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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
 
þ
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
for the quarterly period ended September 30, 2011
 
or
 
 o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

000-51807
(Commission File No.)
 
EAU TECHNOLOGIES, INC.
 (exact name of registrant as specified in its charter)
 
Delaware
 
87-0654478
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
1890 Cobb International Blvd, Suite A,
 Kennesaw Georgia
  30152
(Address of principal executive offices)   (Zip Code)
 
Issuer’s telephone number:  (678) 388-9492

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ  No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company  þ
(Do not check if a smaller reporting company)      
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No þ

As of November 10, 2011, the Registrant had 20,006,168 shares of Common Stock, $0.0001 par value outstanding.



 
 

 
 
EAU TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
September 30, 2011
 
INDEX
 
      PAGE  
PART I. FINANCIAL INFORMATION
         
ITEM 1.  Financial Statements      
         
  Balance Sheets – September 30, 2011 and December 31, 2010      3-4  
           
  Statements of Operations – Three and nine months ended September 30, 2011 and 2010     5  
           
  Statement of Stockholders’ Equity (Deficit) – Nine months ended September 30, 2011     6  
           
  Statements of Cash Flows – Nine months ended September 30, 2011 and 2010     7-8  
           
  Notes to Financial Statements     9-14  
           
ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations      15  
           
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk      21  
           
ITEM 4T.  Controls and Procedures     22  
           
PART II. OTHER INFORMATION
           
ITEM 1. Legal Proceedings     23  
           
ITEM 1A. Risk Factors      23  
           
ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds      23  
           
ITEM 3.  Defaults Upon Senior Securities     23  
           
ITEM 4.  Reserved     23  
           
ITEM 5. Other Information      23  
           
ITEM 6.  Exhibits     24  
           
SIGNATURES     25  
 
 
2

 
 
PART I - FINANCIAL INFORMATION
 
ITEM 1.        FINANCIAL STATEMENTS

EAU TECHNOLOGIES, INC.

 BALANCE SHEETS
 
ASSETS
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
CURRENT ASSETS
 
(Unaudited)
       
Cash
  $ 368,729     $ 178,992  
Accounts receivable, net
    18,300       25,119  
Accounts receivable – related party, net
    6,824       6,111  
Prepaid expense
    29,133       42,852  
Inventory, net
    1,413,795       1,808,084  
                 
Total current assets
    1,836,781       2,061,158  
                 
PROPERTY AND EQUIPMENT, net of
               
accumulated depreciation of $117,805 and $111,669
    2,916       9,052  
                 
LEASED EQUIPMENT, net of
               
accumulated depreciation of $489,568 and $449,688
    616,241       656,121  
                 
OTHER ASSETS
               
Deposits
    8,838       8,838  
Intellectual property, net
    119,415       101,190  
                 
Total other assets
    128,253       110,028  
                 
Total assets
  $ 2,584,191     $ 2,836,359  
 
See notes to financial statements.
 
 
3

 
 
EAU TECHNOLOGIES, INC.

BALANCE SHEETS (Continued)
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
CURRENT LIABILITIES
 
(Unaudited)
       
Accounts payable
  $
387,837
    $ 533,069  
Accrued expenses
    350,849       341,713  
Accrued interest
    1,381,192       978,622  
Warranty reserve
    120,000       72,796  
    Advance deposits on machine orders
    420,972       446,606  
    Advance deposits on machine orders – related party
    679,630       329,630  
    Unsecured short term loans – related party
    783,763       50,000  
 Convertible notes payable – related party, net of discounts of $115,236 and $633,801
    4,684,764       4,166,199  
                 
Total current liabilities
    8,809,007       6,918,635  
                 
STOCKHOLDERS’ EQUITY (DEFICIT)
               
Common stock, $.0001 par value; 50,000,000 shares authorized; 20,006,168 and 20,006,168 issued and outstanding, respectively
    2,001       2,001  
Additional paid in capital
    42,482,948       42,368,794  
Accumulated deficit
    (48,709,765 )     (46,453,071 )
                 
Total stockholders’ equity (deficit)
    (6,224,816 )     (4,082,276 )
                 
Total liabilities and stockholders’ equity (deficit)
  $ 2,584,191     $ 2,836,359  
 
See notes to financial statements.
 
 
4

 
 
EAU TECHNOLOGIES, INC.

UNAUDITED STATEMENTS OF OPERATIONS

   
Three Months Ended
    Nine Months Ended  
    September 30,     September 30,  
   
2011
    2010    
2011
   
2010
 
                   
NET REVENUES – RELATED PARTY
  $ -     $ 41,667     $ -     $ 166,294  
                                 
NET REVENUES
    556,224       70,560       1,258,390       247,966  
                                 
TOTAL REVENUES
    556,224       112,227       1,258,390       414,260  
                                 
COST OF GOODS SOLD
    138,356       86,736       819,734       236,369  
                                 
GROSS PROFIT
    417,868       25,491       438,656       177,891  
                                 
OPERATING EXPENSES
                               
Depreciation and amortization
    2,246       3,884       7,154       11,653  
Research and development
    5,376       -       8,376       1,852  
General and administrative
    587,825       596,832       1,756,647       1,928,751  
                                 
Total operating expenses
    595,447       600,716       1,772,177       1,942,256  
                                 
LOSS BEFORE OTHER INCOME (EXPENSE)
    (177,579 )     (575,225       (1,333,521       (1,764,365 )
                                 
OTHER INCOME (EXPENSE)
                               
Interest expense
    (313,628 )     (112,054       (923,244       (313,307 )
Interest income
    56       36       71       62  
Gain (loss) on derivative liability
    -       216,465       -       5,230,026  
                                 
Total other income (expense)
    (313,572 )     104,447       (923,173       4,916,781  
                                 
INCOME (LOSS) BEFORE
    PROVISION FOR INCOME TAXES
    (491,151 )     (470,778       (2,256,694       3,152,416  
                                 
PROVISION FOR INCOME TAXES
    -       -       -       -  
                                 
NET INCOME (LOSS)
  $ (491,151 )   $ (470,778     $ (2,256,694     $ 3,152,416  
                                 
EARNINGS PER SHARE
                               
BASIC
  $ (0.02 )   $ (0.02     $ (0.11     $ 0.16  
DILUTED
    N/A       N/A       N/A     $ 0.16  
                                 
WEIGHTED AVERAGE OF SHARES OUTSTANDING
    20,006,168       20,006,168       20,006,168       19,980,014  
 
See notes to financial statements.
 
 
5

 
 
EAU TECHNOLOGIES, INC.

 STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

   
COMMON STOCK
   
ADDITIONAL
       
               
PAID IN
    ACCUMULATED        
   
SHARES
   
AMOUNT
   
CAPITAL
   
DEFICIT
   
TOTAL
 
Balance, December 31, 2010
    20,006,168     $ 2,001     $ 42,368,794     $ (46,453,071 )   $ (4,082,276 )
                                         
Vesting of options for services (unaudited)
    -       -       114,154       -       114,154  
                                         
Net loss for the nine months ended September 30, 2011 (unaudited)
    -       -       -       (2,256,694 )     (2,256,694 )
                                         
Balance, September 30, 2011 (unaudited)
    20,006,168     $ 2,001     $ 42,482,948     $ (48,709,765 )   $ (6,244,816 )
 
See notes to financial statements.
 
 
6

 
 
EAU TECHNOLOGIES, INC.

 UNAUDITED STATEMENTS OF CASH FLOWS
 
   
For the Nine Months Ended
September 30,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income (loss)
  $ (2,256,694 )   $ 3,152,416  
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
    47,034       53,769  
Options vested or issued for services
    114,154       147,771  
     Discount of note payable
    518,565       -  
Changes in operating assets and liabilities:
               
Decrease in restricted cash
    -       240,000  
Decrease (increase) in accounts receivable
    6,819       (8,500 )
Decrease (increase) in accounts receivable – related party
    (713 )     748  
Decrease in pre-paid expense
    13,719       15,919  
Decrease in inventory
    394,289       166,653  
(Increase) in deposits
    -       (26,619 )
(Decrease) in accounts payable
    (145,232 )     (12,468 )
Increase (decrease) in warranty reserve
    47,204       (10,281 )
Increase (decrease) in advance deposits for machine orders
    (25,634 )     404,800  
Increase (decrease) in advance deposits for machine orders – related party
    350,000       (20,356 )
Increase in accrued expenses
    9,136       24,206  
Increase in accrued interest
    402,570       309,377  
      (Decrease) in deferred revenue
    -       (141,667 )
      (Decrease) in derivative liability
    -       (5,230,027 )
Net cash (used) in operating activities
    (524,783 )     (934,259 )
CASH FLOWS FROM INVESTING ACTIVITIES
               
    Acquisition of property and equipment
    -       -  
    Intellectual property disbursements
    (19,243 )     (6,426 )
Net cash (used) in investing activities
    (19,243 )     (6,426 )
CASH FLOWS FROM FINANCING ACTIVITIES
               
   Proceeds from issuance of note payable – related party
    733,763       905,000  
   Proceeds from issuance of common stock – related party
    -       100,200  
Net cash provided by financing activities
    733,763       1,005,200  
NET INCREASE IN CASH
    189,737       64,515  
Cash and cash equivalents, beginning of period
    178,992       181,481  
                 
Cash and cash equivalents, end of period
  $ 368,729     $ 245,996  
 
See notes to financial statements.
 
 
7

 
 
EAU TECHNOLOGIES, INC.

 UNAUDITED STATEMENTS OF CASH FLOWS
(Continued)
 
   
Nine Months Ended
September 30,
 
    2011     2010  
Supplemental Disclosures of Cash Flow Information:             
             
Cash paid during the period for:            
Interest   $ 2,109     $ 3,930  
Income Taxes   $ -     $ -  
 
See notes to financial statements.
 
 
8

 
 
EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying condensed financial statements were prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.  In management’s opinion all necessary adjustments, which consist primarily of normal recurring adjustments, to the financial statements have been made to present fairly the financial position and results of operations and cash flows.  The results of operations for the respective periods presented are not necessarily indicative of the results for the respective complete years.  The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

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

NOTE 2 - INVENTORIES

The composition of inventories is as follows at:
                                                    
    September 30,     December 31,  
    2011     2010  
Finished goods
  $ 803,804     $ 1,012,994  
Raw materials
    1,009,991       1,195,090  
Allowance for obsolete inventory
    (400,000 )     (400,000 )
                 
    $ 1,413,795     $ 1,808,084  

NOTE 3 – WARRANTY RESERVE

The Company warrants its products against defects in materials and workmanship for a period of three years.  The Company reviews the historical experience of failure rates and estimates the rate of warranty claims that will be made and has accrued a warranty reserve for these anticipated future warranty costs.  Costs accrued in the current period are reflected in general and administrative expenses.  If actual results differ from the estimates, the Company would adjust the estimated warranty liability.  Changes in the warranty reserve for the nine months ended September 30, 2011 are as follows:
 
Warranty reserve at beginning of period   $ 72,796  
Costs accrued for additional warranties     51,193  
Service obligations honored      (3,989 )
Warranty reserve at end of period    $ 120,000  
 
 
9

 
 
EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 4 - CONVERTIBLE NOTES PAYABLE – RELATED PARTIES

In September 2005, the Company entered into a Senior Convertible Note (the “Note”) with Water Science, a related party, in exchange for $3,000,000. Pursuant to the debt agreement, the Note accrued interest at the rate of 3% per annum and was initially due, principal and interest together, on September 16, 2008.  In September 2008, Water Science agreed to extend the maturity date of the Note to March 16, 2009.  In March 2009, the Company and Water Science agreed to extend the maturity date to September 16, 2009 and increase the interest rate to 10%.  No principal or interest payments needed to be paid during the loan period.  In October 2008, as part of a new financing agreement, the Company amended the Note and changed the conversion rate from $3.00 per share to $1.00 per share.  The Note may be converted into 3,000,000 shares of the Company’s $0.0001 par value common stock prior to the maturity date, and at any time, by the holder at a price per share equal to $1.00 per share, subject to certain other conversion adjustments.  The Company granted a security interest in all of the Company’s assets as collateral for the loan.  In connection with the original issuance of the Note, the Company granted a three year warrant to purchase up to two million shares of the Company’s $0.0001 par value common stock with an exercise price of $2.76 per share.  In August 2009, the Company entered into an agreement with Water Science, a related party, to extend the maturity date of the Promissory Note from September 16, 2009 to November 1, 2010.  In October 2010, the Company entered into a Third Amended and Restated Secured Convertible Promissory Note (“Amendment”), which extended the maturity date until December 1, 2011.  The Amendment also deleted the anti-dilution protection for subsequent equity offerings contained in the Note, as described above, and the loan agreement entered into in August 2009, and terminated the registration rights agreement contained in both agreements.    
 
On August 27, 2009, the Company entered into a Loan Agreement with Mr. Peter Ullrich, a related party, whereby he agreed to loan $600,000 to the Company.  Simple interest accrued at a rate of 10% per annum on the unpaid principal amount outstanding and the loan was scheduled to mature on November 1, 2010, at which time accrued interest and the outstanding principal balance were due.   In October 2010, the Company entered into an Amended and Restated $600,000 loan agreement, which extended the maturity date to December 1, 2011.  The agreement contains an optional conversion right, whereby the Lender may convert all or any portion of the outstanding principal and interest due into shares of the Company’s common stock at a price per share equal to $1.00 per share.

The amendments agreed to in October 2010 deleted the anti-dilution protection for subsequent equity offerings contained in the notes and terminated the registration rights agreement contained in both agreements.  Due to this change the “round down” provisions were eliminated.  This has resulted in the Company no longer recording a derivative liability.  The Company recorded a gain of $5,230,027 in the change of the derivative liability to fair market value for the nine month period ended September 30, 2010.

In October, 2010, the Company entered into a loan agreement with Mr. Ullrich.  The principal amount of the Note is $1,200,000.  The Note bears interest at a rate of 10% annually and will mature on December 1, 2011.  The Note is convertible into shares of the Company’s common stock at $1.00 per share and no principal or interest payments are due until maturity.  Also, in conjunction with the Note, the Company issued a warrant to Mr. Ullrich to purchase 6,969,231 shares of the Company’s common stock at $0.31 per share (the “Warrant”).  The Warrant has a term of five years.
 
 
10

 
 
EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 5 – RELATED PARTY TRANSACTIONS

Sales to Affiliates – In September 2005, Water Science, a related party, paid to the Company $1,000,000 for the exclusive rights to sell our products in South America and Mexico.  The agreement allows for a pro-rated refund during the first 5 years under certain circumstances.  The Company recognized income from this agreement over the first 5 years of the agreement.  As of December 31, 2010, the deferred revenue had been fully recognized.  The Company recognized $141,667 in the period ended September 30, 2010.  This agreement also gives Water Science the rights to purchase machinery from the Company at cost plus 25 percent.  The Company did not have any sales to Water Science during the nine months ended September 30, 2011 and had sales of $24,627 for the same period in 2010.  The Company has received and recorded $679,630 in advance deposits from Water Science on machine orders at September 30, 2011.

Unsecured Short Term Loans In January, February, March, May and June 2011, the Company obtained unsecured short term loans totaling $783,763 from Peter Ullrich a member of the Board of Directors of the Company.  The final agreement to document the loan has not been signed, and the material terms are not final. It is anticipated that the final loan will be at 10% simple interest and conversion rights into Company common stock at an exercise price of $1.00 per share.  The material terms of the final agreement will be disclosed in subsequent filings with the Securities and Exchange Commission.

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

Licensing Fee –In September 2005, the Company received $1,000,000 in exchange for providing Water Science exclusive licensing and distribution rights for a five-year term for a specified market area. The agreement provides termination rights by Water Sciences and a pro rata refund of the fee. The Company recognized the fee on a pro rata basis over the life of the agreement. As of December 31, 2010, the fee had been fully recognized.

Escrow Arrangement with Chief Executive Officer – In November 2006 the Company entered into an employment agreement with Wade Bradley, the Company’s CEO. Pursuant to the agreement the Company deposited $240,000 with an escrow agent in January 2007. The Company has recognized this amount as restricted cash on the Company’s financial statements.  In February 2010, the Company and the Chief Executive Officer entered into an agreement to terminate the escrow agreement and closed the account.

Advances – Periodically throughout the year, the Company advances employees cash for certain reimbursable expenses.  As of September 30, 2011 and December 31, 2010, the Company had advances to employees in the amount of $6,824 and $5,500, respectively.

Employee Options – In December 2007, the Company granted 480,260 options to various employees.  The options are for a term of ten (10) years and which now have an exercise price of $0.31 per share.  The options vest over a period of four (4) years.   The options were valued using the Binomial model with the following assumptions:  risk free rate of 2.1%, volatility at 201.13% and the stock price at $0.31.  The value of each option is approximately $0.31 per option.  The Company recognized $56,032 in stock option expense related to the options for the nine months ended September 30, 2011.

In November 2007, the Company granted 530,000 options to Douglas Kindred, in connection with the appointment of Mr. Kindred as Chief Technology Officer.  The options are for a term of ten (10) years and which now have an exercise price of $0.31 per share.  The options vest over a period of four (4) years.   The options were valued using the Binomial model with the following assumptions:  risk free rate of 2.1%, volatility at 199.88% and the stock price at $0.31.  The value of each option is approximately $0.31 per option.  The Company recognized $52,068 in stock option expense related to the options for the nine months ended September 30, 2011.

During the nine months ended September 30, 2011, the Company recognized an additional $6,054 in expense related to the adjusting of certain options and warrants issued to employees and Directors.
 
 
11

 

EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 6 – CAPITAL STOCK

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

In March 2010, Theodore Jacoby, a director of the Company, purchased 100,000 shares of common stock of the Company for $100,000 at a price of $1.00 per share.

In January 2010, a consultant exercised 20,000 warrants for $200, or $0.01 per share.  The warrants were granted in 2005 for services.

NOTE 7 – GOING CONCERN

The Company has incurred significant losses and has had negative cash flows from operations.  As a result, at September 30, 2011, the Company has had a high level of equity financing transactions and additional financing will be required by the Company to fund its future activities and to support its operations.  We currently do not have sufficient funds to operate our business without additional funding.  We do not have any written agreements in place for additional funding.  Management will continue to seek to obtain sufficient funding for its operations through either debt or equity financing.  However, there is no assurance that the Company will be able to obtain additional financing.  Furthermore, there is no assurance that rapid technological changes, changing customer needs and evolving industry standards will enable the Company to introduce new products and services on a continual and timely basis so that profitable operations can be attained.  The Company’s ability to achieve and maintain profitability and positive cash flows is dependent upon its ability to achieve positive sales and profit margins and control operating expenses.

The Company estimates that it will need up to $1,500,000 for the upcoming twelve months to execute our business plan and an additional $5,584,000, plus interest, in order to satisfy our senior notes payable with Water Science, which becomes due in December 2011, if the note is not converted into common stock or refinanced.  Management plans to mitigate its losses in the near term through the further development and marketing of its trademarks, brand and product offerings.

Our auditors have issued their Independent Registered Public Accountants’ Report on the Company's financial statements for the fiscal year ended December 31, 2010 with an explanatory paragraph regarding the Company's ability to continue as a going concern. The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. However, as a result of recurring operating losses, such realization of assets and satisfaction of liabilities are subject to uncertainty, which raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 8 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Stock Based-Compensation Expense

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation — Stock Compensation, which requires a fair-value-based measurement method to account for stock-based compensation. The Company uses the Binomial valuation formula, which is a closed-form model that uses an equation to determine the estimated fair value of stock options.  Stock-based compensation expense recognized for the nine month period ended September 30, 2011 and 2010 was $114,154 and $147,771, respectively, related to employee stock options issued and vesting during the period.
 
 
12

 
 
EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 8 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basic and Fully Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period.
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net Income (loss) (numerator)
  $ (491,151 )   $ (470,778 )   $ (2,256,694 )   $ 3,152,416  
Shares (denominator)
                               
Basic
    20,006,168       20,006,168       20,006,168       19,980,014  
Diluted
    N/A       N/A       N/A       19,980,014  
Per share amount
                               
Basic
  $ (0.02 )   $ (0.02 )   $ (0.11 )   $ 0.16  
Dilutive
    N/A       N/A       N/A     $ 0.16  

The Company’s outstanding stock options and warrants have been excluded from the basic net loss per share calculation for the three and nine months ended September 30, 2011, because they are anti-dilutive.

The following table is a summary of the status of the warrants and options granted and outstanding at September 30, 2011:
 
    Number     Weighted  
    of Options     Average Exercise  
    and Warrants     Price  
Outstanding at beginning of period      9,185,991     $ 0.32  
Granted       -       -  
Exercised     -       -  
Forfeited      -       -  
Expired     50,000       1.88  
Outstanding at end of period      9,135,991     $ 0.31  
 
A summary of the status of the warrants outstanding at September 30, 2011 is presented below:
 
      Warrants Outstanding     Warrants Exercisable  
Range of         Weighted-Average   Weighted-Average           Weighted-Average  
Exercise     Number   Remaining   Exercise     Number     Exercise  
Prices     Outstanding   Contractual Life   Price     Exercisable     Price  
$ 0.01-0.50       9,135,991   4.4 years   $ 0.31       8,967,426     $ 0.31  
 
The fair value of each warrant granted is estimated on the date granted using the Binomial pricing model, with the following assumptions used for the grants: risk-free interest rate of 1.15%, expected dividend yield of zero, expected lives of five years and expected volatility of 246%.
 
 
13

 
 
EAU TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 9 – SUBSEQUENT EVENTS

In October 2011, the Company shipped two test units to an international manufacturer of food processing equipment.  Revenues from the sale of these units will be recognized during the fourth quarter of 2011.

In accordance with ASC 855, management evaluated events subsequent to September 30, 2011 and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements.
 
 
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ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis provides information, which management believes is relevant to an assessment and understanding of the Company’s condensed results of operations and financial condition. The discussion should be read in conjunction with the financial statements included in our annual report on Form 10-K, and notes thereto.

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

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

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

Food and Beverage Processing.  The Company entered into a non-exclusive commercial relationship with an international manufacturer of food processing equipment and a well known systems integrator in the food and beverage industry.  In connection with the agreement, the international manufacturer of food processing equipment ordered two Empowered Water Generator systems.  We shipped the systems during the fourth quarter of 2011.

In 2008 we installed our equipment to test a clean-in-place (CIP) application with an international beverage bottling company for use with cold beverages.  This test is complete and was a success. There were three stages of this trial that were conducted simultaneously: 1) Syrup tanks; 2) Bag in box; 3) Bottling. The purpose of the trial was to identify whether EAU’s non-toxic ambient temperature Empowered Waters could replace current 3-5 step CIP processes. In order to become an approved technology for this bottling company, EAU had to show good antimicrobial efficacy, water savings, and improved CIP efficiency.
 
 
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Results showed Empowered Water™ was able to improve current cleaning and sanitizing efficacy, minimizing the use of commercial chemicals while complying with microbiological integrity and sensory testing requirements. Testing also identified water and energy consumption savings as well as timesaving that can increase bottling production line availability.

In August 2010, the Company received its first purchase orders from the international beverage company.  EAU installed its environmentally friendly Empowered Water™ CIP Systems at three of the company’s bottling plants and recorded revenue from the sale of these systems during the first quarter 2011.

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

In April 2011, the Company signed a purchase agreement with Fonterra Co-Operative Group Limited, New Zealand for a Dairy Drinking Water System to be used in a new 3,000 cow dairy in Yutian, China.  We shipped the system in August 2011.  We have recognized revenues from the sale of this system during the current period.

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

From these results we successfully completed Phase I of our USDA Online Reprocessing (“OLR”) Certification. The EAU Technologies OLR intervention also tested well showing a statistically significant difference between control and test groups.

In 2008, EAU signed a lease agreement with Fieldale Farms, a large poultry producer in northern Georgia, to install our equipment at their facility.  We completed the OLR data gathering stage and submitted our findings to the USDA for OLR approval.  EAU received a letter from the USDA approving our fluids for use in the plant for OLR applications.

We began receiving revenues of approximately $27,500 per month from this facility in February 2009.  Per the terms of the agreement, we were to help the plant achieve Category 1 compliance for post-chill microbial performance.  The plant completed a USDA test set October 2009 with the result that it met the Category 1 requirements for that test set.  Fieldale indicated that it was suspending the agreement as of November 23, 2009 and ceased making payments.  In February 2011, the Company filed a complaint in the Superior Court of Cobb County Georgia against Fieldale for breaching the agreement.  (See Part II, Item 1)

Agriculture.  In 2006 we made initial sales to Water Science, LLC, a Florida limited liability company (“Water Science”) for the Latin American markets.  Water Science is a major shareholder of the Company and its managing member, Peter Ullrich, is a director of our company.  We have shipped a total of five P-1200s to Ecuador, Mexico, Columbia, Costa Rica and Holland for trials and Water Science internal use.  Water Science is utilizing the technology for its own flower and agricultural endeavors.  Further studies are being done as each country that has the Empowered Water™ technology ramps up for their own outside sales efforts.
 
 
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We have obtained patent protection on four separate uses of electrolyzed fluids (cleaning and disinfecting eggs, carpet cleaning, mold remediation and poultry processing).  Those applications are how the fluids are used and how they are stabilized for use in different applications. Additionally, we have a patent pending on the electrolysis equipment and several provisional patent pending applications filed to protect new processes and products, as described herein.

Financial Position and Results of Operations

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

Financial Position

The Company had $368,729 in cash as of September 30, 2011, compared to $178,992 at December 31, 2010.  The Company has received and recorded $679,630 in advance deposits from Water Science on machine orders at September 30, 2011.  This will be reduced as the Company delivers machines on order to Water Science, a related party.  Water Science, who has exclusive rights to sell our products in Central and South America, is also an affiliate of the Company, and by agreement may purchase machinery from us at cost plus 25 percent.  At September 30, 2011, our stockholders’ deficit was $6,224,816.

Results of Operations for the Three months ended September 30, 2011 and 2010

Revenues and Net Income

The Company had total revenues of $556,224 for the three months ended September 30, 2011, which represents an increase of $443,997 from the $112,227 in total revenues for the same period in 2010.  During the current three month period the Company shipped a dairy system that was placed on order earlier in the year.

The net loss for the period was $491,151 as compared to $470,778 during the same period in 2010.  In addition to the increase to revenues as stated above, the current period results include $313,628 in interest expense, compared to $112,054 in 2010.  This change is due to interest expense related to the additional notes payable and the interest expense related to the debt discount of the note payables adjusted in 2010.  Also, during the three months ended September 30, 2010 the Company recognized a non-cash gain on a derivative liability of $216,465.  This liability was extinguished during 2010 and no gains or losses were recorded during the current three month period.

General and Administrative Expenses

The Company’s general and administrative expenses were slightly lower as compared to the prior year.  Expenses totaled $587,825 during the three months ended September 30, 2011, compared to $596,832 during the three months ended September 30, 2010.  General and administrative expense for 2011 consists primarily of payroll and other compensation expense of $307,689, legal and professional fees of $28,241, expense related to granting and vesting of stock and options of $36,033 and insurance expense of $89,665.

Research and Development

Research and development expenses incurred during the three month period ended September 30, 2011 increased from $0 in 2010 to $5,376 in 2011.  While the Company will continue to conduct research to improve its products and their performance, it believes it has developed proven products that have commercial value in its targeted markets.
 
 
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Results of Operations for the Nine months ended September 30, 2011 and 2010

Revenues and Net Income

The Company had total revenues of $1,258,390 for the nine months ended September 30, 2011, which represents an increase of $844,130 from the $414,260 in total revenues for the same period in 2010.  These results reflect the ongoing efforts to execute our business plan and increase market share.  The majority of the revenues are from the ongoing leasing of a dairy system and sale of a new EW water system in the dairy market and in the sales into the CIP market.

Due to the change in fair market value of the derivative liability during the nine months ended September 30, 2010, the Company had net income of $3,152,416 from continuing operations, or a gain of $0.16 per share.  This compares with a current net loss from continuing operations of $2,256,694, or $0.11 per share.  During 2010, the derivate liability was removed and no gain or loss has been recorded in 2011.  For the nine months ended September 30, 2010, the Company recognized a gain of $5,230,026 related to the derivative liability.  Excluding this gain on the derivative liability the Company would have had a net loss of $2,077,610, or $0.10 per share in 2010 as compared to the above stated loss of $2,256,694, or $0.11 per share.  The Company also recognized a reduction of approximately $235,000 in the net realizable value of its inventory, which increased our cost of goods sold.  The current period results include $923,244 in interest expense, compared to $313,307 in 2010.  This is due to interest expense related to the additional notes payable and the amortizing of the debt discount of the note payables adjusted in 2010.  See below for a reconciliation of our non-GAAP financial measures.

General and Administrative Expenses

The Company’s general and administrative expenses decreased for the nine months ended September 30, 2011 as compared to the prior year.  Expenses totaled $1,756,647 during the nine months ended September 30, 2011, compared to $1,928,751 during the nine months ended September 30, 2010.  General and administrative expense for 2011 consists primarily of payroll and other compensation expense of $962,860, legal and professional fees of $120,091, expense related to granting and vesting of stock and options of $114,154 and insurance expense of $262,468.

Research and Development

Research and development expenses incurred during the nine month period ended September 30, 2011 increased from $1,852 in 2010 to $8,376 in 2011.  While the Company will continue to conduct research to improve its products and their performance, it believes it has developed proven products that have commercial value in its targeted markets.

Non-GAAP Reconciliations

Our results of operations for prior years were impacted by the recognition of gains and losses from the derivative liability, which was eliminated in late 2010.  We experienced significant gains in the derivative in fiscal 2010 that will not recur in fiscal 2011.  Management believes that adjusting its net income (loss) and basic income (loss) per share to remove the impact of these gains provides an important perspective of underlying business trends and results and provides meaningful supplemental information to both management and investors that is indicative of the performance of the company’s underlying operations and facilitates comparison on a year-over-year basis. These financial measures should not be used as a substitute in assessing the Company's results of operations at September 30, 2011 and 2010. An analysis of any non-GAAP financial measures should be used in conjunction with results presented in accordance with GAAP.  As a result, in the table below, the results for the first nine months of fiscal 2010 are adjusted to remove gains recorded on the adjustments to the derivative liability.  Set forth below is a reconciliation of actual net income (loss) from continuing operations, net income (loss) and basic income (loss) per share to adjusted results for these measures for the periods presented:
 
 
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Nine Months Ended September 30, 2010
 
          Adjustment for     Non-GAAP,  
    Actual     Derivative     As Adjusted  
Net income (loss)    $ 3,152,416     $ (5,230,026 )     $ (2,077,610 )
Basic income (loss) per share    $ 0.16     $ (0.26 )   $ (0.10 )
 
Liquidity and Capital Resources
 
The Company had $368,729 in cash as of September 30, 2011, compared to $178,992 at December 31, 2010.  We had a net loss of $2,256,694 for the nine months ended September 30, 2011, compared with net income of $3,152,416 for the nine months ended September 30, 2010.  The net income (loss) per share for the first nine months of 2011 and 2010 was $(0.11) and $0.16 per share, respectively.  The majority of the change is attributable to the recording of the derivative liability to fair market value as described above.
 
Net cash used in operating activities in the nine month period ended September 30, 2011 was $524,783, a 44% decrease, compared to $934,259 for the same period in 2010.  The majority of the change in cash used for the current period was related to the increased revenues, the recording of the debt discount, a decrease in inventory levels and the increase in advanced deposits from a related party.

At September 30, 2011, the Company’s net inventory was $1,413,795, representing a decrease of approximately $394,000, from the $1,808,084 on hand at December 31, 2010.  The Company has finalized the sale of equipment to an international beverage company and continues to utilize the resources on hand.  The Company also recognized a reduction of approximately $235,000 in the net realizable value of its inventory.

The Company used $19,243 in cash flows from investing activities during the period ended September 30, 2011 as compared to $6,426 used in the same period in 2010.  The cash flows from investing activities consisted of expenditures related to intellectual property.

Cash flows from financing activities provided the Company $733,763 for the period ended September 30, 2011 compared with $1,005,200 provided the Company during the same period in 2010.  The Company received proceeds of $773,763 from the receipt of short term advances from a related party during the nine months ended September 30, 2011.

We currently do not have sufficient funds to operate our business without additional funding.  We do not have any written agreements in place for additional funding.  Our working capital requirements for the foreseeable future will vary based upon a number of factors, including, our timing in the implementation of our business plan, our growth rate and the level of our revenues.  Our current assets, along with cash generated from anticipated revenues, will not provide us with sufficient funding for the next twelve months.  Our convertible notes payable with Water Science will become due in December 2011, which will require cash of approximately $5,584,000, plus interest, in order to satisfy the debts, if the note is not extended or converted into common stock or refinanced.  We anticipate that we may need an additional $1,500,000 or more in future funding to execute our business plan over the next twelve months. Moreover, if we able to expand our sale of EW machines as anticipated, we may need significant additional working capital to fund that expansion.  We do not have arrangements in place to provide us with this funding or any additional funding. In light of these circumstances, the ability of the Company to continue as a going concern is in substantial doubt.
 
 
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Off-Balance Sheet Arrangements

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

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our discussion and analysis of our financial condition and results of operations require us to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes.  Note 1 of the notes to consolidated financial statements in Part II, Item 7 of the Company’s Annual Report on Form 10-K, dated December 31, 2010, describes the significant accounting policies and methods used in preparation of our consolidated financial statements.  We base our estimates on historical experience, current trends, future projections, and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.  Actual results may differ from these estimates.  There were no material changes in our judgments or estimates during the second quarter of 2011.
 
Recent Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued revisions to the accounting guidance related to troubled debt restructuring. This new guidance is effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. EAU adopted the new requirements in the third quarter of 2011 retrospectively as of January 1, 2011; however, the adoption of this guidance did not have a material effect on its financial position as of September 30, 2011 or its results of operations or cash flows for the nine months ended September 30, 2011.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. The ASU is effective for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. The new guidance changes certain fair value measurement principles and disclosure requirements. The Company does not expect the amendments to U.S. GAAP to have a material impact on its results of operations, cash flows, or financial position.
 
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The ASU is effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. The new guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholder’s equity and states that an entity has the option to present the total of comprehensive income, the components of income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, entities are required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive are presented. The Company does not expect the amendments to U.S. GAAP to have material impact on its results of operations, cash flows, or financial position.

Inflation

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

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

All forward-looking statements contained herein are deemed by the Company to be covered by and to qualify for the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. Prospective shareholders should understand that several factors govern whether any forward-looking statement contained herein will be or can be achieved.  Any one of those factors could cause actual results to differ materially from those projected herein.  Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.  These forward-looking statements include our expectations regarding working capital requirements and future funding, our expectations regarding our internal controls, expectations regarding funding commitments, our expectations regarding reductions in deposits from Water Science, future inventory levels, our expectations regarding revenues in the fourth quarter, future test results, and plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the Company.  Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in any of the forward-looking statements contained herein will be realized.  Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risks associated with successfully developing our business in evolving markets, our need for additional capital, our continuing operating losses, the ability of our management to conduct distribution activities and sell products, possible failure to successfully develop new products, risks associated with litigation, risks associated with international transactions, vulnerability to competitors due to lack of patents on our products, and other risk factors listed in our annual report on Form 10-K for the year ended December 31, 2010 and our other SEC reports. Based on actual experience and business development, the Company may alter its marketing, capital expenditure plans or other budgets, which may in turn affect the results of operations. In light of the significant uncertainties inherent in the forward-looking statements included therein, the inclusion of any such statement should not be regarded as a representation by the Company or any other person that the objectives or plans will be achieved.
 
ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
A smaller reporting company is not required to provide the information required by this Item.
 
 
21

 
 
ITEM 4T.     CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures

The Company has evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the issuer’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, 2011, pursuant to Exchange Act Rule 15d-15.  Based upon that evaluation, the principal executive and financial officers concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
 
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake.  The Company’s disclosure controls have been designed to provide reasonable assurance of achieving their objectives.

Changes to Internal Control Over Financial Reporting

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

ITEM 1.        LEGAL PROCEEDINGS

On February 11, 2011, the Company filed a Verified Complaint for Damages (“Complaint”) in the Superior Court of Cobb County State of Georgia against Fieldale Farms Corporation (“Fieldale”).  The lawsuit seeks approximately $1,100,000 plus interest, which is the amount due under the agreement and an additional amount not less than $100,000 for the costs of EAU’s replacement of Fieldale equipment.  Pursuant to the agreement the Company leased and installed certain equipment to Fieldale.  In exchange, Fieldale agreed to pay the Company a monthly rental fee for a guaranteed term of four (4) years.  Although the Company and the Company’s technology performed in accordance with the agreement, Fieldale Farms cancelled the agreement in the fourth quarter of 2009.  While we are unable at this time to estimate the likelihood of a favorable outcome in this matter, we intend to prosecute vigorously our claims against Fieldale.  In March 2011, the Company received an Answer and Counterclaim, wherein Fieldale alleges that the Company caused damage to other equipment and property of Fieldale and seeks to recover its actual damages estimated at $400,000.  The Company disputes the claim and will vigorously defend against the claim.  In October 2011, the case was ordered to Habersham County.

ITEM 1A.     RISK FACTORS

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

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

None

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.        RESERVED

ITEM 5.        OTHER INFORMATION

None
 
 
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ITEM 6.        EXHIBITS

EXHIBIT NO.
 
DESCRIPTION OF EXHIBIT
3(i).1
 
Certificate of Incorporation (Incorporated by reference from registration statement on Form SB-1 filed with the SEC on July 29, 2002 (File No. 333-86830)
3(i).2
 
Certificate of Amendment of Certificate of Incorporation (Incorporated by reference from registration statement on Form SB-1 filed with the Securities and Exchange Commission on July 29, 2002 (File No. 333-86830)
3(i).3
 
Certificate of Amendment of Certificate of Incorporation (Incorporated by reference from current report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2007)
3(ii).1
 
Amended and Bylaws (Incorporated by reference from registration statement on current report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2007)
 
Certification by Wade R. Bradley under Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification by Brian D. Heinhold under Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification of Wade R. Bradley pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Certification of Brian D. Heinhold pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**
 
XBRL Instance Document
101.SCH**
 
XBRL Taxonomy Extension Schema Document
101.CAL**
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
**
Furnished herewith. Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

 
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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant cause this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  EAU TECHNOLOGIES, INC.  
       
Dated: November 11, 2011
By:
/s/ Wade R. Bradley  
    Wade R. Bradley,  
    Chief Executive Officer  
    (Principal Executive Officer)  
 
 
 
By:
/s/ Brian D. Heinhold  
    Brian D. Heinhold,  
    Chief Financial Officer  
    (Principal Financial Officer)  
 
 
 
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