UNITED
      STATES


S ECURITIES
      AND E XCHANGE C OMMISSION


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 June 30, 2007





or





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




000-51807(Commission
                File No.)




**EAU
      TECHNOLOGIES, INC.**


(name
      of
      small business issuer in its charter)




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


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




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
      August 14, 2007, the Registrant had 13,567,187 shares
      of
      Common Stock, $0.0001 par value outstanding.










**EAU
      TECHNOLOGIES, INC.**


QUARTERLY
      REPORT ON FORM 10-QSB


June
      30,
      2007





INDEX





PagePART
                I. FINANCIAL INFORMATIONITEM
              1.
            
            Financial
              StatementsBalance
                Sheets - June 30, 2007 and December 31, 2006
            3Statements
                of Operations - Three and Six months ended June 30, 2007 and
                2006
            5Statement
                of Stockholders’ Equity (Deficit)
            7Statements
                of Cash Flows - Six months ended June 30, 2007 and 2006
            8Notes
                to Financial Statements
            10ITEM
                2.
            
            Management's
                Discussion and Analysis or Plan of Operation
            16ITEM
                3.
            
            Controls
                and Procedures
            23PART
                II. OTHER INFORMATIONITEM
                1.
            
            Legal
                Proceedings
            24ITEM
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            24ITEM
                3.
            
            Defaults
                Upon Senior Securities
            24ITEM
                4.
            
            Submission
                of matters to Vote of Security Holders
            24ITEM
                5.
            
            Other
                Information
            24ITEM
                6.
            
            Exhibits
            24SIGNATURES
            25





2





PART
      I -
      FINANCIAL INFORMATION





**EAU
      TECHNOLOGIES, INC.**





***BALANCE
      SHEETS***




ASSETS




June
                30,
            
            December
                31,2007
            
            2006CURRENT
                ASSETS
            
            (Unaudited)
            
            (Audited)Cash
                and cash equivalents
            
            $
            595,140
            
            $
            206,094Accounts
                receivable, net
            
            
            96,582
            
            
            134,225Accounts
                receivable - related party, net
            
            
            201,175
            
            
            219,479Pre-paid
                expense
            
            
            20,234
            
            
            15,641Inventory,
                net
            
            
            2,446,176
            
            
            2,502,263Total
                current assets
            
            
            3,359,307
            
            
            3,077,702PROPERTY
                AND EQUIPMENT - held for sale, net ofaccumulated
                depreciation of $311,453 and $0
            
            
            297,133
            
            
            -PROPERTY
                AND EQUIPMENT, net ofaccumulated
                depreciation of $210,899 and $406,919
            
            
            260,662
            
            
            633,477OTHER
                ASSETSDeposits
            
            
            19,465
            
            
            27,344Restricted
                cash
            
            
            240,000
            
            
            -Intellectual
                property - held for sale
            
            
            1,146,668
            
            
            -Intellectual
                property
            
            
            45,738
            
            
            1,191,238Total
                other assets
            
            
            1,451,871
            
            
            1,218,582Total
                assets
            
            $
            5,368,973
            
            $
            4,929,761




See
      notes
      to financial statements.




3


**EAU
      TECHNOLOGIES, INC.**





***BALANCE
      SHEETS (Continued)***




LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)





June
                30,
            
            December
                31,2007
            
            2006CURRENT
                LIABILITIES
            
            (Unaudited)
            
            (Audited)Accounts
                payable
            
            $
            293,890
            
            $
            738,666Accrued
                expenses
            
            
            435,988
            
            
            560,166Warranty
                reserve
            
            
            102,362
            
            
            102,362Advance
                - related party
            
            
            1,500,000
            
            
            -Advance
                deposits on machine orders - related party
            
            
            697,500
            
            
            697,500Advance
                deposits on machine orders
            
            
            20,950
            
            
            -Current
                portion of long-term debt
            
            
            18,736
            
            
            17,778Total
                current liabilities
            
            
            3,069,426
            
            
            2,116,472LONG
                TERM LIABILITIESLong
                term debt, net of current portion
            
            
            68,250
            
            
            79,424Senior
                convertible note payable - related party, net of discounts of$1,208,333
                and $1,708,333
            
            
            1,791,667
            
            
            1,291,667Deferred
                licensing revenue - related party
            
            
            641,667
            
            
            741,667Derivative
                liability - related party
            
            
            7,334,641
            
            
            4,639,312Total
                long term liabilities
            
            
            9,836,225
            
            
            6,752,070Total
                Liabilities
            
            
            12,905,651
            
            
            8,868,542STOCKHOLDERS’
                EQUITY (DEFICIT)Common
                stock, $.0001 par value; 50,000,000 shares authorized;13,567,187and12,313,341issued and outstanding, respectively
            
            
            1,357
            
            
            1,232Additional
                paid in capital
            
            
            32,893,208
            
            
            27,151,279Accumulated
                deficit
            
            
            (40,431,243
            )
            
            (31,091,292
            )Total
                stockholders’ equity (deficit)
            
            
            (7,536,678
            )
            
            (3,938,781
            )Total
                liabilities and stockholders’ equity (deficit)
            
            $
            5,368,973
            
            $
            4,929,761




See
      notes
      to financial statements.




4


**EAU
      TECHNOLOGIES, INC.**





***UNAUDITED
      STATEMENTS OF OPERATIONS***





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**NET
                SALES - RELATED PARTY
            
            $
            250,786
            
            $
            309,619
            
            $
            309,234
            
            $
            708,219NET
                SALES
            
            
            261,356
            
            
            276,330
            
            
            420,348
            
            
            395,121TOTAL
                SALES
            
            
            512,142
            
            
            585,949
            
            
            729,582
            
            
            1,103,340COST
                OF GOODS SOLD
            
            
            241,441
            
            
            361,307
            
            
            314,498
            
            
            681,053GROSS
                PROFIT
            
            
            270,701
            
            
            224,642
            
            
            415,084
            
            
            422,287OPERATING
                EXPENSESDepreciation
                and amortization
            
            
            59,305
            
            
            50,970
            
            
            116,552
            
            
            105,850Research
                and development
            
            
            8,875
            
            
            34,557
            
            
            82,475
            
            
            69,336General
                and administrative
            
            
            5,041,411
            
            
            2,679,217
            
            
            6,343,727
            
            
            4,646,620Total
                operating expenses
            
            
            5,109,591
            
            
            2,764,744
            
            
            6,542,754
            
            
            4,821,806LOSS
                BEFORE OTHER INCOME (EXPENSE)
            
            
            (4,838,890
            )
            
            (2,540,102
            )
            
            (6,127,670
            )
            
            (4,399,519
            )OTHER
                INCOME (EXPENSE)Interest
                expense
            
            
            (284,323
            )
            
            (294,688
            )
            
            (568,567
            )
            
            (583,794
            )Interest
                income
            
            
            4,557
            
            
            9,069
            
            
            10,731
            
            
            13,233Gain
                (Loss) on derivative liability
            
            
            (2,716,765
            )
            
            636,503
            
            
            (2,695,328
            )
            
            658,910Other
                income (expense)
            
            
            41,599
            
            
            15,152
            
            
            40,883
            
            
            15,152Total
                other income (expense)
            
            
            (2,954,932
            )
            
            366,036
            
            
            (3,212,281
            )
            
            103,501LOSS
                BEFORE PROVISIONFOR
                INCOME TAXES
            
            
            (7,793,822
            )
            
            (2,174,066
            )
            
            (9,339,951
            )
            
            (4,296,018
            )PROVISION
                FOR INCOME TAXES
            
            
            -
            
            
            -
            
            
            -
            
            
            -LOSS
                FROM CONTINUING OPERATIONS
            
            
            (7,793,822
            )
            
            (2,174,066
            )
            
            (9,339,951
            )
            
            (4,296,018
            )




See
      notes
      to financial statements.




5




**EAU
      TECHNOLOGIES, INC.**





***UNAUDITED
      STATEMENTS OF OPERATIONS (continued)***





DISCONTINUED
                OPERATIONS:Income
                from operations of discontinued operations (Net of $0 in income
                taxes)
            
            
            -
            
            
            6,157
            
            
            -
            
            
            16,094(Loss)
                on disposal of discontinued operations (Net of $0 in income
                taxes)
            
            
            
            
            
            
            
            
            
            
            
            -GAIN
                FROM DISCONTINUED OPERATIONS
            
            
            -
            
            
            6,157
            
            
            -
            
            
            16,094NET
                LOSS
            
            $
            (7,793,822
            )
            $
            (2,167,909
            )
            $
            (9,339,951
            )
            $
            (4,279,924
            )NET
                LOSS PER SHARE CONTINUING OPERATIONS
            
            $
            (0.58
            )
            $
            (0.21
            )
            $
            (0.70
            )
            $
            (0.44
            )NET
                INCOME PER SHARE DISCONTINUED OPERATIONS
            
            $
            -
            
            $
            0.00
            
            $
            -
            
            $
            0.00WEIGHTED
                AVERAGE OFSHARES
                OUTSTANDING
            
            
            13,523,231
            
            
            10,380,243
            
            
            13,431,615
            
            
            9,854,455




See
      notes
      to financial statements.




6




**EAU
      TECHNOLOGIES, INC.**





***UNAUDITED
      STATEMENT OF STOCKHOLDERS’ EQUITY(DEFICIT)***




**ADDITIONAL****COMMON
                STOCK**
            
            
            **PAID
                IN**
            
            
            **ACCUMULATED****SHARES**
            
            
            **AMOUNT**
            
            
            **CAPITAL**
            
            
            **DEFICIT**
            
            
            **TOTAL**Balance,
                December 31, 2006
            
            
            12,313,341
            
            $
            1,232
            
            $
            27,151,279
            
            $
            (31,091,292
            )
            $
            (3,938,781
            )Issuance
                of 1,153,846 shares for cash of $1,500,000 (unaudited)
            
            
            1,153,846
            
            
            115
            
            
            1,499,885
            
            
            -
            
            
            1,500,000Issuance
                and vesting of options and warrants for services
                (unaudited)
            
            
            -
            
            
            -
            
            
            217,170
            
            
            -
            
            
            217,170Issuance
                of warrants to Water Sciences (See Note 5) (unaudited)
            
            
            -
            
            
            -
            
            
            3,974,884
            
            
            -
            
            
            3,974,884Issuance
                100,000 shares for cash of $50,000 or $0.50 per share due to exercise
                of
                warrants (unaudited)
            
            
            100,000
            
            
            10
            
            
            49,990
            
            
            -
            
            
            50,000Net
                loss for the six months ended June 30, 2007 (unaudited)
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,339,951
            )
            
            (9,339,951
            )Balance,
                June 30, 2007 (unaudited)
            
            
            13,567,187
            
            $
            1,357
            
            $
            32,893,208
            
            $
            (40,431,243
            )
            $
            (7,536,678
            )




See
      notes
      to financial statements.




7




**EAU
      TECHNOLOGIES, INC.**





***UNAUDITED
      STATEMENTS OF CASH FLOWS***





For
                the Six MonthsEnded
                June 30,**2007**
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (9,339,951
            )
            $
            (4,279,924
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Depreciation
            
            
            116,552
            
            
            105,840Bad
                debt expense
            
            
            -
            
            
            3,669Warrants
                and options issued for services
            
            
            4,192,054
            
            
            1,029,192Discount
                of note payable
            
            
            500,000
            
            
            500,000Loss
                on disposal of assets
            
            
            716
            
            
            72,736Gain
                on settlement of debt
            
            
            -
            
            
            (14,597
            )Changes
                in operating assets and liabilities:(Increase)
                decrease in accounts receivable
            
            
            37,644
            
            
            (28,174
            )(Increase)
                decrease in accounts receivable - related party
            
            
            18,304
            
            
            (265,357
            )(Increase)
                in pre-paid expense
            
            
            (4,593
            )
            
            -Decrease
                (increase) in inventory
            
            
            56,087
            
            
            (551,594
            )(Increase)
                decrease in deposits
            
            
            7,879
            
            
            (11,169
            )(Increase)
                in restricted cash
            
            
            (240,000
            )
            
            -Increase
                (decrease) in accounts payable
            
            
            (443,733
            )
            
            (375,883
            )Increase
                (decrease) in accrued expenses
            
            
            (124,178
            )
            
            199,799Increase
                (decrease) in warranty reserve
            
            
            -
            
            
            12,000Increase
                in advance deposits on machine orders - related party
            
            
            -
            
            
            577,000Increase
                in advance deposits on machine orders
            
            
            20,950
            
            
            -(Decrease)
                in deferred revenue
            
            
            (100,000
            )
            
            (100,000
            )Increase
                (decrease) in derivative liability
            
            
            2,695,329
            
            
            (658,909
            )Net
                cash used in operating activities
            
            
            (2,606,940
            )
            
            (3,785,361
            )CASH
                FLOWS FROM INVESTING ACTIVITIESAcquisition
                of property and equipment
            
            
            (42,630
            )
            
            (11,098
            )Payments
                received from notes receivable
            
            
            -
            
            
            12,490Payments
                received from notes receivable - related party
            
            
            -
            
            
            17,497Intellectual
                property disbursements
            
            
            (1,168
            )
            
            (15,087
            )Net
                cash provided (used) in investing activities
            
            
            (43,798
            )
            
            3,802CASH
                FLOWS FROM FINANCING ACTIVITIESPayments
                on notes payable
            
            
            (10,216
            )
            
            (17,757
            )Proceeds
                from advance on exercise of warrants - related party
            
            
            1,500,000
            
            
            -Proceeds from issuance of common stock - related party
            
            
            1,500,000
            
            
            4,000,247Proceeds from issuance of common stock
            
            
            50,000
            
            
            -Net
                cash provided by financing activities
            
            
            3,039,784
            
            
            3,982,490NET
                INCREASE (DECREASE) IN CASH
            
            
            389,046
            
            
            200,931CASH
                and cash equivalents, beginning of period
            
            
            206,094
            
            
            681,348CASH
                and cash equivalents, end of period
            
            $
            595,140
            
            $
            882,279




See
      notes
      to financial statements.




8


**EAU
      TECHNOLOGIES, INC.**





**** ***UNAUDITED
      STATEMENTS OF CASH FLOWS***


**(Continued)**


Six
                  Months Ended June 30,2007
              
              2006Supplemental
                  Disclosures of Cash Flow Information:Cash
                  paid during the period for:Interest
              
              $
              23,567
              
              $
              33,522Income
                  Taxes
              
              $
              -
              
              $
              -


Supplemental
                  Disclosures of Non-cash Investing and Financing
                  Activities:Warrants
                  and stock options issued for services
              
              $
              4,192,054
              
              $
              1,029,192


See
      notes
      to financial statements.




9




**EAU
      TECHNOLOGIES, INC.**





***CONDENSED
      NOTES TO UNAUDITED FINANCIAL STATEMENTS***





**NOTE
      1 - BASIS OF PRESENTATION**





The
      accompanying condensed financial statements were prepared by the Company without
      audit pursuant to the rules and regulations of the Securities and Exchange
      Commission (SEC). Certain information and footnote disclosures normally included
      in financial statements prepared in accordance with accounting principles
      generally accepted in the United States of America have been condensed or
      omitted pursuant to such rules and regulations. In management’s opinion all
      necessary adjustments, which consist primarily of normal recurring adjustments,
      to the financial statements have been made to present fairly the financial
      position and results of operations and cash flows. The results of operations
      for
      the respective periods presented are not necessarily indicative of the results
      for the respective complete years. The financial statements should be read
      in
      conjunction with the financial statements and notes thereto included in the
      Company's Annual Report on Form 10-KSB for the year ended December 31,
      2006.





**NOTE
      2 - RESTRICTED CASH**





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





**NOTE
      3 - INVENTORIES**





The
      composition of inventories is as follows at:





June
                30,December
                31,2007
            
            
            2006Finished
                goods
            
            $
            720,126
            
            $
            543,336Raw
                materials
            
            
            2,142,185
            
            
            2,375,062Allowance
                for obsolete inventory
            
            
            (416,135
            )
            
            (416,135
            )$
            2,446,176
            
            $
            2,502,263





**NOTE
      4 - SENIOR CONVERTIBLE DEBT AND DERIVATIVE LIABIILTY**





In
      September 2005, the Company entered into a Senior Convertible Note with Mr.
      Peter Ullrich, currently a member of the Board of Directors, 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.





In
      May
      2007, the Company entered into a termination agreement related to the
      cancellation and reissuance of the existing warrants (“Original Warrants”) to
      purchase a total of 8.4 million shares of $0.0001 par value common stock of
      the
      Company, at a price of $2.76 per share, held by Water Science. The Company
      granted to Water Science replacement warrants to purchase 8.4 million shares
      of
      common stock at a price of $1.30 per share, with an expiration date of May
      9,
      2010. The Company has a right to require Water Science to exercise one of the
      warrants for up to 3,230,769 shares; the Company may exercise the put right
      from
      time to time, but not more often than once per month.




10





**EAU
      TECHNOLOGIES, INC.**





***CONDENSED
      NOTES TO UNAUDITED FINANCIAL STATEMENTS***





**NOTE
      4 - SENIOR CONVERTIBLE DEBT AND DERIVATIVE LIABIILTY** ***(continued)***





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 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 June 30, 2007: risk-free interest
      rate
      of 4.0% to 4.6%, expected dividend yield of zero, expected life of between
      1.2
      and 3 years and expected volatility of 71.08% to 72.07. As
      of
      June 30, 2007, the value of the derivative liability is $7,334,641.





**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 is controlled
      by
      Peter Ullrich, who was appointed to the Company’s Board of Directors in April
      2007. Water Science by agreement may purchase machinery from the Company at
      cost
      plus 25 percent. During
      the six months ended June 30, 2007, the Company sold approximately $309,234
      in
      products and services related to the installation and maintenance of machines
      to
      Water Science. During the six months ended June 30, 2006, the Company sold
      approximately $708,219 in products to an entity related to Water Science.
      Further, the Company has received and recorded $697,500 in advance deposits
      from
      Water Science on machine orders at June 30, 2007. In connection with the sales
      of the machines and products, the Company has recorded approximately $201,175
      in
      accounts receivable at June 30, 2007.





***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 3). For the six months ended June
      30, 2007, the Company recognized $45,000 in interest expense related to the
      Senior Note. The Company also recognized $500,000 in interest expense due to
      the
      discount of this note and the beneficial conversion feature. (See Note
      4)





In
      May
      2007, the Company entered into a termination agreement related to the
      cancellation and reissuance of the existing warrants (“Original Warrants”) to
      purchase a total of 8.4 million shares of $0.0001 par value common stock of
      the
      Company, at a price of $2.76 per share, held by Water Science. The Company
      granted to Water Science replacement warrants to purchase 8.4 million shares
      of
      common stock at a price of $1.30 per share, with an expiration date of May
      9,
      2010. The Company has a right to require Water Science to exercise one of the
      warrants for up to 3,230,769 shares; the Company may exercise the put right
      from
      time to time, but not more often than once per month.





***Licensing
      Fee -*** In
      September 2006, the Company received
      $1,000,000 in exchange for providing Water Science exclusive licensing and
      distribution rights for a five-year term for a specified market area. The
      agreement provides termination rights by Water Sciences and a pro rata refund
      of
      the fee. The Company recognizes the fee on a pro rata basis over the life of
      the
      agreement. The Company recognized $100,000 for the six months ended June 30,
      2007.




11


**EAU
      TECHNOLOGIES, INC.**





***CONDENSED
      NOTES TO UNAUDITED FINANCIAL STATEMENTS***





**NOTE
      5 - RELATED PARTY TRANSACTIONS*****(continued)***





***Amended
      Licensing Agreement -*** On
      January 10, 2007, the Company entered into an Amended and Restated License
      Agreement (the “Amended License Agreement”) with Zerorez
      Franchising Systems, Inc., a Nevada corporation (“Zerorez”). Zerorez
      is an affiliated entity having similar shareholders and who was founded by
      the
      same individuals who founded the Company. John Hopkins, William Warwick and
      Jay
      Potter are shareholders of Zerorez. Mr. Hopkins is also a board member and
      franchisee of Zerorez. Until January 2007, Mr. Hopkins was a director of the
      Company. Messrs. Warwick and Potter are directors of the Company. The Company
      has had a license agreement with Zerorez since March, 2001, as disclosed in
      the
      Company’s previous reports as filed with the SEC. As revised, the Amended
      License Agreement provides a licensing arrangement whereby Zerorez and its
      franchisees may use the Company’s equipment and technology to produce
      electrolyzed fluids for use in carpet cleaning and related applications, at
      rates that are set forth in the agreement. The Amended License Agreement has
      a
      term of five years with automatic renewal clauses for three additional five-year
      terms. Generally, neither party may terminate the agreement unless there is
      a
      breach by, or consent from, the other party. During the six months ended June
      30, 2007, Zerorez paid $0 to the Company under the agreement.





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





***Advances
      from Related Party -*** In
      April
      2007, Water Science advanced $1,000,000 to the Company. In June 2007, Water
      Science advanced $500,000 to the Company. The advances are expected to be paid
      back by the exercise of warrants by Water Science.





**NOTE
      6 - CAPITAL STOCK**





In
      May
      2007, the Company issued 100,000 shares of common stock for $50,000, or $0.50
      per share, to an individual upon the exercising of warrants.





In
      May
      2007, the Company entered into a termination agreement related to the
      cancellation and reissuance of the existing warrants (“Original Warrants”) to
      purchase a total of 8.4 million shares of $0.0001 par value common stock of
      the
      Company, at a price of $2.76 per share, held by Water Science. The Company
      granted to Water Science replacement warrants to purchase 8.4 million shares
      of
      common stock at a price of $1.30 per share, with an expiration date of May
      9,
      2010. The Company has a right to require Water Science to exercise one of the
      warrants for up to 3,230,769 shares; the Company may exercise the put right
      from
      time to time, but not more often than once per month.





On
      October 25, 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 $3,000,000. Under the terms of the agreement, Mr.
      Ullrich purchased 1,153,846 shares on October 25, 2006 and the remaining
      1,153,846 shares on January 2, 2007.





12




**EAU
      TECHNOLOGIES, INC.**





***CONDENSED
      NOTES TO UNAUDITED FINANCIAL STATEMENTS***





**NOTE
      7 - GOING CONCERN**




The
      Company has incurred significant losses and has had negative cash flows from
      operations. As a result, at June 30, 2007, the Company has had a high level
      of
      equity financing transactions and additional financing will be required by
      the
      Company to fund its future activities and to support its operations. Management
      is seeking to obtain sufficient funding for its operations through either debt
      or equity financing. However, there is no assurance that the Company will be
      able to obtain additional financing. Furthermore, there is no assurance that
      rapid technological changes, changing customer needs and evolving industry
      standards will enable the Company to introduce new products and services on
      a
      continual and timely basis so that profitable operations can be attained. The
      Company’s ability to achieve and maintain profitability and positive cash flows
      is dependent upon its ability to achieve positive sales and profit margins
      and
      control operating expenses. Management plans to mitigate its losses in the
      near
      term through the further development and marketing of its 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, 2006 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
      8 - 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 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied
      the provisions of SAB 107 in its adoption of SFAS 123(R).





The
      Company adopted SFAS 123(R) using the modified prospective transition method,
      which requires the application of the accounting standard as of January 1,
      2006,
      the first day of the Company’s fiscal year 2006. The Company’s financial
      statements as of and for the three and six month period ended June 30, 2007
      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 six month
      period ended June 30, 2007 and 2006 was $217,170 and $1,029,192, respectively,
      related to employee stock options issued and vesting during the period.





13




**EAU
      TECHNOLOGIES, INC.**





***CONDENSED
      NOTES TO UNAUDITED FINANCIAL STATEMENTS***





**NOTE
      8 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued**





Basic
      and
      Fully Diluted Loss Per Share





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





For
                the Three Months Ended
            
            For
                the Six Months EndedJune
                30,
            
            June
                30,2007
            
            2006
            
            2007
            
            2006Net
                Loss (numerator)
            
            $
            (7,793,822
            )
            $
            (2,167,909
            )
            $
            (9,339,951
            )
            $
            (4,279,924
            )Shares
                (denominator)
            
            
            13,523,231
            
            
            10,380,243
            
            
            13,431,615
            
            
            9,854,455Per
                share amount
            
            $
            (0.58
            )
            $
            (0.21
            )
            $
            (0.70
            )
            $
            (0.44
            )





The
      Company’s outstanding stock options have been excluded from the basic net loss
      per share calculation for the three and six month period ended June 30, 2007
      and
      2006, because they are anti-dilutive.





The
      following table is a summary of the status of the warrants and options granted
      for the six months ended June 30, 2007:


Number
              
              
              Weightedof
                  Options
              
              
              Averageand
                  Warrants
              
              
              Exercise
PriceOutstanding
                  at beginning of period
              
              
              11,925,793
              
              $
              2.57Granted
              
              
              8,400,000
              
              
              1.30Exercised
              
              
              (100,000
              )
              
              0.50Forfeited
              
              
              (8,445,000
              )
              
              2.76Expired
              
              
              (463,251
              )
              
              3.00Outstanding
                  at end of period
              
              
              11,317,542
              
              $
              1.51





A
      summary
      of the status of the warrants outstanding at June 30, 2007 is presented
      below:


Warrants
                  Outstanding
              
              
              Warrants
                  ExercisableRange
                  of Exercise Prices
              
              
              Number
                  Outstanding
              
              
              Weighted-Average
                  Remaining Contractual Life
              
              
              Weighted-Average
                  Exercise Price
              
              
              Number
                  Exercisable
              
              
              Weighted-Average
                  Exercise Price$
              .01-.50
              
              
              685,000
              
              
              2.6
                  years
              
              $
              0.02
              
              
              685,000
              
              $
              0.021.00-1.99
              
              
              9,215,000
              
              
              2.9
                  years
              
              
              1.31
              
              
              8,815,000
              
              
              1.312.00-2.99
              
              
              575,000
              
              
              3.6
                  years
              
              
              2.70
              
              
              575,000
              
              
              2.703.00-3.99
              
              
              324,166
              
              
              6.2
                  years
              
              
              3.43
              
              
              324,166
              
              
              3.434.00-4.99
              
              
              255,000
              
              
              2.3
                  years
              
              
              4.00
              
              
              255,000
              
              
              4.005.00-5.50
              
              
              263,376
              
              
              2.4
                  years
              
              
              5.15
              
              
              263,376
              
              
              5.15$
              .01-5.50
              
              
              11,317,542
              
              
              3.0
                  years
              
              $
              1.51
              
              
              10,917,542
              
              $
              1.52
  14




**EAU
      TECHNOLOGIES, INC.**





***CONDENSED
      NOTES TO UNAUDITED FINANCIAL STATEMENTS***





**NOTE
      8 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued**





The
      fair
      value of each warrant granted is estimated on the date granted using the
      Black-Scholes pricing model, with the following assumptions for warrants issued
      in 2007: risk-free interest rate of between 4.6% and 4.99%, expected dividend
      yield of zero, expected lives of 3 and 5 years and expected volatility of
      between 59.76 % and 89.54 %.





**NOTE
      9 - SALE OF DIVISION**




In
      March
      2007, the Company signed a non-binding Letter of Intent with an unrelated third
      party to explore the possible sale of the Company’s Consumer Products division.
      In accordance with SFAS 144, the related assets, which consist of property
      and
      equipment and intellectual property, have been reclassified as held-for-sale.





**NOTE
      10 - SUBSEQUENT EVENTS**





In
      August
      2007, Water Science advanced the Company an additional $500,000.




15




**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**





EAU
      TECHNOLOGIES, INC., previously known as Electric Aquagenics Unlimited, Inc.
      (referred to herein sometimes as “EAU,” “we,” “us,” or the “Company”), is in the
      business of developing, manufacturing and marketing equipment that uses water
      electrolysis to create fluids. These fluids have various commercial applications
      and may be used in commercial food processing organic or conventional
      agricultural products that clean, disinfect, remediate, hydrate and moisturize.
      The processes for which these fluids may be used are referred to in this
      prospectus as the “EOW Technology.” For example, we believe that our food and
      agricultural treatment products potentially may be used to systemically treat
      all facets and phases of the food chain, from soil to animal feed to meat
      processing. Our products would accomplish this by eliminating dangerous and
      unhealthy pathogens from the food chain with organically based and highly
      effective solutions. We make the claim that our products are “non-toxic”. We can
      do this because at the levels we employ our technology, our studies both
      internal as well as through third parties show no toxicity. We are conducting
      further studies so we can make more specific claims in the future. We also
      develop, manufacture and market consumer products that support a healthy
      lifestyle, such as our Perfect Empowered Drinking WaterTM and Perfect Oxygenated
      EssentialsTM products. EAU is currently exploring the sale of this division. At
      the levels employed, the fluids and products are safe for the environment and
      non-toxic. Our fluids and products also do not contain or leave harmful residues
      often associated with chemical-based supplements and disinfecting and cleaning
      agents. The electrolyzed fluids created by the EOW Technology (referred to
      herein sometimes as the “EO Fluids” or “Empowered Water TM ”)
      generated by our patented and patent pending specialized equipment currently
      replace many of the traditional products used in commercial, industrial and
      residential disinfecting and cleaning.





We
      have
      identified the following industries for early stage sales and marketing focus:
      1) meat and poultry processing, 2) dairy production and processing and 3)
      agricultural grow-out and processing ( **“Primary
      Markets”** ).
      As of
      the date of this Report, the Company was focused on these markets because we
      believe that for each of these markets we have a competitive advantage, a
      leading strategic industry partner, and/or we can provide an attractive
      value-added proposition. To penetrate these markets, EAU is conducting trials
      that will lead to partnerships with industry leaders who can assist in rolling
      the technology out on a large scale. EAU has seen success in marketing its
      Empowered WaterTM products in the consumer products industry, but doesn’t feel
      that this is our core competency. EAU is currently exploring the sale of this
      division.




We
      have
      obtained patent protection on two separate facets of electrolyzed fluids as
      well
      as the water generating technology. The facets for which we have obtained patent
      protection are how the fluids are used and how they are stabilized for use
      in
      different applications. Additionally, we have patents pending on poultry
      processing, and we have filed several provisional patent pending applications
      to
      protect new processes and products. Previously, we generated our revenues
      primarily from equipment sales to the carpet and living surfaces industries,
      and
      some consumer product sales. In 2006, we saw our first sales in the agriculture
      segment. All of these sales were made to Water Science, LLC, a company set
      up
      primarily to market Empowered WaterTM in Latin America. Currently we are seeking
      to expand those markets as well as introducing what we have learned in those
      markets to the United States. We will continue to seek to derive future EOW
      Technology revenues from recurring fees we charge to customers based on per-unit
      or per-gallon of fluid used after equipment has been installed. Additionally,
      we
      will seek to introduce our technology to meat and poultry processing by
      leveraging the development and trials that we conducted in the United States.





16





We
      have
      shipped and installed five of the nine units ordered from Water Sciences, LLC.
      The units have been installed in Holland, Ecuador, Costa Rica, Mexico and
      Colombia. Shipment dates and locations of the remaining units have yet to be
      determined by Water Sciences. Water Sciences is currently using Empowered WaterTM
fluids in various agricultural channels.





We
      are
      currently installed in four Whole Foods Market (WFM) stores in the South Region.
      These stores are using the Empowered WaterTM in three areas of the store: floral,
      fresh cut produce and leafy vegetable rinse area. In January 2007, the Company
      entered into an amended exclusive licensing and product supplier agreement
      with
      Zerorez Franchising Systems, Inc. (Zerorez), a previously affiliated entity,
      to
      provide Zerorez with its Primacide water solutions and water generator for
      its
      carpet cleaning franchisees. The Company has sold Empowered WaterTM generators to
      over 30 franchises. The Company is committed to sell to Zerorez the Primacide
      B
      water generator over the next 5 years under the agreement, ending on December
      31, 2011. The agreement allows for the automatic renewal of the agreement for
      three (3) terms of five year terms, unless both parties agree to the
      cancellation of the agreement.





In
      May
      2007, we signed an agreement with a small dairy plant whereby the dairy has
      agreed to lease our equipment and pay a royalty for the technology beginning
      in
      August 2007. The Company has been testing our equipment in this facility for
      over one year. While the amounts for this agreement are not large, the Company
      believes that this agreement will serve as a model for expanding its presence
      in
      the dairy industry. Since then, we have also signed agreements with two other
      dairies to install our equipment and begin testing our equipment at their
      facilities. We anticipate having both dairies installed and performing over
      the
      next couple of months.





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 $595,140 in cash as of June 30, 2007, compared to $206,094 at
      December 31, 2006. We also had $240,000 in restricted cash related to an escrow
      agreement. Our working capital as of June 30, 2007 was $289,881 compared to
      $961,230 at December 31, 2006. The Company has received and recorded $697,500
      in
      advance deposits from Water Science on machine orders at June 30, 2007. This
      will be reduced as the Company delivers machines on order to Water Science,
      a
      related party. Water Science, who has exclusive rights to sell our products
      in
      Central and South America is also an affiliate of the Company, by agreement
      may
      purchase machinery from us at cost plus 25 percent. These deliveries are
      targeted to occur during the second half of 2007. Long term debt increased
      36%,
      from $1,371,091 at December 31, 2006 to $1,859,917 at June 30, 2007, or
      $488,826. The primary increase is a result of the discount of the Senior Note
      Payable, which was $500,000 for the six months ended June 30, 2007. At June
      30,
      2007, our stockholders’ deficit was $7,536,678. The majority of the decrease is
      from the recording of the expenses related to the issuance of warrants, as
      discussed later.





17




Summary
      of select balance sheet information follows:





June
                30,
              2007
            
            December
                31,
              2006Balance
                Sheet Data:
            
            (Unaudited)Cash
                and Cash Equivalents
            
            $
            595,140
            
            $
            206,094Total
                Current Assets
            
            
            3,359,307
            
            
            3,077,702Total
                Assets
            
            
            5,368,973
            
            
            4,929,761Total
                Current Liabilities
            
            
            3,069,426
            
            
            2,116,472Long
                Term Debt
            
            
            1,859,917
            
            
            1,371,091Total
                liabilities and stockholders’ equity
            
            $
            5,368,973
            
            $
            4,929,761





*Results
      of Operations* *for the Three months ended June 30, 2007 and 2006*





*Revenues
      and Net Income*





The
      Company had total revenues of $512,142 for the three months ended June 30,
      2007,
      which represents a decrease of 13% from the $585,949 in total revenues for
      the
      same period one year earlier. The loss is primarily due to the delay in shipping
      our EO machines to Water Science as we are awaiting shipping information. Net
      loss for the three months ended June 30, 2007 was $7,793,822, or a loss of
      $0.58
      per share, compared with a net loss of $2,167,909, or $0.21 per share for the
      same period in 2006. The majority of the increased net loss is a result of
      the
      cancellation and issuance of warrants as part of a financing agreement entered
      into in May 2007. In connection with the new financing agreement, the Company
      recognized a net change in the derivative liability of $2,716,765 and an expense
      of $3,974,884. The current quarter net loss includes $284,323 in interest
      expense, compared to $294,688 in 2006. The majority of the interest expense
      is
      related to the senior note payable entered into in September 2005.





*General
      and Administrative Expenses*





The
      Company’s general and administrative expenses totaled $5,041,411 during the
      three months ended June 30, 2007, compared to $2,679,217 during the three months
      ended June 30, 2006, for an increase of $2,362,194, or 88%. General and
      Administrative expense for 2007 consisted primarily of expense related to the
      issuance of warrants ($3,974,884), payroll and other compensation expense
      ($495,558), legal and professional fees ($227,950) and travel related expenses
      ($76,105). The Company has implemented tighter controls to reduce its general
      and administrative expenses by reducing any unnecessary expenses, reducing
      payroll expense and challenging all of its expenditures.





*Research
      and Development*





Research
      and development expenses incurred during the three month period ended June
      30,
      2007 decreased $25,682 or 74%, from $34,557 in 2006 to $8,875 in 2007. It is
      anticipated that the Company’s research and development expenditures will vary
      over the next months due to research it intends to continue in the agriculture
      poultry and dairy 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.





18




Summary
      of select income statement information follows:





Three
                months endedJune
                30,2007
            
            2006
            
            Better
                (Worse)
            
            Percent
                ChangeRevenue,
                net
            
            $
            512,142
            
            $
            585,949
            
            $
            (73,807
            )
            
            13
            %Gross
                profit
            
            
            270,701
            
            
            224,642
            
            
            46,059
            
            
            21
            %Loss
                before other income
            
            
            4,838,890
            
            
            2,540,102
            
            
            (2,298,788
            )
            
            90
            %Net
                loss
            
            
            7,793,822
            
            
            2,167,909
            
            
            (5,625,913
            )
            
            260
            %Loss
                per share
            
            
            0.58
            
            
            0.21
            
            
            0.37
            
            
            176
            %





*Results
      of Operations* *for the Six months ended June 30, 2007 and 2006*





*Revenues
      and Net Income*





The
      Company had total revenues of $729,582 for the six months ended June 30, 2007,
      which represents a decrease of 34% from the $1,103,340 in total revenues for the
      same period one year earlier. 21%, or $234,619, of the total revenues for the
      six months ended June 30, 2006 was from products unrelated to the Company’s core
      technology. In an effort to streamline our corporate focus and our business
      plan, the Company is no longer marketing products that are not directly related
      to its core competencies, which is the development of Empowered WaterTM
technologies.





Net
      loss
      for the six months ended June 30, 2007 was $9,339,951, or a loss of $0.70 per
      share, compared with a net loss of $4,279,924, or $0.44 per share for the same
      period in 2006. The majority of the increased net loss is a result of the
      cancellation and issuance of warrants as part of a financing agreement entered
      into in May 2007. In connection with the new financing agreement, the Company
      recognized a net change in the derivative liability of $2,695,328, which
      directly impacted the income statement. Our loss before other income/expense
      was
      $6,127,670 for the six months ended June 30, 2007 as compared with $4,399,519
      for the comparable period in 2006. The current quarter net loss includes
      $568,567 in interest expense, compared to $583,794 in 2006. The majority of
      the
      interest expense is related to the senior note payable entered into in September
      2005.





*General
      and Administrative Expenses*





The
      Company’s general and administrative expenses totaled $6,343,727 during the six
      months ended June 30, 2007, compared to $4,646,620 during the six months ended
      June 30, 2006, for an increase of $1,697,107, or 37%. General and Administrative
      expense for 2007 consisted primarily of expenses related to the issuance of
      warrants ($3,974,884), payroll and other compensation expense ($1,207,770),
      legal and professional fees ($442,899), travel related expenses ($144,526)
      and
      rent ($110,206). The Company has implemented tighter controls to reduce its
      general and administrative expenses by reducing any unnecessary expenses,
      reducing payroll expense and challenging all of its expenditures.





*Research
      and Development*





Research
      and development expenses incurred during the six month period ended June 30,
      2007 increased $13,139 or 19%, from $69,336 in 2006 to $82,475 in 2007. 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, poultry and dairy 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.





19




Summary
      of select income statement information follows:


Six
                months endedJune
                30,2007
            
            2006
            
            Better
                (Worse)
            
            Percent
                ChangeRevenue,
                net
            
            $
            729,582
            
            $
            1,103,340
            
            $
            (373,758
            )
            
            34
            %Gross
                profit
            
            
            415,084
            
            
            422,287
            
            
            (7,203
            )
            
            2
            %Loss
                before other income
            
            
            6,127,670
            
            
            4,399,519
            
            
            (1,728,151
            )
            
            39
            %Net
                loss
            
            
            9,339,951
            
            
            4,279,924
            
            
            (5,060,027
            )
            
            118
            %Loss
                per share
            
            
            0.70
            
            
            0.44
            
            
            (0.26
            )
            
            59
            %





**Liquidity
      and Capital Resources**




At
      June
      30, 2007, we had cash and cash equivalents of $595,140, compared to $206,094
      at
      December 31, 2006. We
      have
      had continuing losses of $9,339,951 for the six months ended June 30, 2007,
      compared with operating losses of $4,279,924 for the six months ended June
      30,
      2006. The net loss per share for the period ending June 30, 2007 was $0.70
      compared to a loss of $0.44 per share for the same period in 2006. The increase
      in losses is primarily attributable to the warrants issued in the financing
      agreement previously discussed. Our working capital as of June 30, 2007 was
      $289,881 for reasons discussed above under financial position.





Net
      cash
      used in operating activities in the six month period ended June 30, 2007 was
      $2,606,940, a 31% decrease, compared to $3,785,361 for the same period in 2006.
      The primary uses of cash were an increase in restricted cash of $240,000, a
      decrease in accrued expenses of $124,178 and a decrease in accounts payable
      of
      $443,733.





At
      June
      30, 2007, the Company’s inventory was $2,446,176, compared to $2,502,263 on hand
      at December 31, 2006. T he
      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 2007.
      The Company has maintained its inventory at approximately the same levels as
      that of December 31, 2006.





The
      operating outflow of cash was reduced by the Company issuing warrants and stock
      options in lieu of cash during the quarter of $217,170 and the issuance of
      warrants as part of the financing agreement of $3,974,884. 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 discounting
      of
      the Company’s note payable to Water Science, LLC of $500,000. (See Note 4 to the
      Company’s unaudited financial statements.) Further, the Company recognized a
      non-cash increase in the derivative liability of $2,695,329, due to the change
      in the Black-Scholes value of the liability.





The
      Company used $43,798 in cash flows from investing activities during the period
      ended June 30, 2007 as compared to a cash inflow of $3,802 for the same period
      in 2006. During 2007, the cash flows consisted of $42,630 used to purchase
      equipment and investments in intellectual property and patents of $1,168. This
      compares to, $29,987 net cash received from notes receivables, $11,098 used
      to
      purchase equipment and $15,087 used to invest in intellectual property and
      patents for the comparable period in 2006.





Cash
      flows from financing activities provided the Company $3,039,784 and $3,982,490
      for the six months ended June 30, 2007 and 2006, respectively. This is primarily
      a result of the Company’s continued sales of its common stock and capital
      raising activities to fund operations. The Company raised $1,500,000 and
      $4,000,247 from the sale of stock for the six months ended June 30, 2007 and
      2006, respectively, and received $1,500,000 in advances by a related party.
      This
      amount was offset by payments made on notes payable in the amount of $10,216
      and
      $17,757 in 2007 and 2006, respectively.




20





In
      March
      2007, the Company signed a non-binding Letter of Intent with an unrelated third
      party to explore the possible sale of the Company’s Consumer Products division.





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. In April 2007, we received
      a $1 million advance from Water Science. In May 2007, we entered into an
      agreement to cancel and re-issue certain warrants to Water Science. As part
      of
      the agreement, t he
      Company has a right to require Water Science to exercise one of the warrants
      for
      up to 3,230,769 shares at $1.30 per share; the Company may exercise the put
      right from time to time, but not more often than once per month. We
      have
      no commitments to fund any future capital expenditures. We expect that our
      current assets, along with cash generated from anticipated revenues and funds
      from our put right, will provide us with sufficient funding for the next twelve
      months. However, if we are able to expand our sale of EO machines as
      anticipated, we may need significant additional working capital to fund that
      expansion. In addition ,
      the
      Company continues to experience negative cash flow from operations. If the
      Company is unable to generate positive cash flow, 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.





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.





**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, 2006, 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.




21




**Recent
      Accounting Pronouncements**





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 adopted FIN 48 for the
      first quarter of 2007. The adoption of FIN 48 did not have an impact on our
      results of operations.





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.





**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, 2006 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 *.*




22





**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
      June 30, 2007, 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 not effective at the reasonable
      assurance level.





As
      part
      of its regular evaluation of procedures, management, with the assistance of
      the
      Company’s SEC legal counsel, determined that certain disclosure filings,
      including current reports on Form 8-K, were not made in a timely manner.
      Management is working with its legal counsel to ensure that all filings are
      current and properly filed.





Management
      also determined that certain stock options and warrants granted for services
      may
      not have been properly treated for tax withholding. Management is reviewing
      all
      granted options and warrants with professional tax accountants to resolve this
      matter.





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
      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.





23




**PART
      II - OTHER INFORMATION**





**Item
      1.**  **Legal
      Proceedings**





**None**





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





In
      May
      2007, the Company entered into a termination agreement related to the
      cancellation and reissuance of the existing warrants (“Original Warrants”) to
      purchase a total of 8.4 million shares of $0.0001 par value common stock of
      the
      Company, at a price of $2.76 per share, held by Water Science. The Company
      granted to Water Science replacement warrants to purchase 8.4 million shares
      of
      common stock at a price of $1.30 per share, with an expiration date of May
      9,
      2010. The Company has a right to require Water Science to exercise one of the
      warrants for up to 3,230,769 shares; the Company may exercise the put right
      from
      time to time, but not more often than once per month. The sale of the securities
      was exempt from registration with the Securities and Exchange Commission under
      Section 4(2) of the Securities Act of 1933 (the “Act”) and Rule 506 of
      Regulation D promulgated thereunder, in that Water Science is an accredited
      investor and the placement occurred without general solicitation .





**Item
      3.**  **Defaults
      Upon Senior Securities**





**None**





**Item
      4.**  **Submission
      of matters to Vote of Security Holders**





There
      were no matters submitted to a vote of stockholders during the second quarter
      of
      2007.





**Item
      5. Other Information**





**None**





**Item
      6.**  **Exhibits
      and Reports on Form 8-K**





EXHIBIT
                NO.
            
            DESCRIPTION
                OF EXHIBIT3(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(i).3
            
            Certificate
                of Amendment of Certificate of Incorporation (Incorporated by reference
                from current report on Form 8-K filed with the Securities and Exchange
                Commission on January 17, 2007)3(ii).1
            
            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
            
            John
                M. Hopkins' separation agreement (Incorporated by reference from
                current
                report on Form 8-K filed with the Securities and Exchange Commission
                on
                April 2, 2007)10.2
            
            Agreement
                with Water Science, LLC and Peter Ullrich Terminating Warrants and
                Registration Rights (Incorporated by reference from current report
                on Form
                8-K filed with the Securities and Exchange Commission on May 15,
                2007)




24




10.3
            
            Warrant
                Agreement with Water Science, LLC (Incorporated by reference from
                current report on Form 8-K filed with the Securities and Exchange
                Commission on May 15, 2007)10.4
            
            Warrant
                and Put Agreement with Water Science, LLC (Incorporated by reference
                from current report on Form 8-K filed with the Securities and Exchange
                Commission on May 15, 2007)10.5
            
            Amended
                and Restated Registration Rights Agreement (Incorporated by reference
                from
                current report on Form 8-K filed with the Securities and Exchange
                Commission on May 15, 2007)10.9
            
            License
                agreement between University of Georgia Research Foundation, Inc.
                and
                Electric Aquagenics Unlimited, Inc. dated June 18, 200231.1
            
            Certification
                byWade
                R. Bradleyunder Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
            
            Certification
                byBrian D. Heinholdunder Section 302 of the Sarbanes-Oxley Act of
                2002.32.1
            
            Certification
                ofWade
                R. Bradleypursuant 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.





SIGNATURES





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




Dated:
      August 14, 2007




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


By:
            /s/ Brian D. HeinholdBrian
              D. HeinholdChief
                Financial Officer
              (Principal
                Financial Officer)




25