10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2015

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 þ  No o

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 þ    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	þ
(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 o  No þ

As of May 12, 2015, the Registrant had 28,575,371 shares of Common Stock, $0.0001 par value outstanding.

EAU TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

March 31, 2015

INDEX

		Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements		3
	Balance Sheets – March 31, 2015 (unaudited) and December 31, 2014	3
	Unaudited Statements of Operations – Three months ended March 31, 2015 and 2014	5
	Unaudited Statements of Cash Flows – Three months ended March 31, 2015 and 2014	6
	Condensed Notes to Unaudited Financial Statements	8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		17
ITEM 4. Controls and Procedures		17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings		18
ITEM 1A. Risk Factors		18
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		18
ITEM 3. Defaults Upon Senior Securities		18
ITEM 4. Mine Safety Disclosures		18
ITEM 5. Other Information		18
ITEM 6. Exhibits		18
SIGNATURES		19

2

PART I - FINANCIAL INFORMATION

EAU TECHNOLOGIES, INC.

 BALANCE SHEETS

ASSETS

	March 31,		December 31,
	2015		2014
CURRENT ASSETS	(Unaudited)
Cash	$	311,651	$	259,805
Accounts receivable, net		56,216		56,296
Accounts receivable – related party, net		1,500		1,500
Prepaid expense		3,281		47,438
Inventory, net		104,888		72,290
Total current assets		477,536		437,239
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $120,721		-		-
OTHER ASSETS
Intellectual property, net of accumulated
amortization of $7,767 and $7,428		143,975		138,101
Total other assets		143,975		138,101
Total assets	$	621,511	$	575,430

See notes to financial statements.

3

EAU TECHNOLOGIES, INC.

BALANCE SHEETS (Continued)

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

	March 31,			December 31,
	2015			2014
CURRENT LIABILITIES	(Unaudited)
Accounts payable	$	286,066		$	161,787
Accounts payable – related party		6,354			8,454
Accrued expenses		27,259			44,694
Accrued interest		2,770,161			2,611,490
Warranty reserve		140,000			140,000
Advance deposits on machine orders		365,368			542,793
Advance deposits on machine orders – related party		413,595			413,595
Short term notes payable – related party		330,000			1,290,000
Unsecured short term advances – related party		5,000			5,000
Convertible notes payable – related party, net of iscounts of $46,400 and $0		6,100,427			4,986,827
Total current liabilities		10,444,230			10,204,640
Total liabilities		10,444,230			10,204,640
STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock, $.0001 par value; 50,000,000 shares authorized; 8,575,371 and 28,575,371 issued and outstanding, respectively		2,858			2,858
Additional paid in capital		45,772,527			45,726,127
Accumulated deficit		(55,598,104	)		(55,358,195	)
Total stockholders’ equity (deficit)		(9,822,719	)		(9,629,210	)
Total liabilities and stockholders’ equity (deficit)	$	621,511		$	575,430

See notes to financial statements.

4

EAU TECHNOLOGIES, INC.

UNAUDITED STATEMENTS OF OPERATIONS

	Three Months Ended
	March 31,
	2015			2014
NET REVENUES – RELATED PARTY	$	2,331		$	-
NET REVENUES		291,163			490,974
TOTAL REVENUES		293,494			490,974
COST OF GOODS SOLD		113,448			168,719
GROSS PROFIT		180,046			322,255
OPERATING EXPENSES
Depreciation and amortization		339			339
General and administrative		263,276			376,926
Total operating expenses		263,615			377,265
LOSS FROM OPERATIONS		(83,569	)		(55,010	)
OTHER INCOME (EXPENSE)
Interest expense		(158,768	)		(133,479	)
Interest income		28			25
Rental income		2,400			2,400
Total other income (expense)		(156,340	)		(131,054	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(239,909	)		(186,064	)
PROVISION FOR INCOME TAXES		-			-
NET LOSS	$	(239,909	)	$	(186,064	)
BASIC AND DILUTED NET LOSS PER SHARE	$	(0.01	)	$	(0.01	)
WEIGHTED AVERAGE OF SHARES OUTSTANDING		28,575,371			28,575,371

See notes to financial statements.

5

EAU TECHNOLOGIES, INC.

 UNAUDITED STATEMENTS OF CASH FLOWS

	For the Three Months Ended March 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(239,909	)	$	(186,064	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		339			339
Warrants and options vested or issued for services		-			484
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		80			17,877
Decrease in prepaid expense		44,157			44,695
(Increase) in inventory		(32,598	)		(36,344	)
Increase (decrease) in accounts payable		122,179			(25,491	)
(Decrease) in advance deposits for machine orders		(177,425	)		(17,605	)
Increase (decrease) in accrued expenses		(17,435	)		7,646
Increase in accrued interest		158,671			133,383
Net cash (used) in operating activities		(141,941	)		(61,080	)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for intellectual property		(6,213	)		(115	)
Net cash (used) in investing activities		(6,213	)		(115	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from unsecured short term advances - related party		200,000			285,000
Net cash provided by financing activities		200,000			285,000
NET INCREASE IN CASH		51,846			223,805
Cash, beginning of period		259,805			2,654
Cash, end of period	$	311,651		$	226,459

See notes to financial statements.

6

EAU TECHNOLOGIES, INC.

 UNAUDITED STATEMENTS OF CASH FLOWS

(Continued)

	Three Months Ended March 31,
	2015		2014
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	97	$	96
Income Taxes	$	-	$	-

See notes to financial statements.

7

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, 2014.

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

NOTE 2 - INVENTORIES

The composition of inventories is as follows at:

	March 31, 2015			December 31, 2014
Finished goods	$	17,768		$	-
Raw materials		477,757			426,927
Allowance for obsolete inventory		(390,637	)		(390,637	)
	$	104,888		$	72,290

NOTE 3 – 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 three months ended March 31, 2015, and for the year ended December 31, 2014 are as follows:

	March 31, 2015		December 31, 2014
Warranty reserve at beginning of period	$	140,000	$	160,000
Costs accrued for additional warranties		-		1,001
Service obligations honored		-		(1,001	)
Reduction in accrued estimate		-		(20,000	)
Warranty reserve at end of period	$	140,000	$	140,000

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EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 4 - CONVERTIBLE NOTES PAYABLE – RELATED PARTIES

At various times throughout 2014, funds totaling $1,160,000 were advanced to the Company by Mr. Ullrich, a related party.  In April 2015, the Company entered into a loan agreement with this related party which formalized those advances into a note payable.  This balance has been included on the balance sheet in related party notes payable as of December 31, 2014.  The loan agreement provides for interest at a rate of 10% annually and will mature on November 30, 2015.  The outstanding balance under the Loan Agreement is convertible into shares of the Company’s common stock at $0.31 per share and no principal or interest payments are due until maturity.  The Loan Agreement provides that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In connection with the negotiation of the Loan Agreement, the Company also granted a warrant to purchase up to 1,160,000 shares of the Company’s common stock at an exercise of $0.31 per share. The warrant expires in April 2020.  Due to the warrants issued in connection with the loan, the Company recognized a debt discount of $46,400 in interest expense.

In April 2014, the Company entered into a loan agreement with Mr. Ullrich, a related party, which formalized $303,300 in advances into a note payable.  The loan agreement provides for interest at a rate of 10% annually and has been extended to mature on November 30, 2015.  The outstanding balance under the Loan Agreement is convertible into shares of the Company’s common stock at $0.31 per share and no principal or interest payments are due until maturity.  The Loan Agreement provides that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In connection with the negotiation of the Loan Agreement, the Company also granted a warrant to purchase up to 303,300 shares of the Company’s common stock at an exercise of $0.31 per share. The warrant expires in April, 2019.

In May 2013, the Company entered into Promissory Notes (“Promissory Notes”) with Peter Ullrich and Theodore Jacoby, related parties.  Mr. Ullrich agreed to lend the Company $80,000 and Mr. Jacoby agreed to lend the Company $50,000.  The Promissory Notes provide for interest at a rate of 10% annually.  No principal or interest payments are due until maturity.  The Promissory Notes provide that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty.  In November 2013, the Company entered into Amended Promissory Note agreements to extend the notes from November 2013 to May 2014. In May 2014, the Promissory Notes were again extended to May 2015.

In January 2013, the Company entered into a loan agreement with a related party.  The principal amount of the Note is $1,325,000.  The Loan Agreement provides for interest at a rate of 10% annually and had an initial maturity of November 30, 2013. The loan agreement was subsequently amended to provide a maturity date of November 30, 2015. The outstanding balance under the Loan Agreement is convertible into shares of the Company’s common stock at $0.31 per share and no principal or interest payments are due until maturity.  The Loan Agreement provides that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In connection with the negotiation of the Loan Agreement, the Company also granted a warrant to purchase up to 1,325,000 shares of the Company’s common stock at an exercise of $0.31 per share. The warrant expires on January 31, 2018.  Due to the warrants issued in connection with the loan, the Company recognized a debt discount of $26,500 in interest expense.  The Company also recognized approximately $26,500 in interest expense related to the amortization of this debt discount.

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.

9

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 4 - CONVERTIBLE NOTES PAYABLE – RELATED PARTIES  (continued)

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.

Beginning in 2009 and each year thereafter, the Company entered into agreements with Water Science to extend the maturity date of the Note by an additional year. Most recently, in March 2015 the Company entered into an agreement with Water Science to extend the Note until November 30, 2015.

In December 2011, the Company entered into an agreement to convert $358,527 of accrued interest into a new convertible note.  Simple interest accrued at a rate of 10% per annum on the unpaid principal amount outstanding and the loan was set to mature on November 30, 2013, at which time accrued interest and the outstanding principal balance shall be due.  The agreement contains an optional conversion right, whereby the Lender may convert all or any portion of the outstanding principal and interest due into shares of the Company’s common stock at a price per share equal to $1.00 per share.  In connection with the issuance of the convertible note, the Company granted a five year warrant to purchase up to 358,527 shares of the Company’s $0.0001 par value common stock with an exercise price of $0.31 per share.

In March 2015, the Company entered into agreements with Mr. Ullrich to extend the $358,527 Note and the $1,325,000 Note until November 30, 2015.

NOTE 5 – 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.  This agreement also gives Water Science the rights to purchase machinery from the Company at cost plus 25 percent.  The Company had sales of $2,331 and $0 to Water Science during the three months ended March 31, 2015 and 2014.  The Company has received and recorded $413,595 in advance deposits from Water Science on machine orders at March 31, 2015, and December 31, 2014.

Convertible Notes Payable –See Note 4 for disclosure of related party Convertible Notes Payable.

Advances – Periodically throughout the year, the Company advances employees cash for certain reimbursable expenses.  As of March 31, 2015 and December 31, 2014, the Company had advances to an employee in the amount of $1,500 and $1,500, respectively.

Unsecured Short Term Advances – In January and March 2015, the Company obtained an unsecured short term advances of $100,000 and $100,000 from Peter Ullrich a member of the Board of Directors of the Company.  The final agreement to document the advances has not been signed, and the material terms are not final. It is anticipated that the final loan will be at 10% simple interest and conversion rights into Company common stock.  The material terms of the final agreement will be disclosed in subsequent filings with the Securities and Exchange Commission.

10

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 6 – CAPITAL STOCK

The Company has certain notes payable to related parties that are convertible into shares of the Company’s common stock.  See Note 4.

NOTE 7 – GOING CONCERN

At March 31, 2015 the Company had deficit working capital, deficit equity and has sustained recurring losses from operations, all of which raise substantial doubt about 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. Our auditors have issued their Independent Registered Public Accountants’ Report on the Company's financial statements for the fiscal year ended December 31, 2014 with an explanatory paragraph regarding the Company's ability to continue as a going concern.

The Company estimates that it may need up to $1,200,000 for the upcoming twelve months to execute our business plan.  Management plans to mitigate its losses in the near term through the further development and marketing of its trademarks, brand and product offerings.

NOTE 8 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Receivables

Receivables represent valid claims against debtors for sales or other charges arising on or before the balance-sheet date and are reduced to their estimated net realizable value.  The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses.  The Company charges off uncollectible accounts receivable when management estimates no possibility of collecting the related receivable.

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
	March 31,
	2015			2014
Net Loss (numerator)	$	(239,909	)	$	(186,064	)
Shares (denominator)		28,575,371			28,575,371
Per share amount	$	(0.01	)	$	(0.01	)

The Company’s outstanding stock options and warrants have been excluded from the basic net loss per share calculation for the three month period ended March 31, 2015 and 2014, because they are anti-dilutive.

11

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 8 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock Based-Compensation Expense

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation — Stock Compensation, which requires a fair-value-based measurement method to account for stock-based compensation. The Company uses the Binomial valuation formula, which is a closed-form model that uses an equation to determine the estimated fair value of stock options.  Stock-based compensation expense recognized for the three month period ended March 31, 2015 and 2014 was $0 and $484 respectively, related to employee and director stock options issued and vesting during the period.

The following table is a summary of the status of the warrants and options granted and outstanding at March 31, 2015:

	Number of Options and Warrants			Weighted Average Exercise Price
Outstanding at beginning of period		6,413,154		$	0.31
Granted		1,160,000		$	0.31
Exercised		-		$	-
Forfeited		(7,500	)	$	0.31
Expired		-		$	-
Outstanding at end of period		7,565,654		$	0.31

A summary of the status of the warrants and options outstanding at March 31, 2015 is presented below:

Warrants Outstanding			Warrants Exercisable
Range of		Weighted-Average	Weighted-Average		Weighted-Average
Exercise	Number	Remaining	Exercise	Number	Exercise
Prices	Outstanding	Contractual Life	Price	Exercisable	Price
$.01-.50	7,565,654	3.5 years	$ 0.31	7,565,654	$ 0.31

The fair value of each warrant and option granted is estimated on the date granted using the Binomial pricing model.

NOTE 9 – SUBSEQUENT EVENTS

In accordance with ASC 855, management evaluated events subsequent to March 31, 2015 and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements.

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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., (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 for food safety applications as well as dairy drinking water. These fluids have various commercial applications and may be used in commercial food processing and agricultural products that clean, disinfect, remediate and hydrate. 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 may be used to systemically treat various facets and phases of the food chain, from grow-out to downstream food, to cleaning and sanitizing food productions equipment, by eliminating dangerous and unhealthy pathogens from the food chain with our highly effective solutions.  At the levels employed, the fluids and products are environmentally safe and non-toxic and do not contain or leave harmful residues.  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, employee safety 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 strategic partners that would be able to assist us with a large scale commercial roll-out of the technology.

We have identified the following industries for early stage sales and marketing focus: 1) food and beverage processing, 2) dairy production and processing, 3) meat and poultry 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, the potential ability to attract 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 are leading to partnerships with enterprises that can assist in rolling the technology out on a large scale.

Food and Beverage Processing. In 2008 we installed our equipment to test a clean-in-place (CIP) application with an international beverage bottling company for use with cold beverages.  There were three stages of this trial that were conducted simultaneously: 1) Syrup tanks; 2) Bag in box line and; 3) Bottling line. The purpose of the trial was to identify whether EAU’s non-toxic ambient temperature Empowered Waters could replace current 3 to 5 step CIP processes. In order to become an approved technology for this bottling company, EAU had to show cleaning performance, good antimicrobial efficacy, no negative smell or taste impacts, and improved CIP efficiency.

Results showed Empowered Water™ was able to improve current cleaning and sanitizing efficacy, minimizing the use of commercial chemicals while complying with microbiological integrity and sensory testing requirements. Testing also identified water and energy consumption savings as well as significant timesaving that can increase bottling production line availability.

In August 2010, following the successful tests, the Company received its first purchase orders from the international beverage company.  EAU installed its environmentally friendly Empowered Water™ CIP Systems at three of the company’s bottling plants and recorded revenue from the sale of these systems during the first quarter 2011.  The Company received an additional order for this same bottling company in 2012 for one of its largest bottling plants.  Because of the success we have achieved in this application, we began testing with another international bottler of soft drinks and have achieved similar success in duplicating results with that company. EAU is now an approved CIP application with both international bottling companies and is marketing to both companies’ bottling operations in North America.

13

Upon the successful installations and as part of the Company’s plans to find a strategic industry partner, the Company entered into a non-exclusive commercial relationship with an international manufacturer of food processing equipment.  In connection with the agreement the company ordered two Empowered Water Generator systems.  We shipped the systems during the fourth quarter of 2011.  The systems were used for customer product testing and on-site customer validation.  Following the successful tests and validations, the company placed multiple orders for our equipment.  During 2013, we shipped six new systems.   During 2014, we completed 2 new systems.  We expect sales to this partner to decrease over the next few months.  We have seen interest and successful trials, and will continue to pursue sales through other distributors.

Dairy Production and Processing.  The Company commenced hydration and production tests on dairy cattle in 2006.  Multiple on-site trials and University studies were performed.  Initial results indicated an increase in milk production and milk fat while maintaining the protein content.  We recognized revenues from the sale of this system during 2011.  We are no longer receiving revenues from this market.

Meat and Poultry Processing.  We began testing of our EW Technology and EW Fluids (the “EW System”) in poultry processing in 2005.  Over the course of the next three years, we showed significant results in killing salmonella on the processed poultry. Independent testing analysis revealed pre-chill microbial reduction was significantly below the Food Safety Inspection Services (the enforcement arm of the USDA) allowable limit at that time.  From these results we successfully completed Phase I of our USDA Online Reprocessing (“OLR”) Certification.  In 2008, we completed the OLR data gathering stage at Fieldale Farms (“Fieldale”) a poultry plant in northern Georgia and submitted our findings to the USDA for OLR approval.  EAU received a letter from the USDA approving our fluids for use in the plant for OLR applications.

We no longer receive revenues from this market.

Agriculture. In 2006 we made initial sales to Water Science, LLC, a Florida limited liability company (“Water Science”) for the Latin American markets.  Water Science is a major shareholder of the Company and its managing member, Peter Ullrich, is a director of our company.  We have shipped multiple systems to Ecuador, Mexico, Columbia, Costa Rica and Holland for trials and Water Science internal use.  Water Science is utilizing the technology for its own flower and agricultural endeavors.  Further studies are being done as each country that has the Empowered Water™ technology ramps up for their own outside sales efforts.

While the majority of our efforts and our sales in agriculture market have been in connection with Water Science, we are investigating the potential to enter other agricultural markets such as green house and grow out of fruits and vegetable plants and fruit and vegetable packing facilities.  In 2014 we sold multiple systems to fruit growers. We plan to further develop this market with distributors of our systems into other fruit growers.

Patents.  We have obtained patent protection on four separate uses of electrolyzed fluids (cleaning and disinfecting eggs, carpet cleaning, mold remediation and poultry processing).  The Company received notification that it was granted a process patent in New Zealand for the use of electrolyzed water in the assistance of rumen digestion in dairy cows.  The similar process patent is pending in the United States.  Those applications 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.

14

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 $311,651 in cash as of March 31, 2015, compared to $259,805 at December 31, 2014.  The Company has received and recorded approximately $780,000 in advance deposits on orders for our equipment.  We expect the deposits will be reduced as the Company delivers machines on order to our customers during the second and third quarters of 2015.  At March 31, 2015 our stockholders’ deficit was $9,822,719, compared to $9,629,210 at December 31, 2014.

Results of Operations for the Three months ended March 31, 2015 and 2014

Revenues and Net Loss - Net revenues for the three months ended March 31, 2015, decreased by $197,480, to $293,494 compared to revenues of $490,974 for the three months ended March 31, 2014. The majority of the revenues are from the sale of our EW water systems in the Clean-in-Place (“CIP”) market and the agriculture and dairy markets.

Our cost of sales decreased from $168,719 for the three months ended March 31, 2014 to $113,448 for the three months ended March 31, 2015. This decrease is attributable to the decreased sales of our EW water systems.

For the three months ended March 31, 2015, the Company had a net loss of $239,909, compared to a net loss of $186,064 for the three months ended March 31, 2014. This increase of approximately $54,000 of net losses is primarily due to lower sales and higher interest expense.

General and Administrative Expense – The Company incurred total general and administrative expenses for the three months ended March 31, 2015 of $263,276, a decrease of $113,650 from the $376,926 incurred in 2014.  General and administrative expenses for 2015 consist primarily of payroll and labor expense of approximately $125,000, rent expense of $22,000, professional fees of $24,500, and insurance expense of $67,000.

Research and Development - Our research and development expenses for the three months ended March 31, 2015 and 2014 were $0 and $0.   We expect to continue to have minimal research and development expenses during 2015.

Interest Expense - Our interest expense rose as compared to the prior year due to the increased amount of debt.  Interest expense in 2015 was $158,768 compared to $133,479 in 2014.  The Company continues to rely on notes and advances for operating funds and expects to continue to incur significant interest expenses.

Liquidity and Capital Resources

We do not receive sufficient revenues to fund all of our operational needs.  The majority of our additional funding has come from a single shareholder.  We currently do not have sufficient funds on hand to fund all of our operational needs for the next 12 months.  We will have sufficient funds to operate our business only if we receive expected orders from our customers and we are able to secure additional funding.  We do not have any agreements in place for additional funding.  We may not have enough funding for operations to fund our business until it is developed enough to bring the business plan to maturity.  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.  We project $1,200,000 is required over the next twelve months to execute our business plan.  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.

15

Net cash used in operating activities in the three month period ended March 31, 2015 was $141,941 compared to $61,080 for the same period in 2014.  The majority of the change in cash used for the current period was related to the decrease in the advance deposits for machine orders in 2015 as compared to 2014.  At March 31, 2015 we had total deposits outstanding of $778,963.

At March 31, 2015, the Company’s net inventory was $104,888, representing an increase of approximately $33,000, from the $72,290 on hand at December 31, 2014.

The Company’s only cash flows from investing activities were from expenditures related to intellectual property of $6,213 and $115 during the periods ended March 31, 2015 and 2014, respectively.

Cash flows from financing activities provided the Company $200,000 for the period ended March 31, 2015, which consisted of an unsecured short term advance.  The Company received $285,000 for the three months ended March 31, 2014.

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, 2014, 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 2015.

Recent Accounting Pronouncements

None

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.

16

 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 revenues, 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, risks associated with litigation, risks associated with international transactions, 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, 2014 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.

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 4.   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 March 31, 2015, 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. The Company’s disclosure controls have been designed to provide reasonable assurance of achieving their objectives.

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.

17

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. Mine Safety Disclosures

None

Item 5. Other Information

None

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)
10.1	2014 Advances Loan Agreement between the Company and Peter F. Ullrich dated as of March 27, 2015. (Incorporated by reference to Ex. 10.27 to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 8, 2015)
10.2	Warrant between the Company and Peter F. Ullrich dated as of March 27, 2015. (Incorporated by reference to Ex. 10.28 to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 8, 2015)
10.3	Third Amendment to Third Amended and Restated Senior Secured Convertible Promissory Note dated as of March 27, 2015 between the Company and Water Science LLC.  (Incorporated by reference to Ex. 10.28 to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 8, 2015)
10.4	Second Amended and Restated $358,527 Loan Agreement dated March 27, 2015between the Company and Peter F. Ullrich.  (Incorporated by reference to Ex. 10.29 to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 8, 2015)
10.5	Second Amended and Restated $1,325,000 Loan Agreement between the Company and Peter F. Ullrich dated as of  March 27, 2015. (Incorporated by reference to Ex. 10.30 to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 8, 2015)
31.1	Certification by Douglas W. Kindred 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 Douglas W. Kindred 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.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

** Furnished herewith. Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

18

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.

	EAU TECHNOLOGIES, INC.
Dated: May 13, 2015	By:	/s/ Douglas W. Kindred
		Douglas W. Kindred
		Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Brian D. Heinhold
		Brian D. Heinhold
		Chief Financial Officer
		(Principal Financial Officer)

19

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Douglas W. Kindred, 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: May 13, 2015	By:	/s/ Douglas W. Kindred
		Douglas W. Kindred
		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: May 13, 2015	By:	/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 March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas W. Kindred, 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: May 13, 2015	By:	/s/ Douglas W. Kindred
		Douglas W. Kindred
		Chief Executive Officer
		(Principal Executive Officer)

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 March 31, 2015 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: May 13, 2015	By:	/s/ Brian D. Heinhold
		Brian D. Heinhold
		Chief Financial Officer
		(Principal Executive Officer)

XML

8. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Notes to Financial Statements
Stock-based compensation expense recognized	$ 0	$ 484

XML

4. CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

4. CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

At various times throughout 2014, funds totaling $1,160,000 were advanced to the Company by Mr. Ullrich, a related party.  In April 2015, the Company entered into a loan agreement with this related party which formalized those advances into a note payable.  This balance has been included on the balance sheet in related party notes payable as of December 31, 2014.  The loan agreement provides for interest at a rate of 10% annually and will mature on November 30, 2015.  The outstanding balance under the Loan Agreement is convertible into shares of the Company’s common stock at $0.31 per share and no principal or interest payments are due until maturity.  The Loan Agreement provides that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In connection with the negotiation of the Loan Agreement, the Company also granted a warrant to purchase up to 1,160,000 shares of the Company’s common stock at an exercise of $0.31 per share. The warrant expires in April 2020.  Due to the warrants issued in connection with the loan, the Company recognized a debt discount of $46,400 in interest expense.

In April 2014, the Company entered into a loan agreement with Mr. Ullrich, a related party, which formalized $303,300 in advances into a note payable.  The loan agreement provides for interest at a rate of 10% annually and has been extended to mature on November 30, 2015.  The outstanding balance under the Loan Agreement is convertible into shares of the Company’s common stock at $0.31 per share and no principal or interest payments are due until maturity.  The Loan Agreement provides that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In connection with the negotiation of the Loan Agreement, the Company also granted a warrant to purchase up to 303,300 shares of the Company’s common stock at an exercise of $0.31 per share. The warrant expires in April, 2019.

In May 2013, the Company entered into Promissory Notes (“Promissory Notes”) with Peter Ullrich and Theodore Jacoby, related parties.  Mr. Ullrich agreed to lend the Company $80,000 and Mr. Jacoby agreed to lend the Company $50,000.  The Promissory Notes provide for interest at a rate of 10% annually.  No principal or interest payments are due until maturity.  The Promissory Notes provide that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty.  In November 2013, the Company entered into Amended Promissory Note agreements to extend the notes from November 2013 to May 2014. In May 2014, the Promissory Notes were again extended to May 2015.

In January 2013, the Company entered into a loan agreement with a related party.  The principal amount of the Note is $1,325,000.  The Loan Agreement provides for interest at a rate of 10% annually and had an initial maturity of November 30, 2013. The loan agreement was subsequently amended to provide a maturity date of November 30, 2015. The outstanding balance under the Loan Agreement is convertible into shares of the Company’s common stock at $0.31 per share and no principal or interest payments are due until maturity.  The Loan Agreement provides that accrued interest and the outstanding principal balance can be prepaid, in whole or in part, at any time without premium or penalty. In connection with the negotiation of the Loan Agreement, the Company also granted a warrant to purchase up to 1,325,000 shares of the Company’s common stock at an exercise of $0.31 per share. The warrant expires on January 31, 2018.  Due to the warrants issued in connection with the loan, the Company recognized a debt discount of $26,500 in interest expense.  The Company also recognized approximately $26,500 in interest expense related to the amortization of this debt discount.

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.

Beginning in 2009 and each year thereafter, the Company entered into agreements with Water Science to extend the maturity date of the Note by an additional year. Most recently, in March 2015 the Company entered into an agreement with Water Science to extend the Note until November 30, 2015.

In December 2011, the Company entered into an agreement to convert $358,527 of accrued interest into a new convertible note.  Simple interest accrued at a rate of 10% per annum on the unpaid principal amount outstanding and the loan was set to mature on November 30, 2013, at which time accrued interest and the outstanding principal balance shall be due.  The agreement contains an optional conversion right, whereby the Lender may convert all or any portion of the outstanding principal and interest due into shares of the Company’s common stock at a price per share equal to $1.00 per share.  In connection with the issuance of the convertible note, the Company granted a five year warrant to purchase up to 358,527 shares of the Company’s $0.0001 par value common stock with an exercise price of $0.31 per share.

In March 2015, the Company entered into agreements with Mr. Ullrich to extend the $358,527 Note and the $1,325,000 Note until November 30, 2015.

XML

3. WARRANTY RESERVE

3 Months Ended

Mar. 31, 2015

Guarantees [Abstract]

3. 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 three months ended March 31, 2015, and for the year ended December 31, 2014 are as follows:

	March 31, 2015		December 31, 2014
Warranty reserve at beginning of period	$	140,000	$	160,000
Costs accrued for additional warranties		-		1,001
Service obligations honored		-		(1,001	)
Reduction in accrued estimate		-		(20,000	)
Warranty reserve at end of period	$	140,000	$	140,000

XML

BALANCE SHEETS (Unaudited) (USD $)	Mar. 31, 2015	Dec. 31, 2014
CURRENT ASSETS
Cash	$ 311,651	$ 259,805
Accounts receivable, net	56,216	56,296
Accounts receivable - related party, net	1,500	1,500
Prepaid expense	3,281	47,438
Inventory, net	104,888	72,290
Total current assets	477,536	437,329
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $120,721 and $120,721
OTHER ASSETS
Intellectual property, net of accumulated amortization of $7,767 and $7,428	143,975	138,101
Total other assets	143,975	138,101
Total assets	621,511	575,430
CURRENT LIABILITIES
Accounts payable	286,066	161,787
Accounts payable - related party	6,354	8,454
Accrued expenses	27,259	44,694
Accrued interest	2,770,161	2,611,490
Warranty reserve	140,000	140,000
Advance deposits on machine orders	365,368	542,793
Advance deposits on machine orders - related party	413,595	413,595
Short term notes payable - related party	330,000	1,290,000
Unsecured short term advances - related party	5,000	5,000
Convertible notes payable - related party, net of iscounts of $46,400 and $0	6,100,427	4,986,827
Total current liabilities	10,444,230	10,204,640
Total Liabilities	10,444,230	10,204,640
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.0001 par value; 50,000,000 shares authorized; 8,575,371 and 28,575,371 issued and outstanding, respectively	2,858	2,858
Additional paid in capital	45,772,527	45,726,127
Accumulated deficit	(55,598,104)	(55,358,195)
Total stockholders' equity (deficit)	(9,822,719)	(9,629,210)
Total liabilities and stockholders' equity (deficit)	$ 621,511	$ 575,430

XML

1. BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

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, 2014.

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

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8. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Notes to Financial Statements
Net Loss (numerator)	$ (239,909)	$ (186,064)
Shares (denominator)	28,575,371	28,575,371
Per share amount	$ (0.01)	$ (0.01)

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8. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $)	3 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Notes to Financial Statements
Exercise Prices, Range Minimum	$ 0.01
Exercise Prices, Range Maximum	$ 0.50
Warrants Outstanding
Number Outstanding	7,565,654	6,413,154
Weighted-Average Remaining Contractual Life	3 years 6 months
Weighted-Average Exercise Price	$ 0.31
Warrants Exercisable
Number Exercisable	7,565,654
Weighted-Average Exercise Price	$ 0.31

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2. INVENTORIES

3 Months Ended

Mar. 31, 2015

Inventory Disclosure [Abstract]

2. INVENTORIES

The composition of inventories is as follows at:

	March 31, 2015			December 31, 2014
Finished goods	$	17,768		$	-
Raw materials		477,757			426,927
Allowance for obsolete inventory		(390,637	)		(390,637	)
	$	104,888		$	72,290

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BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Assets
Accumulated Depreciation on Property and Equipment	$ 120,721	$ 120,721
Liabilities
Discount on Convertible notes payable	$ 46,400	$ 0
Stockholders Equity
Common Stock shares par value	$ 0.001	$ 0.001
Common Stock shares Authorized	50,000,000	50,000,000
Common Stock shares Issued	8,575,371	28,575,371
Common Stock shares Outstanding	8,575,371	28,575,371

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3. WARRANTY RESERVE (Tables)

3 Months Ended

Mar. 31, 2015

Guarantees [Abstract]

Warranty Reserve

	March 31, 2015		December 31, 2014
Warranty reserve at beginning of period	$	140,000	$	160,000
Costs accrued for additional warranties		-		1,001
Service obligations honored		-		(1,001	)
Reduction in accrued estimate		-		(20,000	)
Warranty reserve at end of period	$	140,000	$	140,000

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Document and Entity Information	3 Months Ended
	Mar. 31, 2015	May 12, 2015
Document And Entity Information
Entity Registrant Name	EAU TECHNOLOGIES, INC.
Entity Central Index Key	0001170816
Document Type	10-Q
Document Period End Date	Mar. 31, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		28,575,371
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2015

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8. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2015

Summary Of Significant Accounting Policies Tables

Basic and Fully Diluted net loss per share using weighted-average number of common shares outstanding

	For the Three Months Ended
	March 31,
	2015			2014
Net Loss (numerator)	$	(239,909	)	$	(186,064	)
Shares (denominator)		28,575,371			28,575,371
Per share amount	$	(0.01	)	$	(0.01	)

Summary of the status of warrants and options granted and outstanding

	Number of Options and Warrants			Weighted Average Exercise Price
Outstanding at beginning of period		6,413,154		$	0.31
Granted		1,160,000		$	0.31
Exercised		-		$	-
Forfeited		(7,500	)	$	0.31
Expired		-		$	-
Outstanding at end of period		7,565,654		$	0.31

Status of warrants outstanding

Warrants Outstanding			Warrants Exercisable
Range of		Weighted-Average	Weighted-Average		Weighted-Average
Exercise	Number	Remaining	Exercise	Number	Exercise
Prices	Outstanding	Contractual Life	Price	Exercisable	Price
$.01-.50	7,565,654	3.5 years	$ 0.31	7,565,654	$ 0.31

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UNAUDITED STATEMENTS OF OPERATIONS (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Income Statement [Abstract]
NET REVENUES - RELATED PARTY	$ 2,331	$ 0
NET REVENUES	291,163	490,974
TOTAL REVENUES	293,494	490,974
COST OF GOODS SOLD	113,448	168,719
GROSS PROFIT	180,046	322,255
OPERATING EXPENSES
Depreciation and amortization	339	339
General and administrative	263,276	376,926
Total operating expenses	263,615	377,265
LOSS FROM OPERATIONS	(83,569)	(55,010)
OTHER INCOME (EXPENSE)
Interest expense	(158,768)	(133,479)
Interest income	28	25
Rental income	2,400	2,400
Total other income (expense)	(156,340)	(131,054)
LOSS BEFORE PROVISION FOR INCOME TAXES	(239,909)	(186,064)
PROVISION FOR INCOME TAXES	0	0
NET LOSS	$ (239,909)	$ (186,064)
BASIC AND DILUTED NET LOSS PER SHARE	$ (0.01)	$ (0.01)
WEIGHTED AVERAGE OF SHARES OUTSTANDING	28,575,371	28,575,371

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7. GOING CONCERN

3 Months Ended

Mar. 31, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

7. GOING CONCERN

At March 31, 2015 the Company had deficit working capital, deficit equity and has sustained recurring losses from operations, all of which raise substantial doubt about 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. Our auditors have issued their Independent Registered Public Accountants’ Report on the Company's financial statements for the fiscal year ended December 31, 2014 with an explanatory paragraph regarding the Company's ability to continue as a going concern.

The Company estimates that it may need up to $1,200,000 for the upcoming twelve months to execute our business plan.  Management plans to mitigate its losses in the near term through the further development and marketing of its trademarks, brand and product offerings.

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6. CAPITAL STOCK

3 Months Ended

Mar. 31, 2015

Equity [Abstract]

6. CAPITAL STOCK

The Company has certain notes payable to related parties that are convertible into shares of the Company’s common stock.  See Note 4.

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8. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) (USD $)	3 Months Ended
	Mar. 31, 2015
Number of Options and Warrants
Outstanding at beginning of period	6,413,154
Granted	1,160,000
Exercised	0
Forfeited	(7,500)
Expired	0
Outstanding at end of period	7,565,654
Weighted Average Exercise Price
Outstanding at beginning of period	$ 0.31
Granted	$ 0.31
Exercised	$ 0
Forfeited	$ 0.31
Expired	$ 0
Outstanding at end of period	$ 0.31

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2. INVENTORIES - INVENTORIES (Details) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Notes to Financial Statements
Finished goods	$ 17,768	$ 0
Raw materials	477,757	426,927
Allowance for obsolete inventory	(390,637)	(390,637)
Total	$ 104,888	$ 72,290

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8. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Receivables

Receivables represent valid claims against debtors for sales or other charges arising on or before the balance-sheet date and are reduced to their estimated net realizable value.  The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses.  The Company charges off uncollectible accounts receivable when management estimates no possibility of collecting the related receivable.

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
	March 31,
	2015			2014
Net Loss (numerator)	$	(239,909	)	$	(186,064	)
Shares (denominator)		28,575,371			28,575,371
Per share amount	$	(0.01	)	$	(0.01	)

The Company’s outstanding stock options and warrants have been excluded from the basic net loss per share calculation for the three month period ended March 31, 2015 and 2014, because they are anti-dilutive.

Stock Based-Compensation Expense

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation — Stock Compensation, which requires a fair-value-based measurement method to account for stock-based compensation. The Company uses the Binomial valuation formula, which is a closed-form model that uses an equation to determine the estimated fair value of stock options.  Stock-based compensation expense recognized for the three month period ended March 31, 2015 and 2014 was $0 and $484 respectively, related to employee and director stock options issued and vesting during the period.

The following table is a summary of the status of the warrants and options granted and outstanding at March 31, 2015:

	Number of Options and Warrants			Weighted Average Exercise Price
Outstanding at beginning of period		6,413,154		$	0.31
Granted		1,160,000		$	0.31
Exercised		-		$	-
Forfeited		(7,500	)	$	0.31
Expired		-		$	-
Outstanding at end of period		7,565,654		$	0.31

A summary of the status of the warrants and options outstanding at March 31, 2015 is presented below:

Warrants Outstanding			Warrants Exercisable
Range of		Weighted-Average	Weighted-Average		Weighted-Average
Exercise	Number	Remaining	Exercise	Number	Exercise
Prices	Outstanding	Contractual Life	Price	Exercisable	Price
$.01-.50	7,565,654	3.5 years	$ 0.31	7,565,654	$ 0.31

The fair value of each warrant and option granted is estimated on the date granted using the Binomial pricing model.

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8. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

8. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Receivables

Receivables represent valid claims against debtors for sales or other charges arising on or before the balance-sheet date and are reduced to their estimated net realizable value.  The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses.  The Company charges off uncollectible accounts receivable when management estimates no possibility of collecting the related receivable.

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
	March 31,
	2015			2014
Net Loss (numerator)	$	(239,909	)	$	(186,064	)
Shares (denominator)		28,575,371			28,575,371
Per share amount	$	(0.01	)	$	(0.01	)

The Company’s outstanding stock options and warrants have been excluded from the basic net loss per share calculation for the three month period ended March 31, 2015 and 2014, because they are anti-dilutive.

Stock Based-Compensation Expense

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation — Stock Compensation, which requires a fair-value-based measurement method to account for stock-based compensation. The Company uses the Binomial valuation formula, which is a closed-form model that uses an equation to determine the estimated fair value of stock options.  Stock-based compensation expense recognized for the three month period ended March 31, 2015 and 2014 was $0 and $484 respectively, related to employee and director stock options issued and vesting during the period.

The following table is a summary of the status of the warrants and options granted and outstanding at March 31, 2015:

	Number of Options and Warrants			Weighted Average Exercise Price
Outstanding at beginning of period		6,413,154		$	0.31
Granted		1,160,000		$	0.31
Exercised		-		$	-
Forfeited		(7,500	)	$	0.31
Expired		-		$	-
Outstanding at end of period		7,565,654		$	0.31

A summary of the status of the warrants and options outstanding at March 31, 2015 is presented below:

Warrants Outstanding			Warrants Exercisable
Range of		Weighted-Average	Weighted-Average		Weighted-Average
Exercise	Number	Remaining	Exercise	Number	Exercise
Prices	Outstanding	Contractual Life	Price	Exercisable	Price
$.01-.50	7,565,654	3.5 years	$ 0.31	7,565,654	$ 0.31

The fair value of each warrant and option granted is estimated on the date granted using the Binomial pricing model.

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9. SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2015

Subsequent Events [Abstract]

9. SUBSEQUENT EVENTS

In accordance with ASC 855, management evaluated events subsequent to March 31, 2015 and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements.

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2. INVENTORIES (Tables)

3 Months Ended

Mar. 31, 2015

Inventory Disclosure [Abstract]

Composition of Inventories

	March 31, 2015			December 31, 2014
Finished goods	$	17,768		$	-
Raw materials		477,757			426,927
Allowance for obsolete inventory		(390,637	)		(390,637	)
	$	104,888		$	72,290

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5. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Related Party Transactions Details Narrative
Sales	$ 2,331	$ 0
Received and recorded advance from Water Science	413,595		413,595
Advances to employees	$ 1,500		$ 1,500

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STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (239,909)	$ (186,064)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	339	339
Warrants and options vested or issued for services	0	484
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	80	17,877
Decrease in prepaid expense	44,157	44,695
(Increase) in inventory	(32,598)	(36,344)
Increase (decrease) in accounts payable	122,179	(25,491)
(Decrease) in advance deposits for machine orders	(177,425)	(17,605)
Increase (decrease) in accrued expenses	(17,435)	7,646
Increase in accrued interest	158,671	133,383
Net cash (used) in operating activities	(141,941)	(61,080)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for intellectual property	(6,213)	(115)
Net cash (used) in investing activities	(6,213)	(115)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from unsecured short term advances - related party	200,000	285,000
Net cash provided by financing activities	200,000	285,000
NET INCREASE IN CASH	51,846	223,805
Cash, beginning of period	259,805	2,654
Cash, end of period	311,651	226,459
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for: Interest paid	97	96
Cash paid during the period for: Income Taxes paid	$ 0	$ 0

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5. RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2015

Related Party Transactions [Abstract]

5. 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.  This agreement also gives Water Science the rights to purchase machinery from the Company at cost plus 25 percent.  The Company had sales of $2,331 and $0 to Water Science during the three months ended March 31, 2015 and 2014.  The Company has received and recorded $413,595 in advance deposits from Water Science on machine orders at March 31, 2015, and December 31, 2014.

Convertible Notes Payable – See Note 4 for disclosure of related party Convertible Notes Payable.

Advances – Periodically throughout the year, the Company advances employees cash for certain reimbursable expenses.  As of March 31, 2015 and December 31, 2014, the Company had advances to an employee in the amount of $1,500 and $1,500, respectively.

Unsecured Short Term Advances – In January and March 2015, the Company obtained an unsecured short term advances of $100,000 and $100,000 from Peter Ullrich a member of the Board of Directors of the Company.  The final agreement to document the advances has not been signed, and the material terms are not final. It is anticipated that the final loan will be at 10% simple interest and conversion rights into Company common stock.  The material terms of the final agreement will be disclosed in subsequent filings with the Securities and Exchange Commission.

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3. WARRANTY RESERVE (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Notes to Financial Statements
Warranty reserve at beginning of period	$ 140,000	$ 160,000
Costs accrued for additional warranties	0	1,001
Service obligations honored	0	(1,001)
Reduction in accrued estimate	0	(20,000)
Warranty reserve at end of period	$ 140,000	$ 140,000	$ 140,000