------------
        (Exact name of small business issuer as specified in its charter)


        NEVADA                                                   82-6008727
        ------                                                   ----------
(State of Incorporation)                                    (IRS Employer ID No)


                    4700 LAKESHORE CT, COLLEYVILLE, TX 76034
                    ----------------------------------------
                     (Address of principal executive office)

                                  817-307-6591
                                  ------------
                           (Issuer's telephone number)


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


The number of shares outstanding of registrant's common stock, par value $.001
per share, as of January 31, 2004 was 20,819,325 shares.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].




<PAGE>


                  LIFESTYLE INNOVATIONS, INC. AND SUBSIDIARIES
           (A MAJORITY OWNED SUBSIDIARY OF RCG COMPANIES INCORPORATED)

                                      INDEX

                                                                            Page
                                                                             No.
                                                                             ---
Part I.    Financial Information (unaudited)

   Item 1. Condensed Consolidated Balance Sheet - December 31, 2003           3

           Condensed Consolidated Statements of Operations -                  4
           Three Months Ended December 31, 2003 and 2002

           Condensed Consolidated Statements of Operations -                  5
           Six Months Ended December 31, 2003 and 2002

           Condensed Consolidated Statement of Stockholders' Deficit -        6
           Six Months Ended December 31, 2003

           Condensed Consolidated Statements of Cash Flows -                  7
              Six Months Ended December 31, 2003 and 2002

           Notes to Condensed Consolidated Financial Statements -           8-22
           Six Months Ended December 31, 2003 and 2002

   Item 2. Management's Discussion and Analysis of Financial Condition     23-26
           and Results of Operations

   Item 3. Controls and Procedures                                         26-27

Part II.   Other Information                                               27-30


                                       2
<PAGE>
<TABLE>

LIFESTYLE INNOVATIONS, INC. AND SUBSIDIARIES
(A Majority Owned Subsidiary of RCG Companies Incorporated)
Condensed Consolidated Balance Sheet
December 31, 2003
(Unaudited)
<CAPTION>
<S>                                                                       <C>
                                         ASSETS

CURRENT ASSETS
 Cash and cash equivalents                                                $     32,307
 Accounts receivable, net of allowance of $152,734                             173,340
 Inventories                                                                    20,787
 Prepaid expenses and other assets                                               6,189
                                                                          -------------
    Total current assets                                                       232,623
Property and equipment, net                                                    141,092
Other assets                                                                    15,000
Goodwill, net                                                                1,207,849
                                                                          -------------
     Total assets                                                         $  1,596,564
                                                                          =============

                         LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
 Notes payable                                                            $  1,248,919
 Notes payable - related parties                                               979,866
 Accounts payable                                                              384,738
 Accrued expenses                                                              916,485
 Unearned income                                                                15,743
 Due to affiliates                                                           1,963,799
 Current liabilities of discontinued operations                              1,069,269
                                                                          -------------
    Total current liabilities                                                6,578,819
Note payable, non-current                                                      127,000
                                                                          -------------
     Total liabilities                                                       6,705,819

Commitments and contingencies

STOCKHOLDERS' DEFICIT
 Series A Convertible Preferred stock, $.10 par value; 1,000,000 shares
  authorized issued and outstanding; liquidation preference $2,750,000;
  convertible into from
  1,000,000 to 2,200,000 shares of common stock                                100,000
 Common stock, $.001 par value; authorized 250,000,000 shares; issued -
  20,819,325 shares; outstanding - 20,712,930 shares                            20,819
 Additional paid in capital                                                 13,446,838
 Common stock warrants                                                         206,295
 Deferred expenses                                                            (265,988)
 Stock subscription receivable                                                  (4,000)
 Accumulated deficit                                                       (18,613,219)
                                                                          -------------
     Total stockholders' deficit                                            (5,109,255)
                                                                          -------------
     Total liabilities and stockholders' deficit                          $  1,596,564
                                                                          =============

See accompanying notes to condensed consolidated financial statements

                                           3
</TABLE>

<PAGE>


LIFESTYLE INNOVATIONS, INC. AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF RCG COMPANIES INCORPORATED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002

(UNAUDITED)

                                                        2003            2002

Sales and revenues
  Products                                          $    226,001   $    126,750
  Services and other                                      51,433        130,877
                                                    -------------  -------------
                                                         277,434        257,627
COST OF SALES                                            102,678         39,282
                                                    -------------  -------------
  GROSS PROFIT                                           174,756        218,345

OPERATING EXPENSES:
  Selling, general and administrative expense            257,966        363,206
  Stock option and warrant compensation                 (243,748)         7,125
  Depreciation and amortization                           17,496         26,271
  Management fee - parent                                 10,000         17,500
                                                    -------------  -------------
    Total operating expenses                              41,714        414,102
                                                    -------------  -------------
EARNINGS (LOSS) FROM OPERATIONS                          133,042       (195,757)
OTHER INCOME (EXPENSE):
  Rent and other income                                    5,175             --
  Interest expense                                       (52,303)       (12,451)
  Interest expense - related parties                     (21,961)            --
                                                    -------------  -------------
                                                         (69,089)       (12,451)
                                                    -------------  -------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS                63,953       (208,208)
Discontinued operations:
 Loss from operation of discontinued operations       (5,745,624)      (277,501)
 Income tax benefit                                           --             --
                                                    -------------  -------------
                                                      (5,745,624)      (277,501)
                                                    -------------  -------------
NET LOSS                                            $ (5,681,671)  $   (485,709)
                                                    =============  =============

NET EARNINGS (LOSS) PER SHARE, BASIC AND DILUTED:
  CONTINUING OPERATIONS                             $       0.00   $      (0.01)
  DISCONTINUED OPERATIONS                                  (0.27)         (0.01)
                                                    -------------  -------------
    NET LOSS PER SHARE, BASIC AND DILUTED           $      (0.27)  $      (0.02)
                                                    =============  =============

WEIGHTED AVERAGE SHARES OUTSTANDING                   20,819,053     20,306,191
                                                    =============  =============

See accompanying notes to condensed consolidated financial statements

                                       4
<PAGE>


LIFESTYLE INNOVATIONS, INC. AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF RCG COMPANIES INCORPORATED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

(UNAUDITED)

                                                       2003            2002

Sales and revenues
  Products                                         $    401,274    $    159,484
  Services and other                                    119,827         245,758
                                                   -------------   -------------
                                                        521,101         405,242
COST OF SALES                                           232,374          66,531
                                                   -------------   -------------
  GROSS PROFIT                                          288,727         338,711

OPERATING EXPENSES:
  Selling, general and administrative expense           556,295         798,859
  Stock option and warrant compensation                (133,039)         14,250
  Depreciation and amortization                          35,497          36,789
  Management fee - parent                                25,000          35,000
                                                   -------------   -------------
    Total operating expenses                            483,753         884,898
                                                   -------------   -------------
LOSS FROM OPERATIONS                                   (195,026)       (546,187)
OTHER INCOME (EXPENSE):
  Rent and other income                                   7,950              --
  Interest expense                                      (78,554)        (24,637)
  Interest expense - related parties                    (39,139)             --
                                                   -------------   -------------
                                                       (109,743)        (24,637)
                                                   -------------   -------------
LOSS FROM CONTINUING OPERATIONS                        (304,769)       (570,824)
Discontinued operations:
 Loss from operation of discontinued operations      (6,390,081)       (477,838)
 Income tax benefit                                          --              --
                                                   -------------   -------------
                                                     (6,390,081)       (477,838)
                                                   -------------   -------------
NET LOSS                                           $ (6,694,850)   $ (1,048,662)
                                                   =============   =============

NET LOSS PER SHARE, BASIC AND DILUTED:
  CONTINUING OPERATIONS                            $      (0.01)   $      (0.03)
  DISCONTINUED OPERATIONS                                 (0.31)          (0.03)
                                                   -------------   -------------
    NET LOSS PER SHARE, BASIC AND DILUTED          $      (0.32)   $      (0.06)
                                                   =============   =============

WEIGHTED AVERAGE SHARES OUTSTANDING                  20,763,129      18,727,648
                                                   =============   =============

See accompanying notes to condensed consolidated financial statements

                                       5
<PAGE>
<TABLE>

LIFESTYLE INNOVATIONS, INC. AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF RCG COMPANIES INCORPORATED)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED DECEMBER 31, 2003

(UNAUDITED)
<CAPTION>

                                                                                        Additional       Common
                                Preferred Stock        Common Stock                       Paid-in        Stock
                             Shares      Par Value       Shares         Par Value         Capital       Warrants
                           ------------ ------------- --------------  ---------------  --------------  -----------
<S>                          <C>            <C>          <C>                <C>         <C>             <C>
Balance, June 30, 2003       1,000,000      $100,000     20,469,325         $ 20,469    $ 12,639,673    $ 206,295
 Issue common stock                  -             -        325,000              325         730,940            -
 Issue common stock
  for services                       -             -         25,000               25          76,225            -
 Deferred expenses
  amortized                          -             -              -                -               -            -
 Net loss                            -             -              -                -               -            -

                           ------------ ------------- --------------  ---------------  --------------  -----------
Balance, Dec 31, 2003        1,000,000      $100,000     20,819,325         $ 20,819    $ 13,446,838    $ 206,295
                           ============ ============= ==============  ===============  ==============  ===========



                             Unissued                     Stock
                              Common      Deferred     Subscription     Accumulated
                              Stock       Expenses     Receivable       (Deficit)          Total
                           ------------ ------------- --------------  ---------------  --------------
Balance, June 30, 2003        $731,265    $ (303,488)      $ (4,000)   $ (11,918,369)    $ 1,471,845
 Issue common stock           (731,265)            -              -                -               -
 Issue common stock
  for services                       -             -              -                -          76,250
 Deferred expenses
  amortized                          -        37,500              -                -          37,500
 Net loss                            -             -              -       (6,694,850)     (6,694,850)

                           ------------ ------------- --------------  ---------------  --------------
Balance, Dec 31, 2003              $ -    $ (265,988)      $ (4,000)   $ (18,613,219)   $ (5,109,255)
                           ============ ============= ==============  ===============  ==============

See accompanying notes to condensed consoliated financial statements.


                                       6
</TABLE>

<PAGE>
<TABLE>

LIFESTYLE INNOVATIONS, INC. AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF RCG COMPANIES INCORPORATED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002
(UNAUDITED)
<CAPTION>

                                                                       2003           2002
<S>                                                                <C>            <C>
Cash flows from operating activities
Net loss                                                           $(6,694,850)   $(1,048,662)
 Loss from discontinued operations                                  (6,390,081)      (477,838)
                                                                   ------------   ------------
   Loss from continuing operations                                    (304,769)      (570,824)
Adjustments to reconcile net loss to net
 cash used by operating activities:
  Depreciation                                                          35,497         36,789
  Common stock option expense                                         (135,414)            --
  Amortize deferred expenses                                            37,500             --
  Common stock issued for services                                      76,250             --
  Sale of assets                                                         1,368             --
  Changes in operating assets and liabilities, net of effects of
    acquisitions and divestitures:
     Accounts and notes receivable                                     264,205       (477,028)
     Inventories                                                        14,420         (2,294)
     Prepaid expenses and other assets                                  15,690         14,420
     Accounts payable and accrued expenses                            (141,022)       348,667
     Deposits and unearned income                                      (23,767)       (10,226)
                                                                   ------------   ------------
        Net cash used by continuing operations                        (160,042)      (660,496)
        Net cash used by discontinued operations                      (284,767)      (139,067)
                                                                   ------------   ------------
          Net cash used by operations                                 (444,809)      (799,563)
                                                                   ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sale of subsidiary                                      60,000             --
  Acquisition of property and equipment                                 (1,096)       (24,547)
                                                                   ------------   ------------
        Net cash provided (used) by continuing operations               58,904        (24,547)
        Net cash used by discontinued operations                        (9,871)       (27,810)
                                                                   ------------   ------------
          Net cash provided (used) by investing activities              49,033        (52,357)
                                                                   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash                                                --        412,420
Cash received in excess of cash paid in acquisition                         --        273,518
Loan proceeds                                                          365,000         75,000
Repayment of notes payable                                            (180,000)       (18,000)
Loans from related parties                                             257,690             --
Loans made                                                             (15,000)            --
Advances from parent                                                    25,000             --
                                                                   ------------   ------------
Net cash provided by continuing operations                             452,690        742,938
        Net cash provided (used) by discontinued operations            (52,364)       121,078
                                                                   ------------   ------------
          Net cash provided by financing activities                    400,326        864,016
                                                                   ------------   ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                4,550         12,096
CASH AND CASH EQUIVALENTS, beginning of period                          27,757         12,277
                                                                   ------------   ------------
CASH AND CASH EQUIVALENTS, end of period                           $    32,307    $    24,373
                                                                   ============   ============

See accompanying notes to condensed consolidated financial statements

                                       7
</TABLE>

<PAGE>

LIFESTYLE INNOVATIONS, INC. AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF RCG COMPANIES INCORPORATED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002
 (UNAUDITED)


A.       BASIS OF PRESENTATION AND ORGANIZATION

         (1)      PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION - The
                  condensed consolidated financial statements include the
                  accounts of Lifestyle Innovations, Inc. ("LFSI") and its
                  wholly owned subsidiaries LST, Inc. ("LST"), LST Integrators,
                  Inc. ("Integrators"), LifeStyle Technologies Franchising Corp.
                  ("Franchising"), FutureSmart Systems, Inc. ("FutureSmart"),
                  SYSLYNC Colorado, Inc. ("Colorado") and Brittany Enterprises,
                  Inc. ("Brittany") (collectively the "Company"). All material
                  intercompany accounts and transactions have been eliminated.
                  Effective July 15, 2002 Princeton Mining Company changed its
                  name to Lifestyle Innovations, Inc.

                  At December 31, 2003 the Company has a significant working
                  capital deficit of $6,346,196. The major components of the
                  working capital deficit include: $1,963,799 due to affiliates,
                  $1,301,223 in accounts payable and accrued expenses, notes
                  payable in the amount of $1,248,919, notes payable due related
                  parties of $979,866 and current liabilities of discontinued
                  operations in the amount of $1,069,269. The Company does not
                  have sufficient cash flows to meet its obligations currently
                  due within the next 12 months. The Company is currently
                  exploring additional sources of liquidity, including debt and
                  equity financing alternatives and potential sales of its
                  Common Stock in private placement transactions. Additionally,
                  the Company plans on negotiating with its debt holders to
                  continue to extend or convert some or all of the debt. If the
                  Company is (i) unable to grow its business or improve its
                  operating cash flows as expected, (ii) unsuccessful in
                  extending a substantial portion of the debt repayments
                  currently past due, or (iii) unable to raise additional funds
                  through private placement sales of its Common Stock, then the
                  Company may be unable to continue as a going concern. There
                  can be no assurance that additional financing will be
                  available when needed or, if available, that it will be on
                  terms favorable to the Company and its stockholders. If the
                  Company is not successful in generating sufficient cash flow
                  from operations, or in raising additional capital when
                  required in sufficient amounts and on terms acceptable to the
                  Company, these failures would have a material adverse effect
                  on the Company's business, results of operations and financial
                  condition. If additional funds are raised through the issuance
                  of equity securities, the percentage ownership of the
                  Company's current shareholders would be diluted.


                                       8
<PAGE>

         (2)      ORGANIZATION - LFSI was organized in September 1950, under the
                  laws of the State of Idaho.

                  Effective November 15, 2003, pursuant to an Asset Purchase
                  Agreement, LFSI, through its wholly owned subsidiary,
                  Colorado, completed the acquisition of the majority of the
                  assets of HomeSync Corporation ("HomeSync") by assuming
                  certain liabilities of HomeSync. The purchase price was
                  recorded in an amount equal to the assumed liabilities of
                  approximately $750,000. Shortly after completing the
                  acquisition and prior to December 31, 2003, a significant
                  portion of the assets of HomeSync, which were supposedly
                  acquired by Colorado, were seized by the Colorado Department
                  of Revenue to satisfy certain unpaid tax obligations. Upon
                  notifying HomeSync of the seizure, the Company was informed
                  that HomeSync would be filing for Chapter 7 Bankruptcy. Based
                  upon that information, the Company was informed by counsel
                  that, due to the U.S. Bankruptcy rules regarding preferential
                  transfer, the Company was instructed to deliver control of the
                  HomeSync assets acquired back to HomeSync. The Company had
                  only nominal costs associated with the acquisition, which have
                  been expensed. Accordingly, the Company has treated the
                  transaction as if it were rescinded with the only financial
                  impact being the acquisition costs discussed above.

                  LFSI completed its acquisition of FutureSmart effective March
                  7, 2003. On May 28, 2003 the Board of Directors approved a
                  plan to dispose of FutureSmart. Accordingly, its operations
                  since March 7, 2003 have been included in discontinued
                  operations. The sale of all assets together with assumption
                  and settlement of most liabilities was consummated on October
                  17, 2003. See Note C.

                  On September 5, 2002, LFSI acquired LST, a Delaware
                  corporation, and its wholly owned subsidiaries, Lifestyle
                  Technologies Franchising Corp., Lifestyle Security, Inc. and
                  Lifestyle Technologies Atlanta, all organized in July 2001.
                  LFSI issued 16,000,000 shares of its common stock to RCG
                  Companies Incorporated ("RCG"), to acquire 100% interest in
                  LST. At December 31, 2003 RCG owns 75% of the outstanding
                  common stock of LFSI. On February 20, 2003 LFSI reorganized
                  its corporate structure. LST Integrators, Inc. became a wholly
                  owned subsidiary of LFSI and the company-store operations
                  located in Charlotte, NC and Atlanta, GA were transferred to
                  Integrators. Simultaneously Franchising became a wholly owned
                  subsidiary of LFSI and LST and LifeStyle Security, Inc. became
                  inactive. Effective December 1, 2003, the operations of
                  Lifestyle Technologies Charlotte, Inc. ("Charlotte") were
                  discontinued. LFSI had only nominal operations prior to the
                  merger, leasing two condominium units, accordingly for
                  accounting purposes the transaction has been treated as the
                  issuance of stock by LST for the net monetary assets of LFSI,
                  accompanied by a recapitalization of LST. The accounting
                  treatment is identical to accounting for a reverse
                  acquisition, except that no goodwill or other intangible asset
                  is recorded. The historical financial statements prior to
                  September 5, 2002 are those of LST.

                  On April 24, 2001, LFSI acquired Brittany, a Nevada
                  corporation organized on October 29, 1998. For accounting
                  purposes, the acquisition has been treated as the acquisition
                  of Brittany by LFSI with Brittany as the purchaser (reverse
                  acquisition). Brittany did not have operations until March 30,
                  2001, when it acquired two condominium units that it is
                  leasing.


                                       9
<PAGE>

                  Princeton Mining Company, an Idaho corporation, merged into
                  its wholly owned subsidiary, Princeton Mining Company, a
                  Nevada corporation on May 6, 2002. Princeton Mining Company, a
                  Nevada corporation, was the survivor.

         (3)      NATURE OF BUSINESS - LFSI through Integrators and Franchising
                  is a full service home technology integration company
                  providing builders, homeowners, and commercial customers with
                  complete installation and equipment for audio, video, home
                  theater, security, computer networking, central vacuum and
                  accent lighting. Franchising has also secured relationships
                  with product manufacturers, distributors and service providers
                  (cable, Internet service, broadband and security). The Company
                  launched a national franchising program in the fourth quarter
                  of fiscal 2001 and, has since sold 18.5 franchises.
                  Integrators also owns and operates a location in the Atlanta,
                  GA market.

                  Brittany is the owner of two condominium units that are
                  located in Dallas, Texas which are currently under lease.

         (4)      GENERAL - The financial statements included in this report
                  have been prepared by the Company pursuant to the rules and
                  regulations of the Securities and Exchange Commission for
                  interim reporting and include all adjustments (consisting only
                  of normal recurring adjustments) that are, in the opinion of
                  management, necessary for a fair presentation. These financial
                  statements have not been audited.

                  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 for interim reporting.
                  The Company believes that the disclosures contained herein are
                  adequate to make the information presented not misleading.
                  However, these financial statements should be read in
                  conjunction with the financial statements and notes thereto
                  included in LFSI's Annual Report for the period ended June 30,
                  2003, which is included in the Company's Form 10-KSB filed on
                  October 14, 2003.

         (5)      FISCAL YEARS - As used herein, fiscal 2004 refers to the
                  periods included in the fiscal year ended June 30, 2004 and
                  fiscal 2003 refers to the periods included in the fiscal year
                  ended June 30, 2003.



                                       10
<PAGE>


B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         CASH AND CASH EQUIVALENTS

         The Company classifies as cash equivalents any investments which can be
         readily converted to cash and have an original maturity of less than
         three months. At times cash and cash equivalent balances at a limited
         number of banks and financial institutions may exceed insurable
         amounts. The Company believes it mitigates its risks by depositing cash
         or investing in cash equivalents in major financial institutions.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used by the Company in
         estimating its fair value disclosures for financial instruments:

         o        Cash and cash equivalents: The carrying amount reported in the
                  balance sheet for cash approximates its fair value.
         o        Accounts receivable and accounts payable: Due to their short
                  term nature, the carrying amounts reported in the balance
                  sheet for accounts receivable and accounts payable approximate
                  their fair value. The Company provides for any losses through
                  its allowance for doubtful accounts.
         o        Notes payable: The carrying amount of the Company's notes
                  payable approximate their fair value.

         CONCENTRATION OF CREDIT RISK

         Financial instruments that potentially subject the Company to
         concentrations of credit risk consist principally of cash, accounts
         receivable, investments, and notes payable. The Company places its cash
         with high credit quality financial institutions. The Company performs
         periodic credit evaluations of its customers' financial condition and
         generally does not require collateral. Although due dates of
         receivables vary based on contract terms, credit losses have been
         within management's estimates in determining the level of allowance for
         doubtful accounts. Overall financial strategies are reviewed
         periodically.

         INVENTORIES

         Inventories for the LifeStyle company owned store consists of purchased
         components, which are recorded at the lower of cost or market with cost
         being determined on a first-in, first-out (FIFO) method.

         PROPERTY AND EQUIPMENT

         Property and equipment are recorded at cost, net of accumulated
         depreciation. Depreciation is calculated by using the straight-line
         method over the estimated useful lives of the assets, which is five to
         seven years for all categories except for computer software, with is
         depreciated over 3 years. Leasehold improvements are amortized over the
         life of the lease if it is shorter than the estimated useful life.
         Repairs and maintenance are charged to expense as incurred.
         Expenditures for betterments and renewals are capitalized. The cost of
         property and equipment and the related accumulated depreciation are
         removed from the accounts upon retirement or disposal with any
         resulting gain or loss being recorded as other income or expenses.
         Equipment under capital lease is recorded at the lesser of the fair
         value of the asset or the present value of minimum lease payments.


                                       11
<PAGE>

         GOODWILL AND INTANGIBLE ASSETS

         The Company records goodwill and intangible assets arising from
         business combinations in accordance with FAS No. 141 "Business
         Combinations" ("FAS 141") which requires that the purchase method of
         accounting be used for all business combinations initiated after June
         30, 2001. FAS 141 also specifies the criteria applicable to intangible
         assets acquired in a purchase method business combination to be
         recognized and reported apart from goodwill.

         The Company accounts for goodwill and intangible assets in accordance
         with FAS 142. The Company adopted FAS 142 effective July 1, 2001. In
         completing the adoption of FAS 142, LST allocated its previously
         existing goodwill as of July 1, 2001 to its reporting units, as defined
         in FAS 142, and performed an initial test for impairment as of that
         date.

         In accordance with FAS 142, the Company no longer amortizes goodwill.
         FAS 142 requires that goodwill and intangible assets with indefinite
         useful lives no longer be amortized, but instead be tested at least
         annually for impairment. FAS 142 also requires that intangible assets
         with definite useful lives be amortized over their respective estimated
         useful lives to their estimated residual values, and be reviewed for
         impairment. The Company discontinued its "Company Owned Location" in
         Charlotte, NC effective December 1, 2003 and wrote off the associated
         goodwill in the amount of $5,691,604.

         STOCK OPTIONS AND WARRANTS

         The Company accounts for stock-based awards to employees using the
         intrinsic value method described in Accounting Principles Board Opinion
         (APB) No. 25, "Accounting for Stock Issued to Employees" and its
         related interpretations. Accordingly, no compensation expense has been
         recognized in the accompanying consolidated financial statements for
         stock-based awards to employees when the exercise price of the award is
         equal to or greater than the quoted market price of the stock on the
         date of the grant.

         On March 7, 2003, pursuant to her employment agreement, Jacqueline E.
         Soechtig, Chief Executive Officer until October 14, 2003, was granted
         (1) an incentive stock option to purchase 500,000 shares of Common
         Stock at an exercise price equal to the trading price of such stock on
         the last trading day prior to Board approval ($5.10), with 166,666
         option shares to vest and become exercisable on the effective date of
         the agreement and 166,667 option shares to vest and become exercisable
         on each of the first and second anniversaries of the effective date,
         subject to her continued employment and (2) a non-qualified stock
         option to purchase 500,000 shares at an exercise price equal to $2.50,
         with 166,666 option shares to vest and become exercisable on the
         effective date of this agreement and 166,667 option shares to vest and
         become exercisable on each of the first and second anniversaries of the
         effective date, subject to her continued employment. Both options will
         expire ten years from the effective date. The options which were not
         vested were forfeited as a result of Ms. Soechtig's resignation.
         Accordingly, the accrued option expense associated with her un-vested
         options in the amount of $243,748 was reversed in October 2003.


                                       12

<PAGE>

         On September 5, 2002, Paul Johnson, President of the Company and Chief
         Executive Officer of the Company until March 7, 2003, was granted an
         option to acquire 400,000 shares of Common Stock at an exercise price
         of $2.20, the trading price on that day. The option will expire three
         years from the effective date.

         SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS No.
         148, "Accounting for Stock-Based Compensation - Transition and
         Disclosure - an amendment of FASB Statement No. 123" require
         disclosures as if the Company had applied the fair value method to
         employee awards rather than the intrinsic value method. The fair value
         of stock-based awards to employees is calculated through the use of
         option pricing models, which were developed for use in estimating the
         fair value of traded options, which have no vesting restrictions and
         are fully transferable. These models also require subjective
         assumptions, including future stock price volatility and expected time
         to exercise, which greatly affect the calculated values. The Company's
         fair value calculations for awards from stock option plans were made
         using the Black-Scholes option pricing model with the following
         weighted average assumptions: expected term, three and ten years from
         the date of grants in fiscal 2003; stock price volatility, 104% to
         122%; risk free interest rate, 4.5% to 4.67%; and no dividends during
         the expected term as the Company does not have a history of paying cash
         dividends.

         If the computed fair values of the stock-based awards had been
         amortized to expense over the vesting period of the awards, net income
         (loss) and net income (loss) per share, basic and diluted, would have
         been as follows:

         Three Months Ended December 31, 2003 and 2002
         ---------------------------------------------

                                                      Fiscal 2004   Fiscal 2003
                                                     -------------  ------------
         Net loss, as reported                       $ (5,681,671)  $  (485,709)

         Add:  Stock-based employee compensation
         included in reported net loss                   (243,748)        7,125

         Deduct: Total stock-based compensation
         expense determined under fair value
         method for all awards                                 (0)       (7,125)
                                                     -------------  ------------
         Net loss, proforma                          $ (5,925,389)  $  (485,709)
                                                     =============  ============
         Net loss per share, basic and diluted       $       (.28)  $      (.02)
                                                     =============  ============


                                       13
<PAGE>


         Six Months Ended December 31, 2003 and 2002
         -------------------------------------------

                                                      Fiscal 2004    Fiscal 2003
                                                     -------------  ------------

         Net loss, as reported                       $ (6,694,850)  $(1,048,662)

         Add:  Stock-based employee compensation
         included in reported net loss                   (133,039)       14,250

         Deduct: Total stock-based compensation
         expense determined under fair value
         method for all awards                                 (0)     (590,250)
                                                     -------------  ------------
         Net loss, proforma                          $ (6,827,889)  $(1,624,662)
                                                     =============  ============
         Net loss per share, basic and diluted       $       (.33)  $      (.09)
                                                     =============  ============

         Options and warrants issued to non-employees are accounted for under
         FAS No. 123, "Accounting for Stock Based Compensation". For the options
         and warrants issued to non-employees, the fair value of each award is
         calculated using the Black-Scholes Model in accordance with FAS No.
         123.

         On May 7, 2002 the Board of Directors adopted and the shareholders
         approved by majority consent the Princeton Mining Company 2002 Stock
         Option Plan. The Plan provides for the issuance of up to 2 million
         shares of the Company's $.001 par value Common Stock in connection with
         stock options and other awards under the Plan. The Plan authorizes the
         grant of incentive stock options and non-statutory stock options. At
         December 31, 2003 there were options granted under the Plan for 716,666
         shares (net of forfeitures), all of which are vested and 1,283,334
         shares available for grant.

         REVENUE RECOGNITION

         Integrator's home technology services work is completed in three phases
         - pre-wiring, trim-out and hardware installation. Integrator invoices
         its customers and records revenue as work is completed on each project.
         For alarm monitoring service contracts sold by Integrator, revenue is
         recognized only when the contracts are sold to third party finance
         companies or as earned if Integrator holds and services the contract.

         Sales of franchise licenses are recognized as revenue when the
         obligations under the franchise agreement are "substantially complete."
         Franchising generally defines "substantially complete" as the
         completion of training by the franchisee's General Manager and the
         approval of the franchise location plan.

         Royalties are based on a percentage of the sales recorded by
         franchisees and are recorded as earned. Procurement fees charged to
         franchisees are recorded in the month that the related product is
         shipped to the franchisee.


                                       14
<PAGE>


         NET LOSS PER COMMON SHARE

         The Company has adopted SFAS No. 128 which establishes standards for
         computing and presenting earnings per share (EPS) for entities with
         publicly held common stock. The standard requires presentation of two
         categories of EPS - basic EPS and diluted EPS. Basic EPS excludes
         dilution and is computed by dividing income available to common
         stockholders by the weighted-average number of common shares
         outstanding for the year. Diluted EPS reflects the potential dilution
         that could occur if securities or other contracts to issue common stock
         were exercised or converted into common stock or resulted in the
         issuance of common stock that then shared in the earnings of the
         Company. All potential dilutive securities are antidilutive as a result
         of the Company's net loss for the three and six month periods ended
         December 31, 2003 and 2002, respectively. Accordingly, basic and
         diluted EPS are the same for each period.

         ADVERTISING COSTS

         Advertising costs are generally charged to operations in the period
         incurred and totaled $2,290 and $11,238 for the three months ended
         December 31, 2003 and 2002, respectively and $2,290 and $20,103 for the
         six months ended December 31, 2003 and 2002, respectively.

         MARKETING FUND

         Franchising's franchise agreement required franchisees to pay 1.25% of
         their sales into a general marketing fund to be used to promote the
         Lifestyle name and home technology concept on a national basis.
         Franchising recorded these receipts into the marketing fund liability,
         classified in accrued expenses, which Franchising administers. The
         marketing fund was managed by a committee consisting of management of
         Franchising and representatives from certain franchises. The marketing
         fund was discontinued in October 2003.

         INCOME TAXES

         Income taxes are accounted for in accordance with FAS 109, "Accounting
         for Income Taxes", which prescribes the use of the asset/liability
         method. Deferred taxes represent the expected future tax consequences
         when the reported amounts of assets and liabilities are recovered or
         paid. They arise from differences between the financial reporting and
         tax basis of assets and liabilities and are adjusted for changes in tax
         laws and tax rates when those changes are enacted. The provision for
         income taxes represents the total of income taxes paid or payable for
         the current year, plus the change in deferred taxes during the year.
         Management of the Company elected to provide a reserve against the
         potential future income tax benefits from its current net operating
         loss, due to the uncertainty of its realization.

         USE OF ESTIMATES

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States requires management
         to make estimates and assumptions that affect the reported amounts of
         assets and liabilities, the disclosure of contingent assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenues and expenses during the reporting period. Actual
         results could differ from those estimates.



                                       15
<PAGE>

C.       ACQUISITIONS AND DISCONTINUED OPERATIONS

FUTURESMART SYSTEMS, INC.
-------------------------
LFSI completed its acquisition of FutureSmart effective March 7, 2003. On May
28, 2003 the Board of Directors approved a plan to dispose of FutureSmart.
Accordingly, its operations since March 7, 2003 have been included in
discontinued operations.

The purchase price of $801,910 consisted of the issuance of 1,000,000 shares of
LFSI's $.10 par value preferred stock, a bridge loan by LFSI to FutureSmart of
$224,830 and $477,080 in direct transaction costs.

The acquisition of FutureSmart was accounted for as a purchase in accordance
with SFAS No. 141, and the Company has accordingly allocated the purchase price
of FutureSmart based upon the fair values of the net assets acquired and
liabilities assumed.

Pursuant to the acquisition agreement, the shareholders of FutureSmart could
have received "Earn out Consideration" of up to 1,200,000 LFSI common shares if
FutureSmart achieved certain "Performance Milestones."

In connection with LFSI's acquisition of FutureSmart, RCG agreed until March 3,
2005, or one year from the registration of the shares of common stock for the
FutureSmart shareholders if sooner, if RCG proposes to transfer 15% or more of
the shares of LFSI owned by RCG (excluding registered offerings, sales to
certain investors and related party sales) then certain of the FutureSmart
shareholders shall have the right to participate in such transfer of stock on
the same terms and conditions for up to 25% of the total sale.

On October 17, 2003 the Company completed its sale of all of the assets of
FutureSmart for an "Initial Purchase Price" of $1,500,000, which is subject to
adjustment as provided in the Asset Purchase Agreement to the "Final Purchase
Price." The Initial Purchase Price is allocated to the secured creditors of
FutureSmart; $200,000 to the Company, and $1,300,000 to the other secured
creditors. Thirty percent ($450,000) of the Initial Purchase Price was paid at
Closing pro rata to the secured creditors ($60,000 to the Company) and the
remainder of $1,050,000 was placed in escrow. The escrowed amount is subject to
various adjustments, including determination of the final net assets as of the
Closing Date and settlement of certain other obligations. The remaining balance
will be disbursed by the Escrow Agent no later than one year and one day after
the Closing Date. Due to the uncertainty of the amount, the Company has not
recorded the escrowed amount ($140,000) in earnings.

LIFESTYLE TECHNOLOGIES CHARLOTTE, INC.
--------------------------------------
Effective December 1, 2003, the Board of Directors of Charlotte voted
unanimously to discontinue the operations of the company. Accordingly, the
operations of Charlotte are included in discontinued operations for all periods
presented.


                                       16
<PAGE>

DISCONTINUED OPERATIONS
-----------------------
Discontinued operations include the result of operations for Charlotte for both
the three and six month periods in both fiscal 2003 and fiscal 2004. The results
of FutureSmart are included for the period it was owned, March 7, 2003 through
October 17, 2003.

The results of discontinued operations may be summarized as follows for the
three months ended December 31, 2003 and 2002:

                                                      Fiscal 2004    Fiscal 2003
                                                     -------------  ------------
Revenues                                             $    367,392   $   243,717

Net loss from operations                                 (285,594)     (277,501)
Asset impairment                                       (6,089,540)           --
Gain on sale of assets                                    629,510            --
                                                     -------------  ------------
  Net loss                                           $ (5,745,624)  $  (277,501)
                                                     =============  ============
Net loss per share                                   $       (.27)  $      (.01)
                                                     =============  ============

The results of discontinued operations may be summarized as follows for the six
months ended December 31, 2003 and 2002:

                                                      Fiscal 2004    Fiscal 2003
                                                     -------------  ------------
Revenues                                             $  1,662,267   $   553,000

Net loss from operations                                 (930,051)     (477,838)
Asset impairment                                       (6,089,540)           --
Gain on sale of assets                                    629,510            --
                                                     -------------  ------------
  Net loss                                           $ (6,390,081)  $  (477,838)
                                                     =============  ============
Net loss per share                                   $       (.31)  $      (.03)
                                                     =============  ============

Current liabilities of discontinued operations include $212,565 in accounts
payable and $856,704 in accrued expenses.



                                       17
<PAGE>


D.       NOTES PAYABLE

Notes payable at December 31, 2003 consist of the following:

Unsecured note payable - due October 1, 2003; with
interest at 12%; past due                                            $  145,000
Note payable - due on August 31, 2004; with interest at 12%;
  collateralized by real estate                                          34,919
Note payable - due in August 2003 with interest at 12% and
  collateralized by certain home technology accounts receivable
  and inventory; past due (1)                                           650,000
Unsecured note payable - due October 16, 2003; with interest
  at 12.2%; past due                                                    295,000
Unsecured note payable - due December 18, 2003; with interest
  at 36%; past due                                                       70,000
Note payable - due in monthly installments of $3,000 and a
  balloon payment in July 2005; with interest at 8%;
  collateralized by home technology accounts receivable; past due       181,000
                                                                    ------------
                                                                      1,375,919
Less current maturities, including demand notes                       1,248,919
                                                                    ------------
Long-term portion                                                   $   127,000
                                                                    ============

(1)  At the option of the note holder, this note can be converted into RCG's
     Common Stock at a ratio of one share of Common Stock for each $4.55 of
     outstanding principal and interest. RCG's Common Stock closed at $1.98 on
     December 31, 2003.


E.       NOTES PAYABLE - RELATED PARTIES

Notes payable due related parties at December 31, 2003 consist of the following:

Unsecured note payable to Mike Pruitt; due on demand;
  with interest at 8%                                               $   100,000
Unsecured note payable to Mike Pruitt; due on demand;
  with interest at 12%                                                   10,658
Unsecured note payable to Mike Pruitt; due on demand;
  with interest at 12%                                                    8,051
Unsecured note payable to the wife of G. David Gordon;
  due on demand; with interest at 6%                                    500,000
Unsecured notes payable due to G. David Gordon;
  due on demand; with interest at 12%                                   361,157
                                                                    ------------
     Notes payable due related parties                              $   979,866
                                                                    ============


                                       18
<PAGE>


F.       INCOME TAXES

Deferred income taxes at December 31, 2003 consist primarily of net operating
loss carryforwards, which amount to approximately $10,900,000 and expire between
2020 and 2024. A valuation allowance has been recorded for the full amount of
the deferred tax assets. Further, due to substantial limitations placed on the
utilization of net operating losses following a change in control, utilization
of such NOL's could be limited.

G.       NON-EMPLOYEE STOCK OPTIONS AND WARRANTS

During the year ended June 30, 2003, the Company sold 31 units of a private
placement and realized net proceeds of $693,765. Each unit consists of 10,000
shares of Common Stock, $.001 par value and a Series A Warrant to purchase 3,000
shares of Common Stock for $3.33 per share. Legend Merchant Group, Inc. acted as
placement agent for the offering and received a commission of 10%. In addition,
Legend Merchant Group, Inc was granted a warrant to acquire 50,000 shares of
common stock for $2.75 per share as a part of the acquisition of FutureSmart.

As a part of a private placement offering which was closed in December 2002, the
Company sold 99.6 Units. Each Unit consisted of 4,000 shares of its Common
Stock, 4,000 Series A Warrants and 4,000 Series B Warrants. The Series A Warrant
entitles the holder to acquire the Company's Common Stock for $4.00 per share
until its expiration on August 1, 2004. The Series B Warrant expires on August
1, 2005 and entitles the holder to acquire the Company's Common Stock for $6.00
per share.

G. David Gordon has a three-year option, which was granted in June 2002, to
acquire 150,000 shares of the Company's common stock for $1.50 per share.


H.       CONVERTIBLE SERIES A PREFERRED STOCK

Effective March 3, 2003 the Company amended its Articles of Incorporation to
authorize the issue of 1,000,000 shares of Series A Convertible Preferred Stock,
par value $.10 per share. The principal preferences and rights of the Series A
Preferred Stock are: (i) entitled to receive dividends when and if declared;
(ii) liquidation value of $2.75 per share plus an amount equal to 5% per annum
on the original issue price; (iii) each holder of shares shall be entitled to
the number of votes equal to the number of shares of Common Stock into which
each share of Series A Preferred Stock could be converted; (iv) conversion is at
the option of the holder until 51% of the then outstanding shares elect to
convert, at which time all remaining outstanding Series A Preferred Stock shall
automatically be converted into Common Stock; (v) and the initial conversion
price of $2.75 per share is subject to adjustment in the event of certain
occurrences.



                                       19
<PAGE>


I.       TRANSACTIONS WITH RELATED PARTIES

At December 31, 2003, advances due to affiliates consisted of the following (See
Note E for notes payable to affiliates of $979,866):

Due to RCG and its subsidiaries                                     $ 1,881,812
Advance from and accrued interest payable to Mr. Pruitt                   9,821
Advances from and accrued  interest  payable to G David Gordon,
  a shareholder and creditor of LFSI and RCG                             72,166
                                                                    ------------
                                                                    $ 1,963,799
                                                                    ============

The amount due to RCG and its subsidiaries represents net advances to and from
RCG and its subsidiaries. RCG also provides various services to the Company,
including accounting and finance assistance, capital and debt raising, human
resources and other general and administrative services. For the three months
ended December 31, 2003 and 2002, RCG charged the Company $10,000 and $30,000
($17,500 to continuing operations), respectively. For the six months ended
December 31, 2003 and 2002, RCG charged the Company $25,000 and $60,000 ($35,000
to continuing operations), respectively. In August 2003 a lender converted the
Company's $300,000 obligation to the lender plus accrued interest of $42,500
into 200,000 shares of RCG common stock. The $342,500 is included in the amount
due RCG above.

Mr. Pruitt had pledged certain of his personal assets to secure a $100,000 bank
credit facility for LST. On August 8, 2003, the balance outstanding on this bank
facility of $100,000 was paid by Mr. Pruitt and the Company issued its $100,000
note payable to Mr. Pruitt. See Note E.

Mr. Pruitt is also a minority investor in a company that has purchased franchise
licenses and business operations of LST's home technology business in three
markets in South Carolina and in another company that has purchased franchise
licenses in three locations in Maryland. At December 31, 2003, the franchise
locations in South Carolina owed the Company and its subsidiaries $41,000 and
the franchise locations in Maryland owed the Company and its subsidiaries
$8,000.

Paul B. Johnson, President of the Company, is an investor in a company, which in
November 2001 became a franchisee of the Company's home technology business in
the Dallas, Texas market and purchased two additional locations in the Dallas,
Texas market during the year ended June 30, 2003. The Dallas franchise location
owed the Company and its subsidiaries $4,000 at December 31, 2003.

During fiscal 2002, Glenn Barrett resigned as President of Lifestyle and began
LVA Technologies LLC ("LVA"), a low voltage wiring business that operates as a
Lifestyle franchisee headquartered in Charlotte, NC to service the commercial
market. The Company waived LVA's initial franchise fee for the commercial
franchise. LVA also owns the Greenville and Columbia, SC franchises. LVA's low
voltage wiring business is charged royalties on products purchased from the
Company at the same rate as the Company's other franchisees, however, it does
not pay royalties on revenue generated from products purchased elsewhere as
required of the Company's other franchisees, including the Greenville and
Columbia, SC franchises. LVA and its subsidiaries owed the Company and its
subsidiaries $325,000 ($152,000 in discontinued operations) at December 31,
2003. Of this amount all but $51,000 has been reserved at December 31, 2003.


                                       20
<PAGE>

At December 31, 2003, total debt outstanding to G. David Gordon, his wife and a
company in which he is the president and a shareholder, was $861,157 which is
included in notes payable due related parties on the Condensed Consolidated
Balance Sheet. The loans bear interest at 6 to 12%. Mr. Gordon and this company
also loaned RCG an additional $1,144,000 ($750,000 balance at December 31, 2003)
during fiscal 2002 at interest rates of 8% to 12%. During the three months ended
September 30, 2003, Mr. Gordon converted $267,500 in debt owed to him into RCG
common stock. Mr. Gordon also acts as special legal counsel to RCG and the
Company from time to time.

Mr. Gordon has an ownership interest in ten of the Company's franchises,
including two locations that were purchased during fiscal 2002 from the Company
and for which the Company recorded a gain of $119,000. Mr. Gordon has an
ownership interest in the three markets in South Carolina along with Mr. Pruitt,
as discussed above; three locations in the Dallas market along with Mr. Johnson;
and four additional markets in Houston, Texas, Raleigh, North Carolina,
Wilmington, North Carolina and Greensboro, North Carolina. These four markets
owed the Company and its subsidiaries $14,000 at December 31, 2003.

Revenues from the franchises discussed above for the three months ended December
31, 2003 and 2002 were as follows:

                                                      Fiscal 2004   Fiscal 2003

Houston and the three North Carolina markets         $     20,000   $    47,000
Three South Carolina markets                                1,000        61,000
Three Maryland markets                                      4,000        12,000
LVA and subsidiaries                                        4,000        42,000
Dallas                                                      3,000        22,000
                                                     -------------  ------------
     Total                                           $     32,000   $   184,000
                                                     =============  ============

Revenues from the franchises discussed above for the six months ended December
31, 2003 and 2002 were as follows:

                                                      Fiscal 2004    Fiscal 2003

Houston and the three North Carolina markets         $     79,000   $   100,000
Three South Carolina markets                               26,000        95,000
Three Maryland markets                                     10,000        14,000
LVA and subsidiaries                                       30,000        48,000
Dallas                                                     21,000        40,000
                                                     -------------  ------------
     Total                                           $    166,000   $   297,000
                                                     =============  ============



                                       21
<PAGE>


J.       BUSINESS SEGMENT INFORMATION

Information related to business segments is as follows (amounts in thousands of
dollars):

                                   Company
                                    Owned
                                   Locations   Franchise   Corporate     Total
                                   ---------   ---------   ---------   ---------
SIX MONTHS ENDED DECEMBER 31, 2003
----------------------------------

Revenue
  External customers               $    338    $    183    $     --    $    521
  Intersegment                     $     --    $     60    $     --    $     60

Loss from continuing operations    $     31    $     81    $    193    $    305

SIX MONTHS ENDED DECEMBER 31, 2002
----------------------------------

Revenue
  External customers               $    302    $    100    $      3    $    405
  Intersegment                     $     --    $    188    $     --    $    188

Loss from continuing operations    $    261    $    172    $    138    $    571

Corporate includes the real estate investment and the costs associated with the
requirements of a public company.

K.       COMMITMENTS AND CONTINGENCIES

As a part of the issuance of 16,000,000 shares of its Common Stock to RCG, LFSI
was obligated to file a registration statement within 90 days of the September
5, 2002 closing date of the transaction. If LFSI did not meet this deadline, it
was obligated to issue an option to RCG for 1,000,000 shares of LFSI common
stock at 20% of the last bid price for the LFSI common stock on the triggering
date. As a result of the acquisition of FutureSmart Systems, Inc.
("FutureSmart") by LFSI (See Note C), RCG and LFSI have agreed to extend the
deadline for filing the registration statement until a later date consistent
with any registration rights associated with the acquisition of FutureSmart.

During 2001, FutureSmart approved a plan to exit, and subsequently vacated
certain facilities in San Jose, California and Murray, Utah. As of December 31,
2003, FutureSmart has accrued $210,921 for payment of minimum lease payments
under non-cancelable operating leases. The landlord of the San Jose lease has
demanded full payment of amounts due on the lease.


                                       22
<PAGE>


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

From time to time, the Company may publish forward-looking statements relative
to such matters as anticipated financial performance, business prospects,
technological developments and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. All statements other than statements of historical fact included in
this section or elsewhere in this report are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Important
factors that could cause actual results to differ materially from those
discussed in such forward-looking statements include, but are not limited to,
the following: changes in the economy or in specific customer industry sectors;
changes in customer procurement policies and practices; changes in product
manufacturer sales policies and practices; the availability of product and
labor; changes in operating expenses; the effect of price increases or
decreases; the variability and timing of business opportunities including
acquisitions, alliances, customer agreements and supplier authorizations; the
Company's ability to realize the anticipated benefits of acquisitions and other
business strategies; the incurrence of debt and contingent liabilities in
connection with acquisitions; changes in accounting policies and practices; the
effect of organizational changes within the Company; the emergence of new
competitors, including firms with greater financial resources than the Company;
adverse state and federal regulation and legislation; and the occurrence of
extraordinary events, including natural events and acts of God, fires, floods
and accidents.

Effective December 1, 2003, the operations of Charlotte were discontinued.

Effective November 15, 2003, pursuant to an Asset Purchase Agreement, LFSI,
through its wholly owned subsidiary, Colorado, completed the acquisition of the
majority of the assets of HomeSync Corporation ("HomeSync") by assuming certain
liabilities of HomeSync. The purchase price was recorded in an amount equal to
the assumed liabilities of approximately $750,000. Shortly after completing the
acquisition and prior to December 31, 2003, a significant portion of the assets
of HomeSync, which were supposedly acquired by Colorado, were seized by the
Colorado Department of Revenue to satisfy certain unpaid tax obligations. Upon
notifying HomeSync of the seizure, the Company was informed that HomeSync would
be filing for Chapter 7 Bankruptcy. Based upon that information, the Company was
informed by counsel that, due to the U.S. Bankruptcy rules regarding
preferential transfer, the Company was instructed to deliver control of the
HomeSync assets acquired back to HomeSync. The Company had only nominal costs
associated with the acquisition, which have been expensed. Accordingly, the
Company has treated the transaction as if it were rescinded with the only
financial impact being the acquisition costs discussed above.

LFSI completed its acquisition of FutureSmart effective March 7, 2003. On May
28, 2003 the Board of Directors approved a plan to dispose of FutureSmart.
Accordingly, its operations since March 7, 2003 have been included in
discontinued operations.

The purchase price of $801,910 consisted of the issuance of 1,000,000 shares of
LFSI's $.10 par value preferred stock, a bridge loan by LFSI to FutureSmart of
$224,830 and $477,080 in direct transaction costs.


                                       23
<PAGE>

Pursuant to the acquisition agreements, the shareholders of FutureSmart could
have received "Earn out Consideration" of up to 1,200,000 LFSI common shares if
FutureSmart achieved certain "Performance Milestones."

On October 17, 2003 the Company completed its sale of all of the assets of
FutureSmart for an "Initial Purchase Price" of $1,500,000, which is subject to
adjustment as provided in the Asset Purchase Agreement to the "Final Purchase
Price." The Initial Purchase Price is allocated to the secured creditors of
FutureSmart; $200,000 to the Company, and $1,300,000 to the other secured
creditors. Thirty percent ($450,000) of the Initial Purchase Price was paid at
Closing pro rata to the secured creditors ($60,000 to the Company) and the
remainder of $1,050,000 was placed in escrow. The escrowed amount is subject to
various adjustments, including determination of the final net assets as of the
Closing Date and settlement of certain other obligations. The remaining balance
will be disbursed by the Escrow Agent no later than one year and one day after
the Closing Date. Due to the uncertainty of the amount, the Company has not
recorded the escrowed amount ($140,000) in earnings.

On September 5, 2002, LFSI acquired LST, a Delaware corporation, and its wholly
owned subsidiaries, Lifestyle Technologies Franchising Corp., Lifestyle
Security, Inc. and Lifestyle Technologies Atlanta. LFSI issued 16,000,000 shares
of its common stock to eResource Capital Group, Inc. ("RCG"), to acquire 100%
interest in LST. At December 31, 2003 RCG owns 75% of the outstanding common
stock of LFSI. LFSI had only nominal operations prior to the merger, leasing two
condominium units, accordingly for accounting purposes the transaction has been
treated as the issuance of stock by LST for the net monetary assets of LFSI,
accompanied by a recapitalization of LST. The accounting treatment is identical
to accounting for a reverse acquisition, except that no goodwill or other
intangible asset is recorded. The historical financial statements prior to
September 5, 2002 are those of LST.

LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003 LFSI had a working capital deficit of $6,346,196 as
compared to a working capital deficit of $6,281,183 at June 30, 2003, when
restated for discontinued operations, an increase of $65,013. Current assets
decreased $303,086 and current liabilities decreased $238,073. The current asset
decrease is primarily due to a decline in accounts and notes receivable of
$251,930. The decrease in current liabilities includes an increase in notes
payable and notes payable due related parties of $1,167,785; a decrease in
accounts payable and accrued expenses of $258,133; an increase in amounts due
affiliates of $276,812 and a decrease in the current liabilities of discontinued
operations of $1,400,770.

During the six months ended December 31, 2003 the Company had $365,000 in new
borrowings and reduced other loans by $180,000. In addition, in August 2003 a
lender converted the Company's $300,000 obligation to the lender plus accrued
interest of $42,500 into 200,000 shares of RCG common stock. The $342,500 is now
included in the amount due to RCG. During the six months ended December 31,
2003, the Company also received $257,690 in loans and advances from related
parties.


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<PAGE>

As discussed above, at December 31, 2003 the Company has a significant working
capital deficit. The Company does not have sufficient cash flows to meet its
obligations currently due within the next 12 months. The Company is currently
exploring additional sources of liquidity, including debt and equity financing
alternatives and potential sales of its Common Stock in private placement
transactions. Additionally, the Company plans on negotiating with its debt
holders to continue to extend or convert some or all of the debt. If the Company
is (i) unable to grow its business or improve its operating cash flows as
expected, (ii) unsuccessful in extending a substantial portion of the scheduled
debt repayments, or (iii) unable to raise additional funds through private
placement sales of its Common Stock, then the Company may be unable to continue
as a going concern. There can be no assurance that additional financing will be
available when needed or, if available, that it will be on terms favorable to
the Company and its stockholders. If the Company is not successful in generating
sufficient cash flow from operations, or in raising additional capital when
required in sufficient amounts and on terms acceptable to the Company, these
failures would have a material adverse effect on the Company's business, results
of operations and financial condition. If additional funds are raised through
the issuance of equity securities, the percentage ownership of the Company's
current shareholders would be diluted.

                  THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002

SALES AND REVENUES
During the three months ended December 31, 2003, sales increased $19,807 (8%)
from the year earlier amount. During fiscal 2004, the majority of the security
contracts held by its location in Atlanta were sold for $134,302. Excluding the
sale of security contracts, all other sales declined $114,495 during the
quarter, primarily due to a lack of funding which also resulted in lower sales
from continuing operations.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative ("SG&A") expenses have decreased $105,240
(29%) during the three month period ended December 31, 2003 as compared to the
year earlier period. Virtually all costs were proportionately lower in fiscal
2004 as compared to fiscal 2003 due to the scaled down operations. The most
significant decrease was salaries and wages due to the substantially lower
number of personnel.

STOCK OPTION AND WARRANT COMPENSATION
Stock option and warrant compensation amounted to $(243,748) and $7,125 during
the three-month periods ended December 31, 2003 and 2002, respectively. The
negative amount in fiscal 2004 is due to the resignation of the Company's Chief
Executive Officer in October 2003 upon the sale of FutureSmart causing the
reversal of the accrual of unvested option expense.

INTEREST EXPENSE
Interest expense amounted to $74,264 ($21,961 for related parties) in fiscal
2004 and $12,451 in fiscal 2003. The increase in interest expense of $61,813 is
primarily due to debt associated with discontinued operations in the prior year
period.

DISCONTINUED OPERATIONS
The loss from discontinued operations increased $5,468,123 to $5,745,624 in
fiscal 2004 as compared to $277,501 in fiscal 2003. The fiscal 2004 amount
included an impairment of goodwill in the amount of $5,691,604.



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<PAGE>


                   SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

SALES AND REVENUES
During the six months ended December 31, 2003, sales increased $115,859 (29%)
from the year earlier amount. During fiscal 2004, the majority of the security
contracts held by its location in Atlanta were sold for $134,302, which accounts
for the sales increase. Excluding the sales of the security contracts, all other
sales declined $18,443 (5%).

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative ("SG&A") expenses have decreased $242,564
(30%) during the six-month period ended December 31, 2003 as compared to the
year earlier period. Virtually all costs were proportionately lower in fiscal
2004 as compared to fiscal 2003 due to the scaled down operations. The most
significant decrease was salaries and wages due to the substantially lower
number of personnel.

STOCK OPTION AND WARRANT COMPENSATION
Stock option and warrant compensation amounted to $(133,039) and $14,250 during
the six-month periods ended December 31, 2003 and 2002, respectively. The
negative amount in fiscal 2004 is due to the resignation of the Company's Chief
Executive Officer in October 2003 upon the sale of FutureSmart causing the
reversal of the accrual of unvested option expense.

INTEREST EXPENSE
Interest expense amounted to $117,693 ($39,139 for related parties) in fiscal
2004 and $24,637 in fiscal 2003. The increase in interest expense of $93,056 is
primarily due to debt associated with discontinued operations in the prior year
period.

DISCONTINUED OPERATIONS
The loss from discontinued operations increased $5,912,243 to $6,390,081 in
fiscal 2004 as compared to $477,838 in fiscal 2003. The fiscal 2004 amount
included an impairment of goodwill in the amount of $5,691,604.


ITEM 3.  CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the reports that
are filed or submitted under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in the reports that are filed under the Exchange Act is
accumulated and communicated to management, including the principal executive
officer and principal accounting officer, as appropriate to allow timely
decisions regarding required disclosure. Under the supervision of and with the
participation of management, including the principal executive officer and
principal accounting officer, the Company has evaluated the effectiveness of the
design and operation of its disclosure controls and procedures as of December
31, 2003, and, based on its evaluation, our principal executive officer and
principal accounting officer have concluded that these controls and procedures
are effective.

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<PAGE>

(b)  Changes in Internal Controls

There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of the
evaluation described above, including any corrective actions with regard to
significant deficiencies and material weaknesses.


PART II - OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         The Company issued 25,000 shares of its Common Stock for advertising
         and marketing services rendered during the year ended December 31,
         2003. The transaction was valued at $76,250, based upon the closing
         price of the Common Stock on the day the stock was issued. The small
         business issuer claimed exemption from registration based upon Section
         4(2) of the Securities and Exchange Act of 1933.

ITEM 5.  OTHER INFORMATION

         Although the Company does not currently employ a Chief Financial
         Officer, Paul Johnson, President and Acting CEO, is also the principal
         accounting officer.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits -

31        Certifications pursuant to 18 U.S.C. Section 1350,
          Section 302 of the Sarbanes-Oxley Act of 2002                 Page 29

32        Certifications pursuant to 18 U.S.C. Section 1350,
          Section 906 of the Sarbanes-Oxley Act of 2002                 Page 30

     (b) Reports on Form 8-K -

         On December 8, 2003 the Company filed its report on Form 8-K reporting
         the acquisition of HomeSync Corporation through its wholly owned
         subsidiary, SYSLYNC Colorado, Inc. on November 20, 2003. A copy of the
         Asset Purchase Agreement was filed as an exhibit to the Form 8-K.


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<PAGE>


                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        LIFESTYLE INNOVATIONS, INC.



Date: March 19, 2004                    By: /s/ Paul Johnson
                                            -----------------------------
                                            Paul Johnson, President
                                            Acting CEO and Principal
                                            Accounting Officer



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