UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB


(X)  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended September 30, 2006

     or

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


                                    000-51807
                         -------------------------------
                              (Commission File No.)

                       ELECTRIC AQUAGENICS UNLIMITED, INC.
                 (name of small business issuer in its charter)

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

1464 W. 40 S. Suite #200, Lindon, Utah                              84042-1629
-----------------------------------------                -----------------------------------
(Address of principal executive offices)                              (Zip Code)
</TABLE>

                    Issuer's telephone number: (801) 443-1031

     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  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

     As of October 30, 2006,  the  Registrant  had  12,288,341  shares of Common
Stock, $0.0001 par value outstanding.



<PAGE>



<TABLE>
<CAPTION>
                                          ELECTRIC AQUAGENICS UNLIMITED, INC.
                                            QUARTERLY REPORT ON FORM 10-QSB
                                                  September 30, 2006

                                                         INDEX

<S>                                                                                                     <C>
                                                                                                        Page

                                                     PART I. FINANCIAL INFORMATION

 ITEM 1.  Financial Statements

         Balance Sheets - September 30, 2006 and December 31, 2005                                      3

         Statements of Operations - Three and Nine months ended                                         5
           September 30, 2006 and 2005

         Statements of Cash Flows - Nine months ended September 30, 2006 and 2005                       7

         Notes to Financial Statements                                                                  9

 ITEM 2. Management's Discussion and Analysis or Plan of Operation                                      15

 ITEM 3. Controls and Procedures                                                                        24


                                                      PART II. OTHER INFORMATION

 ITEM 1. Legal Proceedings                                                                              25

 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds                                    25

 ITEM 5. Other Information                                                                              25

 ITEM 6. Exhibits                                                                                       26


 SIGNATURES                                                                                             28

</TABLE>






                                       2
<PAGE>



PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                  ELECTRIC AQUAGENICS UNLIMITED, INC.

                                                             BALANCE SHEETS

                                                                ASSETS



<S>                                                                                          <C>                  <C>
                                                                                   September 30,         December 31,
                                                                                       2006                  2005
                                                                                 ------------------    ------------------
CURRENT ASSETS                                                                      (Unaudited)            (Audited)
   Cash and cash equivalents                                                       $      226,367       $       681,348
   Accounts receivable, net                                                               124,127               122,771
   Accounts receivable - related party, net                                               454,434                 1,061
   Current portion of notes receivable                                                        ---                18,834
   Current portion of notes receivable - related party                                        ---                63,823
   Inventory, net                                                                       2,415,838             2,003,902
                                                                                 ------------------    ------------------

     Total current assets                                                               3,220,766             2,891,739
                                                                                 ------------------    ------------------

PROPERTY AND EQUIPMENT, net of
   accumulated depreciation of $375,062 and $245,211                                      722,179               946,702
                                                                                 ------------------    ------------------

OTHER ASSETS
   Notes receivable                                                                           ---                72,555
   Notes receivable - related party                                                           ---               306,829
   Deposits                                                                                21,737                10,568
   Intellectual property                                                                1,225,977             1,207,459
   Investments                                                                            374,075               374,075
                                                                                 ------------------    ------------------

     Total other assets                                                                 1,621,789             1,971,486
                                                                                 ------------------    ------------------

       Total assets                                                                $    5,564,734       $     5,809,927
                                                                                 ==================    ==================





                                                  See notes to financial statements.
</TABLE>



                                       3
<PAGE>




<TABLE>
<CAPTION>
                                                  ELECTRIC AQUAGENICS UNLIMITED, INC.

                                                      BALANCE SHEETS (CONTINUED)

                                            LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<S>                                                                              <C>                   <C>

                                                                                   September 30,         December 31,
                                                                                       2006                  2005
                                                                                 ------------------    ------------------
CURRENT LIABILITIES                                                                 (Unaudited)            (Audited)
   Accounts payable                                                               $       745,488       $     1,320,313
   Accrued expenses                                                                       293,469               346,759
   Warranty reserve                                                                       102,362                96,800
   Advance deposits on machine orders - related party                                     697,500                   ---
   Current portion of long-term debt                                                       28,230                38,675
                                                                                 ------------------    ------------------

     Total current liabilities                                                          1,867,049             1,802,547
                                                                                 ------------------    ------------------

LONG TERM LIABILITIES

   Long term debt, net of current portion                                                 105,137               157,001
   Senior  convertible  note  payable - related  party,  net of  discounts  of          1,041,667               291,667
     $1,958,333 and $2,708,333
   Deferred licensing revenue - related party                                             791,667               941,667
   Derivative liability - related party  (See Note 4)                                   4,665,014             5,353,716
                                                                                 ------------------    ------------------

     Total long term liabilities                                                        6,603,485             6,744,051
                                                                                 ------------------    ------------------

       Total Liabilities                                                                8,470,534             8,546,598
                                                                                 ------------------    ------------------

STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock, $.0001 par value; 50,000,000 shares authorized;
     11,109,495and 9,322,825 issued and outstanding, respectively                           1,111                   933
   Additional paid in capital                                                          25,300,800            19,838,331
   Accumulated deficit                                                                (28,207,711)          (22,575,935)
                                                                                 ------------------    ------------------

     Total stockholders' equity (deficit)                                              (2,905,800)           (2,736,671)
                                                                                 ------------------    ------------------

       Total liabilities and stockholders' equity (deficit)                       $     5,564,734       $     5,809,927
                                                                                 ==================    ==================





                                                  See notes to financial statements.
</TABLE>



                                       4
<PAGE>


<TABLE>
<CAPTION>
                                                  ELECTRIC AQUAGENICS UNLIMITED, INC.

                                                  UNAUDITED STATEMENTS OF OPERATIONS

<S>                                           <C>                   <C>                    <C>                   <C>
                                                        THREE MONTHS ENDED                            NINE MONTHS ENDED
                                                           SEPTEMBER 30,                                SEPTEMBER 30,
                                              -----------------------------------------    -----------------------------------------
                                                    2006                   2005                  2006                  2005
                                              ------------------    -------------------    ------------------    ------------------
                                                                        (Restated)                                  (Restated)

NET SALES - RELATED PARTY                      $       490,415       $       33,556         $     1,198,634       $      85,717

NET SALES                                              288,322              245,211                 683,443             404,981

                                              ------------------    -------------------    ------------------    ------------------
TOTAL SALES                                            778,737              278,767               1,882,077             490,698

COST OF GOODS SOLD                                     512,854              190,848               1,193,907             272,000
                                              ------------------    -------------------    ------------------    ------------------

GROSS PROFIT                                           265,883               87,919                 688,170             218,698
                                              ------------------    -------------------    ------------------    ------------------

OPERATING EXPENSES
   Depreciation and amortization                        54,709               26,776                 160,559              92,648
   Research and development                             50,329               79,459                 119,665             404,260
   General and administrative                        1,289,315            1,788,638               5,935,935           6,438,904
                                              ------------------    -------------------    ------------------    ------------------

     Total operating expenses                        1,394,353            1,894,873               6,216,159           6,935,812
                                              ------------------    -------------------    ------------------    ------------------

LOSS BEFORE OTHER INCOME (EXPENSE)                  (1,128,470)          (1,806,954)             (5,527,989)         (6,717,114)
                                              ------------------    -------------------    ------------------    ------------------

OTHER INCOME (EXPENSE)
   Interest expense                                   (282,909)             (65,653)               (866,704)            (96,281)
   Interest income                                       3,708                1,204                  16,942               2,166
   Gain (Loss) on derivative liability                  29,792           (2,385,194)                688,702          (2,385,194)
   Other income (expense)                               13,923               27,002                  29,075             365,505
                                              ------------------    -------------------    ------------------    ------------------

     Total other income (expense)                     (235,486)          (2,422,641)               (131,985)         (2,113,804)
                                              ------------------    -------------------    ------------------    ------------------

LOSS BEFORE PROVISION                               (1,363,956)          (4,229,595)             (5,659,974)         (8,830,918)
     FOR INCOME TAXES

PROVISION FOR INCOME TAXES                                 ---                  ---                     ---                 ---
                                              ------------------    -------------------    ------------------    ------------------

LOSS FROM CONTINUING OPERATIONS                     (1,363,956)          (4,229,595)             (5,659,974)         (8,830,918)

DISCONTINUED OPERATIONS:

Income  from   operations  of   discontinued
operations (Net of $0 in income taxes)                  12,154               11,495                  28,248              36,339

(Loss)   on   disposal    of    discontinued
operations (Net of $0 in income taxes)                     (50)                 ---                     (50)                ---

                                              ------------------    -------------------    ------------------    ------------------
GAIN FROM DISCONTINUED OPERATIONS                       12,104               11,495                  28,198              36,339
                                              ------------------    -------------------    ------------------    ------------------

NET LOSS                                       $    (1,351,852)      $   (4,218,100)        $    (5,631,776)      $  (8,794,579)
                                              ==================    ===================    ==================    ==================




                                                  See notes to financial statements.

</TABLE>



                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                  ELECTRIC AQUAGENICS UNLIMITED, INC.

                                                  UNAUDITED STATEMENTS OF OPERATIONS
                                                             (CONTINUED)


<S>                                           <C>                   <C>                    <C>                   <C>
                                                        THREE MONTHS ENDED                            NINE MONTHS ENDED
                                                           SEPTEMBER 30,                                SEPTEMBER 30,
                                              -----------------------------------------    ----------------------------------------
                                                    2006                   2005                  2006                  2005
                                              ------------------    -------------------    ------------------    ------------------
NET LOSS                                       $    (1,351,892)      $  (4,218,100)         $    (5,631,776)      $  (8,794,579)
                                              ==================    ===================    ==================    ==================

NET LOSS PER SHARE CONTINUING OPERATIONS       $         (0.12)      $       (0.48)         $         (0.55)      $       (1.07)
                                              ==================    ===================    ==================    ==================

NET INCOME PER SHARE DISCONTINUED OPERATIONS   $          0.00       $        0.00          $          0.00       $        0.00
                                              ------------------    -------------------    ------------------    ------------------

WEIGHTED AVERAGE OF
      SHARES OUTSTANDING                            11,085,691           8,749,004               10,319,928           8,248,689
                                              ==================    ===================    ==================    ==================




                                                  See notes to financial statements.
</TABLE>



                                       6
<PAGE>


<TABLE>
<CAPTION>
                                                  ELECTRIC AQUAGENICS UNLIMITED, INC.

                                                   UNAUDITED STATEMENTS OF CASH FLOWS

<S>                                                                       <C>                     <C>
                                                                                   For the Nine Months
                                                                                    Ended September 30,

                                                                                   2006                    2005
                                                                          -------------------     -------------------
CASH FLOWS FROM OPERATING ACTIVITIES                                                                  (Restated)
   Net loss                                                                $     (5,631,776)         $   (8,794,579)
   Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation                                                                    160,559                  92,648
    Bad Debt expense                                                                 13,197                     ---
    Common stock issued for services                                                197,809                  72,500
    Warrants and options issued for services                                      1,059,142               1,424,050
    Discount of note payable                                                        750,000                  41,667
    Loss on disposal of discontinued operations                                          50                     ---
    Loss on disposal of assets                                                       72,736                     ---
    Gain on settlement of debt                                                      (14,597)                    ---
    Changes in operating assets and liabilities:
       (Increase) in accounts receivable                                            (14,553)               (109,575)
       (Increase) decrease in accounts receivable - related party                  (453,373)                100,000
       (Increase) in inventory                                                     (411,936)             (1,605,952)
       (Increase) decrease in deposits                                              (11,169)                  1,500
       Increase (decrease) in accounts payable                                     (588,879)                 92,015
       Increase (decrease) in accrued expenses                                      151,910                 (19,663)
       Increase in warranty reserve                                                   5,562                     ---
       Increase in advance deposits on machine orders - related                     697,500                     ---
           party
       (Decrease) in deferred revenue                                              (150,000)                991,667
       (Decrease) in derivative liability                                          (688,702)              2,385,194
                                                                          -------------------     -------------------
          Net cash used in operating activities                                  (4,856,520)             (5,328,528)
                                                                          -------------------     -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
       Acquisition of property and equipment                                        (46,238)               (613,073)
       Investments                                                                  452,559                  55,093
       Payments received from notes receivable                                       13,877                  11,498
       Payments (Advances to) notes receivable - related party                       24,206                (146,848)
       Intellectual property disbursements                                          (18,518)                (26,584)
                                                                          -------------------     -------------------
          Net cash provided (used) in investing activities                          425,886                (719,914)
                                                                          -------------------     -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
      Payments on notes payable                                                     (24,844)                (93,081)
      Proceeds from notes payable - related party                                       ---               3,000,000
      Proceeds from issuance of common stock                                      4,000,497               5,375,402
      Proceeds from common stock subscribed                                             ---                   2,125
                                                                          -------------------     -------------------
          Net cash provided by financing activities                               3,975,653               8,284,446
                                                                          -------------------     -------------------
NET INCREASE (DECREASE) IN CASH                                                    (454,981)              2,236,004
CASH and cash equivalents, beginning of period                                      681,348                 389,222
                                                                          -------------------     -------------------

CASH and cash equivalents, end of period                                   $        226,367         $     2,625,226
                                                                          ===================     ===================


                                                   See notes to financial statements.
</TABLE>



                                       7
<PAGE>


<TABLE>
<CAPTION>
                                                  ELECTRIC AQUAGENICS UNLIMITED, INC.

                                                   UNAUDITED STATEMENTS OF CASH FLOWS
                                                              (CONTINUED)


<S>                                                                             <C>                  <C>
                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                                      2006               2005
                                                                                   -----------       -----------
Supplemental Disclosures of Cash Flow Information:                                                    (Restated)

   Cash paid during the period for:
     Interest                                                                      $   49,283       $   54,614
     Income Taxes                                                                  $      ---       $      ---


Supplemental Disclosures of Non-cash Investing and Financing Activities:

   Common stock issued for services                                                $  197,809       $   72,500
   Warrants issued for services                                                    $1,059,142       $1,424,050






                                               See notes to financial statements.
</TABLE>



                                       8
<PAGE>


                       ELECTRIC AQUAGENICS UNLIMITED, 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-KSB  for the year  ended
December 31, 2005.

NOTE 2 - INVENTORIES

The composition of inventories is as follows at:

<TABLE>
<CAPTION>
<S>                                                                    <C>                   <C>
                                                                         September 30,         December 31,
                                                                              2006                 2005
                                                                       ------------------    --------------------
                  Finished goods                                        $        446,613         $     531,625
                  Raw materials                                                2,285,360             1,792,277
                  Allowance for obsolete inventory                              (316,135)             (320,000)
                                                                       ------------------    --------------------

                                                                        $      2,415,838         $   2,003,902
                                                                       ==================    ====================
</TABLE>

NOTE 3 - NOTES RECEIVABLE

The Company provided financing for equipment to Zerorez  franchisees,  which are
related party entities.  These  transactions  were recorded  through  Equilease,
Inc., a wholly owned subsidiary of the Company. During September 2006, Equilease
was sold to a related party for the cash value of the notes receivable (See Note
9).  The  Company  had a  balance  of $0 and  $454,689  in Notes  Receivable  at
September 30, 2006 and 2005, respectively.

NOTE 4 - SENIOR CONVERTIBLE DEBT

In September  2005, the Company  entered into a Senior  Convertible  Note with a
third party in exchange for $3,000,000. Pursuant to the debt agreement, the note
accrues interest at the rate of 3% per annum and is due,  principal and interest
together,  on September 16, 2008.  No principal or interest  payments need to be
paid during the loan period.  The note may be converted into 1,000,000 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 $3.00 per share,  subject
to certain other conversion adjustments.  In connection with the issuance of the
Note,  the Company  also  granted a three year warrant to purchase up to two (2)
million  shares of the  Company's  $0.0001 par value common stock for a purchase
price of $2.76 per share. The exercise price of these warrants is to be adjusted
if the Company should issue stock for less than the original exercise price.

Because  of the  feature  wherein  the  conversion  price is reset if shares are
issued at a price less than the fixed  conversion  price,  and  pursuant to EITF
00-19, the Company has elected to bifurcate the conversion feature from the debt
host and accounts for the feature as a derivative liability with changes in fair
value being recorded in the income  statement.  The fair value of the derivative
liability is estimated using the Black-Scholes pricing model, with the following
assumptions  at September 30, 2006:  risk-free  interest rate of 4.0%,  expected
dividend yield of zero,  expected life of 2.96 years and expected  volatility of
71.08%.  As of September  30,  2006,  the value of the  derivative  liability is
$4,665,014.



                                       9
<PAGE>


                       ELECTRIC AQUAGENICS UNLIMITED, INC.

                CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 5 - RELATED PARTY TRANSACTIONS

SALES TO  AFFILIATES  - Water  Science,  who has  exclusive  rights  to sell our
products in South  America and Mexico,  is a major  shareholder  of the Company.
Water Science by agreement may purchase  machinery from the Company at cost plus
25 percent.  During the nine months ended  September 30, 2006,  the Company sold
four large water  generators,  one small water  generator  and related  parts to
Water  Science for  $1,023,634.  Further,  the Company has received and recorded
$697,500 in advance  deposits from Water Science on machine  orders at September
30, 2006. The Company also sold approximately  $234,219 in products to an entity
related to Water  Science.  In  connection  with the sales of the  machines  and
products, the Company has recorded approximately $428,634 in accounts receivable
at September 30, 2006.  The Company did not have any sales to this party for the
nine months ended September 30, 2005.

During the nine months ended  September  30,  2006,  the Company sold one of its
small water  generators  to Zerorez,  an affiliate  for  $25,000.  Zerorez is an
affiliated  entity having similar  shareholders  and who was founded by the same
individuals who founded EAU. All of the Company's  directors are shareholders of
Zerorez.  The Company  sold three of its  generators  to Zerorez for $75,000 and
other product sales of $2,344 during the nine months ended September 30, 2005.

NOTES  RECEIVABLE  - The Company  provided  financing  for  equipment to Zerorez
franchisees,  which are related party entities. These transactions were recorded
through  Equilease,  Inc., a wholly  owned  subsidiary  of the  Company.  During
September  2006,  Equilease  was sold to EOWORP,  L.L.C.  ("EOWORP"),  a related
party,  for the cash  value of the notes  receivable  (See Note 9).  EOWORP is a
shareholder  of the  Company  and its  partners  are,  or were,  involved in the
management  of the  Company,  including  one  who is  currently  serving  on the
Company's board of directors..

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 4). Due
to the discount of this note and the beneficial  conversion feature, the Company
has  recognized  $750,000  in  interest  expense  and  has  recorded  a gain  of
approximately  $688,702 in the change of the derivative liability to fair market
value for the nine months ended September 30, 2006.

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 $150,000 for the nine months ended September 30, 2006.

NOTE 6 - 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 are as follows:

<TABLE>
<CAPTION>
<S>                                                          <C>                      <C>
                                                               For the Nine Months Ended September 30,
                                                               ---------------------------------------
                                                                    2006                  2005
                                                                 ---------------       --------------
     Warranty reserve at beginning of period                     $     96,800          $     95,160
     Costs accrued for additional warranties                           24,000                     -
     Service obligations honored                                      (18,438)                    -
                                                                 ---------------      ---------------
     Warranty reserve at end of period                           $    102,362          $     95,160
                                                                 ==================   ===============
</TABLE>




                                       10
<PAGE>




                       ELECTRIC AQUAGENICS UNLIMITED, INC.

                CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 7 - CAPITAL STOCK

In August 2006, the Company  issued 50,000 shares of the Company's  common stock
to two employees (25,000 shares each) upon their exercising of outstanding stock
options.

In May 2006,  the  Company  sold and  issued to Water  Science,  LLC,  a Florida
limited liability company ("Water Science"),  a total of 1,600,000 shares of the
Company's  $0.0001 par value  common  stock for a total of $4 million  cash,  or
$2.50 per share.  As part of the  transaction,  Water  Science  agreed that this
transaction  would not cause an adjustment to the conversion price of the Senior
Convertible  Note issued to Water Science in September  2005, nor would it cause
an adjustment to the exercise  price of the warrants  issued to Water Science in
September 2005. The Company also issued to Water Science warrants to purchase up
to 6,400,000 shares of the Company's  $0.0001 par value common stock in exchange
for the payment of $2.76 per share.

In May 2006, the Company issued  500,000  warrants to purchase  common stock for
consulting  services.  The warrants are for a term of five (5) years and have an
exercise  price  of  $2.76  per  share.  The  warrants  were  valued  using  the
Black-Scholes  model with the  following  assumptions:  risk free rate of 4.99%,
volatility at 59.76% and the stock price at $1.95.  The value of each warrant is
approximately  $0.92 per warrant.  The Company recognized $459,552 in the second
quarter of 2006 as consulting expense.

NOTE 8 - GOING CONCERN

During  the  current  period,  the  Company  incurred  significant  losses and a
negative cash flow from  operations.  As a result,  at September  30, 2006,  the
Company  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.  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 increase  sales and profit margins and control
operating  expenses.  Management  plans to mitigate  its losses in the near term
through the further development and marketing of its patents,  trademarks, brand
and product offerings.

Our auditors have issued their Independent Registered Public Accountants' Report
on the Company's  consolidated  financial  statements  for the fiscal year ended
December 31, 2005 with an explanatory  paragraph regarding the Company's ability
to continue as a going concern. The consolidated  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 consolidated  financial  statements do not include any adjustments
that might result from the outcome of this uncertainty.

NOTE 9 - DISCONTINUED OPERATIONS

In  September  2006,  the  Company  sold  our  investment  in  Equilease,   Inc.
("Equilease") to EOWORP, L.L.C.,  ("EOWORP") a related party. Equilease provided
equipment financing for certain Zerorez  franchisees,  also related parties. The
Company was the sole owner of Equilease and had  consolidated  the operations of
Equilease into the Company's books. The terms of the agreement called for EOWORP
to pay to the  Company  the  current  value  of the  Notes  Receivables  held by
Equilease.  Further, EOWORP agreed to pay off other certain payables owed to the
Company by Zerorez,  a related party. The total cash  consideration  paid to the
Company  was  $452,559.   The  Company  recognized  income  from  operations  of
discontinued operations in the amount of $28,248 and $36,339 for the nine months
ended September 30, 2006 and 2005, respectively.  The Company recorded a loss on
disposal of discontinued operations in the amount of $50.



                                       11
<PAGE>

                       ELECTRIC AQUAGENICS UNLIMITED, INC.

                CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 10 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 2005, 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  and  nine  month  period  ended
September  30, 2006 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 and nine month  period  ended  September  30, 2006 was $29,950 and
$599,590  respectively,  related to employee  stock  options  issued and vesting
during the period.  During the three and nine month period ended  September  30,
2005,  the Company  recognized $0 and $951,300,  respectively,  in  compensation
expense related to other stock options.

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.

<TABLE>
<CAPTION>
<S>                            <C>                    <C>                   <C>                   <C>
                                      For the Three Months Ended                   For the Nine Months Ended
                                            September 30,                                September 30,
                               -------------------    ------------------    ------------------    ------------------
                                      2006                  2005                  2006                2005
                               -------------------    ------------------    ------------------    ------------------
                                                             (Restated)                                  (Restated)
Loss (numerator)                    $ (1,351,852)          $ 4,218,100)     $     (5,631,776)        $   8,794,579)
Shares (denominator)                  11,085,691             8,749,004            10,319,928             8,248,689
Per share amount                    $      (0.12)          $     (0.48)     $          (0.55)        $       (1.07)
</TABLE>

The  Company's  outstanding  stock options have been excluded from the basic net
loss per share  calculation  for the three and nine month period ended September
30, 2006 and 2005, because they are anti-dilutive.

The  following  table is a summary of the  status of the  warrants  and  options
granted for the nine months ended September 30, 2006:

<TABLE>
<CAPTION>
<S>                                                       <C>                <C>
                                                             Number            Weighted
                                                           of Options        Average Exercise
                                                          and Warrants            Price
                                                          ------------       ----------------
       Outstanding at beginning of period                   4,653,293        $           2.78
       Granted                                              7,200,000                    2.76
       Exercised                                              (50,000)                   0.01
       Forfeited                                             (402,500)                   2.95
       Expired                                                      -                       -
                                                          ------------       ----------------
       Outstanding at end of period                        11,400,793        $           2.70
                                                          ------------       ----------------
</TABLE>



                                       12
<PAGE>


                       ELECTRIC AQUAGENICS UNLIMITED, INC.

                CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 10 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

A summary of the status of the warrants  outstanding  at  September  30, 2006 is
presented below:

<TABLE>
<CAPTION>
<S>                          <C>           <C>                  <C>                 <C>           <C>
                                           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              635,000        3.0 years        $       0.10          635,000      $        0.10
           1.00-1.99             290,000        1.9 years                1.48          290,000               1.48
           2.00-2.99           8,950,000        2.6 years                2.76        8,950,000               2.76
           3.00-3.99             982,417        3.2 years                3.26          982,417               3.26
           4.00-4.99             255,000        3.0 years                4.00          255,000               4.00
           5.00-5.50             263,376        3.2 years                5.15          263,376               5.15
           -----------      ------------   -----------------    ----------------    -----------   -----------------
           $.01-5.50          11,400,793        2.7 years        $       2.70       11,400,793      $        2.70
           -----------      ------------   -----------------    ----------------    -----------   -----------------
</TABLE>

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 2006:  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 %.

NOTE 11 - RESTATEMENT

The Company restated its financial  statements for the period ended December 31,
2004 and for the first,  second and third quarters  ending March 31, 2005,  June
30, 2005 and September 30, 2005. The Company  determined that generally accepted
accounting  principles had not been followed in 2004 and for the stated quarters
of  2005  for  the  recording  of  certain  types  of  transactions.   See  Note
18-Restatement  of the Notes to the  Consolidated  Financial  Statements for the
year ended December 31, 2005 and 2004 in the Company's 10-KSB for details of the
restatement of the 2004 financial statements. The impact of the 2004 restatement
of the balance  sheet  accounts  carries  forward  and the 2004  changes to such
accounts are part of the changes noted below. The type and impact of the changes
to those transactions  relating to the first,  second and third quarters of 2005
are as follows:

     Recognition of common stock and warrant  issuances  resulting in additional
     consulting and compensation expense of $602,100.

     Recognition of Licensing Revenue of $1,000,000 over term of agreement.

     Recording  of the  convertible  debt and warrants in  accordance  with EITF
     00-19,  which resulted in the recognition of a derivative  liability in the
     amount of $5,388,083 (See Note 4).




                                       13
<PAGE>





                       ELECTRIC AQUAGENICS UNLIMITED, INC.

                CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 11 - RESTATEMENT - CONTINUED

The  following  table  highlights  the  significant  areas of change  from those
previously reported:

<TABLE>
<CAPTION>
<S>                   <C>                         <C>                        <C>
                          As previously                 Restated
                             reported                 September 30,
                        September 30, 2005                2005                      Change
                      ------------------------    -----------------------    -----------------------
Total Assets            $       8,810,129          $      5,564,734           $     (3,245,395)
Additional Paid         $     (14,842,679)         $    (19,044,905)          $     (4,202,226)
  in Capital
Accumulated deficit     $      (9,825,330)         $    (18,122,264)          $     (8,296,934)
Total Equity            $      (5,018,154)         $       (923,557)          $      4,094,597
Net Sales               $       1,490,789          $        490,698           $     (1,000,091)
Net Income (Loss)       $      (3,658,990)         $     (8,794,579)          $     (5,135,589)
Basic Earnings          $           (0.50)         $          (1.07)          $          (0.57)
(Loss) per Share
</TABLE>


NOTE  12 - SUBSEQUENT EVENTS

On October 24, 2006, the Company  appointed  Wade R. Bradley as Chief  Executive
Officer and President. In conjunction with the appointment,  the Company entered
into an employment  agreement  with Mr.  Bradley which provides a base salary of
$240,000  per year,  stock  options to purchase  up to 500,000  shares of common
stock and other incentives.  The term of the contract is for three years with an
automatic renewal for a one year term. As part of the transaction, Water Science
agreed that this  transaction  would not cause an adjustment  to the  conversion
price of the Senior  Convertible Note issued to Water Science in September 2005,
nor would it cause an adjustment to the exercise price of the warrants issued to
Water Science in September 2005.

On October 27, 2006, the Company  entered into a stock  purchase  agreement with
Peter F. Ullrich,  a shareholder  of the Company,  whereby Mr. Ullrich agreed to
purchase a total of 2,307,692  newly  issued  shares of $0.0001 par value common
stock of the  Company  for a  purchase  price of $1.30  per  share in a  private
transaction,  for total  consideration of $2,999,999.60.  Under the terms of the
agreement,  Mr. Ullrich purchased  1,153,846 shares on October 27, 2006 and will
purchase  the  remaining  1,153,846  shares on January  2, 2007.  As part of the
transaction,  Water  Science  agreed  that this  transaction  would not cause an
adjustment  to the  conversion  price of the Senior  Convertible  Note issued to
Water  Science  in  September  2005,  nor  would it cause an  adjustment  to the
exercise price of the warrants issued to Water Science in September 2005.






                                       14
<PAGE>



ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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-KSB, and notes thereto.

OVERVIEW

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 fluids.  These
fluids  have  various  commercial  applications  and  may be  used  in  organic,
agricultural and consumer products that clean, disinfect, remediate, hydrate and
moisturize  and do  not  contain  or  leave  harmful  residues  associated  with
chemical-based   disinfecting  and  cleaning  agents  ("EO   Technology").   The
electrolyzed  fluids created by the EO Technology  (referred to herein sometimes
as the "EO Fluids" or  "Empowered  Water(TM)")  generated  by our  patented  and
specialized equipment currently replace many of the traditional products used in
commercial, industrial and residential disinfecting and cleaning.

We also develop, manufacture and market consumer products that support a healthy
lifestyle,  such  as  our  Perfect  Empowered  Drinking  Water(TM)  and  Perfect
Oxygenated  Therapy(TM)  products  (formerly marketed under the name "Aquagen(R)
Stabilized Oxygen Products").  The fluids that incorporate the EO Technology and
our  consumer  products  are  environmentally  safe and non toxic at the  levels
employed.  EAU is  continuously  looking  for ways to improve  and  enhance  our
applications and claims through  furthering our studies,  solution  listings and
registrations  with  various  third party  organizations.  We plan to expand the
market for our Perfect Empowered  Drinking  Water(TM) and our Perfect Oxygenated
Therapy(TM)  products and to develop other  personal use products,  such as skin
care products, periodontal products and a foot sanitizer product. We also intend
to continue to develop and market commercial and residential  cleaning products,
such as bottled surface cleaning products.

We have identified the following  industries for early stage sales and marketing
focus: 1) meat processing,  2) bottled drinking water and consumer products,  3)
grocery  and 4)  agricultural  products.  We focus on these  markets  because we
believe  that we have either a  competitive  advantage in the  marketplace  or a
leading  strategic  industry partner for specific products and/or can provide an
attractive  value  proposition to commercial end users or consumers for products
that use or  embody  our EO  Technology,  EO Fluids  or  Perfect  Essentials(TM)
products.

We have  successfully  completed  phase I of our  United  States  Department  of
Agriculture ("USDA") Online Reprocessing (OLR)  Certification.  EAU has recently
completed  USDA  Phase  I  Online  Reprocessing  Certification  testing  with  a
nationally  recognized  processor on the commercial use of electrolyzed water as
an  antimicrobial  for  salmonella   reduction.   Both  test  protocols  yielded
successful  results.  Salmonella  reductions were  significantly  below the FSIS
allowable limit prior to chilling.  The EAU Technologies  OLR intervention  also
tested well showing a statistically  significant  difference between control and
test groups.  EAU is  immediately  moving  forward into the second phase of USDA
testing with two identified processors.

We have shipped four of the nine units ordered from Water  Sciences,  Inc. Three
of  those  units  have  been  installed  in  Ecuador,   Costa  Rica  and  Mexico
respectively.  The fourth is awaiting site  preparation by Water Sciences before
EAU can  complete the  installation.  The  remaining  five units are in pre-ship
quality assurance testing stage to be completed in the fourth quarter.  Shipment
dates and locations have yet to be determined by Water Sciences.  Water Sciences
is currently using Empowered Water(TM) fluids in various agricultural channels.



                                       15
<PAGE>

We are currently installed in four South Region Whole Foods Market stores (WFM).
We have recently taken over the  maintenance and growth of this channel from KES
Science and  Technology,  Inc. Since we have taken over, we have gone to each of
the  stores  and have  identified  other  departments  that  could be using  the
Empowered Water(TM).  We are currently working with WFM to identify and validate
those other applications. As of now, WFM is using Empowered Water in the produce
and floral departments. We are working to utilize and expand Empowered Water(TM)
throughout  the  store in each of its  departments  including,  Seafood,  Meat &
Poultry,  Bakery and Kitchen as well as its general sanitation solution. We will
be proposing  this study in the fourth  Quarter and expect to commence the study
in January, 2007.

On March 28,  2006,  we entered  into an agreement  with Brand  Velocity,  Inc.,
whereby  Brand  Velocity  agreed  to  perform  certain  strategic  planning  and
corporate  assessment   consulting   services.   Brand  Velocity  completed  its
obligations  under this agreement  during the second quarter 2006. We are in the
process of completing a brand  development and marketing plan that  incorporates
Brand Velocity's findings and conclusions.

Past revenues have been generated primarily from equipment sales to agriculture,
grocery,  carpet and living surfaces industries,  and consumer product sales. We
intend to derive future EO Technology  revenues from  recurring  fees charged to
customers  based on  per-unit or  per-gallon  of fluid used after  equipment  is
installed;  and we intend to drive our  consumer and EO  Technology  products to
create greater revenues.

On May 1, 2006,  we  entered  into a  consulting  agreement  with JL  Montgomery
Consulting,  LLC,  a Florida  limited  liability  company.  By the terms of this
agreement, JL Montgomery Consulting agreed to assist the Company in locating and
structuring  equity and long-term debt  financing;  to help establish  financial
policies and procedures;  to offer strategic  financial  assistance;  to provide
strategic  business  planning;  to offer financial advice to the Company and its
Board of Directors on financial  matters;  and to introduce the Company to third
parties,  including independent companies,  governmental contacts,  and/or third
party  individuals  interested in purchasing  our products or forming a business
relationship with us. As compensation,  we granted to JL Montgomery Consulting a
five-year,  fully vested  warrant to purchase up to 500,000 of our $.0001 common
stock at the price of $2.76 per share.

On May 26,  2006,  our Chief  Executive  Officer  and  chairman  of our board of
directors,  Gaylord  Karren,  resigned  from all  positions  with EAU for health
reasons.  Mr. Karren committed,  as his health permits, to assist the Company in
any way he can during the transition and in the future.

In connection with Mr. Karren's resignation, the Company and Mr. Karren executed
a Separation  Agreement.  This  agreement  provides,  in part,  that Mr.  Karren
receive  severance  in the amount of $11,500 per month for six months and a lump
sum of  $69,000 on  December  1,  2006,  the grant of options to acquire  25,000
shares of the  Company's  common  stock at an exercise  price equal to the close
price of the Company's common stock as reported on the OTCBB as of the effective
time, health benefit coverage for up to six months and other miscellaneous terms
together with an  indemnification  from  liability  with respect to services Mr.
Karren  provided for the benefit of the  Company.  In  addition,  the  agreement
provides for a mutual general release by and between the Company and Mr. Karren.

The Company  retained Mr. Jay S.  Potter,  a member of the Board of Directors to
act as interim Chief Executive Officer until a permanent Chief Executive Officer
is retained.  Mr. Potter agreed to spend  approximately 70% of his business time
working for the Company.  Mr. Potter agreed to continue as a member of the Board
of Directors.  The Company has agreed to compensate Mr. Potter $10,000 per month
for each month the Company utilizes his services as an interim officer.

On July 27,  2006 the  Company  entered  into an  agreement  with  Egon  Zehnder
International Inc., management  consultants to assist the Company in recruiting,
evaluating and hiring a new Chief Executive Officer.

                                       16
<PAGE>

On August 31, 2006, H. Warren Jaynes  resigned as the Company's  Chief Financial
Officer,  effective September 8, 2006. Our Company's  controller has assumed the
duties of the CFO until a replacement CFO is hired.

On October 24, 2006, the Company  appointed  Wade R. Bradley as Chief  Executive
Officer and President. In conjunction with the appointment,  the Company entered
into an employment  agreement  with Mr.  Bradley which provides a base salary of
$240,000  per year,  stock  options to purchase  up to 500,000  shares of common
stock and other incentives.  The term of the contract is for three years with an
automatic renewal for a one year term.

On October 27, 2006, the Company  entered into a stock  purchase  agreement with
Peter F. Ullrich,  a shareholder  of the Company,  whereby Mr. Ullrich agreed to
purchase a total of 2,307,692  newly  issued  shares of $0.0001 par value common
stock of the  Company  for a  purchase  price of $1.30  per  share in a  private
transaction,  for total  consideration of $2,999,999.60.  Under the terms of the
agreement,  Mr. Ullrich purchased  1,153,846 shares on October 27, 2006 and will
purchase the remaining 1,153,846 shares on January 2, 2007.

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 $226,367 in cash as of September 30, 2006,  compared to $681,348
at  December  31,  2005.  Our  working  capital  as of  September  30,  2006 was
$1,353,717  compared to $1,089,192 at December 31, 2005.  The primary reason for
the  increase in our working  capital for the nine months  ended  September  30,
2006,  was a  decrease  in cash of  $454,981,  or 66%,  which  was  offset by an
increase in accounts  receivable of $453,373,  or 367%,  and from an increase in
inventory of $411,936, or 21%. The Company has received and recorded $697,500 in
advance  deposits  from Water  Science on machine  orders at September 30, 2006.
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
South  America and Mexico is also an affiliate of the Company,  by agreement may
purchase  machinery  from  us at cost  plus 25  percent.  These  deliveries  are
targeted to occur during the fourth  quarter of 2006.  Long term debt  increased
102%, from $448,668 at December 31, 2005 to $1,146,804 at September 30, 2006, or
$698,136.  The primary  increase is a result of the  discount of the Senior Note
Payable,  which was $750,000 for the nine months ended  September  30, 2006.  At
September 30, 2006, our stockholders' deficit was $2,905,800.

Summary of select balance sheet information follows:


<TABLE>
<CAPTION>
<S>                                            <C>                 <C>
                                                 September 30,        December 31,
                                                      2006                2005
                                               ------------------- --------------------
 Balance Sheet Data:                                (Unaudited)
 ------------------
 Cash and Cash Equivalents                      $       226,367       $      681,348
 Total Current Assets                                 3,220,776            2,891,739
 Total Assets                                         5,564,734            5,809,927
 Total Current Liabilities                            1,867,049            1,802,547
 Long Term Debt                                       1,146,804              448,668
 Total liabilities and stockholders' equity     $     5,564,734       $    5,809,927
</TABLE>



                                       17
<PAGE>

Results of Operations for the three months ended September 30, 2006 and 2005

Revenues and Net Income

The Company had total revenues of $778,737 for the three months ended  September
30,  2006,  which  represents  an  increase  of 179% from the  $278,767 in total
revenues for the same period one year earlier.  A majority of this increase came
from consumer  products sales of approximately  $297,000 and EO Machine sales of
approximately  $440,000 in the current three month period  versus  approximately
$313,000  consumer  product  sales and $0 EO Machine  sales in the three  months
ended September 30, 2005.  Management  believes that we will continue generating
revenues  from both its consumer and EO Machine sales during the rest of 2006 as
it has received  deposits on nine  machines from Water  Science,  LLC, a related
party,  a company that holds a license  agreement with the Company to distribute
its products in South  America,  of which we have shipped four machines with the
remaining machines scheduled to be delivered during the upcoming quarter.

Net loss for the three months ended September 30, 2006 was $1,351,852, or a loss
of $0.12 per share,  compared with a net loss of $4,218,100,  or $0.42 per share
for the same period in 2005.  The majority of the decrease in the loss per share
over the  comparable  period in 2005 was due to the recording of the  derivative
liability  loss at September 30, 2005 of  $2,385,194,  compared to a gain in the
fair market value of the derivative  liability of $29,792 at September 30, 2006.
The  current  quarter  net loss  includes  an  increase  of $217,296 in interest
expense,  from $65,653 in 2005 to $282,909 in 2006, or an increase of 331%. This
is due to interest  expense  related to the senior note payable  entered into in
September 2005.

General and Administrative Expenses

The Company's general and administrative  expenses totaled $1,289,315 during the
three months ended September 30, 2006,  compared to $1,788,638  during the three
months ended September 30, 2005, for a decrease of $499,323, or 28%. General and
administrative  expense for 2006 consists primarily payroll expense  ($612,142),
professional fees ($388,503) and travel related expenses ($68,224).  The Company
has  implemented  tighter  controls  to reduce its  general  and  administrative
expenses by reducing any unnecessary  expenses,  reducing payroll expense and is
challenging all of its expenditures.

Research and Development

Research and development  expenses  incurred during the three month period ended
September 30, 2006 decreased  $29,130 or 37%, from $79,459 in 2005 to $50,329 in
2006. It is anticipated that the Company's research and development expenditures
will  continue  at  approximately  this  same  level or a little  higher  due to
research it intends to continue in the  agriculture  markets.  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.

Summary of select income statement information follows:

<TABLE>
<CAPTION>
<S>                                               <C>           <C>               <C>               <C>
                                                      Three months ended
                                                        September 30,
                                                  ---------------------------
                                                                                                       Percent
                                                     2006           2005          Better (Worse)       Change
                                                 ------------   -------------     ---------------   -------------

Revenue, net                                   $     778,737  $     278,767      $    499,970               179%

Gross profit                                         265,883         87,919           177,964               202%

Operating loss                                     1,128,470      1,806,954           678,484                38%

Net loss                                           1,351,852      4,218,100         2,866,248                68%

Loss per share                                          0.12           0.48              0.36                75%
</TABLE>



                                       18
<PAGE>

Results of Operations for the nine months ended September 30, 2006 and 2005

Revenues and Net Income

The Company had total revenues of $1,882,077 for the nine months ended September
30,  2006,  which  represents  an  increase  of 284% from the  $490,698 in total
revenues  for the nine  months  ended  September  30,  2005.  A majority of this
increase  came  from  consumer  products  sales of  approximately  $651,000  and
agriculture enhancement products of approximately $1,024,000 in the current nine
month  period  versus  approximately  $321,000  consumer  product  sales  and no
agriculture  enhancement  product  sales in the nine months ended  September 30,
2005.

Net loss for the nine months ended September 30, 2006 was $5,631,776,  or a loss
of $0.55 per share,  compared with a net loss of $8,794,579,  or $1.07 per share
for the same period in 2005. The current period net loss includes an increase of
$770,423 in interest  expense,  from $96,281 in 2005 to $866,704 in 2006,  or an
increase  of 800%.  This is due to interest  expense  related to the senior note
payable  entered into in September  2005. The improved  results were also due to
the  recording  of the  derivative  liability  to fair market value of a gain of
$688,702  during the nine months  ended in 2006  compared to a  $2,385,194  loss
realized in the  recording  of the  derivative  liability  to fair market  value
during the same period in 2005.

General and Administrative Expenses

The Company's general and administrative  expenses totaled $5,935,935 during the
nine months ended  September 30, 2006,  compared to  $6,438,904  during the nine
months ended September 30, 2006, for a decrease of $502,969,  or 8%. General and
administrative   expense  for  2006  consists   primarily  of  payroll   expense
($2,070,871), compensation expense ($1,185,642), professional fees ($1,200,344),
capital funding fees  ($237,763),  travel related  expenses  ($308,157) and rent
($132,441).  The Company has implemented  tighter controls to reduce its general
and  administrative  expenses by reducing  any  unnecessary  expenses,  reducing
payroll expense and is challenging all of its expenditures.

Research and Development

Research and development expenses incurred during the period ended September 30,
2006 decreased $284,595 or 70% compared to R&D expenses incurred during the same
period  one  year  earlier,  due to the  Company  beginning  to  move  from  the
development stage to the sale of its developed products.

Summary income statement information follows:

<TABLE>
<CAPTION>
<S>                                              <C>            <C>               <C>               <C>
                                                      Nine months ended
                                                         September 30
                                                 ---------------------------
                                                                                                       Percent
                                                     2006           2005          Better (Worse)       Change
                                                 ------------   -------------     ---------------   -------------

Revenue, net                                   $   1,882,077  $     490,698      $  1,391,379               284%

Gross profit (loss)                                  688,170        218,698           469,472               215%

Operating loss                                     5,527,989      6,717,114         1,189,125                18%

Net loss                                           5,631,776      8,794,579         3,162,803                36%

Loss per share                                 $        0.55  $        1.07      $       0.52                49%
</TABLE>

                                       19
<PAGE>

Related Party Transactions

Sales to  Affiliates  - Water  Science,  who has  exclusive  rights  to sell our
products  in South  America and Mexico is an  affiliate  of the  Company.  Water
Science by  agreement  may purchase  machinery  from the Company at cost plus 25
percent.  During the nine months ended September 30, 2006, the Company sold four
large water  generators,  one small water  generator  and related parts to Water
Science for $1,023,634.  Further, the Company has received and recorded $697,500
in advance  deposits from Water Science on machine orders at September 30, 2006.
The Company also sold approximately $234,219 in products to an entity related to
Water Science.  In connection  with the sales of the machines and products,  the
Company has recorded  approximately $428,634 in accounts receivable at September
30,  2006.  The Company did not have any sales to this party for the nine months
ended September 30, 2005.

During the nine months ended  September  30,  2006,  the Company sold one of its
small water  generators to Zerorez,  an affiliate for $25,000.  The Company sold
three of its generators to Zerorez for $75,000 and other product sales of $2,344
during the nine months ended September 30, 2005.

Notes  Receivable  - The Company  provided  financing  for  equipment to Zerorez
franchisees,  which are related party entities. These transactions were recorded
through  Equilease,  Inc., a wholly  owned  subsidiary  of the  Company.  During
September 2006,  Equilease was sold to a related party for the cash value of the
notes receivable (See Note 9).

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 4). Due
to the discount of this note and the beneficial  conversion feature, the Company
has  recognized  $750,000  in  interest  expense  and  has  recorded  a gain  of
approximately  $688,705 in the change of the derivative liability to fair market
value for the nine months ended September 30, 2006.

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 $150,000 for the nine months ended September 30, 2006.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2006, we had cash and cash equivalents of $226,367, compared to
$681,348  at December  31,  2005.  We have had  continuing  operating  losses of
$1,128,470  and  $5,527,989  for the three and nine months ended  September  30,
2006, respectively,  compared with operating losses of $1,806,954 and $6,717,114
for the three and nine months ended  September 30, 2005,  respectively.  The net
loss per share for the second  quarter of 2006 was $0.55  compared  to a loss of
$1.07 per share for the same period in 2005.  The  decrease is  attributable  to
increased   gross   profits,   reduced   operating   expenses   and   a   higher
weighted-average  of shares  outstanding  during 2006. Our working capital as of
September 30, 2006 was $1,353,717 for reasons  discussed  above under  financial
position.

Net cash used in operating  activities in the nine month period ended  September
30, 2006 was  $4,856,520,  a 9% decrease,  compared to  $5,328,528  for the same
period in 2005.  The  primary  uses of cash were an  increase  in  inventory  of
$411,936,  an  increase  of accounts  receivable  of $453,373  and a decrease in
accounts  payable of $588,879.  Advances on machine  orders  increased  $697,500
during the period which reduced the operating cash requirements for the Company.
Sales have increased during the quarter resulting in a corresponding increase in
accounts receivable.

At September 30, 2006, the Company's  inventory was $2,415,838,  representing an
increase of 21% from the $2,003,902 on hand at December 31, 2005. The Company is
in the process of building machines for Water Science, LLC, a related party, and
other  customers  for  expected  deliveries  in the second  half of 2006 and has
increased  its  inventory  over the  December 31, 2005  inventory  levels due to
ordering components for these machines.

The operating  outflow of cash was reduced by the Company  issuing  warrants and
stock  options in lieu of cash  during the  quarter of  $1,059,142.  The Company
adopted SFAS 123(R),  effective  January 1, 2006, and now expenses stock options
given  to  employees.  The  Company  recognized  a  non-cash  increase  from the


                                       20
<PAGE>

discounting  of the Company's  note payable to Water  Science,  LLC of $750,000.
(See Note 4 to the  Company's  unaudited  financial  statements.)  Further,  the
Company recognized a non-cash decrease in the derivative  liability of $688,702,
due to changes in the Black-Scholes value of the liability.

Cash flows from investing  activities  provided the Company  $425,886 during the
period ended September 30, 2006 as compared $719,914 used for the same period in
2005.  During 2006,  the cash flows  consisted of net cash  receipts of $452,559
from  the sale of our  investment  in  Equilease  (See  Note 9 to the  Company's
unaudited  financial  statements),  investments  in  intellectual  property  and
patents of $18,518  and  purchase of  equipment  of  $46,238.  This  compares to
$613,073 used to purchase  equipment,  $135,350 net cash used to purchase  notes
receivables,  $55,093 used to purchase investments and $26,584 used to invest in
intellectual property and patents for the comparable period in 2005.

Cash flows  from  financing  activities  provided  the  Company  $3,975,653  and
$8,284,446 for the nine months ended September 30, 2006 and 2005,  respectively.
This is primarily a result of the Company's  continued sales of its common stock
to fund operations.  The Company raised  $4,000,497 and $5,375,402 from the sale
of stock and $0 and $3,000,000  from the issuance of a note payable for the nine
months ended September 30, 2006 and 2005,  respectively.  This amount was offset
by payments  made on notes  payable in the amount of $24,844 and $93,081 in 2006
and 2005, respectively.

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 have no commitments to
fund any  future  capital  expenditures.  Our  current  assets,  along with cash
generated from anticipated revenues, will not provide us with sufficient funding
for the next twelve  months.  On October 27,  2006,  the Company  entered into a
stock purchase  agreement  with Peter F. Ullrich,  a shareholder of the Company,
whereby Mr. Ullrich agreed to purchase a total of 2,307,692  newly issued shares
of $0.0001 par value common  stock of the Company for a purchase  price of $1.30
per share in a private  transaction,  for total  consideration of $2,999,999.60.
Under the terms of the agreement,  Mr. Ullrich will purchase 1,153,846 shares on
October  25,  2006 and the  remaining  1,153,846  shares on January 2, 2007.  We
anticipate  that we may need an additional  $5,000,000 or more in future funding
to execute our business plan over the next twelve months.  Moreover,  if we able
to expand  our sale of EO  machines  as  anticipated,  we will 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.

If the Company does not raise sufficient funds in the future, we may not be able
to fund  expansion,  take advantage of future  opportunities,  meet our existing
debt   obligations  or  respond  to  competitive   pressures  or   unanticipated
requirements. Without additional financing, management believes that the Company
will be able to fund its operations for at least an additional 6 months..

Future  financing  transactions  may  include  the  issuance  of  equity or debt
securities, obtaining credit facilities, or other financing mechanisms. However,
a subsequent  decline in the trading  price of our common stock and the downturn
in the U.S. stock and debt markets could make it more difficult for us to obtain
financing through the issuance of equity or debt securities. Even if we are able
to raise the funds required, it is possible that we could incur unexpected costs
and  expenses,  fail to collect  significant  amounts owed to us, or  experience
unexpected cash requirements that would force us to seek alternative  financing.
Further,  if we issue  additional  equity or debt  securities,  stockholders may
experience  additional  dilution,  or the new equity securities may have rights,
preferences  or  privileges  senior to those of  existing  holders of our common
stock.

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.

                                       21
<PAGE>

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-KSB, dated December 31, 2005,  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.  We  believe  the  following  to be  our  critical  accounting
estimates  because  they are both  important to the  portrayal of our  financial
condition and results and they require us to make judgments and estimates  about
matters that are inherently uncertain.

Our critical accounting policies and estimates include the following:

Revenue recognition;

Impairment of long-lived assets; and

Allowances for doubtful accounts.

Revenue  Recognition.  We  recognize  revenue  when goods are  shipped and title
passes to the  customer  or when  services  are  performed  in  accordance  with
contract  terms.  The Company  provides an allowance  for sales returns based on
current and historical  experience.  We also recognize  revenue from a licensing
agreement pro-rated over the term of the agreement.

Impairment of long-lived  assets.  Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable.  Determination of recoverability is based on
an estimate of  undiscounted  future  cash flows  resulting  from the use of the
asset  and its  eventual  disposition.  Measurement  of an  impairment  loss for
long-lived  assets that management  expects to hold and use is based on the fair
value of the asset.  Long-lived  assets are reported at the lower of carrying or
fair value less costs to sell.

Allowance for doubtful accounts. The Company sells its products to large grocery
and commercial customers, as well as smaller independent customers. It regularly
reviews its aging and reserves  for amounts  that may be at risk in  collection.
The Company has historically had very few uncollectible amounts.

RECENT ACCOUNTING PRONOUNCEMENTS

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 2005, 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 and six month period ended June 30,
2006  reflect  the  impact  of SFAS  123(R).  In  accordance  with the  modified


                                       22
<PAGE>

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 and nine month period ended  September  30, 2006 was $29,950 and $599,590,
respectively,  related to employee  stock options  issued and vesting during the
period.  During the three and nine month period ended  September  30, 2005,  the
Company  recognized  $0 and  $951,300,  respectively,  in  compensation  expense
related to other stock options.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an amendment
of ARB No. 43, Chapter 3," which  clarifies the accounting for abnormal  amounts
of idle facility  expense,  freight,  handling costs,  and waste material.  This
statement is effective for inventory cost incurred during fiscal years beginning
after June 15, 2005.  SFAS No. 151 is not  currently  applicable to the company,
and we believe that the adoption of SFAS No. 151 will not have a material impact
on our results of  operations.  In December  2004, the FASB issued SFAS No. 153,
"Exchanges of  Non-monetary  Assets,  an amendment of APB Opinion No. 29," which
replaces the exception from fair value  measurement in APB Opinion No. 29 with a
general  exception  for  exchanges  of  non-monetary  assets  that  do not  have
commercial  substance.  This  statement  is  effective  for  non-monetary  asset
exchanges  occurring in fiscal periods  beginning  after June 15, 2005. SFAS No.
153 is not currently applicable to the company, and we believe that the adoption
of SFAS No. 153 will not have a material impact on our results of operations.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154
"Accounting  Changes and Error  Corrections,  an amendment of APB Opinion 20 and
FASB  Statement No. 3," which changes the  requirements  for  accounting for and
reporting on a change in accounting  principle.  This statement is effective for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after  December 15, 2005.  We believe that the adoption of SFAS No. 154 will not
have a material impact on our results of operations.

In March  2006,  the FASB  issued  SFAS No. 156  "Accounting  for  Servicing  of
Financial  Assets,  an amendment of FASB No. 140," which modifies the accounting
for and reporting of servicing asset and servicing  liabilities.  This statement
is  effective  as of the  beginning  of our first  fiscal year that begins after
September 15, 2006. SFAS No. 156 is not currently applicable to the company and,
we believe that the adoption of SFAS No. 156 will not have a material  impact on
our results of operations.

In June 2006, the FASB issued Financial Interpretation No. (FIN) 48, "Accounting
for Uncertainty in Income Taxes - an  interpretation of FASB Statement 109." FIN
48  prescribes a  recognition  threshold  and a  measurement  attribute  for the
financial  statement  recognition  and  measurement  of a tax position  taken or
expected to be taken in a tax return. This interpretation also provides guidance
on de-recognition, classification, interest and penalties, accounting in interim
periods,  disclosure and transition. This interpretation is effective for fiscal
years beginning after December 15, 2006. The Company is currently evaluating the
impact of applying the various provisions of FIN 48.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," that
provides guidance for using fair value to measure assets and liabilities.  Under
SFAS 157, fair value refers to the price that would be received to sell an asset
or paid to  transfer  a  liability  in an  orderly  transaction  between  market
participants  in the market in which the reporting  entity  transacts.  SFAS 157
establishes a fair value  hierarchy that  prioritizes  the  information  used to
develop the  assumptions  that market  participants  would use when  pricing the
asset or  liability.  The fair value  hierarchy  gives the  highest  priority to
quoted prices in active markets and the lowest priority to unobservable data. In
addition, SFAS 157 requires that fair value measurements be separately disclosed
by level within the fair value  hierarchy.  This  standard will be effective for
financial statements issued for fiscal periods beginning after November 15, 2007
and  interim  periods  within  those  fiscal  years.  The  Company is  currently
evaluating the impact of applying the various provisions of SFAS 157.

INFLATION

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


                                       23
<PAGE>

PRECIOUS METALS

Raw  materials  used by the  Company  in the EO  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 EO
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.  These
forward-looking statements include 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-KSB for the year ended  December  31,  2005 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.   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 September 30, 2006, 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.

The  Company's  management  does not expect that its  disclosure  controls  will
prevent all error and all fraud. 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


                                       24
<PAGE>

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.

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 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In August 2006, the Company  issued 50,000 shares of the Company's  common stock
to two employees (25,000 shares each) upon their exercising of outstanding stock
options.

The sale of the above referenced  securities was exempt from  registration  with
the Securities and Exchange  Commission under Section 4(2) of the Securities Act
of 1933 and Rule 506 of Regulation D promulgated there under.

ITEM 5.  OTHER INFORMATION

On June 15, 2006, we entered into a Termination  Agreement with Coating  Systems
Laboratories  ("CSL"),  whereby both parties agreed to terminate the License and
Distribution Agreement,  entered into during February 2005 and the Joint Venture
Agreement,  entered  into  during  August  2005.  Included  in  the  termination
agreement  the  companies  agreed to enter  into a future  agreement  subject to
further  testing of the CSL  products,  whereby the Company will have  exclusive
rights to purchase and market  certain CSL products  within a certain  territory
mutually agreed upon by both parties. In September 2006, the parties agreed to a
new  License and  Distribution  Agreement,  whereby  the  Company  will have the
exclusive  right to  distribute  and sell  certain  products  in North and South
America.

On July 31, 2006, we entered into a Termination  Agreement  with KES Science and
Technology, Inc. ("KES"), whereby both parties agreed to terminate the Exclusive
Distributor Agreement, entered into during May 2004. Included in the termination
agreement  KES  agreed  to  pay to  the  Company  all  amounts  currently  owed.
Additionally, the companies agreed that the Company would sell one more EO Water
machine to KES. No additional future sales are anticipated.

In  September  2006,  the  Company  sold  our  investment  in  Equilease,   Inc.
("Equilease") to EOWORP, L.L.C.,  ("EOWORP") a related party. Equilease provided
equipment financing for certain Zerorez  franchisees,  also related parties. The
Company was the sole owner of Equilease and had  consolidated  the operations of
Equilease into the Company's books. The terms of the agreement called for EOWORP
to pay to the  Company  the  current  value  of the  Notes  Receivables  held by
Equilease.  Further, EOWORP agreed to pay off other certain payables owed to the
Company by Zerorez,  a related party. The total cash  consideration  paid to the
Company was $452,559.

In November  2005, we entered into a joint venture  agreement  with Dr.  William
Jackson to market  certain of the products he owns and controls that are used in
the agriculture  industry (the "Dr. Jackson JV Agreement").  By the terms of the
Dr. Jackson JV Agreement,  we agreed to market and sell certain of his currently
marketed  products,  and he agreed to market and sell our EOW Technology and EOW
Systems into the  agriculture  industry.  In August of 2006, the Company and Dr.
Jackson  mutually agreed to change the nature of the  relationship  from a joint
venture to joint marketing  effort of each others  products.  Dr. Jackson has an


                                       25
<PAGE>

EOW  water  generator  that he is  continuing  to test with his  products.  Both
parties  believe  their   respective   products  have  great  synergy  in  green
agriculture applications. The two parties are continuing to negotiate incentives
and or product costs to each other in the joint marketing effort.

On October 24, 2006, the Company  appointed  Wade R. Bradley as Chief  Executive
Officer and President. In conjunction with the appointment,  the Company entered
into an employment  agreement  with Mr.  Bradley which provides a base salary of
$240,000  per year,  stock  options to purchase  up to 500,000  shares of common
stock and other incentives.  The term of the contract is for three years with an
automatic renewal for a one year term.

On October 27, 2006, the Company  entered into a stock  purchase  agreement with
Peter F. Ullrich,  a shareholder  of the Company,  whereby Mr. Ullrich agreed to
purchase a total of 2,307,692  newly  issued  shares of $0.0001 par value common
stock of the  Company  for a  purchase  price of $1.30  per  share in a  private
transaction,  for total  consideration of $2,999,999.60.  Under the terms of the
agreement,  Mr. Ullrich will purchase  1,153,846  shares on October 27, 2006 and
will purchase the remaining 1,153,846 shares on January 2, 2007.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

EXHIBIT NO.    DESCRIPTION OF EXHIBIT

3(i).1         Articles  of   Incorporation   (Incorporated  by  reference  from
               registration  statement  on Form SB-2  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-2 filed with the  Securities  and Exchange  Commission on July
               29, 2002 (File No. 333-86830)

3(ii).1        Bylaws (Incorporated by reference from registration  statement on
               Form SB-2 filed with the  Securities  and Exchange  Commission on
               April 24, 2002 (File No. 333-86830).

10.1           Termination  Agreement by and between the Company and KES Science
               and  Technology,  Inc.,  dated July 31,  2006.  (Incorporated  by
               reference to Exhibit 10.13 of the  Company's  Form 10-QSB for the
               quarter ended June 30, 2006).

10.2           Equilease Stock Purchase Agreement by and between the Company and
               EOWORP, L.L.C. dated September 13, 2006.

10.3           Employment  Agreement  by and  between  the  Company  and Wade R.
               Bradley  dated  October 24, 2006.  (Incorporated  by reference to
               Exhibit 10.1 of the Company's Form 8-K dated October 30, 2006.)

31.1           Certification   by  Jay  S.  Potter  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 Jay S.  Potter  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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<PAGE>


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: November 3, 2006

                                          ELECTRIC AQUAGENICS UNLIMITED, INC.


                                          By:  /s/ Jay S. Potter
                                               ---------------------------------
                                               Jay S. Potter
                                               Interim Chief Executive Officer
                                               (Principal Executive Officer)

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




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