10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2009

or

 o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

000-51807

(Commission File No.)

EAU TECHNOLOGIES, INC.

(exact name of registrant as specified in its charter)

Delaware	87-0654478
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1890 Cobb International Blvd, Suite A, Kennesaw Georgia	30152
(Address of principal executive offices)	(Zip Code)

Issuer’s telephone number:  (678) 388-9492

Check whether the issuer (1) 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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No x

As of August 13, 2009, the Registrant had 19,661,168 shares of Common Stock, $0.0001 par value outstanding.

EAU TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

June 30, 2009

INDEX

		Page
PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Balance Sheets – June 30, 2009 and December 31, 2008	3
	Statements of Operations – Three and Six months ended June 30, 2009 and 2008	5
	Statement of Stockholders’ Equity (Deficit)	6
	Statements of Cash Flows – Six months ended June 30, 2009 and 2008	7
	Notes to Financial Statements	9
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	24
ITEM 4T.	Controls and Procedures	24
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	24
ITEM 1A.	Risk Factors	24
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
ITEM 3.	Defaults Upon Senior Securities	24
ITEM 4.	Submission of Matters to a Vote of Security Holders	24
ITEM 5.	Other Information	25
ITEM 6.	Exhibits	25
SIGNATURES		26

2

PART I - FINANCIAL INFORMATION

EAU TECHNOLOGIES, INC.

 BALANCE SHEETS

ASSETS

	June 30,		December 31,
	2009		2008
CURRENT ASSETS	(Unaudited)		(Audited)
Cash and cash equivalents	$	298,175	$	494,612
Accounts receivable, net		22,635		8,710
Accounts receivable – related party, net		355,656		358,656
Accrued interest		9,375		1,875
Pre-paid expense		56,858		52,468
Note receivable, current portion		150,000		150,000
Inventory, net		2,227,900		3,014,503
Total current assets		3,120,599		4,080,824
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $125,013 and $113,359		34,991		46,644
LEASED EQUIPMENT, net of
accumulated depreciation of $76,981 and $15,156		1,051,192		200,253
OTHER ASSETS
Deposits		16,969		10,496
Restricted cash		240,000		240,000
Intellectual property		93,167		87,561
Total other assets		350,136		338,057
Total assets	$	4,556,918	$	4,665,778

See notes to financial statements.

3

EAU TECHNOLOGIES, INC.

BALANCE SHEETS (Continued)

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

	June 30,			December 31,
	2009			2008
CURRENT LIABILITIES	(Unaudited)			(Audited)
Accounts payable	$	367,653		$	373,206
Accrued expenses		786,063			658,608
Warranty reserve		95,015			100,000
Current portion of deferred licensing revenue – related party		200,000			200,000
Advance deposits on machine orders – related party		697,500			697,500
Current portion of long-term debt		32,231			23,581
Senior convertible note payable – related party, current portion net      of discounts of $0 and $76,754		3,000,000			2,923,246
Total current liabilities		5,178,462			4,976,141
LONG TERM LIABILITIES
Long term debt, net of current portion		22,609			39,150
Deferred licensing revenue – related party		41,667			141,667
Derivative liability – related party		10,451,283			8,621,940
Total long term liabilities		10,515,559			8,802,757
Total liabilities		15,694,021			13,778,898
STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock, $.0001 par value; 50,000,000 shares authorized;   19,511,168 and 18,285,918 issued and outstanding, respectively		1,952			1,829
Additional paid in capital		41,010,924			39,594,894
Accumulated deficit		(52,149,979	)		(48,709,843	)
Total stockholders’ equity (deficit)		(11,137,103	)		(9,113,120	)
Total liabilities and stockholders’ equity (deficit)	$	4,556,918		$	4,665,778

See notes to financial statements.

4

EAU TECHNOLOGIES, INC.

UNAUDITED STATEMENTS OF OPERATIONS

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2009			2008			2009			2008
NET SALES – RELATED PARTY	$	50,000		$	75,475		$	100,000		$	125,475
NET SALES		153,975			62,381			258,625			108,036
TOTAL SALES		203,975			137,856			358,625			233,511
COST OF GOODS SOLD		36,345			41,411			61,825			67,068
GROSS PROFIT		167,630			96,445			296,800			166,443
OPERATING EXPENSES
Depreciation and amortization		4,778			21,099			11,802			42,423
Research and development		42,938			20,387			117,005			30,789
General and administrative		848,598			1,055,059			1,598,629			2,137,442
Total operating expenses		896,314			1,096,545			1,727,436			2,210,654
LOSS BEFORE OTHER INCOME (EXPENSE)		(728,684	)		(1,000,100	)		(1,430,636	)		(2,044,211	)
OTHER INCOME (EXPENSE)
Interest expense		(76,184	)		(228,474	)		(187,802	)		(505,619	)
Interest income		3,840			3,351			7,645			11,481
Gain (Loss) on derivative liability		430,477			(257,549	)		(1,829,343	)		(171,796	)
Other income (expense)		-			140			-			140
Total other income (expense)		358,133			(482,532	)		(2,009,500	)		(665,794	)
LOSS BEFORE PROVISION        FOR INCOME TAXES		(370,551	)		(1,482,632	)		(3,440,136	)		(2,710,005	)
PROVISION FOR INCOME TAXES		-			-			-			-
NET LOSS	$	(370,551	)	$	(1,482,632	)	$	(3,440,136	)	$	(2,710,005	)
NET LOSS PER SHARE	$	(0.02	)	$	(0.09	)	$	(0.18	)	$	(0.18	)
WEIGHTED AVERAGE OF       SHARES OUTSTANDING		19,126,553			16,486,418			18,796,483			15,440,794

See notes to financial statements.

5

EAU TECHNOLOGIES, INC.

UNAUDITED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

	COMMON STOCK						ADDITIONAL
							PAID IN		ACCUMULATED
	SHARES			AMOUNT			CAPITAL		DEFICIT			TOTAL
Balance, December 31, 2008 (Audited)	18,285,918		$	1,829		$	39,594,894	$	(48,709,843	)	$	(9,113,120	)
Issuance of shares for cash at $1.00 per share, to Water Science, a related party.	1,250,000			125			1,249,875		-			1,250,000
Issuance and vesting of options and warrants for services	-			-			166,153		-			166,153
Cancellation of shares	(24,750	)		(2	)		2					-
Net loss for the six months ended June 30, 2009	-			-			-		(3,440,136	)		(3,440,136	)
Balance, June 30, 2009	19,511,168		$	1,952		$	41,010,924	$	(52,149,979	)	$	(11,137,103	)

See notes to financial statements.

6

EAU TECHNOLOGIES, INC.

 UNAUDITED STATEMENTS OF CASH FLOWS

	For the Six Months Ended June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,440,136	)	$	(2,710,005	)
Adjustments to reconcile net loss to net cash     used in operating activities:
Depreciation		73,626			42,423
Bad debt expense		15,000			5,092
Shares issued for services		-			103,334
Warrants and options issued for services		166,153			325,940
Discount of note payable		76,754			447,368
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(28,925	)		13,019
(Increase) decrease in accounts receivable – related party		3,000			(182	)
(Increase) in pre-paid expense		(4,390	)		(3,494	)
(Increase) in accrued interest		(7,500	)		-
(Increase) decrease in inventory		(18,581	)		(60,425	)
(Increase) decrease in deposits		(6,473	)		1,162
Increase (decrease) in accounts payable		(5,553	)		(61,464	)
Increase (decrease) in warranty reserve		(4,985	)		(8,000	)
Increase in accrued expenses		127,455			7,096
(Decrease) in deferred revenue		(100,000	)		(100,000	)
Increase (decrease) in derivative liability		1,829,343			171,796
Net cash (used) in operating activities		(1,325,212	)		(1,826,340	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(107,580	)		-
Intellectual property disbursements		(5,754	)		(7,746	)
Net cash (used) in investing activities		(113,334	)		(7,746	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable		(7,891	)		(4,750	)
Proceeds from issuance of common stock – related party		1,250,000			1,101,500
Net cash provided by financing activities		1,242,109			1,096,750
NET INCREASE (DECREASE) IN CASH		(196,437	)		(737,336	)
Cash and cash equivalents, beginning of period		494,612			1,413,744
Cash and cash equivalents, end of period	$	298,175		$	676,408

 See notes to financial statements.

7

EAU TECHNOLOGIES, INC.

 UNAUDITED STATEMENTS OF CASH FLOWS

(Continued)

	Six Months Ended
	June 30,
	2009		2008
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	3,613	$	13,251
Income Taxes	$	-	$	-
Supplemental Disclosures of Non-cash Investing and Financing Activities:
Common stock issued for services	$	-	$	103,334
Reclass inventory to Property and Equipment	$	805,184	$	-

See notes to financial statements.

8

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying condensed financial statements were prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.  In management’s opinion all necessary adjustments, which consist primarily of normal recurring adjustments, to the financial statements have been made to present fairly the financial position and results of operations and cash flows.  The results of operations for the respective periods presented are not necessarily indicative of the results for the respective complete years.  The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008

Certain prior period amounts have been reclassified in the condensed financial statements to conform to current period presentation. 

NOTE 2 – RESTRICTED CASH

In November 2006 the Company entered into an employment agreement with Wade Bradley, the Company’s CEO. Pursuant to the agreement the Company deposited $240,000 with an escrow agent in January 2007. The Company has recognized this amount as restricted cash on the Company’s financial statements.

NOTE 3 - INVENTORIES

The composition of inventories is as follows at:

	June 30, 2009			December 31, 2008
Finished goods	$	986,161		$	1,828,984
Raw materials		1,641,739			1,585,519
Allowance for obsolete inventory		(400,000	)		(400,000	)
	$	2,227,900		$	3,014,503

NOTE 4 – WARRANTY RESERVE

The Company warrants its products against defects in materials and workmanship for a period of three years.  The Company reviews the historical experience of failure rates and estimates the rate of warranty claims that will be made and has accrued a warranty reserve for these anticipated future warranty costs.  If actual results differ from the estimates, the Company would adjust the estimated warranty liability.  Changes in the warranty reserve for the six months ended June 30, 2009 are as follows:

Warranty reserve at beginning of period	$	100,000
Costs accrued for additional warranties		-
Service obligations honored		(4,985	)
Warranty reserve at end of period	$	95,015
	_______________

11

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 5 - SENIOR CONVERTIBLE DEBT

In September 2005, the Company entered into a Senior Convertible Note (the “Note”) with Water Science, a related party, in exchange for $3,000,000. Pursuant to the debt agreement, the Note accrues interest at the rate of 3% per annum and was initially due, principal and interest together, on September 16, 2008.  In June 2008, Water Science agreed to extend the maturity date of the Note to March 16, 2009.  In March 2009, the Company and Water Science agreed to extend the maturity date to September 16, 2009 and increase the interest rate to 10%.  No principal or interest payments need to be paid during the loan period.  In October 2008, as part of a new financing agreement, the Company amended the Note and changed the conversion rate from $3.00 per share to $1.00 per share.  The Note may be converted into 3,000,000 shares of the Company’s $0.0001 par value common stock prior to the maturity date, and at any time, by the holder at a price per share equal to $1.00 per share, subject to certain other conversion adjustments.  The Company granted a security interest in all of the Company’s assets as collateral for the loan.  In connection with the original issuance of the Note, the Company granted a three year warrant to purchase up to two million shares of the Company’s $0.0001 par value common stock with an exercise price of $2.76 per share.

In May 2007, the Company entered into a termination agreement related to the cancellation and reissuance of the existing warrants (“Original Warrants”) to purchase a total of 8.4 million shares of $0.0001 par value common stock of the Company, at a price of $2.76 per share, held by Water Science.  The Company granted to Water Science replacement warrants to purchase 8.4 million shares of common stock at a price of $1.30 per share, with an expiration date of May 9, 2010.  The Company had a right to require Water Science to exercise warrants for up to 3,230,769 shares.  During the year ended 2008, the Company required Water Science to exercise all of the options under the put rights.

The remaining warrants contain “round down” provisions where the exercise price is to be adjusted if the Company should issue stock for less than the original exercise price.  Due to this feature, and pursuant to SEC guidance, the Company accounts for the warrants and convertible feature as a derivative liability with changes in fair value being recorded in the income statement.  As of June 30, 2009 and December 31, 2008, the value of the derivative liability was $10,451,283 and $8,621,940, respectively.  The Company recorded a loss of $1,829,343 and $171,796 in the change of the derivative liability to fair market value for the six month period ended June 30, 2009 and 2008, respectively.

NOTE 6 - RELATED PARTY TRANSACTIONS

Sales to Affiliates – In September 2005, Water Science, a related party, paid to the Company $1,000,000 for the exclusive rights to sell our products in South America and Mexico.  The agreement allows for a pro-rated refund during the first 5 years under certain circumstances.  The Company recognizes income from this agreement over the first 5 years of the agreement.  The Company recognized $100,000 in each of the periods ended June 30, 2009 and 2008.  This agreement also gives Water Science the rights to purchase machinery from the Company at cost plus 25 percent.  The Company did not have any sales to Water Science during the six months ended June 30, 2009 and had sales of $25,475 for the same period in 2008.  The Company has received and recorded $697,500 in advance deposits from Water Science on machine orders at June 30, 2009 and 2008.  In connection with the sales of the machines and products, the Company has recorded approximately $350,156 in accounts receivable at June 30, 2009.

12

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 6 – RELATED PARTY TRANSACTIONS – (Continued)

Senior Note Payable - In September 2005, the Company entered into a Senior Convertible Note with Water Science in exchange for $3,000,000 (see Note 5).  The Company accounts for the warrants and convertible debt feature as a derivative liability with changes in fair value being recorded in the income statement.  The Company recorded a loss of $1,829,343 and $171,796 due to the change in the fair market value for the six months ended June 30, 2009 and 2008, respectfully.

Licensing Fee –In September 2005, the Company received $1,000,000 in exchange for providing Water Science exclusive licensing and distribution rights for a five-year term for a specified market area. The agreement provides termination rights by Water Sciences and a pro rata refund of the fee. The Company recognizes the fee on a pro rata basis over the life of the agreement. The Company recognized $100,000 in each of the six months ended June 30, 2009 and 2008.

Escrow Arrangement with Chief Executive Officer – In October 2006, the Company entered into an escrow agreement with the Chief Executive Officer. Pursuant to the escrow agreement, to secure the Company’s obligation to make the Severance Payment, the Company is required to deposit, at its election, either (1) cash in the amount of $240,000 or (2) an irrevocable letter of credit with a face amount of $240,000, with an agreed upon escrow agent who shall hold such funds (or letter of credit) in escrow. In January 2007, the Company deposited $240,000 in cash with an escrow agent.

Advances – Periodically throughout the year, the Company advances employees cash for certain reimbursable expenses.  As of June 30, 2009 and 2008, the Company had advances to employees in the amount of $5,500 and $8,500, respectively.

Employee Options – In December 2007, the Company granted 480,260 options to various employees.  The options are for a term of ten (10) years and have an exercise price of $1.30 per share.  The options vest over a period of four (4) years.   The options were valued using the Black-Scholes model with the following assumptions:  risk free rate of 4.64%, volatility at 87.06% and the stock price at $1.30.  The value of each warrant is approximately $1.13 per warrant.  The Company recognized $68,777 in stock option expense related to the options for the six months ended June 30, 2009.

In November 2007, the Company granted 530,000 options to Douglas Kindred, in connection with the appointment of Mr. Kindred as Chief Technology Officer.  The options are for a term of ten (10) years and have an exercise price of $1.30 per share.  The options vest over a period of four (4) years.   The warrants were valued using the Black-Scholes model with the following assumptions:  risk free rate of 4.28%, volatility at 85.99% and the stock price at $1.01.  The value of each warrant is approximately $0.85 per warrant.  The Company recognized $61,005 during the period ended June 30, 2009.

NOTE 7 – CAPITAL STOCK

In November 2008, Theodore Jacoby, a director of the Company, purchased 100,000 shares of common stock of the Company for $100,000 at a price of $1.00 per share.

In October 2008, the Board of Directors approved a transaction with Water Science, LLC (“WS”), a related party, pursuant to (1) a Stock Purchase Agreement (the “Purchase Agreement”) and (2) a Second Amended and Restated Senior Secured Convertible Promissory Note (the “Second Amended Convertible Note”). The Purchase Agreement provides for the purchase of 2.5 million shares of common stock of the Company at a price of $1.00 per share and the amendment of the original Amended and Restated Senior Secured Convertible Promissory Note dated as of May 8, 2008, to change the conversion rate from $3.00 per share to $1.00 per share, as reflected in the Second Amended Convertible Note. The purchase of the common stock was to occur in six monthly installments of $350,000 beginning October 14, 2008 plus a final installment of $400,000 on April 15, 2009. As of December 31, 2008, the Company had received $1,050,000 under the agreement.  As of March 2009, the Company received an additional $500,000.

13

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 7 – CAPITAL STOCK – (Continued)

In March 2009, the Company and Water Science amended the payment schedule of the Purchase Agreement on the final $950,000.  The purchase of the common stock was scheduled to occur in four monthly installments of $250,000 on April 15, 2009, $250,000 on May 15, $250,000 on June 15 and a final installment of $200,000 on July 15, 2009.  As of the date of this report, the Company has received payment of all of these installments except $75,000 of the final installment.  We expect to receive that last amount before the end of August 2009.  The Second Amended Convertible Note included an interest rate of 3% and a maturity date of March 16, 2009. In March 2009, the Company and Water Science agreed to extend the maturity date to September 16, 2009 and increase the interest rate to 10%.  WS is controlled by Peter Ullrich, a member of the Board of Directors of the Company.

In February 2008, the Compensation Committee of the Board of Directors of the Company granted $30,000 to each board member in the form of 23,077 shares of restricted stock for each director, effective on February 27, 2008. The restricted stock will vest ratably over a period of two years from the date of grant. These grants were made pursuant to the annual directors’ compensation program approved by the Board in December 2007.  The amount of compensation was based on recommendations from a non-related human resource consulting firm.  The Compensation Committee also granted 49,500 shares of restricted stock to various employees, which will vest one year from the date of grant.

In January 2008, an officer of the Company exercised 150,000 options for $1,500 or $0.01 per share.  The options were granted in 2003 for services.

NOTE 8 – GOING CONCERN

The Company has incurred significant losses and has had negative cash flows from operations.  As a result, at June 30, 2009, the Company has had a high level of equity financing transactions and additional financing will be required by the Company to fund its future activities and to support its operations.  We currently do not have sufficient funds to operate our business without additional funding.  The Company is currently in negotiations to obtain additional short-term funding to provide liquidity through the end of 2009.  We expect to finalize an agreement in August.  Management will continue to seek to obtain sufficient funding for its operations through either debt or equity financing.  However, there is no assurance that the Company will be able to obtain additional financing.  Furthermore, there is no assurance that rapid technological changes, changing customer needs and evolving industry standards will enable the Company to introduce new products and services on a continual and timely basis so that profitable operations can be attained.  The Company’s ability to achieve and maintain profitability and positive cash flows is dependent upon its ability to achieve positive sales and profit margins and control operating expenses.

The Company estimates that it will need approximately $2,000,000 for the upcoming twelve months to execute our business plan and an additional $3,000,000, plus interest, in order to satisfy our senior note payable with Water Science, which becomes due in September 2009, if the note is not converted into common stock.  Management plans to mitigate its losses in the near term through the further development and marketing of its trademarks, brand and product offerings.

14

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 9 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our auditors have issued their Independent Registered Public Accountants’ Report on the Company's financial statements for the fiscal year ended December 31, 2008 with an explanatory paragraph regarding the Company's ability to continue as a going concern. The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. However, as a result of recurring operating losses, such realization of assets and satisfaction of liabilities are subject to uncertainty, which raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Stock Based-Compensation Expense

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payments to employees and directors including employee stock options  and stock purchases related to the Company’s employee stock option and award plans based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Option No. 25, “Accounting for Stock Issued to Employees” (“APB25”) for periods beginning in fiscal 2006. In March 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of the Company’s fiscal year 2006. The Company’s financial statements as of and for the three month period ended June 30, 2008 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s financial statements for the prior year have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for the three month period ended June 30, 2009 and 2008 was $83,535 and $162,970, respectively, related to employee stock options issued and vesting during the period.

Basic and Fully Diluted Loss Per Share

Basic and Fully Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period.

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Net Loss (numerator)	$	(370,551	)	$	(1,482,632	)	$	(3,440,136	)	$	(2,710,005	)
Shares (denominator)		19,126,553			16,486,418			18,796,483			15,440,794
Per share amount	$	(0.02	)	$	(0.09	)	$	(0.18	)	$	(0.18	)

The Company’s outstanding stock options have been excluded from the basic net loss per share calculation for the three month period ended June 30, 2009 and 2008, because they are anti-dilutive.

15

 

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 9 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

The following table is a summary of the status of the warrants and options granted and outstanding for the three months ended June 30, 2009:

	Number of Options and Warrants			Weighted Average Exercise Price
Outstanding at beginning of period		8,387,867		$	1.60
Granted		-			-
Exercised		-			-
Forfeited		-			-
Expired		(130,210	)		1.17
Outstanding at end of period		8,257,657		$	1.61

		Warrants Outstanding					Warrants Exercisable
Range of Exercise Prices		Number Outstanding		Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number Exercisable		Weighted-Average Exercise Price
$	.01-.50		210,000	0.9 years	$	0.06	$	210,000		0.06
	1.00-1.99		6,724,491	2.3 years		1.30		5,766,796		1.30
	2.00-2.99		720,000	5.4 years		2.56		720,000		2.56
	3.00-3.99		115,000	5.8 years		3.46		115,000		3.46
	4.00-4.99		255,000	0.5 years		4.00		255,000		4.00
	5.00-5.50		233,166	0.8 years		5.17		233,166		5.17
$	.01-5.50		8,257,657	2.3 years	$	1.61	$	7,299,962		1.64

The fair value of each warrant granted is estimated on the date granted using the Black-Scholes pricing model, with the following assumptions for warrants issued in 2007: risk-free interest rate of between 4.6% and 4.99%, expected dividend yield of zero, expected lives of 3 and 5 years and expected volatility of between 59.76% and 89.54%.  No options were granted in 2008 or 2009.

NOTE 10 – SUBSEQUENT EVENTS

Management evaluated the subsequent events disclosed below as of August 13, 2009, noting the following:

As of the date of this report the Company received $125,000 from Water Science in partial satisfaction of the final installment of the Stock Purchase Agreement as discussed in Note 7 and expects to receive the remaining $75,000 in August.  Under the terms of the agreement, the Company has the right to adjust the exercise price of the warrants held by WS from $1.00 per share to $3.00 per share if WS defaults in its payments.  The Company intends to waive any right to such an adjustment upon receipt of the final amount in August.

In July 2009, the Company granted 25,000 shares of EAU common stock to Larry Earle, a consultant to the Company, pursuant to the Company’s 2007 Stock Incentive Plan.

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

The following discussion and analysis provides information, which management believes is relevant to an assessment and understanding of the Company’s condensed results of operations and financial condition. The discussion should be read in conjunction with the financial statements included in our annual report on Form 10-K, and notes thereto.

Overview

EAU TECHNOLOGIES, INC., previously known as Electric Aquagenics Unlimited, Inc. (referred to herein sometimes as “EAU,”  “we,” “us,” or the “Company”), is in the business of developing, manufacturing and marketing equipment that uses water electrolysis to create non-toxic cleaning and disinfecting fluids. These fluids have various commercial applications and may be used in commercial food processing and organic or non-organic agricultural products that clean, disinfect, remediate, hydrate and moisturize. The processes for which these fluids may be used are referred to in this Report (the “Report”) as the “EW Technology.”  For example, we believe that our food and agricultural treatment products potentially may be used to systemically treat all facets and phases of the food chain, from soil to animal feed to meat processing, by eliminating dangerous and unhealthy pathogens from the food chain with organically based and highly effective solutions. We make the claim that our products are “non-toxic”. We can do this because at the levels we employ our technology, our studies both internal as well as through third parties show no toxicity.  Further studies are in progress to make more specific claims.  At the levels employed, the fluids and products are environmentally safe and non-toxic and do not contain or leave harmful residues associated with chemical-based supplements or disinfecting and cleaning agents. The electrolyzed water fluids created by the EW Technology (referred to herein sometimes as the “EW Fluids” or “Empowered WaterTM”) generated by our specialized equipment can be used in place of many of the traditional products used in commercial, industrial and residential disinfecting and cleaning.

Our focus is on our three core competencies which are, producing high volumes of electrolyzed water, controlling the properties of the water and using our application knowledge.  Because of our ability to produce high volumes of water and control the water properties, our target market is in commercial applications where we believe we can add value by generating measurable productivity and efficiency gains.  We will continue to use a disciplined stage gate development process that drives ideas to commercial test installations that turn into revenues.  Once we have developed an application we will attempt to find a strategic partner that would be able to assist us with a large scale commercial roll-out of the technology.  Our goal is to generate streams of revenues through pricing contracts that let us participate in the on-going added value.

We have identified the following industries for early stage sales and marketing focus: 1) dairy production and processing, 2) meat and poultry processing, 3) clean in place (“CIP”) for food and beverage processing and 4) agricultural grow-out and processing (“Primary Markets”).  As of the date of this Report, the Company was focused on these markets because we believe that for each of these markets we have a competitive advantage, a leading strategic industry partner, or we can provide an attractive value-added proposition.  To penetrate these markets, EAU is conducting trials and completing commercial installations that will lead to partnerships with industry leaders who can assist in rolling the technology out on a large scale.

Dairy Cattle.  The Company commenced hydration and production tests on dairy cattle in 2006.  Initial results indicate an increase in milk production and milk fat while maintaining the protein content.  In August 2008, we reached an agreement with a dairy located in Georgia to begin paying for the use of our equipment.    During the first quarter of 2009, the Company installed a second unit at the dairy located in Georgia to provide our fluids to all of the cows on the dairy.  EAU is currently receiving minimal revenues in a commercial capacity.  We will continue to do more clinical research and field testing in the dairy market in order to support a full industry rollout.  We recently engaged the University of Georgia to perform additional tests on dairy cows.

Poultry.  In 2005, we began testing of our EW Technology and EW Fluids (the “EW System”) in Tyson Food’s Shelbyville, Tennessee, poultry processing plant. In March, 2006, our EW System trial was completed. The trial yielded significant results in killing salmonella on the processed poultry. Independent testing analysis conducted by ABC Research, Inc., in Gainesville, Florida, revealed pre-chill microbial reduction was significantly below the Food Safety Inspection Service (the enforcement arm of the USDA; “FSIS”) allowable limit.

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From these results we successfully completed Phase I of our USDA Online Reprocessing (“OLR”) Certification. The EAU Technologies OLR intervention also tested well showing a statistically significant difference between control and test groups.  EAU is currently having results obtained from its installation in upstate New York statistically analyzed for OLR Certification to the USDA. On April 29, 2009, EAU received a letter of “no objection” from the USDA for our installation at Fieldale Farms to be our Phase II facility. Assuming that we are able to duplicate earlier results, which is not guaranteed, we expect to receive approval for full commercialization of Empowered Water™ as an OLR option. With this approval there will be no limitations to leasing our technology as an OLR agent.

The Company has experienced some sales resistance from the multiple industries including the poultry industry, because operators did not have sufficient incentives to invest in new technologies to improve the safety and cleanliness of food products.  In February 2008, a regulatory change occurred that may increase those incentives.  The Food Safety Inspection Service (“FSIS”), a division of the USDA, sets the public heath performance standards for all raw and processed meat, poultry and egg processing standard for the United States.  The FSIS has implemented a process called the “Public Health Risk Based Inspection” platform to regulate these industries based on the relative risk a processing facility imposes to the human health index.  The new system allows the FSIS to allocate and prioritize its resources at processing plants based on the risk each plant presents. The new categorization platform lists processors in three categories, Category 1: 10% positive and below; Category 2: 10%-20% positive for Salmonella and other pathogens; Category 3: 20%-22% positive for Salmonella and other pathogens. For processors with strong processes and intervention systems meeting the Category 1 criteria, there would be far less FSIS inspectors on site, thus reducing the cost incurred by the plant. We believe that with the success that we have achieved in field trials and commercial installations, in conjunction with the new FSIS policies and regulations, will make EAU’s products appealing to the industry. While it will take time for the poultry industry to fall into compliance with this new rating system, EAU now has a tangible reason for poultry plants to seriously consider our EW technology for its pathogen remediation process.

In 2008, EAU signed an agreement with Fieldale Farms, a large poultry producer in northern Georgia, to install our equipment at their facility.  We began receiving revenues of approximately $27,500 per month from this facility in February 2009.  On April 29, 2009, EAU received a letter of “no objection” from the USDA for our installation at Fieldale Farms to be our Phase II facility.  We have completed the OLR data gathering stage and will submit our findings to the USDA in the next month for full OLR approval.

Clean-in-Place.  In the third quarter of 2008 we installed our equipment to test a clean-in-place (CIP) application with an international beverage bottling company for use with cold beverages.  This test is complete and was a success. There were three stages of this trial that were conducted simultaneously: 1) Syrup tanks; 2) Bag in box; 3) Bottling. The purpose of the trial was to identify whether EAU’s non-toxic ambient temperature Empowered Waters could replace current 3-5 step CIP processes. In order to become an approved technology as well as an approved vendor for this bottling company, EAU had to show good antimicrobial efficacy, water savings, and improved CIP efficiency. At this time, this installation does not generate any revenues.  With the positive results of all phases of the tests being completed for carbonated beverages, EAU is now in a position to begin marketing our systems within the bottling company.  We are expanding our CIP capabilities and are working with the bottling company on a hot fill application for pasteurized beverages.  EAU will continue to test other CIP applications to manage all beverage and food products as the technology is introduced.

We have obtained patent protection on three separate uses of electrolyzed fluids (cleaning and disinfecting eggs, carpet cleaning and mold remediation).  Those uses are how the fluids are used and how they are stabilized for use in different applications. Additionally, we have a patent pending on the electrolysis equipment and several provisional patent pending applications filed to protect new processes and products, as described herein.

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Our operations are currently funded by a combination of revenues and capital funding.

Financial Position and Results of Operations

The following discussion should be read in conjunction with selected financial data and the financial statements and notes to financial statements.

Financial Position

The Company had $298,175 in cash as of June 30, 2009, compared to $494,612 at December 31, 2008.  We also had $240,000 in restricted cash related to an escrow agreement.  The Company has received and recorded $697,500 in advance deposits from Water Science on machine orders at June 30, 2009.  This will be reduced as the Company delivers machines on order to Water Science, a related party.  Water Science, who has exclusive rights to sell our products in Central and South America, is also an affiliate of the Company, and by agreement may purchase machinery from us at cost plus 25 percent.  Long term debt decreased slightly from $39,150 at December 31, 2008 to $22,609 at June 30, 2009.  At June 30, 2009, our stockholders’ deficit was $11,088,653.

Results of Operations for the Three months ended June 30, 2009 and 2008

Revenues and Net Income

The Company had total revenues of $203,975 for the three months ended June 30, 2009, which represents an increase of 48% from the $137,856 in total revenues for the same period one year earlier.  The increase is due to the increased fees the Company is collecting on its leased systems and maintenance fees from previously sold machines.  In an effort to streamline our corporate focus and our business plan, the Company is no longer marketing products that are not directly related to its core competencies, which is the development of Empowered Water™ technologies.

Net loss from continuing operations for the three months ended June 30, 2009 was $370,551, or a loss of $0.02 per share, compared with a net loss from continuing operations of $1,482,632, or $0.09 per share for the same period in 2008.  The majority of the increased net loss is due to the recording of the derivative liability to fair market value, which is based on calculating the Black Scholes value for the liability.  For the three months ended June 30, 2009, the Company recognized a gain of $430,477 as compared to a loss of $257,549 for the three months ended June 30, 2008.  The current quarter net loss includes $76,184 in interest expense, compared to $228,474 in 2008.  This is due to interest expense related to the senior note payable entered into in September 2005.  During the current quarter the discount of the note was fully expensed.

General and Administrative Expenses

The Company’s general and administrative expenses totaled $848,598 during the three months ended June 30, 2009, compared to $1,055,059 during the three months ended June 30, 2008, for a decrease of $206,461.  General and administrative expense for 2009 consists primarily of payroll and other compensation expense ($349,380), legal and professional fees ($125,654), expense related to granting of stock and options ($82,618) and insurance expenses ($50,102).

Research and Development

Research and development expenses incurred during the three month period ended June 30, 2009 increased $22,551, from $20,387 in 2008 to $42,938 in 2009.  While the Company will continue to conduct research to improve its products and their performance, it believes it has developed proven products that have commercial value in its targeted markets.

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Results of Operations for the Six months ended June 30, 2009 and 2008

Revenues and Net Income

The Company had total revenues of $358,625 for the six months ended June 30, 2009, which represents an increase of 54% from the $233,511 in total revenues for the same period one year earlier.  The increase is due to the increased fees the Company is collecting on its leased systems and maintenance fees from previously sold machines.  In an effort to streamline our corporate focus and our business plan, the Company is no longer marketing products that are not directly related to its core competencies, which is the development of Empowered Water™ technologies.

Net loss from continuing operations for the six months ended June 30, 2009 was $3,440,136, or a loss of $0.18 per share, compared with a net loss from continuing operations of $2,710,005, or $0.18 per share for the same period in 2008.  The majority of the increased net loss is due to the recording of the derivative liability to fair market value, which is based on calculating the Black Scholes value for the liability.  For the six months ended June 30, 2009, the Company recognized a loss of $1,829,343 as compared to a loss of $171,796 for the six months ended June 30, 2008.  Excluding the loss on the derivative liability the Company had a net loss of $1,562,343, or $0.08 per share.  The current quarter net loss includes $187,802 in interest expense, compared to $505,619 in 2008.  This is due to interest expense related to the senior note payable entered into in September 2005.  During the current quarter the discount of the note was fully expensed.

General and Administrative Expenses

The Company’s general and administrative expenses totaled $1,598,629 during the six months ended June 30, 2009, compared to $2,137,442 during the six months ended June 30, 2008, for a decrease of $587,263.  General and administrative expense for 2009 consists primarily of payroll and other compensation expense ($706,075), legal and professional fees ($273,492), expense related to granting of stock and options ($166,153) and insurance expenses ($145,713).

Research and Development

Research and development expenses incurred during the six month period ended June 30, 2009 increased $86,216, from $30,789 in 2008 to $117,005 in 2009.  While the Company will continue to conduct research to improve its products and their performance, it believes it has developed proven products that have commercial value in its targeted markets.

Liquidity and Capital Resources

The Company had $298,175 in cash as of June 30, 2009, compared to $494,612 at December 31, 2008.  We have had continuing operating losses of $3,440,136 for the six months ended June 30, 2009, compared with operating losses of $2,710,005 for the six months ended June 30, 2008.  The net loss per share for the first six months of 2009 and 2008 was $0.18 per share.  The majority of the decrease is attributable to the recording of the derivative liability to fair market value as described above.

Net cash used in operating activities in the six month period ended June 30, 2009 was $1,325,212, a 27% decrease, compared to $1,826,340 for the same period in 2008.  The majority of the cash used was for normal operating expenses.  The Company used $18,581 to increase inventories as compared to $60,425 during the comparable period in 2008.  The majority of the remaining changes were non-cash changes, such as a decrease in deferred revenue, increase in accounts receivable and the recognition of expenses related to stock options.

At June 30, 2009, the Company’s net inventory was $2,227,900, representing a decrease of approximately $787,000, or 26% from the $3,014,503 on hand at December 31, 2008.  The Company is in multiple tests of our equipment and has included the machines in inventory until they are sold and begin producing revenues.  During the first six months of 2009 we completed the installation of a poultry system and a dairy system and have removed the systems from inventory and included them in property and equipment.

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The operating outflow of cash was reduced by the Company issuing warrants and stock options in lieu of cash during the quarter of $166,153.  The Company recognized a non-cash increase from the discounting of the Company’s note payable to Water Science, LLC of $76,754.  (See Note 5 to the Company’s financial statements.)  Further, the Company recognized a non-cash increase in the derivative liability of $1,829,343, due to changes in the Black-Scholes value of the liability.

The Company used $113,334 in cash flows from investing activities during the period ended June 30, 2009 as compared to $7,746 used in the same period in 2008.  The cash flows from investing activities consisted of expenditures made for purchase of equipment ($107,580) and expense related to intellectual property ($5,754).

Cash flows from financing activities provided the Company $1,242,109 for the period ended June 30, 2009 compared with $1,096,750 provided the Company during the same period in 2008.  The Company received proceeds of $1,250,000 from the issuance of stock during the six months ended June 30, 2009.

We currently do not have sufficient funds to operate our business without additional funding.  The Company is currently in negotiations to obtain additional short term funding to provide liquidity through the end of 2009.  We expect to finalize an agreement in August.  Our working capital requirements for the foreseeable future will vary based upon a number of factors, including, our timing in the implementation of our business plan, our growth rate and the level of our revenues.  Our current assets, along with cash generated from anticipated revenues, will not provide us with sufficient funding for the next twelve months.  Our senior convertible note payable with Water Science, which was extended in March 2009, will become due in September 2009, which will require cash of $3,000,000, plus interest, in order to satisfy the debt, if the note is not converted into common stock.  We anticipate that we may need an additional $2,000,000 or more in future funding to execute our business plan over the next twelve months. Moreover, if we able to expand our sale of EW machines as anticipated, we may need significant additional working capital to fund that expansion.  We do not have arrangements in place to provide us with this funding or any additional funding. In light of these circumstances, the ability of the Company to continue as a going concern is in substantial doubt.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our discussion and analysis of our financial condition and results of operations require us to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes.  Note 1 of the notes to consolidated financial statements in Part II, Item 7 of the Company’s Annual Report on Form 10-K, dated December 31, 2008, describes the significant accounting policies and methods used in preparation of our consolidated financial statements.  We base our estimates on historical experience, current trends, future projections, and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.  Actual results may differ from these estimates.  There were no material changes in our judgments or estimates during the first quarter of 2009.

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Recent Accounting Pronouncements

In May 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 165, Subsequent Events, which established general accounting standards and disclosure for subsequent events. The Company adopted SFAS No. 165 during the second quarter of 2009. In accordance with SFAS No. 165, the Company has evaluated subsequent events through the date and time the financial statements were issued on August 13, 2009.  See Note 10 of the Company’s financial statements for the related disclosure. The adoption of FAS 165 did not have a material impact on our financial statements.

In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 ("SFAS No. 161"). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how the instruments are accounted for under SFAS No. 133 and its related interpretations, and how the instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The guidance in SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (fiscal year 2009 for the Company). The Company is currently evaluating the potential impact of the adoption of SFAS No. 161 on its disclosures in the Company's financial statements.

In May of 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  This statement identifies literature established by the FASB as the source for accounting principles to be applied by entities which prepare financial statements presented in conformity with generally accepted accounting principles (GAAP) in the United States.  This statement is effective 60 days following approval by the SEC of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.”  This statement will require no changes in the Company’s financial reporting practices.

In May of 2008 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 163, “Accounting for Financial Guarantee Insurance – an interpretation of FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises”.  This statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation.  This statement also clarifies how Statement 60 applies to financial guarantee insurance contracts.  This statement is effective for fiscal years beginning after December 15, 2008.  This statement has no effect on the Company’s financial reporting at this time.

In April 2009, the FASB issued Staff Position ("FSP") FAS 157-4, "Determining Fair Value When the Volume or Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP FAS 157-4"). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased and requires that companies provide interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009 and is to be applied prospectively. We do not expect the adoption of FSP FAS 157-4 to have a significant impact on our financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments." FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual reporting periods ending after June 15, 2009. We do not expect the adoption of FSP FAS 115-2 and FAS 124-2 to have a significant impact on our financial statements.

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In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments." FSP FAS 107-1 and APB 28-1 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 and APB 28-1 is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP 107-1 and APB 28-1 will have no impact on our financial statements.

Inflation

We do not expect the impact of inflation on operations to be significant.

Precious Metals

Raw materials used by the Company in the EW Machines include a number of precious metals and minerals.   Prices of these materials can be volatile and the Company has no fixed price contracts or arrangements.  The Company ordinarily does not attempt to hedge the price risk of its raw materials.  Commercial deposits of certain metals that are required for the alloys used in the EW Machines are found in only a few parts of the world, and for certain materials only single sources are readily available.  The  availability and prices of these metals  and  other   materials   may  be   influenced  by  private or governmental cartels, changes in world politics,  unstable governments in exporting nations,  production  interruptions,  inflation and other factors.   Although the Company has not experienced significant shortages of its supplies and raw materials, there can be no assurance that such shortages will not occur in the future.  Any such shortages or prices fluctuations could have a material adverse effect on the Company.

 Forward-Looking Statements

All forward-looking statements contained herein are deemed by the Company to be covered by and to qualify for the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. Prospective shareholders should understand that several factors govern whether any forward-looking statement contained herein will be or can be achieved.  Any one of those factors could cause actual results to differ materially from those projected herein.  Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.  These forward-looking statements include our expectations regarding working capital requirements and future funding, our expectations regarding our internal controls, expectations regarding funding commitments, our expectations regarding reductions in deposits from Water Science, future inventory levels, future test results, and plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the Company.  Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in any of the forward-looking statements contained herein will be realized.  Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risks associated with successfully developing our business in evolving markets, our need for additional capital, our continuing operating losses, the ability of our management to conduct distribution activities and sell products, possible failure to successfully develop new products, vulnerability to competitors due to lack of patents on our products, and other risk factors listed in our annual report on Form 10-K for the year ended December 31, 2008 and our other SEC reports. Based on actual experience and business development, the Company may alter its marketing, capital expenditure plans or other budgets, which may in turn affect the results of operations. In light of the significant uncertainties inherent in the forward-looking statements included therein, the inclusion of any such statement should not be regarded as a representation by the Company or any other person that the objectives or plans will be achieved.

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Item 3.   Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4T.   Controls and Procedures

Disclosure Controls and Procedures

The Company has evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the issuer’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of June 30, 2009, pursuant to Exchange Act Rule 15d-15.  Based upon that evaluation, the principal executive and financial officers concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The design of any system of controls 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.  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 or will be detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake.

Changes to Internal Control Over Financial Reporting

There have been no significant changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, or other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this item.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of stockholders during the first quarter of 2009.

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Item 5.  Other Information

In March 2009, the Company and Water Science amended the payment schedule of the Stock Purchase Agreement.  The purchase of the common stock was scheduled to occur in four monthly installments of $250,000 on April 15, 2009, $250,000 on May 15, $250,000 on June 15 and a final installment of $200,000 on July 15, 2009.  As of the date of this report, the Company has received payment of all of these installments except $75,000 of the final installment.  We expect to receive that last amount before the end of August 2009.  Under the terms of the agreement, the Company has the right to adjust the exercise price of the warrants held by WS from $1.00 per share to $3.00 per share if WS defaults in its payments.  The Company intends to waive any right to such an adjustment upon receipt of the final amount in August.

Item 6. Exhibits

EXHIBIT NO.	DESCRIPTION OF EXHIBIT
3(i).1	Certificate of Incorporation (Incorporated by reference from registration statement on Form SB-1 filed with the SEC on July 29, 2002 (File No. 333-86830)
3(i).2	Certificate of Amendment of Certificate of Incorporation (Incorporated by reference from registration statement on Form SB-1 filed with the Securities and Exchange Commission on July 29, 2002 (File No. 333-86830)
3(i).3	Certificate of Amendment of Certificate of Incorporation (Incorporated by reference from current report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2007)
3(ii).1	Amended and Bylaws (Incorporated by reference from registration statement on current report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2007)
31.1	Certification by Wade R. Bradley under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Brian D. Heinhold under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Wade R. Bradley pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Brian D. Heinhold pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant cause this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 13, 2009

EAU TECHNOLOGIES, INC.
By:	/s/ Wade R. Bradley
	Wade R. Bradley Chief Executive Officer (Principal Executive Officer)

By:	/s/ Brian D. Heinhold
	Brian D. Heinhold Chief Financial Officer (Principal Financial Officer)

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Wade R. Bradley, certify that:

         1. I have reviewed this report on Form 10-Q of EAU Technologies, Inc.;

         2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

         3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

         4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

        5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 13, 2009	/s/ Wade R. Bradley
	Wade R. Bradley Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brian D. Heinhold, certify that:

         1. I have reviewed this report on Form 10-Q of EAU Technologies, Inc.;

         2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

         3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

         4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

         5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 13, 2009	/s/ Brian D. Heinhold
	Brian D. Heinhold Chief Financial Officer
	(Principal Executive Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of EAU Technologies, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wade R. Bradley, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE: August 13, 2009	/s/ Wade R. Bradley
	Wade R. Bradley
	Chief Executive Officer
	EAU Technologies, Inc.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of EAU Technologies, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian D. Heinhold, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE: August 13, 2009	/s/ Brian D. Heinhold
	Brian D. Heinhold Chief Financial Officer EAU Technologies, Inc.