UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-QSB/A





QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





FOR
      THE
      QUARTERLY PERIOD ENDED MARCH 31, 2007





Commission
      File Number: #033-31067





ECO2
      PLASTICS, INC.


(f.k.a.,
      Itec Environmental Group, Inc.)


(Exact
      name of small business issuer as specified in its charter)





Delaware


(State
      or
      other jurisdiction of incorporation or organization)





31-1705310


(IRS
      Employer Identification Number)





5300
      Claus Road, Box 760


Riverbank,
      CA 95367


(Address
      of principal executive offices)(Zip Code)





(209)
      881-3523


(Registrant's
      telephone no., including area code)





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 o





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





The
      number of shares of the Company's common stock outstanding on May 15, 2007
      is
      137,658,073.




Transitional
      Small Business Disclosure Format (Check One): Yes o
      No x













ECO2
      PLASTICS, INC.


FORM
      10-QSB




TABLE
      OF
      CONTENTS




PART
                I
            
            FINANCIAL
                INFORMATION
            3Item
                1
            
            Financial
                Statements
            3Item
                2
            
            Management's
                Discussion and Analysis or Plan of Operation
            17Item
                3
            
            Controls
                and Procedures
            19PART
                II
            
            OTHER
                INFORMATION
            20Item
                1
            
            Legal
                Proceedings
            20Item
                2
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            20Item
                3
            
            Defaults
                Upon Senior Securities
            21Item
                4
            
            Submission
                of Matters to a Vote of Security Holders
            21Item
                5
            
            Other
                Information
            21Item
                6
            
            Exhibits
            21SIGNATURES
            
            
            22






2




PART
      I -
      FINANCIAL INFORMATION


Item
      1.
      Financial Statements





**ECO2
        Plastics, Inc. and Subsidiary**
 **Condensed
        Consolidated Balance Sheets**
 **(in
        thousands, except share and per share data)**
 (unaudited)
  March
                    31,2007
              
              December
                    31,2006Current
                  assetsCash
                  and cash equivalents
              
              $
              11
              
              $
              97Receivable
                  for cash in escrow for securities sold
              
              
              241
              
              
              1,244Accounts
                  receivable
              
              
              86
              
              
              -Inventory
              
              
              155
              
              
              213Prepaid
                  expenses and other current assets
              
              
              24
              
              
              62Total
                  current assets
              
              
              517
              
              
              1,616Property
                  and equipment, net
              
              
              6,899
              
              
              5,894Deferred
                  debt issue costs, net
              
              
              2,183
              
              
              2,736Other
                  assets
              
              
              42
              
              
              37Total
                  assets
              
              $
              9,641
              
              $
              10,283Current
                  liabilitiesAccounts
                  payable
              
              $
              957
              
              $
              534Accounts
                  payable - related party
              
              
              532
              
              
              468Accrued
                  interest
              
              
              677
              
              
              374Accrued
                  liabilities
              
              
              459
              
              
              709Current
                  portion of capital lease obligations
              
              
              7
              
              
              7Current
                  portion of convertible notes payable, net of debt discountHeld
                  by related party Directors, net of debt discount of $1,150 and
                  $1,567
              
              
              2,001
              
              
              783Held
                  by others, net of debt discount of $1,840 and $1,613
              
              
              1,963
              
              
              1,409Current
                  portion of note payable to California Integrated Waste Management
                  Board
              
              
              194
              
              
              192Participation
                  Certificates obligations issued prior to 2004
              
              
              354
              
              
              354Total
                  current liabilities
              
              
              7,144
              
              
              4,830Non-current
                  liabilitiesCapital
                  lease obligations, net of current portion
              
              
              1
              
              
              9Convertible
                  notes payable, net of debt discount and current portionHeld
                  by related party Directors, net of debt discount of $2,940 and
                  $4,264
              
              
              942
              
              
              420Held
                  by others, net of debt discount of $1,669 and $417
              
              
              556
              
              
              588Note
                  payable to California Integrated Waste Management Board, net of
                  discount
                  and current portion
              
              
              1,640
              
              
              1,706Total
                  non-current liabilities
              
              
              3,139
              
              
              2,723Total
                  liabilities
              
              
              10,283
              
              
              7,553Commitments
                  and contingencies (Note 6)Stockholders'
                  Equity (deficit)Preferred
                  stock, $0.001 par value, 10,000,000 shares authorized, none issued
                  and
                  outstanding
              
              
              -
              
              
              -Common
                  stock, $0.001 par value, 750,000,000 shares authorized,126,282,813
                  and 114,263,824 shares issued and outstanding
              
              
              126
              
              
              1147,189,492
                  and 15,083,715 shares issuable
              
              
              7
              
              
              15Additional
                  paid-in capital
              
              
              52,181
              
              
              48,747Accumulated
                  deficit
              
              
              (52,956
              )
              
              (46,146
              )Total
                  stockholders' equity (deficit)
              
              
              (642
              )
              
              2,730Total
                  liabilities and stockholders' equity (deficit)
              
              $
              9,641
              
              $
              10,283






3




**ECO2
        Plastics, Inc. and Subsidiary**
 **Condensed
          Consolidated Statements of Operations**
 **(in
            thousands, except per share data)**
 (unaudited)
  Three
                          months ended March 31,2007
                      
                      2006Revenue
                      
                      $
                      99
                      
                      $
                      37Cost
                          of goods sold
                      
                      
                      174
                      
                      
                      26Gross
                          profit
                      
                      
                      (75
                      )
                      
                      11Operating
                          expensesPlant
                          operations and technology development
                      
                      
                      1,041
                      
                      
                      285Consulting
                          and legal fees
                      
                      
                      313
                      
                      
                      1,012General
                          and administrative
                      
                      
                      1,972
                      
                      
                      179Settlement
                          expense
                      
                      
                      -
                      
                      
                      120Total
                          operating expenses
                      
                      
                      3,326
                      
                      
                      1,596Loss
                          from operations
                      
                      
                      (3,401
                      )
                      
                      (1,585
                      )Other
                          income (expense)Interest
                          expense
                      
                      
                      (3,409
                      )
                      
                      (114
                      )Change
                          in fair value liability of warrants and derivatives
                      
                      
                      
                      
                      
                      (967
                      )Total
                          other income (expense)
                      
                      
                      (3,409
                      )
                      
                      (1,081
                      )Loss
                          before income taxes
                      
                      
                      (6,810
                      )
                      
                      (2,666
                      )Income
                          taxes
                      
                      
                      -
                      
                      
                      -Net
                          loss
                      
                      $
                      (6,810
                      )
                      $
                      (2,666
                      )Net
                          loss per share, basic and diluted
                      
                      $
                      (0.05
                      )
                      $
                      (0.04
                      )Weighted
                          average shares used in computingnet
                          loss per share, basic and diluted
                      
                      
                      131,232
                      
                      
                      61,818






4




**ECO2
        Plastics, Inc. and Subsidiary**
 **Condensed
        Consolidated Statement of Changes in Stockholders' Equity
        (Deficit)**
 **For
        the Three Months Ended March 31, 2007**
 **(in
        thousands, except share data)**
 (unaudited)
  Common
                    stock
                
                Common
                    Stock Issuable
                
                AdditionalShares
                
                Amount
                
                Shares
                
                Amount
                
                paid-in
                    capital
                
                Accumulated
                    deficit
                
                TotalBalance
                    at December 31, 2006
                
                
                114,263,824
                
                $
                114
                
                
                15,083,715
                
                $
                15
                
                $
                48,747
                
                $
                (46,146
                )
                $
                2,730Issuance
                    of shares upon exercise of warrants
                
                
                1,701,297
                
                
                2
                
                
                
                
                
                
                
                
                (1
                )
                
                
                
                
                1Issuance
                    of shares for services
                
                
                19,230
                
                
                -
                
                
                
                
                
                
                
                
                4
                
                
                
                
                
                4Issuance
                    of shares for accrued compensation
                
                
                492,308
                
                
                -
                
                
                
                
                
                
                
                
                133
                
                
                
                
                
                133Issuance
                    of shares recorded as issuable in 2006
                
                
                9,036,923
                
                
                9
                
                
                (9,036,923
                )
                
                (9
                )
                
                
                
                
                
                
                
                -Shares
                    issuable for executive compensation
                
                
                
                
                
                
                
                
                1,100,000
                
                
                1
                
                
                291
                
                
                
                
                
                292Shares
                    issuable for services
                
                
                
                
                
                
                
                
                42,700
                
                
                -
                
                
                11
                
                
                
                
                
                11Stock-based
                    compensation expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                765
                
                
                
                
                
                765Value
                    of beneficial conversion feature
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -and
                    warrants issued with notes payable
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,156
                
                
                
                
                
                2,156Issuance
                    of shares upon conversion of notes payable
                
                
                769,231
                
                
                1
                
                
                
                
                
                
                
                
                75
                
                
                
                
                
                76Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (6,810
                )
                
                (6,810
                )Balance
                    at March 31, 2007
                
                
                126,282,813
                
                $
                126
                
                
                7,189,492
                
                $
                7
                
                $
                52,181
                
                $
                (52,956
                )
                $
                (642
                )






5




**ECO2
        Plastics, Inc. and Subsidiary**
 **Condensed
        Consolidated Statements of Cash Flows**
 **(in
        thousands)**
 (unaudited)
  Three
                    Months ended March 312007
                
                2006Cash
                    flows from operating activities:Net
                    loss
                
                $
                (6,810
                )
                $
                (2,666
                )Adjustments
                    to reconcile net loss to net cashused
                    by operating activities:Depreciation
                    and amortization
                
                
                232
                
                
                46Change
                    in fair value of warrants and derivatives
                
                
                -
                
                
                967Stock-based
                    compensation
                
                
                1,157
                
                
                959Amortization
                    of debt issue costs and discount
                
                
                3,081
                
                
                52Expenses
                    paid by issuance of notes payable
                
                
                75
                
                
                -Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                (86
                )
                
                -Inventory
                
                
                57
                
                
                8Prepaid
                    expenses and deposits
                
                
                33
                
                
                -Accounts
                    payable
                
                
                487
                
                
                89Accrued
                    liabilities
                
                
                101
                
                
                128Other
                
                
                -
                
                
                (7
                )Net
                    cash used by operating activities
                
                
                (1,673
                )
                
                (424
                )Cash
                    flows from investing activities:Purchase
                    of property, plant & equipment
                
                
                (1,237
                )
                
                (302
                )Net
                    cash used by investing activities
                
                
                (1,237
                )
                
                (302
                )Cash
                    flows from financing activities:Decrease
                    in restricted cash in CIWMB escrow
                
                
                -
                
                
                58Payments
                    on CIWMB note payable
                
                
                (64
                )
                
                -Principal
                    payments on capital lease obligations
                
                
                (8
                )
                
                -Proceeds
                    from issuance of notes payable
                
                
                3,002
                
                
                550Payments
                    of debt issue costs
                
                
                (108
                )
                
                -Proceeds
                    from notes payable - officers
                
                
                -
                
                
                96Proceeds
                    from warrant exercises
                
                
                2
                
                
                -Net
                    cash provided by financing activities
                
                
                2,824
                
                
                704Net
                    decrease in cash and cash equivalents
                
                
                (86
                )
                
                (22
                )Cash
                    and cash equivalents, beginning of period
                
                
                97
                
                
                32Cash
                    and cash equivalents, end of period
                
                $
                11
                
                $
                10**Supplemental
                    disclosures of cash flow information:**Cash
                    paid for interest
                
                $
                19
                
                $
                26Cash
                    paid for income taxes
                
                $
                -
                
                $
                -**Supplemental
                  disclosures of non-cash investing and financing
                  activities:**Warrants
                    issued as debt issue costs
                
                $
                82
                
                $
                -Stock
                    issued in exchange for accrued compensation
                
                $
                48
                
                $
                -Notes
                    issued as relocation fee
                
                $
                75
                
                $
                -Debt
                    discounts
                
                $
                2075
                
                $
                -Deferred
                    debt issue costs
                
                
                —
                
                $
                49Reclassification
                  of temporary equity on
                  termination of contingent price reduction
                
                
                —
                
                $
                164






6


**ECO** **2** **Plastics, Inc. and Subsidiary** ****
 **(formerly
        Itec Environmental Group, Inc.)**
 **Notes
        to Condensed Consolidated Financial Statements**
 **March
        31, 2007**
 (unaudited)




**Note
        1. Description of Business and Summary of Significant Accounting
        Policies**
  Organization
        and Business - ECO 2 Plastics, Inc. (f.k.a. Itec Environmental Group, Inc.) and its wholly-owned
        subsidiary ,
        ECO2
        Environmental Systems, Inc.  were
        incorporated under the laws of the State of Delaware in 2000, and formed
        for the
        purpose of acquiring certain patented technology and the development of a
        worldwide market for its usage. Unless the context indicates otherwise, all
        references herein to “ECO 2” or
        the
“Company” include ECO 2 Plastics, Inc and its
        wholly-owned inactive subsidiary. In March 2007, the Company changed its
        name to ECO 2 Plastics, Inc.
 
 Based
        in
        Riverbank, California, ECO 2 has
        developed a unique and revolutionary patent pending process and system, referred
        to as the Eco 2  TM Environmental System (the “Eco 2 Environmental System”). The Eco 2 Environmental System cleans post-consumer plastics, without the use of water,
        at
        a substantial cost savings versus traditional methods (the “Process”). This
        Process is licensed from Honeywell FM&T (“Honeywell”) and the Department of
        Energy (“DOE”) on an exclusive basis for the life of the patent. Since its
        inception, ECO 2 has
        invested in the development of the technology and equipment comprising the
        Eco 2 Environmental System, which includes the filing of a new “Process Patent” in May
        2005. This included building several scaled up versions of the Prototype
        Eco 2 Environmental System (the “Prototype”), testing of the Prototypes, building a
        pilot plant, evaluating the product produced by the Prototype and real-time
        testing. The Company’s first full scale production facility was constructed in
        Riverbank, California and is now mechanically complete, producing saleable
        product and ramping up to full scale operations. ECO 2 ’s
        goal
        is to build and operate plastic recycling plants (the “ECO 2 Plants”)
        in the USA that utilize the Eco 2 Environmental System and to expand the Eco 2 Environmental System worldwide. ECO 2 ’s
        growth
        strategy includes organic growth, strategic acquisitions and licensing or
        partnership agreements, where appropriate.
 
 Business
        risks and uncertainties - The
        Company’s business is reliant on its licensing of technology from Honeywell
        Federal Manufacturing & Technologies, LLC. The Company operates in the
        evolving field of plastics materials recycling. New developments could both
        significantly and adversely affect existing and emerging technologies in
        the
        field. The Company's success in developing additional marketable products
        and processes and achieving a competitive position will depend on, among
        other
        things, its ability to attract and retain qualified management personnel
        and to
        raise sufficient capital to meet its operating and development needs. While
        the
        Company is seeking financing through equity and loans, there can be no assurance
        that it will be successful in accomplishing its objectives.
 
 Basis
        of presentation and Going Concern - The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America,
        which contemplate continuation of the Company as a going concern. Since
        inception, the Company has reported recurring losses and cash used by operating
        activities, and has a net working capital deficiency that raises substantial
        doubt about its ability to continue as a going concern. During the three
        months
        ended March 31, 2007, the Company reported a net loss of approximately $6.8
        million and used cash in operating activities of approximately $1.7 million,
        and
        as of March 31, 2007, had a working capital deficiency of approximately $6.6
        million and a stockholders’ deficit of $642,000, including accumulated losses
        from inception of $53.0 million.
  Company
        management intends to raise additional debt and equity financing to fund
        future
        capital expenditures, operations and to provide additional working capital,
        and
        in this regard during the three months ended March 31, 2007, the Company
        received cash of approximately $2.9 million, and at March 31, 2007 has a
        receivable for cash in escrow for securities sold of $241,000 pursuant to
        sales
        of securities in connection with its private placement and subordinated debt
        offerings. Further, subsequent to March 31, 2007, the Company has raised
        $3.0
        million in connection with an additional financing on the same terms as the
        private placement offering. There is no assurance that such financing will
        be
        obtained in sufficient amounts necessary to meet the Company's needs. In
        view of
        these matters, continuation as a going concern is dependent upon the Company's
        ability to meet its financing requirements, raise additional capital, and
        the
        success of its future operations or completion of a successful business
        combination.
  The
        accompanying consolidated financial statements do not include any adjustments
        to
        reflect the possible future effects on the recoverability and classification
        of
        assets or the amounts and classifications of liabilities that may result
        from
        the possible inability of the Company to continue as a going
        concern.
  Interim
        Financial Statements - The
        unaudited interim condensed consolidated financial statements and related
        notes
        are presented in accordance with the rules and regulations of the Securities
        and
        Exchange Commission with regard to interim financial information. Accordingly,
        the condensed consolidated financial statements do not include all of the
        information and notes to financial statements required by accounting principles
        generally accepted in the United States for complete financial statements.
        In
        the opinion of management, all adjustments, consisting of normal recurring
        adjustments, considered necessary for a fair presentation of the Company’s
        financial position, results of operations and cash flows for the interim
        periods
        presented have been included. Results of operations for the three months
        ended
        March 31, 2007 are not necessarily indicative of the results to be expected
        for
        the entire fiscal year ending December 31, 2007 or for any other future interim
        period. The accompanying unaudited interim condensed consolidated financial
        statements should be read in conjunction with the audited annual financial
        statements included in the Company’s December 31, 2006 Annual Report on Form
        10-KSB.
 
 7
  **ECO** **2** **Plastics, Inc. and Subsidiary** ****
 **(formerly
          Itec Environmental Group, Inc.)**
 **Notes
          to Condensed Consolidated Financial Statements**
 **March
          31, 2007**
 (unaudited)
  Use
        of
        estimates in the preparation of financial statements - Preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect reported amounts of assets and liabilities and disclosure of contingent
        assets and liabilities at the date of the financial statements and reported
        amounts of revenue and expenses during the reporting period. Actual results
        could differ from those estimates. The more significant accounting estimates
        inherent in the preparation of the Company's financial statements include
        estimates as to the depreciable lives of property and equipment, valuation
        of
        inventories, valuation of equity related instruments and derivatives issued,
        and
        valuation allowance for deferred income tax assets.
 
 Cash
        and cash equivalents - The
        Company considers deposits that can be redeemed on demand and investments
        that
        have original maturities of less than three months when purchased to be cash
        equivalents.
 
 Receivable
        for cash in escrow for securities sold - In
        connection with the sale of its securities, cash is received cash in escrow
        for
        the sale of notes payable and warrants, a portion of which had not been released
        to the Company as of the reporting period date, and which has subsequently
        been
        received by the Company.
  Accounts
        Receivable and allowance for doubtful accounts - The
        Company’s accounts receivable are due from companies in the packaging and
        manufacturing industries. Payments from customers are due within 30 days
        after a
        satisfactory credit check, if not satisfactory, payment is required in advance
        of shipment. Accounts receivable are stated at amounts due from customers
        net of
        an allowance for doubtful accounts. Accounts outstanding beyond payment terms
        are considered past due. The Company determines its allowance by considering
        a
        number of factors, including the length of time accounts receivable are past
        due, the Company’s previous loss history, the customer’s current ability to pay
        its obligation to the Company, and the condition of the general economy and
        the
        industry as a whole. The Company writes off accounts receivable when they
        become
        uncollectible, and payments subsequently collected on such accounts are credited
        to the allowance for doubtful accounts and bad debt expense .
 
 Inventories -
        Inventories are comprised primarily of raw materials and, to a lesser extent,
        finished goods and recorded at cost determined on a first-in-first out
        basis.
  Property
        and equipment -
        Property and equipment are recorded at cost less accumulated depreciation
        and
        amortization. Expenditures for major additions and improvements are capitalized,
        and minor maintenance, repairs and replacements are charged to expense as
        incurred. When property and equipment are retired or otherwise disposed of,
        the
        cost and accumulated depreciation are removed from the accounts and any
        resulting gain or loss is included in the results of operations. Depreciation
        and amortization are provided using the straight-line method over the estimated
        useful lives of the respective assets, which are 3 years for computer equipment
        and software and furniture and fixtures, 5 to 7 years for manufacturing
        equipment and 7 years for the recycling plant.
 
 Impairment
        of long-lived assets -
        Long-lived assets are reviewed for impairment at least annually, and whenever
        events or changes in circumstances indicate that the carrying amount of the
        assets may not be recoverable. Impairment of long-lived assets would be
        recognized in the event that the net book values of such assets exceed the
        future undiscounted cash flows attributable to such assets.
 
 Deferred
        debt issue costs - The
        Company capitalizes costs incurred in connection with borrowings. These costs
        are amortized as an adjustment to interest expense over the life of the
        borrowing.
 
 Debt
        discount - The
        Company records, as applicable, fees paid to lenders, the fair value of warrants
        issued with debt securities, value of beneficial conversion features of
        convertible debt, or fair value of derivatives embedded in convertible debt
        instruments relating to debt securities, as a debt discount, which is amortized
        as an adjustment to interest expense over the life of the borrowing.
  Contingencies -
        Certain conditions may exist as of the date financial statements are issued,
        which may result in a loss to the Company, but which will only be resolved
        when
        one or more future events occur or fail to occur. Company management and
        its
        legal counsel assess such contingent liabilities, and such assessment inherently
        involves an exercise of judgment. In assessing loss contingencies related
        to
        legal proceedings that are pending against the Company or unasserted claims
        that
        may result in such proceedings, the Company's legal counsel evaluates the
        perceived merits of any legal proceedings or unasserted claims as well as
        the
        perceived merits of the amount of relief sought or expected to be sought
        therein. If the assessment of a contingency indicates that it is probable
        that a
        liability has been incurred and the amount of the liability can be estimated,
        then the estimated liability would be accrued in the Company's financial
        statements. If the assessment indicates that a potentially material loss
        contingency is not probable but is reasonably possible, or is probable but
        cannot be estimated, then the nature of the contingent liability, together
        with
        an estimate of the range of possible loss if determinable would be
        disclosed.
  8
  **ECO** **2** **Plastics, Inc. and Subsidiary** ****
 **(formerly
          Itec Environmental Group, Inc.)**
 **Notes
          to Condensed Consolidated Financial Statements**
 **March
          31, 2007**
 (unaudited)
 Fair
        value of financial instruments - The
        Company measures its financial assets and liabilities in accordance with
        generally accepted accounting principles. For certain of the Company's financial
        instruments, including cash and cash equivalents, receivables, accounts payable
        and accrued liabilities, the carrying amounts approximate fair value due
        to
        their short maturities. Amounts recorded for notes payable also approximate
        fair
        value because current interest rates offered to the Company for debt of similar
        maturities are substantially the same **.**
 
 Accounting
        for Derivatives - The
        Company evaluates its convertible debt, options, warrants or other contracts
        to
        determine if those contracts or embedded components of those contracts qualify
        as derivatives to be separately accounted for under Statement of Financial
        Accounting Standards 133 “ *Accounting
        for Derivative Instruments and Hedging Activities* ”
and
        related interpretations including EITF 00-19 “ *Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company’s Own Stock* ”.
        The
        result of this accounting treatment is that the fair value of the derivative
        is
        marked-to-market each balance sheet date and recorded as a liability. In
        the
        event that the fair value is recorded as a liability, the change in fair
        value
        is recorded in the consolidated statement of operations as other income or
        expense. Upon conversion or exercise of a derivative instrument, the instrument
        is marked to fair value at the conversion date and then that fair value is
        reclassified to equity. Equity instruments that are initially classified
        as
        equity that become subject to reclassification under SFAS 133 are reclassified
        to liability at the fair value of the instrument on the reclassification
        date.
 
 Revenue
        recognition - The
        Company recognizes revenue when there is persuasive evidence of an arrangement,
        the product has been delivered to the customer, the sales price is fixed
        or
        determinable, and collectibility is reasonably assured. The Company recognizes
        revenues from sales of recycled products upon shipment to customers. Amounts
        received in advance of when products are delivered are recorded as liabilities
        in the accompanying consolidated balance sheet.
 
 Cost
        of goods sold - Cost
        of goods sold includes the cost of raw materials processed.
 
 Income
        taxes - The
        Company accounts for income taxes in accordance with SFAS No. 109, “ *Accounting
        for Income Taxes* ,”
which
        requires recognition of deferred tax assets and liabilities for expected
        future
        tax consequences of events that have been included in financial statements
        or
        tax returns. Under this method, deferred income taxes are recognized for
        the tax
        consequences in future years of differences between the tax bases of assets
        and
        liabilities and their financial reporting amounts at each period end based
        on
        enacted tax laws and statutory tax rates applicable to the periods in which
        the
        differences are expected to affect taxable income. Valuation allowances are
        established, when necessary, to reduce deferred tax assets to amounts expected
        to be realized. The
        Company continues to provide a full valuation allowance to reduce its net
        deferred tax asset to zero, inasmuch as Company management has not determined
        that realization of deferred tax assets is more likely than not. The
        provision for income taxes represents taxes payable for the period and change
        during the period in net deferred tax assets and liabilities.
  Research
        and development cost -
        Research and development represent costs incurred in connection with the
        Company’s development of recycling processes, and such costs are expensed as
        incurred and included in technology development expenses.
 
 Stock-based
        compensation - In
        January 2005 the Company early adopted *Statement
        of Financial Accounting Standard (“SFAS”) No. 123, Accounting for Stock-Based
        Compensation* (“FAS
        123R”). FAS 123R sets forth the accounting for share-based payment transactions
        in which an enterprise receives employee services in exchange for (a) equity
        instruments of the enterprise or (b) liabilities that are based on the fair
        value of the enterprise's equity instruments or that may be settled by the
        issuance of such equity instruments. The statement requires that such
        transactions be accounted for using a fair-value-based method, which requires
        recording expense over the requisite service period for the fair value of
        options or warrants granted to employees and consultants. Upon adoption,
        the
        Company applied the
        modified-prospective transition method for the transition from APB 25 to
        SFAS
        123R. There was no cumulative effect from the change in accounting
        principles from APB 25 to SFAS 123R.
 
 Basic
        and diluted net loss per share - Basic
        net loss per common share is computed by dividing net loss by the
        weighted-average number of common shares outstanding during the period. Diluted
        net loss per common share is determined using the weighted-average number
        of
        common shares outstanding during the period, adjusted for the dilutive effect
        of
        common stock equivalents, consisting of shares that might be issued upon
        exercise of common stock options, warrants or convertible promissory notes.
        In
        periods where losses are reported, the weighted-average number of common
        shares
        outstanding excludes common stock equivalents, because their inclusion would
        be
        anti-dilutive. Computations of net loss per share for the three months ended
        March 31, 2007, exclude 133,955,179 shares relating to common stock issuable
        upon conversion of convertible notes payable, and 128,664,686 shares issuable
        upon exercise of outstanding and issuable warrants to purchase common stock.
        Computations of net loss per share for the three months ended March 31, 2006,
        exclude 12,273,679 shares relating to common stock issuable upon conversion
        of
        convertible notes payable, 46,217,930 shares issuable upon exercise of
        outstanding and issuable warrants, and 19,458,403 shares issuable upon exercise
        of rights to purchase common stock. These common stock equivalents could
        have
        the effect of decreasing diluted net income per share in future
        periods.
  9
 **ECO** **2** **Plastics, Inc. and Subsidiary** ****
 **(formerly
          Itec Environmental Group, Inc.)**
 **Notes
          to Condensed Consolidated Financial Statements**
 **March
          31, 2007**
 (unaudited)
  Reclassifications -
        Certain amounts in 2006 financial statements have been reclassified or rounded
        to conform to 2007 presentations.
 
 Recent
        accounting pronouncements - In
        July 2006, the FASB issued FASB Interpretation No. 48, *Accounting
        for Uncertainty in Income Taxes* (“FIN  48”),
        which prescribes a recognition threshold and measurement process for recording
        in the financial statements uncertain tax positions taken or expected to
        be
        taken in a tax return. Additionally, FIN No. 48 provides guidance on
        the recognition, classification, accounting in interim periods and disclosure
        requirements for uncertain tax positions. FIN 48 will be effective for the
        Company beginning January 1, 2007. Although the Company is still evaluating
        the potential effects of FIN 48, it is expected that the adoption of FIN
        48 will
        not have a significant impact on the Company’s consolidated results of
        operations or financial position.
 
 In
        December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2
“ *Accounting
        for Registration Payment Arrangements* ”
(FSP
        EITF 00-19-2”), which addresses an issuer’s accounting and disclosures relating
        to registration payment arrangements. It is not expected that adoption of
        the
        provision of FSP EITF 00-19-2 will have a significant impact on the Company’s
        financial position, results of operations, or cash flows.
 
 **Note
        2. Technology License**
 
 Pursuant
        to terms of a license agreement entered into by the Company and Honeywell
        International, Inc. (“Honeywell”), as amended, the Company obtained an
        exclusive, nontransferable, worldwide license rights for the life of the
        underlying patent to practice the methods and to make, use, and sell the
        products and/or services and to certain sublicense rights, which are covered
        by
        the proprietary rights, limited to the field of use of separating and recovering
        motor oil from high density polyethylene plastic. Under this agreement, the
        Company is required to pay royalties at a rate of $0.005 per pound of recycled
        plastics sold, with minimum annual royalties of $50,000 for 2006, $100,000
        for
        2007, $200,000 for 2008 and $300,000 for 2009 and for years thereafter.
        Honeywell may terminate this agreement in the event of, among other things,
        the
        nationalization of the industry which encompasses any products or services,
        any
        suspension of payments under the terms of the agreement by government
        regulation, a substantial change in ownership of the Company (whether resulting
        from merger, acquisition, consolidation or otherwise), another company or
        person
        acquiring control of the Company, or the existence of a state of war between
        the
        United States and any country where the Company has a license to manufacture
        products or provide services.
 
 **Note
        3. Convertible Notes Payable**
 
 Convertible
        notes payable and related unamortized debt discount at March 31, 2007 consist
        of
        the following (in thousands):
  **Notes**
                
                **Unamortized**
                  **Debt
                    discount**
                
                **Notes,
                    net of**
                  **debt
                    discount**Private
                    Placement Notes
                
                $
                10,059
                
                $
                (
                    6,427
                )
                $
                3,632Subordinated
                    Notes
                
                
                3,002
                
                
                (
                    1,172
                )
                
                1,830Total
                
                
                13,061
                
                
                (
                    7,599
                )
                
                5,462Less
                    current portion
                
                
                (
                    6,953
                )
                
                2,989
                
                
                (3,964
                )Convertible
                    Notes payable, net
                
                $
                6,108
                
                $
                (
                    4,610
                )
                $
                1,498
  Private
        Placement Notes -
        The
        Company has received subscriptions and related funds into escrow pursuant
        to a
        private placement memorandum (the “PPM”) of up to $9 million, through the
        offering of a minimum of 20 Units for $25,000 per unit. Each Unit consists
        of a
        $25,000 junior secured subordinated convertible debenture (the “Private
        Placement Notes”), bearing interest at 10% with principal and accrued interest
        due 18 months from issuance (“maturity date”), convertible into shares of the
        Company’s common stock at a price of $0.0975 per share, and a warrant, with a
        cashless exercise provision, to purchase 75,000 shares of restricted common
        stock of the Company, exercisable until April 15, 2015 at an exercise price
        of
        $0.06 per share (the “Private Placement Warrants”). The conversion price of the
        debentures and exercise price of the warrant are subject to anti-dilution
        downward adjustments in the event the Company sells common stock or securities
        convertible into common stock at a price below the conversion or exercise
        prices. The security is subordinated only to the security interest granted
        to
        CIWMB. The shares underlying the debentures and warrants are subject to piggy
        back registration rights. In addition, a registration statement must be filed
        within 30 days after an investor elects to convert all or any portion of
        the
        debenture. During 2006, proceeds for approximately $7.9 million of Private
        Placement Notes had been received into escrow, and as a result the Company
        has
        recorded convertible notes payable and approximately 23.7 million warrants.
        At
        December 31, 2006, approximately $1.2 million of escrowed funds had not been
        disbursed to the Company, which was reported as a receivable for cash in
        escrow
        for securities sold, and which was received by the Company in 2007. During
        2006,
        holders of $150,000 of other notes payable converted those notes, plus accrued
        interest into subscription units comprised of approximately $159,000 of Private
        Placement Notes and 450,000 warrants, and the Company also issued $60,000
        of
        Private Placement Notes and 180,000 Private Placement Warrants. As of December
        31, 2006, the offering had not closed and the debentures and warrants not
        been
        issued. On February 1, 2007, the offering closed and during the three months
        ended March 31, 2007, the debentures and warrants were issued.
 10
  **ECO** **2** **Plastics, Inc. and Subsidiary** ****
 **(formerly
          Itec Environmental Group, Inc.)**
 **Notes
          to Condensed Consolidated Financial Statements**
 **March
          31, 2007**
 (unaudited)
 Prior
        to
        August 18, 2006, the Company had certain notes payable outstanding that included
        a variable conversion price, which qualified the embedded conversion option
        as a
        derivative pursuant to SFAS 133 and related interpretations, since the
        conversion price was variable and the ability to have enough authorized common
        shares to fulfill its potential obligations under convertible debt contracts
        was
        not under Company control. In such circumstances, the debenture instrument
        is
        separated into a debt instrument and an embedded option instrument for financial
        statement purposes and the embedded option instrument is recorded as a liability
        at fair value and marked to fair value at each reporting date through the
        statement of operations as other income or expense. The existence of the
        absence
        of the ability to have enough authorized common shares to fulfill its potential
        obligations for the repaid notes payable, required that all conversion features
        and all warrants outstanding also be accounted for at fair value and marked
        to
        fair value through the statement of operations.
 
 At
        the
        Private Placement Note issuance dates through August 18, 2006, the total
        fair
        value liability recorded for the Private Placement Note embedded conversion
        options and Private Placement Warrants was approximately $3.8 million and
        at
        August 18, 2006, the total fair value liability recorded approximated $2.4
        million. The full fair value of the warrants of approximately $1.1 million,
        and
        $1.5 million of the $2.7 million fair value of the embedded conversion feature
        were allocated to debt discount, the maximum to be recorded, and the remaining
        $1.2 million to operations for the year ended December 31, 2006, respectively,
        as a change in fair value of warrants and derivatives. At August 18, 2006,
        when
        the Company no longer had an inability to have enough authorized common shares
        to fulfill its potential obligations, the fair value liability of approximately
        $2.4 million recorded at that date was reclassified to additional paid-in
        capital.
 
 In
        2006,
        debt discount of approximately $7.7 million was recorded, of which approximately
        $550,000 was recorded during the three months ended March 31, 2006, and of
        which
        $46,000 was amortized to interest expense during the three months March 31,
        2006. During the three months ended March 31, 2007, approximately $1.3 million
        of the discount recorded in 2006 was amortized to interest expense.
 
 In
        February 2007, the Company received $2 million pursuant to investment terms
        substantially similar to the PPM (the “Additional Investment”). As a result the
        Company issued a $2 million junior subordinated convertible debenture, bearing
        interest at 10% with principal and accrued interest due 18 months from issuance
        (“maturity date”), convertible into shares of the Company’s common stock at a
        price of $0.0975 per share, and a warrant, with a cashless exercise provision,
        to purchase 6,000,000 shares of restricted common stock of the Company,
        exercisable for approximately 8 years (expires April 15, 2015) at an exercise
        price of $0.06 per share. The conversion price of the debenture and exercise
        price of the warrant are subject to anti-dilution downward adjustments in
        the
        event the Company sells common stock or securities convertible into common
        stock
        at a price below the conversion or exercise prices. The debenture ranks pari
        passu with Private Placement Notes and Subordinated Notes and is subordinated
        only to the security interest granted to CIWMB. Shares underlying the debenture
        and warrants are subject to piggy back registration rights. In addition,
        a
        registration statement must be filed within 30 days after the investor elects
        to
        convert all or any portion of the debenture. In connection with the Additional
        Investment, the Additional Investment’s placement agent received a cash payment
        of $85,000 and received warrants, with a cashless exercise provision, to
        purchase 314,815 shares of restricted common stock of the Company at a per
        share
        price of $0.06 exercisable for 10 years. Pursuant to terms of the Additional
        Investment purchase agreement, the holder of the Additional Investment notes
        has
        the right to designate one person to become a member of the Company’s Board of
        Directors.
  11
 **ECO** **2** **Plastics, Inc. and Subsidiary** ****
 **(formerly
          Itec Environmental Group, Inc.)**
 **Notes
          to Condensed Consolidated Financial Statements**
 **March
          31, 2007**
 (unaudited)
 Additionally,
        in February 2007, the Company issued three PPM Units, comprised of $75,000
        of
        Private Placement Notes and 225,000 Private Placement Warrants in exchange
        for
        accrued liabilities, which such notes were immediately converted into 769,231
        shares of Company common stock in accordance with the terms of the
        notes.
 
 During
        the three months ended March 31, 2007, debt discount of approximately $2.1
        million, comprised of $908,000 of warrant and $1.2 million beneficial conversion
        feature value, was recorded, of which $222,000 was amortized to interest
        expense
        during the three months March 31, 2007. The fair value of warrants was computed
        using a Black-Scholes option pricing method with the following assumptions:
        expected term of 10 years (based on the contractual term), volatility of
        approximately 182% (based on historical volatility), zero dividends and interest
        rate of approximately 4.5%.
 
 Subordinated
        Notes - During
        2006, the Company received $2.8 million pursuant to a private placement of
        subordinated convertible notes (the “Subordinated Notes”), bearing interest at
        10%, with principal and accrued interest due 12 months from issuance (“maturity
        date”), convertible into shares of the Company’s common stock at a price of
        $0.0975 per share, and warrants, with cashless exercise provisions, to purchase
        28,000,000 shares of restricted common stock of the Company, exercisable
        until
        April 2015 at an exercise price of $0.12 per share (the “Subordinated Notes
        Warrants”). The conversion price of the debentures is subject to anti-dilution
        downward adjustments in the event the Company sells common stock or securities
        convertible into common stock at a price below the conversion price. The
        Subordinated Notes rank pari passu with Private Placement Notes and are
        subordinated only to the security interest granted to CIWMB. The shares
        underlying the notes and warrants are subject to piggy back registration
        rights.
        In addition, a registration statement must be filed within 30 days after
        an
        investor elects to convert all or any portion of the note. In August 2006,
        the
        holder of a $200,000 short-term convertible note payable converted the note,
        plus accrued interest into a Subordinated Note of $202,000 and 2,020,000
        warrants. In the event the holders of Subordinated Notes elect to convert
        such
        notes into shares of Company common stock, the Company will issue warrants
        exercisable into that number of shares of the Company’s common stock equal to
        the quotient of (i) 65% of the value of the converted notes divided by (ii)
        a
        per share price of $0.12.
 
 In
        2006,
        debt discount of approximately $3.2 million was recorded, none during the
        three
        months ended March 31, 2006, of which $751,000 was amortized to interest
        expense
        during the three months March 31, 2007.
  **Note
        4. Common Stock, Stock Warrants and Other Rights to Purchase Common
        Stock**
 
 Common
        Stock Issued for Services -
 
 During
        July 2006, the Company entered into an employment agreement with an individual
        to serve as its Chief Executive Officer and a Director, pursuant to which,
        among
        other things, the executive received 44,000,000 shares of Company common
        stock,
        of which 26,400,000 were fully vested, issued and outstanding at December
        31,
        2006 and March 31, 2007, and of which 8,800,000 shares vest in September
        2007
        and the remaining 8,800,000 vest pro-rata from October 2007 to September
        2008.
        The total value of the shares based on the grant date quoted trading price
        of
        the Company’s common stock was approximately $5.7 million. In connection with
        this agreement, the Company recorded compensation expense of approximately
        $3.4
        million for fully-vested shares, and $500,000 for a portion of the unvested
        shares amortized on a straight-line basis over the vesting periods. A total
        of
        44,000,000 shares of Company common stock were issued to the executive in
        2006,
        a portion of which is subject to return in accordance with vesting provisions.
        As of December 31, 2006, there was approximately $1.8 million of unrecognized
        compensation expense related to unvested stock awards, which is expected
        to be
        recognized as expense of approximately $1.4 million in 2007 and $405,000
        in
        2008. During the three months ended March 31, 2007, the Company recognized
        stock-based compensation expense of approximately $429,000, and as of March
        31,
        2007, there was approximately $1.4 million of unrecognized compensation expense
        related to unvested stock.
  Pursuant
        to an agreement with an executive recruiter and 2006 placements of the Company’s
        Chief Executive and Operating Officers, the recruiter is entitled to receive
        11,456,923 shares of Company common stock, of which 9,036,923 shares are
        fully-vested, and of which 2,420,000 shares vest in September 2007, and warrants
        to purchase 519,750 shares of Company common stock at a per share price of
        $0.06
        per share exercisable for 10 years, and warrants to purchase 4,950,000 shares
        of
        Company common stock at a per share price of $0.0975 exercisable for 10 years.
        In connection with this agreement, the shares are valued at approximately
        $1.5
        million based on the quoted trading prices of $0.13 and $0.135 on the effective
        dates and the warrants are valued at approximately $737,000 computed using
        a
        Black-Scholes option pricing method with the following assumptions: contractual
        term of 10 years, volatility of 183% (based on historical volatility over
        the
        term), zero dividends and interest rate of approximately 4.8%. In 2006, the
        Company recorded compensation expense of approximately $1.7 million for
        fully-vested shares and fully-vested warrants, and $129,000 for a portion
        of the
        unvested shares and warrants amortized on a straight-line basis over the
        vesting
        periods. During the three months ended March 31, 2007, the Company recognized
        stock-based compensation expense of approximately $134,000, and as of March
        31,
        2007, there was approximately $312,000 of unrecognized compensation expense
        related to unvested stock and stock warrants, which is expected to be recognized
        as expense in 2007.
  12
 **ECO** **2** **Plastics, Inc. and Subsidiary** ****
 **(formerly
          Itec Environmental Group, Inc.)**
 **Notes
          to Condensed Consolidated Financial Statements**
 **March
          31, 2007**
 (unaudited)
 Stock
        Warrants -
        Warrants have been granted with exercise prices that are equal to, or
        more or less than, the current fair value of the Company's common stock at
        the
        date of grant. Therefore they were expensed at the grant date. The fair value
        of
        warrants issued during 2006 and 2007was estimated using the Black-Scholes
        option-pricing model with the following assumptions: a dividend yield of
        0%;
        expected volatility of approximately 172% to 183% (based on historical
        volatility over the terms); risk-free interest rates of approximately 5%;
        and
        contractual terms of 3.5 to 10 years. The weighted-average fair value of
        warrants granted during the three months ended March 31, 2006 and 2007
        approximated $0.13 and $0.25, respectively.
 
 During
        2006, the Company also entered into an employment agreement with an individual
        to serve as its Chief Operating Officer, pursuant to which, among other things,
        the executive will receive shares of Company common stock (or stock options,
        at
        the executive’s election) covering 5% of Common Stock Equivalents, as defined in
        the agreement. The Effective Date of the employment agreement is October
        19,
        2006, at which date the executive is to receive options to purchase 24,000,000
        common shares (shares were not elected) of Company common stock, of which
        12,000,000 (50%) warrant are fully-vested, and of which 6,000,000 warrants
        vest
        in October 2007 and the remaining 6,000,000 vest pro-rata from November 2007
        to
        October 2008. The warrants are exercisable at $0.0975 per share for ten years.
        In connection with this agreement, the Company recorded compensation expense
        of
        approximately $1.6 million based on the fair
        value as determined utilizing the Black-Scholes valuation model as of
        the Effective Date for fully-vested shares, and $155,000 for a portion of
        the
        unvested shares amortized on a straight-line basis over the vesting periods.
        As
        of December 31, 2006, there was approximately $1.5 million of unrecognized
        compensation expense related to unvested stock warrants, which is expected
        to be
        recognized as expense of approximately $810,000 in 2007 and $655,000 in 2008.
        During the three months ended March 31, 2007, the Company recognized stock-based
        compensation expense of approximately $202,000, and as of March 31, 2007,
        there
        was approximately $1.3 million of unrecognized compensation expense related
        to
        unvested stock warrants.
 
 In
        connection with sales of Private Placement units comprised of Private Placement
        Notes and warrants, during the year ended December 31, 2006, approximately
        warrants to purchase 24,000,000 shares of common stock at a per share price
        of
        $0.06 for 10 years are issuable.
 
 Additionally,
        in connection with sales of Private Placement units and Subordinated Notes
        and
        Warrants, pursuant to terms of a funding agreement with a related party,
        the
        Company agreed to issue warrants based on securities sold and common shares
        convertible or exercisable into. In 2006, the Company has recorded debt issue
        costs of approximately $655,000 based on the fair value of approximately
        1,440,000 warrants exercisable at $0.06 per share for approximately eight
        and
        one-half years and 3,748,000 warrants exercisable at $0.12 per share for
        approximately three and one-half years, determined utilizing the Black-Scholes
        valuation model.
 
 Additionally,
        in connection with sales of Private Placement units and Subordinated Notes
        and
        warrants, pursuant to terms of a placement agent agreement with KW Securities,
        the Company agreed to issue warrants based on securities sold. In 2006, the
        Company has recorded debt issue costs of approximately $2.1 million based
        on the
        fair value of 14,625,000 warrants exercisable at $0.06 per share for
        approximately eight and one-half years, determined utilizing the Black-Scholes
        valuation model.
 
 Prior
        to
        August 18, 2006, the Company had determined that pursuant to EITF 00-19,
        all of
        the Company’s warrants and investment rights granted to non-employees are to be
        classified as liabilities, since the Company has issued convertible debt
        with
        variable conversion terms, the ability to have enough authorized common shares
        to fulfill its potential obligations under convertible debt and warrant
        contracts is not under the Company control and accordingly the criteria for
        classification as equity instruments under EITF 00-19 is not met. During
        the
        three months ended March 31, 2006, the Company recognized approximately $967,000
        of other expense relating to the change in fair value of warrants during
        the
        period which is included in the accompanying statement of operations as the
        change in fair value liability of warrants and derivatives. At August 18,
        2006,
        when the Company no longer had the inability to have enough authorized common
        shares to fulfill its potential obligations, the fair value liability of
        all
        outstanding warrants and investment rights recorded at that date was
        reclassified to additional paid-in capital.
 
 Stock
        Issued Upon Exercise of Warrants - During
        the three months ended March 31, 2007, pursuant to receipt of notices of
        cash
        and cashless exercises of 1,778,439 warrants, the Company issued 1,701,297
        shares of its common stock and received proceeds of approximately $1,400.
 
 13
 **ECO** **2** **Plastics, Inc. and Subsidiary** ****
 **(formerly
          Itec Environmental Group, Inc.)**
 **Notes
          to Condensed Consolidated Financial Statements**
 **March
          31, 2007**
 (unaudited)
 The
        following summarizes activity for stock warrants issued to lenders in connection
        with borrowings, all of which are exercisable:
  **Outstanding**
                
                **Weighted
                    average**
                  **exercise
                    price**
                
                **Weighted
                    average****remaining
                    contractual****life
                    in years**
                
                **Aggregate**
                  **intrinsic
                    value**
                  **(in
                    thousands)**Balance
                    at December 31, 2006
                
                
                59,858,439
                
                $
                0.09
                
                
                5.8
                
                $
                3,518Granted
                
                
                6,000,000
                
                
                0.06Exercised
                
                
                (1,778,439
                )
                
                0.01Expired/cancelled
                
                
                -
                
                
                -Balance
                    at March 31, 2007
                
                
                64,080,000
                
                $
                0.09
                
                
                5.6
                
                $
                7,033
 The
        following summarizes activity for stock warrants issued to consultants for
        services, all of which are exercisable:
 **Outstanding**
                
                **Weighted
                    average exercise price**
                
                **Weighted
                    average remaining contractual life in years**
                
                **Aggregate
                    intrinsic value (in thousands)**Balance
                    at December 31, 2006
                
                
                32,194,871
                
                $
                0.08
                
                
                7.4
                
                $
                2,433Granted
                
                
                314,815
                
                
                0.06Exercised
                
                
                -
                
                
                -Expired/
                    Cancelled
                
                
                -
                
                
                -Balance
                    at March 31, 2007
                
                
                32,509,686
                
                $
                0.08
                
                
                7.2
                
                $
                3,908
 The
        following summarizes activity for stock warrants issued to employees:
 **Outstanding**
                
                **Weighted
                    average exercise price**
                
                **Weighted
                    average remaining contractual life in years**
                
                **Aggregate
                    intrinsic value (in thousands)**Balance
                    at December 31, 2006
                
                
                31,850,000
                
                $
                0.07
                
                
                9.2
                
                $
                2,416Granted
                
                
                225,000
                
                
                0.06Exercised
                
                
                -
                
                
                -Expired/
                    Cancelled
                
                
                -
                
                
                -Balance
                    at March 31, 2007
                
                
                19,850,000
                
                $
                0.06
                
                
                9.0
                
                $
                4,040
  The
        following summarizes activity for all stock warrants:
 **Outstanding**
                
                **Weighted
                    average exercise price**
                
                **Weighted
                    average remaining contractual life in years**
                
                **Aggregate
                    intrinsic value (in thousands)**Balance
                    at December 31, 2006
                
                
                123,903,310
                
                $
                0.08
                
                
                6.9
                
                $
                8,425Granted
                
                
                6,539,815
                
                
                0.06Exercised
                
                
                (1,778,439
                )
                
                0.01Expired/
                    Cancelled
                
                
                -
                
                
                -Balance
                    at March 31, 2007
                
                
                128,664,686
                
                $
                0.08
                
                
                6.7
                
                $
                14,981
  Additional
        information regarding all warrants outstanding as of March 31, 2007, is as
        follows:
 
 **Range
                    of exercise prices**
                ****
                
                ****
                **Shares**
                ****
                **Weighted
                    average remaining life**
                ****
                **Weighted
                    average exercise price**$
                    0.001
                
                
                
                910,000
                
                3.5
                    years
                
                $
                    0.001$
                    0.045-
                $
                    0.05
                
                
                
                1,600,000
                
                3.6
                    years
                
                $
                    0.05$
                    0.06
                
                
                
                72,024,565
                
                7.7
                    years
                
                $
                    0.06$
                    0.09 -
                $
                    0.10
                
                
                
                17,950,000
                
                9.6
                    years
                
                $
                    0.10$
                    0.12 -
                $
                    0.13
                
                
                
                35,868,000
                
                3.6
                    years
                
                $
                    0.12$
                    0.25
                
                
                
                300,000
                
                3.3
                    years
                
                $
                    0.25$
                    29.70
                
                
                
                12,121
                
                0.6
                    years
                
                $
                    29.70Total
                
                128,664,686
                
                6.7
                    years
                
                $
                    0.08
  14
 ECO2Plastics, Inc. and Subsidiary
 **(formerly
          Itec Environmental Group, Inc.)**
 **Notes
          to Condensed Consolidated Financial Statements**
 March
          31,
          2007
 (unaudited)
 **Note
        5.  Related Party Transactions**
  Certain
        of the Company’s Directors are holders of the Company’s Private Placement Notes
        and Subordinated Notes in the amounts of approximately $4.7 million held
        by one
        Director and $2.3 million held by another Director.
 
 Pursuant
        to an agreement with The Otto Law Group, PLLC (“OLG”), a law firm, the managing
        partner of which is one of the Company’s Directors, for legal services, the
        Company periodically issued vested non-forfeitable common shares, and any
        proceeds from the sale of such shares by OLG and reported to the Company
        were
        credited against invoice amounts due to OLG for legal services. The agreement
        had no stated term. During 2006, the Company issued 2,802,925 shares of its
        common stock and recorded legal expense of approximately $336,000, which
        was
        determined based on the $0.12 per share quoted trading price on date of
        issuance. There were no reported stock sale proceeds during 2006. In August
        2006, the Company entered into an engagement agreement with OLG, whereby
        the
        prior agreement was superseded and replaced, and among other things, the
        Company
        issued 2,500,000 shares of its common stock. The shares were valued at the
        quoted trading prices of $0.11 on the grant date, resulting in an expense
        of
        $275,000. During 2006, the Company incurred OLG legal fee services of $967,000.
        Accounts payable to OLG for legal services was approximately $532,000 at
        March
        31, 2007 and reported as accounts payable - related party in the accompanying
        consolidated balance sheet.
 
 During
        2006, the Company issued 2,802,925 shares of its common stock to Cambridge
        Partners, LLC (“Cambridge”) for investor advisory services provided to the
        Company and recorded consulting expense of approximately $336,000, which
        was
        determined based on the $0.12 per share quoted trading price on the issuance
        date. The managing partner of OLG, one of the Company’s Directors, is one of the
        two members of Cambridge.
 
 In
        2006,
        the Company entered into an agreement with KW Securities, Inc. (“KW”), a
        registered broker dealer and a company owned by Lawrence Krause, one of the
        Company’s Directors, for KW to serve as placement agent for the Private
        Placement Offering. Pursuant to terms of the agreement, as amended, among
        other
        things, the Company shall pay compensation of warrants to purchase Company
        common stock at a per share price of $0.06 until April 2015, at varying rates
        of
        warrants for funds raised based on securities sold. In connection with sales of Private Placement units and Subordinated Notes and
        warrants in 2006, the Company has recorded debt issue costs of approximately
        $2.1 million based on the fair value of 14,625,000 warrants exercisable at
        $0.06
        per share for approximately eight and one-half years, determined utilizing
        the
        Black-Scholes valuation model, which such warrants were issued to KW in 2007.
        Upon the closing of the PPM in 2007, the agreement with KW
        terminated.
 
 In
        2006,
        the Company entered into a Funding Agreement with Itec Capital Group, LLC
        (“ICG”), a Washington limited liability company owned by the managing partner of
        OLG, who is one of the Company’s Directors, and Lawrence Krause, who is also one
        of the Company’s Directors, and KW, a company owned by Mr. Krause. Pursuant to
        terms of the Funding Agreement, the Company agreed to pay fees of 8% of Notes
        payable issued pursuant to certain financings and issue warrants based on
        securities sold and common shares convertible or exercisable into. Pursuant
        to a
        consulting agreement between ICG and Excipio Group, S.A. (“Excipio”), an entity
        affiliated with Hudson Investment Advisors, Inc., ICG agreed to pay Excipio
        a
        dollar amount and securities to be agreed upon from time to time upon completion
        of certain defined objectives and projects, and in this regard, ICG has agreed
        to pay Excipio fees and warrants in the amounts ICG receives from the Company.
        In November 2006, Excipio, ICG and the Company entered into a mutual settlement
        and release agreement, pursuant to which, among other things, in full
        satisfaction of amounts owed under all prior agreements or arrangements,
        the
        Company agreed to pay approximately $429,000 (in addition to $296,000 previously
        paid) and issue a warrant to purchase 1,440,000 shares of Company common
        stock
        with an exercise price of $0.06 per share for approximately eight and one-half
        years and a warrant to purchase 3,748,000 shares of Company common stock
        with an
        exercise price of $0.12 per share for approximately three and one-half years.
        The $429,000 was payable $200,000 upon execution of the settlement agreement
        and
        in varying amounts based on certain conditions, and was paid in full during
        the
        three months ended March 31, 2007. In connection with the settlement agreement,
        the consulting agreement between ICG and Excipio was cancelled and any further
        obligation under the consulting agreement has been waived and dismissed,
        and the
        Funding Agreement between the Company and ICG was amended to reflect the
        settlement of fees and expenses owed and paid under the Funding Agreement
        and
        that no additional fees or expenses shall accrued or become due in accordance
        with the Funding Agreement.
 
 **Note
        6. Commitments and Contingencies**
  Legal
        Matters - During
        2005, the Company issued 2,737,220 shares of its common stock (and certain
        registration rights) to Brean Murray Carret & Co., LLC (“BMC”) as retainer
        for certain corporate finance and investment banking services to be provided
        pursuant to the corporate finance representation agreement between the parties
        entered into in 2005. The agreement was for a period of one year, extendable
        to
        two years upon completion of a successful financing. In the event of a
        consummated transaction, the Company would pay BMC fees ranging from 2% to
        8% of
        amounts raised, varying in amounts of securities issued in the financing,
        depending of the type of securities and nature of transaction. In October
        2005,
        the Company issued to BMC an additional 744,542 shares of its common stock
        and
        warrants to purchase 850,000 shares of Company common stock at a per share
        price
        of $0.001 for a term of 5 years. In December 2006, BMC filed an arbitration
        claim against the Company with the NASD seeking in excess of $1 million from
        the
        Company. The Company filed a response and affirmative defenses and a
        counterclaim against BMC, and BMC subsequently filed its response and
        affirmative defenses to the Company’s counterclaim in March 2007. It is the
        Company’s position, among other things, that the BMC claim does not contain any
        legal, factual or substantive merit, that the Company intends to vigorously
        defend BMC’s claim, that it intends to vigorously pursue its counterclaim
        against BMC, and that it is not probable that a loss will be incurred.
        Arbitration, if it should occur with respect to this matter, is inherently
        uncertain and always difficult to predict. However, based on the Company’s
        understanding and evaluation of the relevant facts and circumstances, it
        believes that the above-described matter is not likely to have a material
        adverse effect on its consolidated results of operations, financial position
        or
        cash flows. There is a possibility of a material adverse impact on the results
        of operations of the period in which the matter is ultimately resolved, if
        it is
        resolved unfavorably, or in the period in which an unfavorable outcome becomes
        probable and reasonably estimable.
  15
 Consulting
        Agreement - In
        February 2007, the Company entered into a consulting services agreement,
        which
        agreement terminates December 31, 2007, with the Company’s former Chief
        Financial Officer, pursuant to which, among other things, the Company issued
        to
        the former officer 492,308 fully-vested shares of its common stock, and pay
        annual compensation of $120,000 in consideration for services during the
        term
        and in exchange for the release of any claim to accrued compensation recorded
        by
        the Company while previously employed by the Company as its Chief Financial
        Officer, which such amount was $168,000 at December 31, 2006. In connection
        with
        this agreement, the Company recorded the shares issued as an increase in
        common
        stock and additional paid-in capital of approximately $133,000 based on the
        $0.27 quoted trading price on the agreement date and compensation expense
        of
        approximately $85,000.
  During
        the three months ended March 31, 2007 the
        Company entered into various arrangements with non-employee service providers
        in
        exchange for common stock. The Company recorded approximately $71,000 of
        expense, $60,000 of accrued liability and $11,000 of issuable common stok
        (see
        Note 7).
 
 Other
        Commitments and Contingencies
 
 In
        2005,
        the Company  entered
        into a three year Agency Agreement with H. Muehlstein & Co., Inc.
        (“Muehlstein”), pursuant to which Muehlstein will act as the Company’s exclusive
        agent for the annual purchase and sale of up to sixty million pounds, subject
        to
        increase under certain circumstances, of ECO 2 ’s
        PET
        flake and post-consumer HDPE natural flake and pellets in the USA and Canada.
        This agreement prohibits the Company from engaging additional sales agents,
        but
        does not limit the Company’s direct sales to customers.
 
 In
        connection with issuance of Bridge Notes and Bridge Warrants, the Company
        agreed
        to prepare and, as soon as practicable, but in no event later than 75 days
        following the closing date of the Private Placement (the “Filing Deadline”),
        file with the Securities and Exchange Commission (the “SEC”) a registration
        statement on Form SB-2 covering the resale of all shares of common stock
        underlying the Bridge Warrants, and has further agreed to use its reasonable
        best efforts to have such registration statement declared effective by the
        SEC
        as soon as practicable, but in no event later than the date which is 180
        days
        following the closing date of the Private Placement (the “Effectiveness
        Deadline”). In the event the registration statement required to be filed is not
        filed by the Filing Deadline, the Company shall issue to the lender additional
        cashless warrants to purchase shares of the Company's common stock (“Additional
        Warrants”) in an amount equal to 10% of the number of shares underlying the
        Bridge Warrant issued to the lender for each 30 day period (or a portion
        thereof) during which time such registration statement has not been filed
        with
        the SEC, which Additional Warrants shall be issued on the first day of each
        30
        day period commencing on the Filing Deadline. In addition, in the event the
        registration statement required to be filed is not declared effective by
        the SEC
        by the Effectiveness Deadline, the Company shall issue to the Lender Additional
        Warrants in an amount equal to 10% of the number of shares underlying the
        Warrant issued to the Lender for each 30 day period (or portion thereof)
        during
        which time such registration statement has not been declared effective by
        the
        SEC, which Additional Warrants shall be issued on the first day of each 30
        day
        period and commencing on the Effectiveness Deadline. The exercise price for
        the
        Additional Warrants issued shall be the same as the exercise price of the
        warrants that are issued in the Private Placement. Due to the contingent
        nature
        of the registration statement filing penalties and Company management’s belief
        that at March 31, 2007 that it is not more likely than not that such penalties
        will be payable, no liability has been recorded.
 
 **Note
        7. Subsequent Events**
 
 Subsequent
        to March 31, 2007, the Company has raised $3.0 million in connection with
        an
        additional financing on the same terms as the private placement offering.
  On
        May 7, 2007, the Company (see Note 6) granted
        4,036,889 common shares to various non-employee service providers and 191,579
        common shares for rent for accrued liabilities and future services. The
        shares will be valued on the measurement date as determined under EITF 96-18
        and
        expensed as services are provided.
 
 16




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





*This
      Item 2 and the March 31, 2007 Quarterly Report on Form 10-QSB may contain “
forward-looking statements. ” In some cases, you can identify forward-looking
      statements by terminology such as “may,” “will,” “should,” “could,” “expects,”
“plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential” or “continue” or the negative of such terms and other comparable
      terminology. These forward-looking statements include, without limitation,
      statements about our market opportunity, our strategies, competition, expected
      activities and expenditures as we pursue our business plan, and the adequacy
      of
      our available cash resources. Although we believe that the expectations
      reflected in any forward-looking statements are reasonable, we cannot guarantee
      future results, levels of activity, performance or achievements. Actual results
      may differ materially from the predictions discussed in these forward-looking
      statements. Changes in the circumstances upon which we base our predictions
      and/or forward-looking statements could materially affect our actual results.
      Additional factors that could materially affect these forward-looking statements
      and/or predictions include, among other things: (1) our limited operating
      history; (2) our ability to pay down existing debt; (3) our ability to retain
      the professional advisors necessary to guide us through our corporate
      restructuring; (4) the risks inherent in the investigation, involvement and
      acquisition of a new business opportunity; (5) unforeseen costs and expenses;
      (6) potential litigation with our shareholders, creditors and/or former or
      current investors; (7) the Company's ability to comply with federal, state
      and
      local government regulations; and (8) other factors over which we have little
      or
      no control.*





The
      following should be read in conjunction with the Company’s unaudited financial
      statements included in this Quarterly Report on Form 10-QSB and with the
      Company’s audited annual financial statements included in its December 31, 2006
      Annual Report on Form 10-KSB.





**Business** **-** ECO 2 Plastics,
      Inc. (f.k.a. Itec Environmental Group, Inc.) and its wholly-owned subsidiary,
      ECO 2 Environmental
      Systems, Inc.,   were incorporated under the laws of the State of Delaware
      in 2000, and formed for the purpose of acquiring certain patented technology
      and
      the development of a worldwide market for its usage. Unless the context
      indicates otherwise, all references herein to “ECO 2 ”
or
      the
“Company” include ECO 2 Plastics,
      Inc and its wholly-owned inactive subsidiary. In March 2007, the Company changed
      its name to ECO 2 Plastics,
      Inc.





Based
      in
      Riverbank, California, ECO 2 has
      developed a unique and revolutionary patent pending process and system, referred
      to as the ECO 2 Environmental
      System (the “ECO 2 Environmental
      System”). The ECO 2 Environmental
      System cleans post-consumer plastics, without the use of water, at a substantial
      cost savings versus traditional methods (the “Process”). This Process is
      licensed from Honeywell FM&T (“Honeywell”) and the Department of Energy
      (“DOE”) on an exclusive basis for the life of the patent. Since its inception,
      ECO 2 has
      invested in the development of the technology and equipment comprising the
      Eco 2 Environmental
      System, which includes the filing of a new “Process Patent” in May 2005. This
      included building several scaled up versions of the Prototype ECO 2 Environmental
      System (the “Prototype”), testing of the Prototypes, building a pilot plant,
      evaluating the product produced by the Prototype and real-time testing. The
      Company’s first full scale production facility was constructed in Riverbank,
      California and is now mechanically complete, producing saleable product and
      ramping up to full scale operations. ECO 2 ’s
      goal
      is to build and operate plastic recycling plants (the “ECO 2 Plants”)
      in the USA that utilize the ECO 2 Environmental
      System and to expand the ECO 2 Environmental
      System worldwide. ECO 2 ’s
      growth
      strategy includes organic growth, strategic acquisitions and licensing or
      partnership agreements, where appropriate.





ECO 2 intends
      to locate its second plant in the greater Los Angeles basin, which is home
      to
      over 18.5 million residential customers. ECO 2 ’s
      research indicates that the greater Los Angeles basin generates an enormous
      amount of plastic containers. The Company has engaged a team of engineers to
      conduct the preliminary design efforts and has engaged a team of location and
      logistics specialists to support the Company in the site selection process
      currently underway.





The
      Company operates in the evolving field of plastics materials recycling. New
      developments could both significantly and adversely affect existing and emerging
      technologies in the field. The Company's success in developing additional
      marketable products and processes and achieving a competitive position will
      depend on its ability to attract and retain qualified management personnel
      and
      to raise sufficient capital to meet its operating and development needs.





**Critical
      Accounting Policies and Estimates** **** -
      The preparation of financial statements included in this Quarterly Report on
      Form 10-QSB requires management to make estimates and assumptions that affect
      the reported amounts of assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period.  On an on-going basis, management evaluates its estimates
      and judgments. Management bases its estimates and judgments on historical
      experiences and on various other factors that are believed to be reasonable
      under the circumstances, the results of which form the basis for making
      judgments about the carrying value of assets and liabilities that are not
      readily apparent from other sources.  Actual results may differ from these
      estimates under different assumptions or conditions.  The more significant
      accounting estimates inherent in the preparation of the Company's financial
      statements include estimates as to the depreciable lives of property and
      equipment, valuation of inventories, valuation of equity related instruments
      and
      derivatives issued, and the valuation allowance for deferred income tax
      assets. Our accounting policies are described in the notes to financial
      statements included in this Quarterly Report on Form 10-QSB and our Annual
      Report on Form 10-KSB. The more critical accounting policies are as described
      below.





Going
      concern presentation -
      The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States, which
      contemplate continuation of the Company as a going concern. The Company has
      incurred recurring losses from operations and has a net working capital
      deficiency and net capital deficiency that raises substantial doubt about its
      ability to continue as a going concern. The Report of Independent Registered
      Public Accounting Firm included in the Company’s December 31, 2006 Annual Report
      on Form 10-KSB stated that these conditions, among others, raise substantial
      doubt about the Company’s ability to continue as a going concern. Company
      management intends to raise additional debt and equity financing to fund future
      operations and to provide additional working capital. However, there is no
      assurance that such financing will be obtained in sufficient amounts necessary
      to meet the Company’s needs. The accompanying consolidated financial statements
      do not include any adjustments to reflect the possible future effects on the
      recoverability and classification of assets or the amounts and classifications
      of liabilities that may result from the outcome of this uncertainty.




17


Revenue
      recognition -
      The
      Company recognizes revenue when there is persuasive evidence of an arrangement,
      the product has been delivered to the customer, the sales price is fixed or
      determinable, and collectibility is reasonably assured. The Company recognizes
      revenues from sales of recycled products upon shipment to customers. The
      Company will recognize revenues from sales of equipment or systems once
      configuration of such systems are completed and accepted by the customer.





Income
      taxes -
      The
      Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to amounts expected
      to be realized. The Company continues to provide a full valuation allowance
      to
      reduce its net deferred tax asset to zero, inasmuch as Company management has
      not determined that realization of deferred tax assets is more likely than
      not.
      The provision for income taxes represents the tax payable for the period and
      change during the period in net deferred tax assets and liabilities.





Stock-based
      compensation -
      The
      Company accounts for all options and warrant grants to employees and consultants
      in accordance with SFAS 123R, which requires recording an expense over the
      requisite service period for the fair value of all options or warrants granted
      employees and consultants.





**Results
      of Operations**  -
      Revenues were $99,000 during the three months ended March 31, 2007 as compared
      to $37,000 in the three months ended March 31, 2006. Revenues are expected
      to
      continue to increase in future periods. Cost of goods sold were $174,000 during
      the three months ended March 31, 2007 as compared to $26,000 in the three months
      ended March 31, 2006. The result of sales in the first quarter was a gross
      profit of ($75,000) as compared to $11,000 in the three months ended March
      31,
      2006. The plant has begun ramping towards full-scale operation and as a result,
      significant volumes of inventory are consumed for quality testing during this
      period. Most of the tested material is shipped out of the plant at prices
      significantly lower than market standard, which has resulted in a negative
      gross
      profit number for the quarter. Gross profit is expected to increase in future
      periods.





Total
      operating expenses for the three months ended March 31, 2007 approximated $3.3
      million compared with $1.6 million in the comparative prior year period. As
      the
      Company ramps up the Riverbank Plant, our operating expenses are increasing
      commensurate with the increase in operating activity; payroll, plant supplies,
      repairs and maintenance as well as continuing to build our sales and management
      team have all resulted in higher operating expenses. Operating expenses
      increased in 2007 due primarily to increases in general and administrative
      expenses, due primarily to non-cash stock-based compensation of approximately
      $1.2 million relating to equity awards issuable in connection with employment
      agreements entered into with certain executive officers and related recruiter
      fees payable in equity securities, and increases in plant operations and
      technology development expenses, offset by decreases in consulting and legal
      expenses due to fewer equity based awards to consultants during 2007 as compared
      to 2006.





The
      Company recorded interest expense of approximately $3.4 million in the three
      months ended March 31, 2007 as compared to $114,000 in the three months ended
      March 31, 2006. Interest expense includes amortization of debt issue costs
      and
      debt discount of approximately $3.1 million and $52,000, for the three months
      ended March 31, 2007 and 2006, respectively. The increase in interest expense
      for 2007 as compared to the prior year is due to increased average borrowings
      during 2006.





The
      Company’s net loss increased approximately $4.1 million to approximately $6.8
      million for the three months ended March 31, 2007 from $2.7 million for the
      comparative prior year period due primarily to the increase in loss from
      operations of approximately $1.8 million, due primarily to increases in plant
      operations and technology development and in general and administrative costs,
      offset by a decrease in consulting expenses, and to the increase in interest
      expense of $3.3 million, $3.1 million of which was non-cash amortization of
      debt
      issue costs and debt discount.





The
      Company has approximately $21 million of net operating loss carry-forwards
      at
      December 31, 2006 potentially available to offset future income taxes which
      expire through 2026.  Realization is dependent on generating sufficient
      taxable income prior to expiration of the loss carry-forwards.  A change of
      greater than 50% of the Company ownership could significantly limit the
      utilization of these loss carryforwards.  The Company continues to provide
      a full valuation allowance to reduce its net deferred tax asset to zero,
      inasmuch as Company management has not determined that realization of deferred
      tax assets is more likely than not.





**Liquidity
      and Capital Resources**  -
      Historically, our cash needs have been satisfied primarily through proceeds
      from private placements of our equity securities and debt instruments including
      debt instruments convertible into our equity securities.  We expect to
      continue to raise capital in the future, but cannot guarantee that such
      financing activities will be sufficient to fund our current and future projects
      and our ability to meet our cash and working capital needs.





18




At
      March
      31, 2007, we had a working capital deficit of approximately $6.6 million,
      compared to a working capital deficit of $3.2 million at December 31, 2006.
       At March 31, 2007, we had total assets of approximately $9.6 million and a
      total stockholders’ deficit of $642,000 compared with total assets of
      approximately $10.3 million and total stockholder's equity of approximately
      $2.7
      million at December 31, 2006.





During
      the three months ended March 31, 2007 cash used by operating activities
      increased to approximately $1.7 million from $424,000 during the comparative
      prior year period, due primarily to an increase in net loss.





During
      the three months ended March 31, 2007, cash used by investing activities
      increased to approximately $1.2 million relating to capital expenditures on
      the
      recycling plant as compared to $302,000 during the comparative prior year
      period.





During
      the three months ended March 31, 2007, cash provided by financing activities
      increased to approximately $2.8 million from $704,000 during the comparative
      prior year period. During 2007, the Company received proceeds of approximately
      $3.0 million (including approximately $1.2 million receivable for cash in escrow
      for securities sold in 2006, and excluding approximately $241,000 for cash
      in
      escrow for securities sold during the three months ended March 31, 2007) from
      sales of private placement units comprised of convertible promissory notes
      and
      warrants and subordinated notes and warrants.





At
      March
      31, 2007, the Company does not have sufficient cash to meet its needs for the
      next twelve months. However, the Company continues to be in the process of
      raising funds, and Company management anticipates being able to raise sufficient
      cash to meet the Company’s needs in the next twelve months. There is no
      guarantee, however, that our efforts will result in raising cash in amounts
      sufficient to meet the Company’s needs.





**Recent
      accounting pronouncements** **-** In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN  48”),
      which prescribes a recognition threshold and measurement process for recording
      in the financial statements uncertain tax positions taken or expected to be
      taken in a tax return. Additionally, FIN No. 48 provides guidance on
      the recognition, classification, accounting in interim periods and disclosure
      requirements for uncertain tax positions. FIN 48 will be effective for the
      Company beginning January 1, 2007. Although the Company is still evaluating
      the potential effects of FIN 48, it is expected that the adoption of FIN 48
      will
      not have a significant impact on the Company’s consolidated results of
      operations or financial position.





In
      December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2
“*Accounting
      for Registration Payment Arrangements*”
(FSP
      EITF 00-19-2”), which addresses an issuer’s accounting and disclosures relating
      to registration payment arrangements. Inasmuch as the Company does not have
      any
      such registration payment arrangements, it is not expected that adoption of
      the
      provision of FSP EITF 00-19-2 will have a significant impact on the Company’s
      financial position, results of operations, or cash flows





**Off-Balance
      Sheet Arrangements** **** -
      We do
      not have any off balance sheet arrangements that have or are likely to have
      a
      material current or future effect on the Company's financial condition, or
      changes in financial condition, liquidity or capital resources or expenditures.





**Quantitative
      and Qualitative Disclosures about Market Risk**  - We do
      not use derivative financial instruments. Our financial instruments consist
      of
      cash and cash equivalents, trade accounts receivable, accounts payable and
      long-term obligations. Investments in highly liquid instruments purchased with
      a
      remaining maturity of 90 days or less at the date of purchase are considered
      to
      be cash equivalents.





Our
      exposure to market risk for changes in interest rates relates primarily to
      our
      short-term investments and short and long-term obligations, all of which have
      fixed interest rates. Thus, fluctuations in interest rates would not have a
      material impact on the fair value of these securities.





**ITEM
      3.**  **CONTROLS
      AND PROCEDURES**




(a)
      Disclosure controls and procedures. ****




The
        Company maintains disclosure controls and procedures that are designed to
        ensure
        that information required to be disclosed in the Company’s Exchange Act reports
        is recorded, processed, summarized and reported within the time periods
        specified in the SEC’s rules and forms, and that such information is accumulated
        and communicated to the Company’s management, including its Chief Executive
        Officer and Chief Financial Officer, as appropriate, to allow timely decisions
        in accordance with the required "disclosure controls and procedures" as defined
        in Rule 13a-15(e). The Company’s disclosure and control procedures are designed
        to provide reasonable assurance of achieving their objectives, and the principal
        executive officer and principal financial officer of the Company concluded
        that
        the Company’s disclosure controls and procedures were effective at the
        reasonable assurance level.
 
 At
        the
        end of the period covered by this Quarterly Report, the Company carried out
        an
        evaluation, under the supervision and with the participation of the Company's
        management, including the Company's principal executive officer and principal
        financial officer, of the effectiveness of the design and operation of the
        Company's disclosure controls and procedures. Based of the foregoing, the
        principal executive officer and principal financial officer of the Company
        concluded that the Company’s disclosure controls and procedures were effective
        to ensure that the information required to be disclosed in the Company’s
        Exchange Act reports is recorded, processed, summarized and reported within
        the
        time periods specified in the SEC’s rules and forms, and that such information
        is accumulated and communicated to the Company’s management including the
        Company’s principal executive officer and principal financial officer to allow
        timely decisions regarding required disclosure.




(b)
      Changes in internal control over financial reporting.





We
      are
      assessing the effectiveness of our internal controls over financial reporting
      on
      an account by account basis as a part of our on-going accounting and financial
      reporting review process in order to comply with Section 404 of the
      Sarbanes-Oxley Act of 2002, which requires our management to assess the
      effectiveness of our existing internal controls for the fiscal year ending
      December 31, 2007. This effort includes documenting, evaluating the design
      of
      and testing the effectiveness of our internal controls over financial reporting.
      We intend to continue to refine and improve our internal controls on an ongoing
      basis. During this process, we may identify items for review or deficiencies
      in
      our system of internal controls over financial reporting that may require
      strengthening or remediation.




There
      have been no changes in our internal controls over financial reporting during
      our most recent fiscal quarter that have materially affected, or are reasonably
      likely to materially affect, our internal controls over financial
      reporting.




19





PART
      II -
      OTHER INFORMATION





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





On
      or
      about November 3, 2006, Brean Murray Carret & Co., LLC (“BMC”) filed a claim
      for arbitration against ECO2and it’s
      Chairman and CTO, Gary De Laurentiis, with the National Association of
      Securities Dealers. BMC is alleging that their service agreement with
      ECO2,
      dated
      May 9, 2005, was breached and that they are due fees and expenses in excess
      of
      $1 million. On or about January 30, 2007, ECO2filed
      its
      answer, affirmative defenses and counterclaims in response to BMC’s claim.
      ECO2’s
      counterclaim against BMC alleges, among other things, that BMC breached their
      service agreement with ECO2,
      unjust
      enrichment, fraud, misrepresentation and unlawful contract. The relief sought
      by
      ECO2estimates
      damages of $36 million and requests attorney fees and other miscellaneous costs
      and the cancellation of BMC’s common stock certificates and common stock
      purchase warrant.





The
      Company is unaware of any other threatened or pending litigation against it
      not
      in the ordinary course of business and that has not previously been
      disclosed.





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





As
      of
      December 31, 2006, ECO 2 Plastics, Inc., a Delaware corporation (the “Company” or “ECO 2 ”), received
      subscriptions and related funds into escrow pursuant to a private placement
      memorandum (the “PPM”) of up to $9 million, through the offering of a minimum of
      20 Units for $25,000 per unit. The offering was made to “accredited
      investors” as defined in Rule 501(a) under the Securities Act of 1933 and
      pursuant to Section 506 under the Securities Act. Each
      Unit
      consists of a $25,000 junior secured subordinated convertible debenture (the
      “Private Placement Notes”), bearing interest at 10% with principal and accrued
      interest due 18 months from issuance (“maturity date”), convertible into shares
      of the Company’s common stock at a price of $0.0975 per share, and a warrant,
      with a cashless exercise provision, to purchase 75,000 shares of restricted
      common stock of the Company, exercisable for approximately 10 years (expires
      April 15, 2015) at an exercise price of $0.06 per share (the “Private Placement
      Warrants”). KW
      Securities Corporation, a California corporation, (“KW”) served as the
      underwriter for the PPM. KW received, as a fee for services rendered, a common
      stock purchase warrant to purchase 14,625,000 shares of the Company’s common
      stock with a $0.06 per share strike price/cashless. As of
      December 31, 2006, the offering had not closed and the debentures and warrants
      not been issued. On February 1, 2007, the offering closed with a total of $8
      million raised. Subsequent to the close of the PPM, a total of $8 million
      Private Placement Notes were issued and a total of 24 million Private Placement
      Warrants were issued.





In
      February 2007, the Company received $2 million pursuant to investment terms
      substantially similar to the PPM (the “Additional Investment”). As a result the
      Company issued a $2 million junior subordinated convertible debenture, bearing
      interest at 10% with principal and accrued interest due 18 months from issuance
      (“maturity date”), convertible into shares of the Company’s common stock at a
      price of $0.0975 per share, and a warrant, with a cashless exercise provision,
      to purchase 6,000,000 shares of restricted common stock of the Company,
      exercisable for approximately 8 years (expires April 15, 2015) at an exercise
      price of $0.06 per share. The conversion price of the debenture and exercise
      price of the warrant are subject to anti-dilution downward adjustments in the
      event the Company sells common stock or securities convertible into common
      stock
      at a price below the conversion or exercise prices. The debenture ranks pari
      passu with Private Placement Notes and Subordinated Notes and is subordinated
      only to the security interest granted to CIWMB. Shares underlying the debenture
      and warrants are subject to piggy back registration rights. In addition, a
      registration statement must be filed within 30 days after the investor elects
      to
      convert all or any portion of the debenture. In connection with the Additional
      Investment, the Additional Investment’s placement agent received a cash payment
      of $85,000 and received warrants, with a cashless exercise provision, to
      purchase 314,815 shares of restricted common stock of the Company at a per
      share
      price of $0.06 exercisable for 10 years. Pursuant to terms of the Additional
      Investment purchase agreement, the holder of the Additional Investment notes
      has
      the right to designate one person to become a member of the Company’s Board of
      Directors.





Additionally,
      in February 2007, the Company issued three PPM Units, comprised of $75,000
      of
      Private Placement Notes and 225,000 Private Placement Warrants in exchange
      for
      accrued liabilities.





As
      of May
      15, 2007 ECO 2 received
      subscriptions and related funds into escrow pursuant to a $3 million financing
      on the same terms as the PPM (defined above) (the “Financing”). The offering was
      made to the same subscribers that invested in the Company under the PPM. The
      Financing offered the subscribers their pro-rata share of a minimum of 20 Units
      for $25,000 per unit. The offering was made to “accredited
      investors” as defined in Rule 501(a) under the Securities Act of 1933 and
      pursuant to Section 506 under the Securities Act. Each
      Unit
      consists of a $25,000 junior secured subordinated convertible debenture (the
      “Private Placement Notes”), bearing interest at 10% with principal and accrued
      interest due 18 months from issuance (“maturity date”), convertible into shares
      of the Company’s common stock at a price of $0.0975 per share, and a warrant,
      with a cashless exercise provision, to purchase 75,000 shares of restricted
      common stock of the Company, exercisable for approximately 10 years (expires
      April 15, 2015) at an exercise price of $0.06 per share (the “Private Placement
      Warrants”).





Each
      existing PPM subscriber was offered the opportunity to participate in the
      Financing on a pro-rata basis to enable these subscribers to maintain their
      prospective ownership interests in the Company. In the event that the existing
      subscribers did not subscribe to their pro-rata allocation, the Company obtained
      additional investments from existing subscribers that desired to invest over
      their pro-rata limit. There was no underwriter for the Financing and no fees
      were paid in connection with this Financing. On May 15, 2007, the Financing
      closed with a total of $3 million raised. A total of $3 million Financing notes
      and a total of 9 million Financing warrants are issuable.





20




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





Not
      applicable.




**Item
      4.** **Submission
      of matters to a Vote of Securities Holders**





Pursuant
      to the Definitive Schedule 14C filed by the Company on February 22, 2007 (File
      No. 033-31067), whereby, the Company amended its Certificate of Incorporation
      with the state of Delaware (the “Amendment”).





The
      Amendment allowed the Company to (i) change its name from “Itec Environmental
      Group, Inc.” to “ECO 2 Plastics, Inc.” (the “Name Change”); and (ii) revise the indemnification
      provision in accordance with the Company's employment agreement with Rodney
      S.
      Rougelot to provide for maximum indemnification and limitation of liability
      to
      directors and officers under Delaware law.





On
      March
      22, 2007, the Company received notice from the state of Delaware confirming
      the
      effectiveness of the Amendment. The effective date of the amendment with the
      state of Delaware was March 12, 2007. Effective March 26, 2007, the Company’s
      new ticker symbol will be “ECOO.”





**Item
      5.** **Other
      Information**





Not
      applicable.





**Item
      6.** **Exhibits**





[See
      Exhibit Index below after signatures]





21





SIGNATURES








Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, this
      report has been signed by the following persons on behalf of the Registrant
      in
      the capacities and on the dates indicated.








ECO 2 PLASTICS, INC.











/s/
      Rodney S. Rougelot


Rodney
      S.
      Rougelot


Director,
      Chief Executive Officer and Interim Chief Financial Officer





DATE:
      June 21, 2007






22




EXHIBIT
        INDEX
 
 Exhibit
                  No.
              
              Description
              
              Location3.1(i)
              
              Amendment
                  to Restated Certificate of Incorporation
              
              Incorporated
                  by reference to Exhibit A to the DEFR14C filed by the Company on
                  November
                  30, 20053.2(i)
              
              Restated
                  Certificate of Incorporation
              
              Incorporated
                  by reference to Exhibit B to the DEF-14C filed by the Company on
                  September
                  9, 20023.3(i)
              
              Certificate
                  of Incorporation
              
              Incorporated
                  by reference to the Form S-18 Registration Statement filed by the
                  Company
                  File No. 33-31-673.4(i)
              
              Restated
                  Certificate of Incorporation
              
              Incorporated
                  by reference to the DEF-14C filed by the Company on February 22,
                  2007.3.5(ii)
              
              Bylaws
              
              Incorporated
                  by reference to Exhibit B to the DEF-14C filed by the Company on
                  September
                  9, 200231.1
              
              Certification
                  of CEO pursuant to Section 302 of the Sarbanes-Oxley Act
              
              Attached31.2
              
              Certification
                  of CFO pursuant to Section 302 of the Sarbanes-Oxley Act
              
              Attached32.1
              
              Certification
                  of CEO pursuant to Section 906 of the Sarbanes-Oxley Act
              
              Attached32.2
              
              Certification
                  of CEO pursuant to Section 906 of the Sarbanes-Oxley Act
              
              Attached