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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE EXCHANGE ACT

For the transition period from _________ to ________

Commission File No. 333-140595

FRESHWATER TECHNOLOGIES,
INC.(Exact name of registrant as specified in its
charter)

|Nevada                                                               | 98-0508360                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)

30 Denver Crescent, Suite 200, Toronto, Ontario, Canada
M2J 1G8(Address of principal executive offices) (zip code)

(416) 490-0254(Registrants telephone
number, including area code)

Not Applicable(Former name, former
address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has 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 large
accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definitions of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):

|Large accelerated
      filer        [   ]       | Accelerated
      filer                   [  
      ]
|------------------------------------------------ | -----------------------------------------------------
|Non-accelerated
      filer          [ 
       ] | Smaller reporting company [X]                        
|(Do not check if a smaller reporting company)    |                                                      

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

APPLICABLE ONLY TO CORPORATE ISSUERS

As of August 14, 2008, there were 100,800,000 shares of common
stock, par value $0.001, outstanding.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Freshwater Technologies, Inc. (A Development Stage Company)

June 30, 2008



|Balance Sheets                           | F-1
|---------------------------------------- | ---
|                                         |    
|Statements of Operations                 | F-2
|                                         |    
|Statements of Cash Flows                 | F-3
|                                         |    
|Statement of
      Stockholders Deficit | F-4
|                                         |    
|Notes to the Financial
      Statements  | F-5

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Freshwater Technologies, Inc. (A Development Stage Company)
Balance Sheets (expressed in U.S. dollars)

|                                                                                   |  | June 30,    |   |  | December 31, |  
|---------------------------------------------------------------------------------- |  | ----------- | - |  | ------------ | -
|                                                                                   |  | 2008        |   |  | 2007         |  
|                                                                                   |  | $           |   |  | $            |  
|                                                                                   |  | (unaudited) |   |  |              |  
|ASSETS                                                                             |  |             |   |  |              |  
|Current Assets                                                                     |  |             |   |  |              |  
|Cash                                                                               |  | 440         |   |  | 224          |  
|Accounts receivable                                                                |  |            |   |  | 92           |  
|Other receivable                                                                   |  | 1,178       |   |  | 2,362        |  
|Inventory (Note 3)                                                                 |  |            |   |  |             |  
|Total Assets                                                                       |  | 1,618       |   |  | 2,678        |  
|                                                                                   |  |             |   |  |              |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                              |  |             |   |  |              |  
|Current Liabilities                                                                |  |             |   |  |              |  
|Accounts payable                                                                   |  | 27,054      |   |  | 30,308       |  
|Accrued liabilities (Note 4)                                                       |  | 6,778       |   |  | 10,030       |  
|Due to related parties (Note
      5)                                              |  | 631,761     |   |  | 562,181      |  
|Deferred revenue                                                                   |  | 7,037       |   |  | 7,037        |  
|Total Liabilities                                                                  |  | 672,630     |   |  | 609,556      |  
|                                                                                   |  |             |   |  |              |  
|Commitments and Contingencies (Notes 1 and
      8)                                |  |             |   |  |              |  
|Stockholders Deficit                                                              |  |             |   |  |              |  
|Common Stock                                                                       |  |             |   |  |              |  
|Class A common stock                                                               |  |             |   |  |              |  
|Authorized: 300,000,000 common
      shares, with a par value of $0.001            |  |             |   |  |              |  
|100,800,000 shares issued and outstanding                                          |  | 100,800     |   |  | 100,800      |  
|Class B common stock                                                               |  |             |   |  |              |  
|Authorized: 100,000,000 common shares, with a par
      value of $0.001; no shares |  |             |   |  |              |  
|Issued and outstanding                                                             |  |            |   |  |             |  
|Additional Paid-in Capital                                                         |  | 128,211     |   |  | 99,890       |  
|Accumulated Deficit During the Development Stage                                   |  | (900,023    | ) |  | (807,568     | )
|Total
      Stockholders Deficit                                                  |  | (671,012    | ) |  | (606,878     | )
|Total Liabilities and Stockholders Deficit                                        |  | 1,618       |   |  | 2,678        |  

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Freshwater Technologies, Inc. (A Development Stage Company)
Statements of Operations(expressed in U.S. dollars) (unaudited)

|                                                           | Accumulated from    |   | Three Months |   | Three Months |   | Six Months |   | Six Months  |  
|---------------------------------------------------------- | ------------------- | - | ------------ | - | ------------ | - | ---------- | - | ----------- | -
|                                                           | January 21, 2005    |   | Ended        |   | Ended        |   | Ended      |   | Ended       |  
|                                                           | (Date of Inception) |   | June 30,     |   | June 30,     |   | June 30,   |   | June 30,    |  
|                                                           | to June 30, 2008    |   | 2008         |   | 2007         |   | 2008       |   | 2007        |  
|                                                           | $                   |   | $            |   | $            |   | $          |   | $           |  
|                                                           |                     |   |              |   |              |   |            |   |             |  
|                                                           |                     |   |              |   |              |   |            |   |             |  
|Revenue                                                    | 461,599             |   |             |   | 5,855        |   | 1,426      |   | 5,855       |  
|Cost
      of Sales (Note 3)                               | 214,168             |   |             |   | 238          |   | 601        |   | 682         |  
|Gross Profit                                               | 247,431             |   |             |   | 5,617        |   | 825        |   | 5,173       |  
|                                                           |                     |   |              |   |              |   |            |   |             |  
|Expenses                                                   |                     |   |              |   |              |   |            |   |             |  
|Consulting (Note 5(a))                                     | 193,000             |   | 9,000        |   | 9,000        |   | 18,000     |   | 18,000      |  
|General and
      administrative                           | 58,090              |   | 2,895        |   | 1,822        |   | 4,091      |   | 2,965       |  
|Imputed interest (Note 5(b))                               | 94,360              |   | 8,381        |   | 6,797        |   | 16,165     |   | 13,417      |  
|Marketing and
      sales (Note 5(a))                      | 224,020             |   | 11,596       |   | 12,277       |   | 27,509     |   | 27,566      |  
|Professional fees (Note 5(c))                              | 119,367             |   | 6,575        |   | 12,240       |   | 28,395     |   | 31,187      |  
|Provision for uncollectible sales, net of
      recoveries | 415,316             |   |             |   |             |   | (880       | ) |            |  
|                                                           |                     |   |              |   |              |   |            |   |             |  
|Total Expenses                                             | 1,104,153           |   | 38,447       |   | 42,136       |   | 93,280     |   | 93,135      |  
|Net Loss From Operations                                   | (856,722            | ) | (38,447      | ) | (36,519      | ) | (92,455    | ) | (87,962     | )
|Other Income                                               |                     |   |              |   |              |   |            |   |             |  
|Gain on settlement of debt                                 | 2,000               |   |             |   |             |   |           |   |            |  
|Net Loss                                                   | (854,722            | ) | (38,447      | ) | (36,519      | ) | (92,455    | ) | (87,962     | )
|Net
      Loss Per Share  Basic and Diluted               |                     |   |             |   |             |   |           |   |            |  
|                                                           |                     |   |              |   |              |   |            |   |             |  
|Weighted Average Shares Outstanding                        |                     |   | 100,800,000  |   | 100,800,000  |   | 100,800,00 |   | 100,800,000 |  

---

Freshwater Technologies, Inc. (A Development Stage Company)
Statements of Cash Flows (expressed in U.S. dollars) (unaudited)

|                                                    |  | Accumulated        |   |  |            |   |  |            |  
|--------------------------------------------------- |  | ------------------ | - |  | ---------- | - |  | ---------- | -
|                                                    |  | from January 21,   |   |  | Six Months |   |  | Six Months |  
|                                                    |  | 2005 (Date of      |   |  | Ended      |   |  | Ended      |  
|                                                    |  | Inception) to June |   |  | June 30,   |   |  | June 30,   |  
|                                                    |  | 30, 2008           |   |  | 2008       |   |  | 2007       |  
|                                                    |  | $                  |   |  | $          |   |  | $          |  
|                                                    |  |                    |   |  |            |   |  |            |  
|                                                    |  |                    |   |  |            |   |  |            |  
|                                                    |  |                    |   |  |            |   |  |            |  
|Operating Activities                                |  |                    |   |  |            |   |  |            |  
|Net loss for the period                             |  | (900,023           | ) |  | (92,455    | ) |  | (87,962    | )
|Adjustments to reconcile net loss to net
      cash |  |                    |   |  |            |   |  |            |  
|provided by operating activities:                   |  |                    |   |  |            |   |  |            |  
|Donated costs                                       |  | 89,350             |   |  | 12,156     |   |  | 38,422     |  
|Imputed interest                                    |  | 94,360             |   |  | 16,165     |   |  | 13,417     |  
|Forgiveness of debt (Note
      5(e))               |  | 45,301             |   |  |           |   |  |           |  
|Provision for inventory obsolescence                |  | 60,525             |   |  |           |   |  |           |  
|                                                    |  |                    |   |  |            |   |  |            |  
|Changes in operating assets and liabilities:        |  |                    |   |  |            |   |  |            |  
|Accounts receivable                                 |  |                   |   |  | 92         |   |  | 17,140     |  
|Other receivable                                    |  | (1,178             | ) |  | 1,184      |   |  | (20        | )
|Inventory                                           |  | (60,525            | ) |  |           |   |  | (349       | )
|Prepaid expenses                                    |  |                   |   |  |           |   |  |           |  
|Accounts payable and accrued
      liabilities      |  | 33,832             |   |  | (6,506     | ) |  | (6,336     | )
|Deferred revenue                                    |  | 7,037              |   |  |           |   |  |           |  
|Due to related parties                              |  | 319,697            |   |  | 36,000     |   |  | 36,000     |  
|Net Cash Provided by (Used in) Operating            |  |                    |   |  | (33,364    | ) |  |            |  
|Activities                                          |  | (311,624           | ) |  |            |   |  | 10,312     |  
|                                                    |  |                    |   |  |            |   |  |            |  
|Financing Activities                                |  |                    |   |  |            |   |  |            |  
|Advances from related parties                       |  | 446,448            |   |  | 36,580     |   |  | 10,919     |  
|Repayments to related parties                       |  | (134,384           | ) |  | (3,000     | ) |  | (23,900    | )
|Net Cash Provided by (Used in) Financing            |  |                    |   |  | 33,580     |   |  | (12,981    | )
|Activities                                          |  | 312,064            |   |  |            |   |  |            |  
|Increase (Decrease) in Cash                         |  | 440                |   |  | 216        |   |  | (2,669     | )
|Cash  Beginning of Period                          |  |                   |   |  | 224        |   |  | 4,317      |  
|Cash  End of
      Period                          |  | 440                |   |  | 440        |   |  | 1,648      |  
|                                                    |  |                    |   |  |            |   |  |            |  
|Non-cash Investing and Financing Activities:        |  |                    |   |  |            |   |  |            |  
|Issuance of 80,000,000 shares
      of common stock |  |                    |   |  |            |   |  |            |  
|for
      the acquisition of HMI Technologies Inc.  |  | (45,301            | ) |  |           |   |  |           |  
|                                                    |  |                    |   |  |            |   |  |            |  
|Supplemental Disclosures                            |  |                    |   |  |            |   |  |            |  
|                                                    |  |                    |   |  |            |   |  |            |  
|Interest paid                                       |  |                   |   |  |           |   |  |           |  
|Income tax paid                                     |  |                   |   |  |           |   |  |           |  

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Freshwater Technologies Inc. (A Development Stage Company)
Statement of Stockholders Deficit From January 21, 2005 (Date of
Inception) to March 31, 2008 (expressed in U.S. dollars) (unaudited)

AdditionalCommon Stock
      
      
      Paid-In
      
      
      AccumulatedShares
      
      
      Par Value
      
      
      Capital
      
      
      Deficit
      
      
      Total#
      
      
      $
      
      
      $
      
      
      $
      
      
      $Balance  January 21, 2005 (Date of
        Inception)
      
      
      
      
      
      
      
      
      
      
      
      
      
      Shares issued to owners of Freshwater (Note 6)
      
      80,000,000
      
      
      80,000
      
      
      (80,000
      )
      
      
      
      
      Donated interest on related party loans
      
      
      
      
      
      
      
      17,302
      
      
      
      
      
      17,302Net loss for the
        period
      
      
      
      
      
      
      
      
      
      
      (335,337
      )
      
      (335,337
      )Balance  December 31, 2005
      
      80,000,000
      
      
      80,000
      
      
      (62,698
      )
      
      (335,337
      )
      
      (318,035
      )Recapitalization Transactions (Note 7)Shares of HMI Technologies,
        Inc.
      
      20,800,000
      
      
      20,800
      
      
      (20,800
      )
      
      
      
      
      Net liabilities assumed in recapitalization
        (Note 7)
      
      
      
      
      
      
      
      
      
      
      (45,301
      )
      
      (45,301
      )Donated interest on shareholders loans
        (Note 5(b))
      
      
      
      
      
      
      
      32,662
      
      
      
      
      
      32,662Prospectus costs donated by shareholder (Note 5(c))
      
      
      
      
      
      
      
      29,685
      
      
      
      
      
      29,685Net loss for the year
      
      
      
      
      
      
      
      
      
      
      (200,939
      )
      
      (200,939
      )Balance  December 31, 2006
      
      100,800,000
      
      
      100,800
      
      
      (21,151
      )
      
      (581,577
      )
      
      (501,928
      )Donated interest on shareholders loans
        (Note 5(b))
      
      
      
      
      
      
      
      28,231
      
      
      
      
      
      28,231Forgiveness of debt
      
      
      
      
      
      
      
      45,301
      
      
      
      
      
      45,301Prospectus costs donated by shareholder (Note
        5(c))
      
      
      
      
      
      
      
      47,509
      
      
      
      
      
      47,509Net loss for the
        year
      
      
      
      
      
      
      
      
      
      
      (225,991
      )
      
      (225,991
      )Balance  December 31, 2007
      
      100,800,000
      
      
      100,800
      
      
      99,890
      
      
      (807,568
      )
      
      (606,878
      )Donated interest on shareholders loans(Note5(b))
      
      
      
      
      
      
      
      16,165
      
      
      
      
      
      16,165Prospectus costs donated by shareholder(Note 5c)
      
      
      
      
      
      
      
      12,156
      
      
      
      
      
      12,156Net loss for the period
      
      
      
      
      
      
      
      
      
      
      (92,455
      )
      
      (92,455
      )Balance-June 30,
        2008
      
      100,800,000
      
      
      100,800
      
      
      128,211
      
      
      (900,023
      )
      
      (671,012
      )


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- 9 -

Freshwater Technologies, Inc. (A Development Stage Company)
Statements of Cash Flows (expressed in U.S. dollars) (unaudited)

NOTES TO FINANCIAL STATEMENTS

|1. | Development Stage Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | On January 1, 2006, Freshwater Technologies
        Inc. (formerly HMI Technologies Inc.) (HMI) entered into an
        Asset Acquisition Agreement to acquire the business of Freshwater Technologies
        (Freshwater). HMI was incorporated in the State of Nevada,
        U.S.A. on December 10, 1999. Its principal business now involves the distribution
        and marketing of drinking water products and water activation products.
        HMI is a Development Stage Company, as defined by Statement of Financial
        Accounting Standard (SFAS) No.7, Accounting and Reporting
        by Development Stage Enterprises. Effective January 1, 2006,
        the acquisition of the Freshwater business was completed through the issuance
        of 80,000,000 split-adjusted restricted shares of common stock, and as
        a result, the former owners of the Freshwater business own approximately
        79% of the outstanding common stock of HMI.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Prior to the acquisition of Freshwater, HMI
        was a non-operating shell company with nominal net assets. The acquisition
        is a capital transaction in substance and therefore has been accounted
        for as a recapitalization, which is outside the scope of SFAS 141, Business
        Combinations. Under recapitalization accounting, Freshwater
        is considered the acquirer for accounting and financial reporting purposes,
        and acquired the assets and assumed the liabilities of HMI. Assets acquired
        and liabilities assumed are reported at their historical amounts. These
        financial statements include the accounts of HMI since the effective date
        of the recapitalization (January 1, 2006) and the historical accounts
        of the business of Freshwater since inception (collectively, the Company).
        Refer to Note 7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | These financial statements have been prepared
        on a going concern basis, which implies that the Company will continue
        to realize its assets and discharge its liabilities in the normal course
        of business. The Company has generated limited revenues to date and has
        never paid any dividends and is unlikely to pay dividends or generate
        significant earnings in the immediate or foreseeable future. In order
        to fund the proposed plan of operation, the Company will require an additional
        $1,000,000 to $1,400,000 in funding through the next twelve month period.
        As at June 30, 2008, the Company had an accumulated deficit of $900,023
        and a working capital deficit of $671,012. The continuation of the Company
        as a going concern is dependent upon the continued financial support from
        its shareholders, the ability to raise equity or debt financing, and the
        attainment of profitable operations from the business. These factors raise
        substantial doubt regarding the Companys ability to continue as
        a going concern. These financial statements do not include any adjustments
        to the recoverability and classification of recorded asset amounts and
        classification of liabilities that might be necessary should the Company
        be unable to continue as a going concern.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company received the Notice of Effectiveness
        for its S-1 Registration Statement from the United States Securities and
        Exchange Commission dated July 1, 2008. The S-1 Registration Statement
        registered 20,400,000 shares of common stock for resale by existing shareholders
        of the Company at $0.50 per share until the shares are quoted on the OTC
        Bulletin Board, and thereafter at prevailing market prices. The Company
        will not receive any proceeds from the resale of shares of common stock
        by the selling stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2. | Summary of Significant Accounting
        Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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- 10 -

Freshwater Technologies, Inc. (A Development Stage Company)
Statements of Cash Flows (expressed in U.S. dollars) (unaudited)

|2. | Summary of Significant Accounting Policies
    (continued)
|-- | ----------------------------------------------------------
|   |                                                           
|   | c)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   | d)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   | e)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   | f)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   | g)                                                        
|   |                                                           
|   |                                                           

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- 11 -

Freshwater Technologies, Inc. (A Development Stage Company)
Statements of Cash Flows (expressed in U.S. dollars) (unaudited)

|2. | Summary of Significant Accounting Policies
    (continued)
|-- | ----------------------------------------------------------
|   |                                                           
|   | h)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   | i)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   | i)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   | k)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   | l)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   | m)                                                        
|   |                                                           
|   |                                                           

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- 12 -

Freshwater Technologies, Inc. (A Development Stage Company)
Statements of Cash Flows (expressed in U.S. dollars) (unaudited)

|2. | Summary of Significant Accounting Policies
    (continued)
|-- | ----------------------------------------------------------
|   |                                                           
|   | m)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   |                                                           
|   |                                                           
|   |                                                           
|   |                                                           
|   | n)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   |                                                           

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- 13 -

Freshwater Technologies, Inc. (A Development Stage Company)
Statements of Cash Flows (expressed in U.S. dollars) (unaudited)

|2. | Summary of Significant Accounting Policies
    (continued)
|-- | ----------------------------------------------------------
|   |                                                           
|   | n)                                                        
|   |                                                           
|   |                                                           
|   |                                                           
|   |                                                           
|   |                                                           
|3. | Inventory                                                 

| |                                      |  |               |   |  | December 31, |  
| | ------------------------------------ |  | ------------- | - |  | ------------ | -
| |                                      |  | June 30, 2008 |   |  | 2007         |  
| |                                      |  | $             |   |  | $            |  
| | Finished Goods:                      |  |               |   |  |              |  
| | S-1 Units                            |  | 42,336        |   |  | 42,336       |  
| | S-2 Units                            |  | 13,230        |   |  | 13,230       |  
| | S-3 Units                            |  | 4,680         |   |  | 4,680        |  
| | Filters-Sediment                     |  | 279           |   |  | 279          |  
| |                                      |  | 60,525        |   |  | 60,525       |  
| | Provision for inventory obsolescence |  | (60,525       | ) |  | (60,525      | )
| |                                      |  |              |   |  |             |  

|   | At December 31, 2007, inventory consisted of water
      activation products and water filters held for sale and have been fully
      impaired to reflect the fact that there has been no movement in water
      activation products and water filters during the year ended December 31,
      2007 and there is uncertainty as to whether the products can be resold in
      the future. For the year ended December 31, 2007, the Company recorded a
      provision for inventory obsolescence of $60,525 (2006 - $nil) which has
      been recorded as cost of sales.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4. | Accrued Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Accrued liabilities of $6,778 (December 31, 2007 -
      $10,030) is comprised of professional fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|5. | Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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- 14 -

Freshwater Technologies, Inc. (A Development Stage Company)
Statements of Cash Flows (expressed in U.S. dollars) (unaudited)

|5. | Related Party Transactions (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|6. | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|7. | Recapitalization Transaction                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | On January 1, 2006, Freshwater Technologies Inc.
      (formerly HMI Technologies Inc.) (HMI) entered into an Asset Acquisition
      Agreement to acquire the business of Freshwater Technologies
      (Freshwater) which involves the distribution and marketing of drinking
      water products and water activation products. Effective January 1, 2006,
      the acquisition of the Freshwater business was completed through the
      issuance of 80,000,000 split-adjusted restricted shares of common stock,
      and as a result, the former owners of the Freshwater business own
      approximately 79% of the outstanding common stock of HMI.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Prior to the acquisition of Freshwater, HMI was a
      non-operating shell company with nominal net assets. The acquisition is a
      capital transaction in substance and therefore has been accounted for as a
      recapitalization, which is outside the scope of SFAS 141, Business
      Combinations. The acquisition has been accounted for as a
      continuation of the Freshwater Technologies business in accordance with
      EITF 98-3 Determining Whether a Nonmonetary Transaction Involves Receipt
      of Productive Assets or of a Business. Under recapitalization accounting,
      Freshwater is considered the acquirer for accounting and financial
      reporting purposes, and acquired the assets and assumed the liabilities of
      HMI. Assets acquired and liabilities assumed are reported at their
      historical amounts. These financial statements include the accounts of HMI
      since the effective date of the recapitalization (January 1, 2006) and the
      historical accounts of the business of Freshwater since inception
      (collectively, the Company).

$Advances from related parties
    (45,301)Net liabilities
      assumed
    (45,301)


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- 15 -

Freshwater Technologies, Inc. (A Development Stage Company)
Statements of Cash Flows (expressed in U.S. dollars) (unaudited)

|8. | Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|9. | Economic Dependence                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Company relies solely upon R-Can Environmental Inc.
      (R-Can), as the sole supplier of their drinking water products, and ELCE
      International Inc. (ELCE), as the sole supplier of their water
      activation products. The Companys two suppliers supplied the Company with
      100% of the products that the Company offered and sold during the year
      ended December 31, 2007 and the period ended June 30, 2008. Both R-Can and
      ELCE are the sole manufacturers and primary developers of the respective
      technologies in such products. As a result, the Company could be adversely
      affected by changes in the cost of the suppliers products, the financial
      condition of the suppliers or by the deterioration or termination of its
      relationship with the suppliers.

---

- 16 -

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

Forward Looking Statements

This quarterly report contains forward-looking statements.
Forward-looking statements are projections of events, revenues, income, future
economic performance or managements plans and objectives for our future
operations. In some cases, you can identify forward-looking statements by
terminology such as may, should, expects, plans, anticipates,
believes, estimates, predicts, potential or continue or the negative
of these terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in the section entitled Risk Factors and the
risks set out below, any of which may cause our or our industrys actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.

While these forward-looking statements, and any assumptions
upon which they are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results will almost
always vary, sometimes materially, from any estimates, predictions, projections,
assumptions or other future performance suggested herein. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.

Our financial statements are stated in United States dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles.

In this quarterly report, unless otherwise specified, all
dollar amounts are expressed in United States dollars and all references to
common stock refer to the common shares in our capital stock.

As used in this quarterly report, the terms we, us, our,
and Freshwater mean Freshwater Technologies, Inc., unless otherwise indicated.

Corporate History

We were incorporated in the State of Nevada on December 10,
1999 under the name HMI Technologies Inc. Following incorporation until January
1, 2006, we sought out prospective businesses with which to enter into a merger
or business combination. On January 1, 2006, we entered into and closed an asset
sale agreement with Max Weissengruber and D. Brian Robertson, whereby we
acquired all of the assets related to the business as operated by Mr.
Weissengruber and Mr. Robertson under the name Freshwater Technologies in
consideration for the issuance of 40,000,000 common shares to each individual.
Following the closing of the asset sale agreement, we commenced the business of
distributing and selling drinking water products and water activation products.
On July 5, 2006, we changed our name from HMI Technologies Inc. to Freshwater
Technologies, Inc. to better reflect our new business direction. Following the
closing of the asset sale agreement, we appointed Mr. Weissengruber as our
President and director and Mr. B. Robertson as our Chief Financial Officer and
director.

Current Business

We are a distributor of water purification products to local
distributors and retailers for household and commercial applications. We
currently offer two product lines consisting of drinking water products and
water activation products. The drinking water products are Sterilight branded
ultraviolet products that are supplied to our company by R-Can Environmental
Inc., a leading international manufacturer based out of Guelph, Ontario, Canada.
Sterilight branded R-Can ultraviolet water treatment systems incorporate
ultraviolet light energy to eradicate microbiological contaminants in drinking
water. Traditional disinfection methods like chlorination react with natural
organic matter producing objectionable taste and odor and also form substances
with known carcinogenic properties such as trihalomethane. Ultraviolet imparts
no residual chemicals into the water. This process makes the treated water safe
for human consumption. The Sterilight ultraviolet lamp emits powerful
ultraviolet light energy. Genetic or hereditary components contained in the
water borne contaminants absorb the light energy. The energy of the ultra-
violet lamps disrupts the DNA structure of contaminants and prevents their
reproduction. It is the disruption of

---

- 17 -

reproduction by ultraviolet treatment that renders the drinking
water safe for human consumption. Sterilight lamps provide consistent
ultraviolet output over the 9,000 hour life of the lamp and uniform temperature
distribution that can provide the desired levels of decontamination.

Our water activation products are designed to improve the
operating efficiency of commercial and industrial boilers and refrigeration
systems without the use of chemicals. Our water activation products are supplied
to our company by ELCE International Inc. of Switzerland and manufactured by
Nihon Jisui Co. Ltd., a Japanese company. We have formalized our relationship
with R-Can Environmental Inc. and ELCE International Inc. pursuant to
non-exclusive distribution agreements. We also offer a full line of accessories,
replacement parts and services that complement our drinking water systems. We
have local distributors in Costa Rica, Panama and Peru who collectively have 19
ELCE water activation units and 3 ultraviolet drinking water systems installed
in various locales. All units have been installed over the last three years and
are functioning well.

We will only purchase limited quantities of replacement filters
and lamps for our water purification products for inventory as our distributors
will be inventorying the majority of replacement parts. We will purchase all
other finished product from our two supplier-manufacturers in quantities
sufficient to satisfy product orders of our customers.

General

The following is a discussion and analysis of our results of
operation for the three and six month periods ended June 30, 2008, and the
factors that could affect our future financial condition. This discussion and
analysis should be read in conjunction with our consolidated unaudited financial
statements and the notes thereto included elsewhere in this quarterly report.
Our consolidated financial statements are prepared in accordance with United
States generally accepted accounting principles. All references to dollar
amounts in this section are in United States dollars unless expressly stated
otherwise.

RESULTS OF OPERATIONS

Three and Six Month Summary

|         |   | Three Months Ended |  |   | Six Months Ended | 
|-------- | - | ------------------ |  | - | ---------------- | 
|         |   | June 30,           |  |   | June 30,         | 
|         |   | 2008               |  |   | 2007             | 
|Revenue  | $ | -                  |  | $ | 5,855            | 
|Expenses |   | 38,447             |  |   | 42,136           | 
|Net Loss | $ | 38,447             |  | $ | 36,519           | 

Revenue

We generated revenues of $nil for the three month period ended
June 30, 2008, compared to revenues of $5,855 for the three month period ended
June 30, 2007. The cost of sales on the orders for the three month period ended
June 30, 2008 was $nil, compared to cost of sales on the orders for the three
month period ended June 30, 2007 of $238.

We generated $1,426 in revenues for the six month period ended
June 30, 2008, compared to revenues of $5,855 for the six month period ended
June 30, 2007. The cost of sales on the orders for the six month period ended
June 30, 2008 was $601, compared to cost of sales on the orders for the six
month period ended June 30, 2007 of $682.

This revenue was generated from sales of both our drinking
water products and water activation products with the majority or 98% of the
sales consisting of ELCE International Inc. water activation units in Peru,
Panama and Costa Rica.

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- 18 -

Operating Costs and Expenses

The major components of our expenses for the three and six
month periods ended June 30, 2008 are outlined in the table below:

|                                   |   | Three Months Ended |  |   | Six Months Ended | 
|---------------------------------- | - | ------------------ |  | - | ---------------- | 
|                                   |   | June 30            |  |   | June 30          | 
|                                   |   | 2008               |  |   | 2007             | 
|Consulting Fees                    | $ | 9,000              |  | $ | 9,000            | 
|General and Administrative         |   | 2,895              |  |   | 1,822            | 
|Imputed Interest                   |   | 8,381              |  |   | 6,797            | 
|Marketing and Sales                |   | 11,596             |  |   | 12,277           | 
|Professional Fees                  |   | 6,575              |  |   | 12,240           | 
|Provision for uncollectible sales, |   |                    |  |   |                  | 
|net of recoveries                  |   | -                  |  |   | -                | 
|Total Expenses                     | $ | 38,447             |  | $ | 42,136           | 

During the three months ended June 30, 2008, our operating
expenses totalled $38,447 as compared to $42,136 during the three months ended
June 30, 2007. Professional fees including costs of our prospectus filed with
the Securities and Exchange Commission on July 8, 2008 amounted to $6,575 for
the three months ended June 30, 2008 as compared to $12,240 for the three months
ended June 30, 2007. Marketing and sales expenses and consultants costs were
$20,596 during the three months ended June 30, 2008 as compared to $21,277
during the three months ended June 30, 2007. General and administrative expenses
were $2,895 during the three months ended June 30, 2008 as compared to $1,822
during the three months ended June 30, 2007. Imputed interest on directors
loans was $8,381 for the three months ended June 30, 2008 as compared to $6,797
for the three months ended June 30, 2007 due to an increase in amounts owing to
related parties.

During the six months ended June 30, 2008, our operating
expenses totalled $93,280 as compared to $93,135 during the six months ended
June 30, 2007. Professional fees including costs of the prospectus amounted to
$28,395 for the six months ended June 30, 2008 as compared to $31,187 for the
six months ended June 30, 2007. Marketing and sales expenses and consultants
costs were $45,509 during the six months ended June 30, 2008 as compared to
$45,566 during the six months ended June 30, 2007. General and administrative
expenses were $4,091 during the six months ended June 30, 2008 as compared to
$2,965 during the six months ended June 30, 2007. Imputed interest on directors
loans was $16,165 for the six months ended June 30, 2008 as compared to $13,417
for the six months ended June 30, 2007 due to an increase in amounts owing to
related parties. During the six months ended June 30, 2008 we recovered $880 of
uncollectable sales previously written off as compared to $nil during the six
months ended June 30, 2007.

Liquidity and Capital Resources

Working Capital

June 30, 2008
    
    December 31, 2007Current Assets
    $
    1,618
    $
    2,678Current Liabilities
    
    672,630
    
    609,556Working Capital Deficiency
    $
    (671,012)
    $
    (606,878)


Cash Flows

Six Months Ended June 30,
      2008
    
    Six Months Ended June 30,
      2007Cash
      provided (used) in Operating Activities
    $
    (33,364)
    $
    10,312Cash
      used by Investing Activities
    
    -
    
    -Cash
      provided (used) by Financing Activities
    
    33,580
    
    (12,981)Net
      Increase (Decrease) in Cash
    $
    216
    $
    (2,669)


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- 19 -

We had cash on hand of $440 and negative working capital of
$671,012 as of June 30, 2008 compared to cash on hand of $224 and negative
working capital of $606,878 for the year ended December 31, 2007. We anticipate
that we will require approximately $1,000,000 to $1,400,000 for operating
expenses, including professional, legal and accounting expenses associated with
our reporting requirements under the Exchange Act during the next twelve months.
Accordingly, we will need to obtain additional financing in order to complete
our full business plan.

Operating Activities

Operating activities used cash of $33,364 for the six months
ended June 30, 2008 and provided $10,312 in cash for the six months ended June
30, 2007.

Financing Activities

Net cash provided by financing activities was $33,580 for the
six months ended June 30, 2008 and net cash used in financing activities was
$12,981 for the six months ended June 30, 2007. These financing activities were
provided by two directors of our company.

Going Concern

Due to the uncertainty of our ability to meet our current
operating and capital expenses, in their report on our audited annual financial
statements for the year ended December 31, 2007, our independent auditors
included an explanatory paragraph regarding concerns about our ability to
continue as a going concern. Our financial statements contain additional note
disclosures describing the circumstances that led to this disclosure by our
independent auditors. There is substantial doubt about our ability to continue
as a going concern as the continuation and expansion of our business is
dependent upon obtaining further financing, successful and sufficient market
acceptance of our products, and, finally, achieving a profitable level of
operations. The issuance of additional equity securities by us could result in a
significant dilution in the equity interests of our current stockholders.
Obtaining commercial loans, assuming those loans would be available, will
increase our liabilities and future cash commitments.

Future Financings

Fundraising will be one of our primary objectives over the next
twelve months. The financial requirements of our company for the next twelve
months will depend on our ability to raise the money we require through credit
facilities and additional private placements of our equity securities to our
directors and shareholders or new shareholders. The issuance of additional
equity securities by us may result in a significant dilution in the equity
interests of our current shareholders. Even though our company has determined
that we may not have sufficient working capital for the next twelve month
period, our company has not yet pursued such financing options.

There is no assurance that we will be able to obtain further
funds required for our continued operations or that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will not be able to meet our other obligations
as they become due and we will be forced to scale down or perhaps even cease our
operations. We do not currently have any plans to merge with another company,
and we have not entered into any agreements or understandings for any such
merger.

We anticipate that our cash on hand and the revenue that we
anticipate generating going forward from our operations will not be sufficient
to satisfy all of our cash requirements for the next twelve month period. We
expect to require from $1,000,000 to $1,400,000. We intend to raise any such
additional capital primarily through the private placement of our securities and
further borrowings from our directors if this type of funding continues to be
available. We also intend to continue to seek additional funds from our
directors to fund our day to day operations until a private placement can be
pursued but we have no guarantee that our directors will continue to fund our
day to day operations.

Estimated Working Capital Expenditures During the Next
Twelve Month Period

We estimate our future expenditures for the next twelve months
as follows:

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- 20 -

| | Operating expenditures           |   |                         | 
| | -------------------------------- | - | ----------------------- | 
| | Marketing                        | $ | 300,000 - $ 450,000     | 
| | General and Administrative       | $ | 50,000 - $
      75,000 | 
| | Legal and Accounting 3           | $ | 50,000 - $ 75,000       | 
| | Working capital                  | $ | 400,000 - $ 500,000     | 
| | Repayment of Directors Advances | $ | 200,000 - $ 300,000     | 
| | Total                            | $ | 1,000,000 - $1,400,000  | 

Off-Balance Sheet Arrangements

We have no significant 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 are
material to stockholders.

Application of Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Our company regularly evaluates estimates and assumptions
related to provision for uncollectible sales, provision for inventory
obsolescence, donated expenses, stock-based compensation expense, and deferred
income tax asset valuation allowances. We base our estimates and assumptions on
current facts, historical experience and various other factors that 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 and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by our company may differ materially and
adversely from our companys estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected.

Cash and Cash Equivalents

Our company considers all highly liquid instruments with
maturity of three months or less at the time of issuance to be cash equivalents.
As at June 30, 2008, we had no cash equivalents.

Inventory

Inventory consists of water activation products and water
filters and is recorded at the lower of cost and net realizable value on a
first-in, first-out basis. Our company establishes inventory reserves for
estimated obsolete or unmarketable inventory equal to the differences between
the cost of inventory and the estimated realizable value based upon assumptions
about future and market conditions. Shipping and handling costs are classified
as a component of cost of sales in the statement of operations.

Revenue Recognition

We recognize revenue from the sale of drinking water products
and water activation products in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104 (SAB 104), Revenue
Recognition in Financial Statements.The majority of the sales consist of
water activation units in Costa Rica, Panama and Peru. Revenue consists of the
sale of drinking water products and water activation products and is recognized
only when the price is fixed or determinable, persuasive evidence of an
arrangement exists, the product is shipped, and collectability is reasonably
assured. Our shipping terms are FOB shipping point. For UV products, the
customer pays all costs from the point of shipment, and for ELCE products, the
customer pays all costs from arrival point in the country to which the ELCE
products are shipped. Our company evaluates the collectability of accounts
receivable based on a combination of factors. In cases where we are aware of
circumstances that may impair a specific customers ability to meet our
financial obligations subsequent to the original sale, we will record an
allowance against amounts due, and thereby reduce the net recognized receivable
to the amount our company

---

- 21 -

reasonably believes will be collected. For all other customers,
our company recognizes allowances for doubtful accounts based on the length of
time the receivables are past due, the current business environment and our
companys historical experience.

Basic and Diluted Net Income (Loss) Per Share

We compute net income (loss) per share in accordance with SFAS
No. 128, Earnings per Share. SFAS No. 128 requires presentation of both
basic and diluted earnings per share (EPS) on the face of the income statement.
Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period using the treasury stock
method and convertible preferred stock using the if-converted method. In
computing Diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential shares if
their effect is anti dilutive.

Comprehensive Loss

SFAS No. 130, Reporting Comprehensive Income,
establishes standards for the reporting and display of comprehensive loss and
its components in the financial statements. As at June 30, 2008, we have no
items that represent comprehensive loss and, therefore, has not included a
schedule of comprehensive loss in the financial statements.

Financial Instruments

The fair value of financial instruments which include cash,
taxes recoverable, accounts receivable, inventory, accounts payable, accrued
liabilities, deferred revenue, and due to related parties were estimated to
approximate their carrying value due to the immediate or relatively short
maturity of these instruments.

Foreign Currency Translation

Our companys functional and reporting currency is the United
States dollar. Monetary assets and liabilities denominated in foreign currencies
are translated in accordance with SFAS No. 52 Foreign Currency
Translation using the exchange rate prevailing at the balance sheet date.
Gains and losses arising on translation or settlement of foreign currency
denominated transactions or balances are included in the determination of
income. Foreign currency transactions are primarily undertaken in Canadian
dollars. Our company has not, to the date of these financial statements, entered
into derivative instruments to offset the impact of foreign currency
fluctuations.

Income Taxes

Potential benefits of income tax losses are not recognized in
the accounts until realization is more likely than not. Our company has adopted
SFAS No. 109 Accounting for Income Taxes as of its inception. Pursuant
to SFAS No. 109 our company is required to compute tax asset benefits for net
operating losses carried forward. The potential benefits of net operating losses
have not been recognized in these financial statements because we cannot be
assured it is more likely than not it will utilize the net operating losses
carried forward in future years.

Stock-based Compensation

Effective January 1, 2006, our company adopted the fair value
  recognition provisions of SFAS No. 123R Share Based Payments,
  using the modified retrospective transition method. We have not issued any stock
  options or share based payments since its inception. Accordingly, there was
  no effect on our companys reported loss from operations, cash flows or
  loss per share as a result of adopting SFAS No 123R.

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Recent Accounting Pronouncements

In May 2008, the Financial Accounting Standards Board
      (FASB) issued SFAS No. 163, Accounting for Financial Guarantee
      Insurance Contracts  An interpretation of FASB Statement No. 60.
      SFAS No. 163 requires that an insurance enterprise recognize a claim
      liability prior to an event of default when there is evidence that credit
      deterioration has occurred in an insured financial obligation. It also
      clarifies how Statement 60 applies to financial guarantee insurance
      contracts, including the recognition and measurement to be used to account
      for premium revenue and claim liabilities, and requires expanded
      disclosures about financial guarantee insurance contracts. It is effective
      for financial statements issued for fiscal years beginning after December
      15, 2008, except for some disclosures about the insurance enterprises
      risk- management activities. SFAS No. 163 requires that disclosures about
      the risk-management activities of the insurance enterprise be effective
      for the first period beginning after issuance. Except for those
      disclosures, earlier application is not permitted. The adoption of this
      statement is not expected to have a material effect on the Companys
financial statements.

In May 2008, the FASB issued SFAS No. 162, The
      Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162
      identifies the sources of accounting principles and the framework for
      selecting the principles to be used in the preparation of financial
      statements of nongovernmental entities that are presented in conformity
      with generally accepted accounting principles in the United States. It is
      effective 60 days following the SECs approval of the Public Company
      Accounting Oversight Board amendments to AU Section 411, The Meaning
      of Present Fairly in Conformity With Generally Accepted Accounting
      Principles. The adoption of this statement is not expected to have a
material effect on the Companys financial statements.

In March 2008, the Financial Accounting Standards Board
  (FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and
    Hedging Activities  an amendment to FASB Statement No. 133. SFAS No. 161
  is intended to improve financial standards for derivative
  instruments and hedging activities by requiring enhanced disclosures to enable
  investors to better understand their effects on an entitys financial position,
  financial performance, and cash flows. Entities are required to provide enhanced
  disclosures about: (a) how and why an entity uses derivative instruments; (b)
  how derivative instruments and related hedged items are accounted for under
  Statement 133 and its related interpretations; and (c) how derivative
  instruments and related hedged items affect an entitys financial position,
  financial performance, and cash flows. It is effective for financial statements
  issued for fiscal years beginning after November 15, 2008, with early adoption
  encouraged. Our company is currently evaluating the impact of SFAS No. 161 on
  our financial statements.

In December 2007, the FASB issued SFAS No. 160
Noncontrolling Interests in Consolidated Financial Statements-an amendment
of ARB No.51SFAS No. 160 requires consolidated net income to be reported
at amounts that include the amounts attributable to both the parent and the
noncontrolling interest. It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the non controlling interest. SFAS No. 160
also requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated. SAFAS No. 160 also requires expanded disclosures
in the consolidated financial statements that clearly identify and distinguish
between the interests of the parents owners and the interests of the
noncontrolling owners of a subsidiary. SFAS No. 160 is effective for financial
statements issued for fiscal years beginning after December 15, 2008. Our
company is currently evaluating the impact of SFAS No. 160 on our financial
statements, and the adoption of this statement is not expected to have a
material effect on our companys financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial LiabilitiesIncluding an
Amendment of FASB Statement No. 115.This pronouncement permits entities to
use the fair value method to measure certain financial assets and liabilities by
electing an irrevocable option to use the fair value method at specified
election dates. After election of the option, subsequent changes in fair value
would result in the recognition of unrealized gains or losses as period costs
during the period the change occurred. SFAS No. 159 becomes effective as of the
beginning of the first fiscal year that begins after November 15, 2007, with
early adoption permitted. However, entities may not retroactively apply the
provisions of SFAS No. 159 to fiscal years preceding the date of adoption. Our
company is currently evaluating the impact that SFAS No. 159 may have on the
financial position, results of operations and cash flows of our company.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. The objective of SFAS No. 157 is to increase consistency and
comparability in fair value measurements and to expand disclosures about fair
value measurements. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS No. 157 applies under other
accounting pronouncements that require or permit fair value measurements and
does not require any new fair value measurements. The provisions of SFAS No. 157
are effective for fair value measurements made in fiscal years beginning after
November 15, 2007. The adoption of this statement is not expected to have a
material effect on our companys future reported financial position or results
of operations.

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- 23 -

In September 2006, the SEC issued Staff Accounting Bulletin
(SAB) No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements. SAB No. 108
addresses how the effects of prior year uncorrected misstatements should be
considered when quantifying misstatements in current year financial statements.
SAB No. 108 requires companies to quantify misstatements using a balance sheet
and income statement approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant quantitative and
qualitative factors. SAB No. 108 is effective for periods ending after November
15, 2006. The adoption of SAB No. 108 did not have a material effect on our
companys financial statements.

In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87,
88, 106, and 132(R). This statement requires employers to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets of a not-for-profit organization. This
statement also requires an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited exceptions. The provisions of
SFAS No. 158 are effective for employers with publicly traded equity securities
as of the end of the fiscal year ending after December 15, 2006. The adoption of
this statement did not have a material effect on our companys reported
financial position or results of operations.

Risks And Uncertainties

Much of the information included in this quarterly report
includes or is based upon estimates, projections or other forward looking
statements. Such forward looking statements include any projections and
estimates made by us and our management in connection with our business
operations. While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions
or other future performance suggested herein.

Such estimates, projections or other forward looking
statements involve various risks and uncertainties as outlined below. We
caution the reader that important factors in some cases have affected and, in
the future, could materially affect actual results and cause actual results to
differ materially from the results expressed in any such estimates, projections
or other forward looking statements.

Risks Related to Our Business

We have had minimal revenues from operations and if we are
not able to obtain further financing we may be forced to scale back or cease
operations or our business operations may fail.

To date, we have not generated significant income from our
operations and we have been dependent on sales of our equity securities and
advances from directors to meet the majority of our cash requirements. From the
date of inception on January 21, 2005 to June 30, 2008, we have generated
$461,599 in revenue from the sale of our products. As at June 30, 2008, we had
cash of $440 and negative working capital of $671,012. We expect to generate a
moderate positive cash flow from operations in the next twelve month period. We
estimate that we will require between $1,000,000 and $1,400,000 to carry out our
business plan for the next twelve month period. We will, in all likelihood,
continue to incur operating expenses without significant revenues until our
products gain significant popularity. Since we are still in the early stages of
operating our company and because of the lack of operating history, our
independent auditors report and Note 1 to the financial statements for the year
ended December 31, 2007 state that these factors raise substantial doubt
regarding our companys ability to continue as a going concern. Because we
cannot anticipate when we will be able to generate significant revenues from
sales, we will need to raise additional funds to develop our business plan,
respond to competitive pressures, sign distribution agreements with distributors
and respond to unanticipated requirements or expenses. If we are not able to
generate significant revenues from the sale of our products, we will not be able
to maintain our operations or achieve a profitable level of operations.

We will not be able to expand our operations beyond current
levels without generating significant revenues from our current operations or
obtaining further financing. We cannot assure that we will be able to generate
enough interest in our products to ever become profitable. If we are unable to
establish and generate material revenues, or obtain adequate future financing,
our business will fail and you may lose some or all of your investment in our
common stock.

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- 24 -

We have only commenced our business operations on January 1,
2006 and we have a limited operating history. If we cannot successfully manage
the risks normally faced by start-up companies, we may not achieve profitable
operations and ultimately our business may fail.

We have a limited operating history. From the date of inception
on January 21, 2005 to the closing of the asset purchase agreement on January 1,
2006, our business operations consisted primarily seeking out prospective
entities with which to enter into a merger or business combination. Since
January 1, 2006, we have concentrated on our new business of selling drinking
water products and water activation products to distributors for resale in our
target markets of South America, Central America and the Caribbean. Our
prospects are subject to the risks and expenses encountered by start up
companies, such as uncertainties regarding our level of future revenues, our
inability to budget expenses and manage growth accordingly, and our inability to
access sources of financing when required and at rates favorable to us. Our limited operating history and the
highly competitive nature of the drinking water and water activation industries
make it difficult or impossible to predict future results of our operations. We
may not establish a distribution network that will make us profitable, which may
result in the loss of some or all of your investment in our common stock.

The fact that we have only generated limited revenues since
our inception raises substantial doubt about our ability to continue as a going
concern, as indicated in our independent auditors report in connection with our
audited financial statements.

We have generated limited revenues since our inception on
January 21, 2005. Since we are still in the early stages of operating our
company and because of the lack of operating history, our independent auditors
report includes an explanatory paragraph about our ability to continue as a
going concern. We will, in all likelihood, continue to incur operating expenses
without significant revenues until our products gain significant popularity.
Between December 1999 to June 30, 2008, we raised $13,000 through the sale of
shares of our common stock with the balance of our financing requirements coming
from two directors. We estimate our average monthly operating expenses to be
approximately $24,000 per month. We will not be able to expand our operations
beyond current levels without generating significant revenues from our current
operations or obtaining further financing. Our primary source of funds has been
the sale of our common stock and advances from two of our directors and
officers. We cannot assure that we will be able to generate enough interest in
our products. If we cannot attract a successful distribution network, we will
not be able to generate any significant revenues or income. In addition, if we
are unable to establish and generate material revenues, or obtain adequate
future financing, our business will fail and you may lose some or all of your
investment in our common stock. These circumstances raise substantial doubt
about our ability to continue as a going concern as described in an explanatory
paragraph to our independent auditors report on the financial statements for
the year ended December 31, 2007.

If we are unable to obtain financing in the amounts and on
terms and dates acceptable to us, we may not be able to expand or continue our
operations and development and so may be forced to scale back or cease
operations or discontinue our business. You could lose your entire
investment.

We do not currently have any arrangements for financing and we
can provide no assurance to investors we will be able to find such financing
when such funding is required. Obtaining additional financing would be subject
to a number of factors, including investor acceptance of our product selection
and our business model. Furthermore, there is no assurance that we will not
incur further debt in the future, that we will have sufficient funds to repay
our future indebtedness, or that we will not default on our future debts,
thereby jeopardizing our business viability. Finally, we may not be able to
borrow or raise additional capital in the future to meet our needs or to
otherwise provide the capital necessary to maintain our operations, which might
result in the loss of some or all of your investment in our common stock.

Our company anticipates that the funds that were raised from
private placements by way of subscription agreements and funds advanced from
directors will not be sufficient to satisfy our cash requirements for the next
twelve month period. Also, there is no assurance that actual cash requirements
will not exceed our estimates. In particular, additional capital may be required
in the event that:

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- 25 -

| | 1. | we incur unexpected costs in expanding our distribution
      network;                          
| | -- | ------------------------------------------------------------------------------------------------
| |    |                                                                                                 
| | 2. | we are unable to create a substantial market for our
      products;                            
| |    |                                                                                                 
| | 3. | we incur any significant unanticipated
expenses;                                                
| |    |                                                                                                 
| | 4. | we find that we need to acquire additional water
      treatment products based on market needs.

The occurrence of any of the aforementioned events could
prevent us from pursuing our business plan, expanding our business operations
and ultimately achieving a profitable level of operations.

We depend almost exclusively on outside capital to pay for the
continued development of our business and the marketing of our products. Such
outside capital may include the sale of additional stock, shareholder and
director advances and/or commercial borrowing. There can be no assurance
that capital will continue to be available if necessary to meet these continuing
development costs or, if the capital is available, that it will be on terms
acceptable to us. The issuance of additional equity securities by us will result
in a significant dilution in the equity interests of our current stockholders.
Obtaining commercial loans, assuming those loans would be available, will
increase our liabilities and future cash commitments.

If we are unable to obtain financing in the amounts and on
terms deemed acceptable to us, we may not be able to expand or continue our
sales of our drinking water and water activation products and so may be forced
to scale back or cease operations or discontinue our business and you could lose
your entire investment.

Our company relies on two suppliers who supply our company
with all of our products and as a result, we could be adversely affected by
changes in the cost of the suppliers products, the financial condition of the
suppliers or by the deterioration or termination of our relationship with the
suppliers.

We sell drinking water products and water activation products.
Our sole supplier of drinking water products, R-Can Environmental Inc. of
Guelph, Ontario, Canada, supplied our company with all of our drinking water
products that our company sold during the three month period ended June 30,
2008. Similarly, our sole supplier of water activation products, ELCE
International of Switzerland, is the distributor of our water activation units
manufactured by Nihon Jisui of Japan. We order units from ELCE International
which are then shipped from Japan to our warehouse facility for reshipment or
directly to countries where our distributors are located. ELCE International of
Switzerland supplied our company with all of our water activation products that
our company sold during the three month period ended June 30, 2008. Our two
suppliers manufacture their respective products and develop the technologies
within such products. In addition, both suppliers also supply similar products
from other manufacturers. As of May 2005, R-Can Environmental Inc. supplied our
company with products from some components from outside suppliers but all R-Can
products are assembled and shipped from their Guelph, Ontario, Canada
manufacturing facility. All ELCE International, Inc. water activation units are
manufactured, assembled and shipped from Japan. A significant decline in our
suppliers financial condition, a material rise in the cost of their prices or a
reduction in the number of products currently available could adversely affect
our results of operations. In addition, if our existing relationship with R-Can
Environmental Inc. or ELCE International Inc. deteriorates or is terminated in
the future, and we are not successful in establishing a relationship with an
alternative supplier at prices and products currently offered by such suppliers,
our results of operations could be adversely affected.

Our future operating results are subject to a number of
uncertainties. If these factors negatively affect our business, you could
lose your entire investment.

Our future operating results are subject to a number of
uncertainties, including our ability to market our portable water beverage and
water activation products and to develop and introduce new products, our ability
to penetrate new markets, the marketing efforts of distributors and retailers of
our products, most of which also distribute or sell products that are
competitive with our products, the number, quantity and marketing forces behind
products introduced by competitors and laws and regulations and any changes
thereto, especially those that may affect the way in which our products are
marketed and produced, as well as laws or regulations that are enforceable by
such regulatory authorities as the Food and Drug Administration, public health
and environmental agencies such as the World Health Organization.

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- 26 -

Changes to the current or future government regulation of
our products may add to our operating costs.

We may face unanticipated operating costs due to future
government regulation of drinking water standards. We believe that we are not
currently subject to direct regulation of our current and expected activities,
other than regulations generally applicable to businesses. However, the issue of
what constitutes pure drinking water as is currently defined leaves the claim of
purity open to a broad spectrum of water providers. Laws and regulations may be
introduced that affect drinking water standards and claims of purity or other
characteristics of water being sold to consumers. Complying with new regulations
could increase our operating costs. Furthermore, we may be subject to the laws
of various jurisdictions where we actually conduct business. Although we rely on
distributors who sell our products in our target markets, there is a risk that
we may be deemed to be actively selling in jurisdictions that may impose
regulations on the sale of our products. Under such circumstances, we could be
subject to fines or penalties that could have a material adverse impact on our
business and operations.

Sales and delivery of our products may be interrupted due to
international political situations, natural disasters or other causes.

Most of our products are manufactured in Canada and Japan. Our
target market includes Central and South America, which are subject to social,
economic and political uncertainty. We are subject to the risk that the sale,
payment and delivery of our products may be interrupted as a result of social,
economic and political turmoil or by natural disasters such as earthquakes and
fires. Any such interruptions may cause us to lose customers and distributors
and, accordingly, may adversely affect our business and results of operations.

Our industry is very competitive and we may not be able to
achieve long term success.

Our products compete with a number of established brands and
new products that target the same market as we do. We compete against major
manufacturers of both traditional and new water treatment methods and
technologies most with substantially greater marketing, cash, distribution,
production, technical and other resources than our company has at present. In
addition to competitors with comparable ultra violet technology, there are
large, well established water treatment companies offering proven technologies
such as chlorination, ozone, reverse osmosis and physical filtration methods. If
we are unable to produce, market and distribute our products as well as our
competitors or if customers do not find our products to be as good or better
than others on the market, then we may never develop a client base or sell
enough of our product to be profitable. If this happens, we will go out of
business.

All of our directors and officers are engaged in other
business activities and accordingly may not devote sufficient time to our
business affairs, which may affect our ability to conduct operations and
generate revenues.

Although all three of our directors and officers are involved
in other business activities, as a development stage company, we are able to
manage the current level of business with our three officers, our relationship
with three local distributors and the technical assistance of our two product
suppliers, R-Can Environmental and ELCE International as well as local
accounting and technical support services. At present, Max Weissengruber, our
President and director, spends approximately 20 hours per week, or 50%, of his
business time on the management of our company. D. Brian Robertson, our Chief
Financial Officer, Vice-President of Sales and director, spends approximately 35
hours per week, or 90%, of his business time on the management of our company
and Douglas R. Robertson, our Secretary and director, spends approximately 4
hours per week, or 10 %, of his business time on the management of our company.
As a result of their other business endeavors, Mr. Weissengruber, Mr. B.
Robertson and Mr. D. Robertson may not be able to devote sufficient time to our
business affairs, which may negatively affect our ability to conduct our ongoing
operations and our ability to generate revenues. In addition, the management of
our company may be periodically interrupted or delayed as a result of our
directors and officers other business interests.

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- 27 -

All of our assets and all of our directors and officers are
outside the United States, with the result that it may be difficult for
investors to enforce within the United States any judgments obtained against us
or any of our directors or officers.

All of our assets are located outside the United States and we
do not currently maintain a permanent place of business within the United
States. In addition, all of our directors and officers are nationals and/or
residents of countries other than the United States, and all or a substantial
portion of such persons assets are located outside the United States. As a
result, it may be difficult for investors to enforce within the United States
any judgments obtained against us or our officers or directors, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof. Consequently, you may be effectively
prevented from pursuing remedies under United States federal securities laws
against them.

In the event that Freshwater Technologies, Inc. were to lose
its domain name, it would be difficult to maintain effective relationships with
our existing customers as well as prospective customers who had originally been
approached by Freshwater Technologies, Inc. The establishment and maintenance of
a distribution network for the sale of our drinking water and water activation
products will be essential to the success of our business.

We offer drinking water and water activation products to
distributors through our marketing efforts. Since we expect that in the future,
substantially all of our revenues will be generated from product sales through
local distributors, it is vital that we have a flexible relationship with
potential distributors.

We realize that our local distribution partners represent
the lifeline with existing customers as well as prospective customers for our
products.

We believe that establishing and maintaining professional
working relationships that are flexible for both parties will help increase the
awareness of our products. Promotion of our products will depend largely on our
success in managing samples and systems that best support our future
distributors. In order to attract and retain distributors of our products and to
promote and maintain our relationships in response to competitive pressures, we
may increase our financial commitment to expanding and developing our business
systems. If we are unable to provide proven high quality, competitively priced
products, or otherwise fail to establish and maintain our industry
relationships, incur excessive expenses in an attempt to improve, or promote and
maintain our systems, we will not achieve profitable operations and you may lose
some or all of your investment in our common stock.

We rely upon our website in both English and Spanish to
maintain effective marketing and technical contact with our customers as well as
distribution partners.

We design and manage our own website (www.freshwatertechnologies.ca) which contains product,
technical, marketing and sales information as well as an investor relation
section. There is a special Spanish language section for our Latin American
distribution partners. In the event that there is a technical problem or
temporary loss of the website, we may not have the internal resources that will
allow us to quickly re establish an up-to-date website.

Because our directors and officers control a large
percentage of our common stock, such insiders have the ability to influence
matters affecting our shareholders.

Our directors and officers, in the aggregate, beneficially own
79.4% of the issued and outstanding shares of our common stock. As a result,
they have the ability to influence matters affecting our shareholders, including
the election of our directors, the acquisition or disposition of our assets, and
the future issuance of our shares. Because our officers and directors control
such shares, investors may find it difficult to replace our management if they
disagree with the way our business is being operated. Because the influence by
these insiders could result in management making decisions that are in the best
interest of those insiders and not in the best interest of the investors, you
may lose some or all of the value of your investment in our common stock.

Because we do not have sufficient insurance to cover our
business losses, we might have uninsured losses, increasing the possibility that
you may lose your investment.

We may incur uninsured liabilities and losses as a result of
the conduct of our business. We do not currently maintain any comprehensive
liability or property insurance. Even if we obtain such insurance in the future,
we may not carry sufficient insurance coverage to satisfy potential claims. We
do not carry any business interruption insurance. Should uninsured losses occur,
any purchasers of our common stock could lose their entire investment.

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- 28 -

Risks Associated with our Common Stock

There is no active trading market for our common stock and
if a market for our common stock does not develop, our investors will be unable
to sell their shares.

There is currently no active trading market for our common
stock and such a market may not develop or be sustained. We currently plan to
have our common stock quoted on the OTC Bulletin Board upon the effectiveness of
this registration statement of which this prospectus forms a part. However, we
cannot provide our investors with any assurance that our common stock will be traded on the OTC
Bulletin Board or, if traded, that a public market will materialize. Further,
the OTC Bulletin Board is not a listing service or exchange, but is instead a
dealer quotation service for subscribing members. If our common stock is not
quoted on the OTC Bulletin Board or if a public market for our common stock does
not develop, then investors may not be able to resell the shares of our common
stock that they have purchased and may lose all of their investment. If we
establish a trading market for our common stock, the market price of our common
stock may be significantly affected by factors such as actual or anticipated
fluctuations in our operation results, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the shares of developmental stage companies, which may affect
the market price of our common stock in a material adverse manner.

Because we do not intend to pay any dividends on our common
shares, investors seeking dividend income or liquidity should not purchase
shares in this offering.

We are authorized to issue up to 400,000,000 common shares,
including 100,000,000 Series B common shares which have equal rights and
preferences as our common shares. As of August 12, 2008 , there were 100,800,000
common shares issued and outstanding and no Series B common shares issued and
outstanding. Our board of directors has the authority to cause our company to
issue additional shares of common stock without the consent of any of our
shareholders. Consequently, our shareholders may experience more dilution in
their ownership of our company in the future.

Because we can issue additional common shares, purchasers of
our common stock may incur immediate dilution and may experience further
dilution.

We are authorized to issue up to 400,000,000 common shares,
consisting of 300,000,000 class A common shares and 100,000,000 class B common
shares which have equal rights and preferences as our common shares. As of
August 12, 2008, there were 100,800,000 class A common shares issued and
outstanding and no class B common shares issued and outstanding. Our board of
directors has the authority to cause our company to issue additional shares of
common stock without the consent of any of our shareholders. Consequently, our
shareholders may experience more dilution in their ownership of our company in
the future.

Our stock is a penny stock. Trading of our stock may be
restricted by the Securities and Exchange Commissions penny stock regulations
which may limit a stockholders ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines penny stock to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The term
accredited investor refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the Securities and Exchange Commission which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customers
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customers confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules; the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.

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Financial Industry Regulatory Authority (FINRA) sales
practice requirements may also limit a stockholders ability to buy and sell our
stock.

In addition to the penny stock rules promulgated by the
Securities and Exchange Commission (see above and the Market for Common Equity
and Related Stockholder Matters section at page 43 for discussions of penny
stock rules), FINRA rules require that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative low
priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customers financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend that their
customers buy our common stock, which may limit your ability to buy and sell our
stock and have an adverse effect on the market for our shares.

Item 3. Quantitative and Qualitative Disclosures About
Market Risk.

Not Applicable.

Item 4T. Controls and Procedures.

We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and that such information
is accumulated and communicated to our management, including our president (who
is our principal executive officer) and our treasurer, chief financial officer,
vice-president of sales (who is our principal financial and accounting officer)
to allow for timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, our management recognizes
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and our management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

As of June 30, 2008, the end of the three month period covered
by this report, we carried out an evaluation, under the supervision and with the
participation of our management, including our president (who is our principal
executive officer) and our treasurer, chief financial officer, vice-president of
sales (who is our principal financial and accounting officer), of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our president (who is our principal
executive officer) and our treasurer, chief financial officer, vice-president of
sales (who is our principal financial and accounting officer) concluded that our
disclosure controls and procedures were effective as of the end of the period
covered by this quarterly report.

There have been no significant changes in our internal controls
over financial reporting that occurred during the quarter ended June 30, 2008
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1A. RISK FACTORS.

Not Applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

Exhibit 
        Number
      Description3.1(1)
      Articles of Incorporation3.2 (1)
      By-laws10.1 (1)
      Supplier Agreement with ELCE International dated August
          18, 200110.2 (1)
      Distribution Agreement with Avila S.T.E.M., SA dated February
          1, 200510.3 (1)
      Supplier Agreement with R-Can Environmental Inc. dated
          May 20, 200510.4 (1)
      Distribution Agreement with JEUFI International, SA dated
          June 22, 200510.5 (1)
      Distribution Agreement with Freshwater Latin, S.A. dated
          September 1, 200510.6 (1)
      Asset Sale Agreement dated
          January 1, 2006, among our company, Max Weissengruber and D. Brian Robertson10.7 (1)
      Consulting Agreement dated January 1, 2006, between our
          company and D. Brian Robertson10.8 (1)
      Agreement with Max Weissengruber, dated January 1, 2006.31.1*
      Certification
          of Chief Executive Officer and Chief Financial Officer pursuant to Section
          302 of the Sarbanes-Oxley Act of 2002 of Max Weissengruber31.2*
      Certification
          of Chief Executive Officer and Chief Financial Officer pursuant to Section
          302 of the Sarbanes-Oxley Act of 2002 of D. Brian Robertson32.1*
      Certification
          of Chief Executive Officer and Chief Financial Officer pursuant Section
          906 Certifications under Sarbanes-Oxley Act of 2002


|(1) | Filed as an exhibit to our Form
      SB-2 registration statement filed on February 12, 2007.
|--- | ---------------------------------------------------------------------------------------------
|*   | Filed herewith                                                                               

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SIGNATURES

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

FRESHWATER TECHNOLOGIES, INC.

|By    | /s/ Max Weissengruber                     
|----- | ------------------------------------------
|      | Max Weissengruber                         
|      | President and Director                    
|      | (Principal
      Executive Officer)       
|      |                                           
|Date: | August 14, 2008                           
|      |                                           
|      |                                           
|By    | /s/ D. Brian Robertson                    
|      | D. Brian Robertson                        
|      | Treasurer, Chief Financial
      Officer  
|      | Vice-President of Sales and
      Director
|      | (Principal
      Accounting Officer       
|      | and Principal Financial Officer           
|      |                                           
|Date: | August 14, 2008                           

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