UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




FORM 10-Q /A








(Mark One)


x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the quarterly period ended March 31, 2013





o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT





For the transition period from _____________ to _____________




Commission file number:000-53875




Eco Building Products, Inc.


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




Colorado
20-8677788(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)





909 West Vista Way


Vista, California 92083


(Address of principal executive offices)





(760) 732-5826


(Registrants telephone number, including area code)






(Former name, former address and former fiscal year, if changed since last report)






Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.    x Yes  o No




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




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company; as defined within Rule 12b-2 of the Exchange Act.




o
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
x
Smaller reporting company





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




The number of shares outstanding of each of the issuer's classes of common equity as of August 15 , 2013: 459,913,569shares of common stock.






Table of Contents






Eco Building Products, Inc.
  Contents


PageNumberPART I
FINANCIAL INFORMATION
1Item 1
Unaudited Condensed Consolidated Financial Statements December 31, 2012
1Condensed Consolidated Balance Sheet
1Condensed Consolidated Statement of Operations
2Condensed Consolidated Statement of Cash Flows
3Notes to the Interim Financial Statements
4 - 22Item 2
Management's Discussion and Analysis of Financial Condition and Results of Operations
23Item 3
Quantitative and Qualitative Disclosures About Market Risk
28Item 4
Controls and Procedures
28Part II
OTHER INFORMATION
29Item 1
Legal Proceedings
29Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
29Item 3
Defaults Upon Senior Securities
30Item 6
Exhibits and Reports
31SIGNATURES
32














ii
 Table of Contents








PART I - FINANCIAL INFORMATION




Item 1 - Financial Statements




ECO BUILDING PRODUCTS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)RESTATED


RESTATEDMarch


June 302013


2012ASSETSCURRENT ASSETSCash

$
-


$
111,251Accounts receivable, net of allowance for doubtful accounts of $10,099 atDecember 31, 2012 and June 30, 2012


1,128,496



666,223Inventories


748,390



922,646Prepaid loan facility fee - related party, current portion


-



1,008,383Prepaid expenses


23,030



7,297Deposits


-



7,100Other current assets


7,100



-Total current assets


1,907,016



2,722,900PROPERTY AND EQUIPMENT, net


1,135,641



1,207,035OTHER ASSETSNotes receivable - related party - long-term portion


135,079



-Intangible assets


13,762



16,325Prepaid loan facility fee - related party


-



1,078,861Equipment deposits - related party


-



-Total other assets


148,841



1,095,186TOTAL ASSETS

$
3,191,498


$
5,025,121LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable

$
937,121


$
426,179Payroll and taxes payable


2,356,018



1,594,848Accrued interest for related party


444,028



144,028Other payables and accrued expenses


233,765



192,259Deferred revenue


-



33,640Current maturities of convertible notes payable


1,292,800



6,067Line of credit payable - related party


5,000,000



1,666,667Loans payable - related party


522,652



201,480Loans payable - other


1,010,549



44,500Total current liabilities


11,796,933



4,309,668LONG TERM LIABILITIESLine of credit payable - related party


-



3,333,333Notes payable, less current maturities


10,633



17,295Total long term liabilities


10,633



3,350,628TOTAL LIABILITIES


11,807,566



7,660,296STOCKHOLDERS' EQUITYCommon stock, $0.001 par value, 500,000,000 shares authorized,379,664,354 and 240,261,669 shares issued and outstanding at March 31, 2013and June 30, 2012


379,664



240,262Subscription receivable


-



-Additional paid-in capital


23,491,606



18,564,613Accumulated deficit


(32,487,338
)


(21,440,050
)Total stockholders' equity


(8,616,068
)


(2,635,175
)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
3,191,498


$
5,025,121






See accompanying notes to condensed consolidated financial statements




1
 Table of Contents






ECO BUILDING PRODUCTS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)RESTATED





RESTATED3-month ended


3-month ended


9-month ended


9-month endedMarch 31


March 31


March 31


March 312013


2012


2013


2012REVENUEProduct sale

$
1,717,001


$
1,089,724


$
4,140,160


$
2,086,569License saleEquipment and other sales

$
-






$
-


$
-TOTAL REVENUE

$
1,717,001


$
1,089,724


$
4,140,160


$
2,086,569COST OF SALES


1,635,217



1,010,638



3,672,202



1,918,009GROSS PROFIT


81,784



79,086



467,958



168,560OPERATING EXPENSESResearch and development


10,233



86,160


$
142,251



123,745Marketing


54,246



12,369


$
344,220



56,448Goodwill/Donation


3,095



16,871


$
21,653



30,601Compensation and related expenses


706,692



556,619


$
1,816,680



1,205,764Rent - facilities


243,332



109,179


$
661,810



205,216Professional and consulting fees


89,824



476,894


$
1,146,852



736,139Other general and administrative expenses


462,982



636,680


$
1,992,059



1,256,521Total operating expenses


1,570,404



1,894,772


$
6,125,526



3,614,434LOSS FROM OPERATIONS


(1,488,620
)


(1,815,686
)


(5,657,568
)


(3,445,874
)OTHER INCOME (EXPENSE)Interest income


-



-



-



16,834Interest expense


(678,166
)


(95,272
)

$
(4,208,995
)


(134,081
)Gain (loss) on settlement of lease






-







-Gain (loss) on settlement of debt


-



-



-



-Loss on modification of debt


(46,337
)


(300,000
)

$
(1,189,661
)


(375,000
)Change in fair value of derivative liability


-



-



-



-Other Income


-






$
8,935



--Total other income (expense)


(724,503
)


(395,272
)


(5,389,720
)


(492,247
)LOSS BEFORE PROVISION FOR INCOME TAXES


(2,213,123
)


(2,210,957
)


(11,047,288
)


(3,938,120
)-



-



-



-NET LOSS

$
(2,213,123
)

$
(2,210,957
)

$
(11,047,288
)

$
(3,938,120
)NET LOSS PER COMMON SHARE - BASIC


(0.01
)


(0.01
)


(0.04
)


(0.01
)WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING


282,258,116



188,531,543



284,051,083



179,068,887






See accompanying notes to condensed consolidated financial statements


2
 Table of Contents






ECO BUILDING PRODUCTS, INC.CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS(UNAUDITED)RESTATED9-month ended


9-month endedMarch 31


March 312013


2012Cash flows from operating activitiesNet Loss

$
(11,047,288
)

$
(5,527,369
)Adjustments to reconcile net income to net cash usedby operating activities:Interest o amortization of loan fees






-Loss on modification of debt by issuance of common stock


1,189,661



375,000(Gain) loss on settlement of debt


-Interest on amortization of debt discount


1,310,556Amortization of prepaid loan fees


2,087,244



1,235,027Interest on repricing of warrantChange in fair value of derivative liabilityCommon stock issuance for prepaid loan interest for convertible notes


350,000



-Common stock issuance for services


1,370,738



-Common stock issuance for payment of rent and lease settlement



-Stock Based Compensation


14,190



-Depreciation and amortization expense


129,092



132,043Bad debt expense


455



-Changes in operating assets and liabilities:(Increase) in accounts receivable


(462,728
)


(462,985
)(Increase) in other receivable






-(Increase) in inventory


174,256



(261,228
)(Increase) in prepaid expenses & other current assets


(15,733
)


34,421Decrease (Increase) in deposits






-(Increase) in prepaid & other non current assets


-Increase in accounts payable


510,942



(173,823
)Increase in Payroll and taxables payable






-Increase in rent payable






-Increase in other payable and accrued expenses


806,225



534,838Increase in deferred rent expense(Decrease) in other payables and accrued expenses






-Increase in accrued interest added to principle


262,811



98,912Net cash used by operating activities


(3,319,578
)


(4,015,164
)Cash flows from investing activitiesPurchase of property and equipment


(55,136
)


(529,391
)Purchase of software licenses


-



(25,000
)Payments for equipment deposits - related party


-



172,050Purchase of intangible assets






(10,990
)Net cash provided (used) by investing activities


(55,136
)


(393,331
)Cash flows from financing activitiesProceeds from related party line of credit advances


-



5,000,000Proceeds from third party advance


1,028,320Proceeds from debt issuance


2,049,050



-Proceeds from related party advances and notes


186,094



24,845Proceeds from issuance of common stock


-



990,473Repayments of related party advances and notes


-



(1,526,434
)Net cash provided by financing activities


3,263,463



4,488,884Net change in cash and cash equivalent


(111,251
)


80,389Cash and cash equivalent at the beginning of year


111,251



81,648Cash and cash equivalent at the end of year

$
(0
)

$
162,037Supplemental disclosures of cash flow Information:Cash Paid for Interest

$
-


$
46,000Supplemental disclosure of non-cash investing and financing activities:Issuance of common stock in connection with the convertible notes payable

$
756,250


$
-




See accompanying notes to condensed consolidated financial statements




3
 Table of Contents






ECO BUILDINGPRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
   1. Organization and Basis of Presentation


Organization
 
 Eco Building Products, Inc. (the “Company”) was incorporated in the state of Colorado under the name N8 Concepts, Inc. on March 27, 2007.
  On October 19, 2009, the Company merged with Ecoblu Products, Inc., a Nevada Corporation (“ECOBLU”). For financial reporting purposes, the acquisition was treated as a reverse acquisition whereby ECOBLU’s operations continue to be reported as if it had actually been the acquirer. Assets and liabilities continue to be reported at the acquiree’s historical cost because before the reverse acquisition; the Company had nominal assets, liabilities and operations, and accordingly, the fair value of the assets approximated their carrying value and no goodwill was recorded.
  ECOBLU was organized May 20, 2009 in Nevada as a wholesale distributor and manufacturer of proprietary wood products coated with an eco-friendly chemistry that is designed to protect against mold, rot, decay, termites and fire. The Company has also developed an affiliate coating program that allows lumber companies to coat commodity lumber at their facilities contingent upon their stocking the Company’s inventory and supporting the Company’s products.
  Through December 2010, the Company was deemed to be in the development stage, as defined in Accounting Codification Standard (“ACS”) topic 915 Development Stage Entities. During year ended June 30, 2011, management determined that the Company exited the development stage. Thus, the Company is no longer required to report its stock issuances from inception, nor include inception-to-date information in its statements of operations and cash flows.
  On April 8, 2011, the Company formed Red Shield Lumber, Inc. (“Red Shield”) in British Columbia, Canada. Red Shield was formed for the purpose of opening a plant in Canada utilizing the Company’s red coating process for sale and distribution.  As of December 31, 2012 the wholly owned subsidiary has had little operating activity.
  On May 31, 2011, the Company formed E Build & Truss, Inc. (E Build) on May 31, 2011 in the State of California. E Build was formed for the purpose of operating the Company’s Truss manufacturing activities. This wholly-owned subsidiary commenced operations during the 3 months ended December 31, 2011.
  Liquidity and Going Concern
  During the nine months ended March 31, 2013, and the year ended June 30, 2012, the Company incurred net losses of $11,047,288 and $3,938,120, respectively.  As of March 31, 2013, the Company has an accumulated deficit of $32,487,338.  The Company's cash balance at March 31, 2013 was $0.  The Company's balance sheet at March 31, 2013 has a current ratio (current assets divided by current liabilities) of 0.16 to 1.0 and a working capital deficit of $9,889,917 (current assets less current liabilities).  These circumstances raise serious concern about the Company's ability to continue as a going concern.
  In the last couple years the Company has taken actions to reduce its expense and to align its cost structure with economic conditions. The Company has the ability to further reduce expenses and has taken actions to do so. During the year ended June 30, 2011, the Company entered into an investment agreement and a revolving credit and warrant purchase agreement with Manhattan Resources Limited, a Singapore Corporation (“MRL”) and Dato’ Low Tuck Kwong (“LTK”), a controlling shareholder of MRL. Under investment agreement, the Company received $5,000,000 in exchange for issuing 81,000,000 shares of its common stock. Subsequently, upon the effective date of the revolving credit and warrant purchase agreement the Company has the ability to borrow up to an additional $5,000,000. Besides the $3,000,000 was borrowed in July, 2011 the remaining $2,000,000 was borrowed between October and November 2011. With the infusion of the initial $5,000,000 under the investment agreement and up to an additional $5,000,000 under the revolving credit and warrant purchase agreement, no assurances can be made that current or anticipated future sources of funds will enable the Company to finance future periods’ operations. As of  March 31, 2013, the Company had cash on hand of $0 and none of the $5,000,000 of capital available to them under the MRL
 
 
 4
 Table of Contents
 
  ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
   line of credit, because  the entire $5,000,000 was borrowed during July and December, 2011 and the Company did not pay any interest and accrued $444,028 interest as of March 31, 2013. If current and projected revenue growth does not meet Management estimates, the Management may continue to choose to raise additional capital through debt and/or equity transactions, reduce certain overhead costs through the deferral of salaries and other means, and settle liabilities through negotiation. Currently, the Company does not have any commitments or assurances for additional capital, nor can the Company provide assurance that such financing will be available to it on favorable terms, or at all. If, after utilizing the existing sources of capital available to the Company, further capital needs are identified and the Company is not successful in obtaining the financing, it may be forced to curtail its existing or planned future operations.Given the strong competition in the market and lack of new products introduced to the market, theCompany anticipates that the quarterly loss in the third quarter will be at least as large as what the Company has seen over the past year, further eroding the Company’s cash position. The Company’s near term liquidity has been negatively impacted by these factors and it will be required to secure additional sources of cash sooner than previously expected. The Company’s current expectation is to successfully develop strategic alternatives to improve near term liquidity. However, the Company can make no assurances and there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively over at least the next twelve months, which raises substantial doubt as to its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
  The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the Company's inability to continue as a going concern.
  Basis of Presentation
 
 The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of March 31, 2013, and the results of its operations and cash flows for the three months ended March 31, 2013 and 2012. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the unaudited condensed consolidated financial statements are adequate to make the information presented not misleading. The operating results of the Company on a quarterly basis may not be indicative of operating results for the full year. For further information, refer to the financial statements and notes included in the Company’s Form 10-K/A for the year ended June 30, 2012.
  2. Summary of Significant Accounting Policies
  There have been no changes in the Company's significant accounting policies for the three months ended March 31, 2013 as compared to those disclosed in the Company's Annual Report on Form 10-K/A for the year ended June 30, 2012.
  Recent Accounting Pronouncements
 
 Comprehensive income.In June 2011, the FASB issued guidance which requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. This requirement should be applied retrospectively and is effective for the Company in its first quarter of fiscal year 2013. The adoption of this standard had no effect on the Company's condensed consolidated statements of operations.
   5
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
   3. Inventories
 
 As of March 31, 2013, inventories consisted of the following:
 
 Chemicals

$
228,515Truss Plate


-0-Lumber


519,875$
748,390
 
 In addition, inventory is considered finished goods as the Company sells and markets the chemical and treated lumber.  All of the Company’s inventories are pledged as collateral for the Company’s $5,000,000 Loan Facility (see Note 6).
  4. Prepaid Loan Facility Fee
  As discussed in Note 6, as consideration for a $5,000,000 Loan Facility, the Company issued MRL a 5-year warrant to subscribe for 50,000,000 common shares at an exercise price of $0.10 per share (the “Warrant”). The warrants were valued at $3,025,148 on July 26, 2011 and expire on July 26, 2016. The valuation of these warrants was determined using a Proprietary Multinomial Lattice Model option pricing model taking into account the following variables such as using an exercise period of 5 years, risk free rate of 1.51%, volatility of 166.52%, and a trading price of the underlying shares of $0.26. The Company has recorded the $3,025,148 value of the warrants as a prepaid loan fee and is amortizing the balance to interest expense over the 3-year availability period of the Loan Facility.As discussed in September 30, 2012 Form 10-QA filed on June 19, 2013, the Company did not have sufficient cash flow to pay the outstanding $5.0 million loan to MRL.  Instead the Company issued 4,412,517 shares in the amount of $260,339 to MRL to pay off the accrued interest owe to MRL.  MRL had 45 days until November 5, 2012 to response whether it accepted the shares provided by ECO.  However, in December 2012, MRL replied to the Company that it rejected ECO's proposal.  As MRL rejected ECO's proposal and the loan was in default, the Company had to write off the outstanding prepaid loan fee in connection with the MRL $5 million line of credit in the amount of $2,087,244 as of September 30, 2012.  Amortization charged to interest expense for the years ended March 31, 2013 was $2,087,244.  As of March 31, 2013, the current and non-current prepaid loan facility fee was $0.
  5. Property and Equipment
 
 Property and equipment as of March 31, 2013 consisted of the following:
 
 Machinery and equipment (useful life of five to seven years)

$
938,939Furniture (useful life of five years)


20,408Computer equipment and software (useful life of three years)


117,162Displays (useful life of three years)


59,475Vehicles (useful life of five years)


65,991Leasehold improvements (useful life of three years)


365,1441,567,119Less accumulated depreciation


(431,477
)$
1,135,641
 
 
 6
 Table of Contents
 
  ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
   The Company had a deposit for machinery and equipment in the amount of $259,315 as of March 31, 2013.  Depreciation charged to operations for the three months ended March 31, 2013 and 2012 amounted to $42,106 and $31,671, respectively.  All of the Company’s property and equipment are pledged as collateral for the Company’s $5,000,000 Loan Facility (see Note 6).
  6. Notes Payable
  Loan Facility and Credit and Warrant Agreement with MRL
 
 On February 14, 2011, the Company entered into a revolving credit and warrant purchase agreement (the “Credit and Warrant Agreement”) with MRL. The Credit and Warrant Agreement did not go into effect until it is ratified by the shareholders of MRL, on July 26, 2011.
  Pursuant to the terms of the Credit and Warrant Agreement, MRL extended a $5,000,000 revolving loan facility (the “Loan Facility”). Interest accrues on the unpaid principal amount of each advance at a rate of 6% per annum. Under the terms of the Loan Facility the Company is allowed to borrow in $500,000 increments for a period of three years and is due with accrued interest at 6% per annum three months from the date of borrowing but not later than the expiration date of the agreement of February 14, 2014. So long as no events of defaults exist any loan may be rolled with another loan upon approval by the lender. The available credit under the loan facility can be reduced by the like amount of cash received through the exercise of warrants noted below. The Loan Facility is secured by substantially all the assets of the Company.
  On September 6, 2012, the Company was notified by MRL that it was in default of the Revolving Credit and Warrant Purchase Agreement and we have a 45-day period to cure the default.  As discussed in footnote 4, Prepaid loan facility fee, in order to plan to cure the default, the Company issued 4,412,517 common shares in the amount of $264,751 on October 25, 2012 to cure the default. Subsequently MRL had rejected the shares as a form of payment and the company continues to accrue interest and is still in default of payment to MRL.  Since MRL rejected the shares as a form of payment prior to filing the September 30, 2012, Form 10-Q on November 19, 2012, the Company reclassified the $5.0 million notes payable to due to MRL as current liability since September 30, 2012.   As of March 31, 2013, the Company had $5,000,000 on the current loan facility from MRL.  The Company did not pay any interest on the current line of credit and accrued $444,028 interest expense on the $5,000,000 current loan facility from MRL.
  Loan Payable – Related Party
 
 At March 31, 2013,the Company had a non interest bearing note payable due to its Chief Executive Officer who is also a Director and significant shareholder with a balance of$522,652.
  Loan Payable - Other
 
 At March 31, 2013, the Company has a $244,500 liability for advances from third parties.  As of the date these financial statements were issued, no terms for repayment have been agreed to between the Company and this third party.  During the three months ended March 31, 2013, the Company issued 2.5 million shares in the amount of $75,000 to the third party for the interest and principle payment of the advances from the third party.
  The Company entered in an auto loan agreement on November 7, 2011 to purchase a Ford 150 pickup truck.  The principal amount of the loan is $21,886 and the interest rate 9.99%.  The loan will be matured on October 7, 2015.  The Company is currently paying $675 auto payment per month.  As of March 31, 2013, the short term and long term auto loan were $8,278 and $10,633, respectively.
 7
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
   Convertible Notes - $1,080,000  Financing
 
 On August 13, 2012, Eco Building Products, Inc., and subsidiaries entered into a Securities Purchase Agreement (the “Purchase Agreement”) wherein the Company agreed to privately issue and sell (the “Offering”) and the purchaser identified on the signature page to the Purchase Agreement (the “Purchaser”) agreed to purchase (i) $1 million, in the aggregate, of Original Issue Discount Senior Secured Convertible Debenture due on November 13 ,2012 (the “Debenture”) and (ii) an aggregate of 3,500,000 shares (the “Shares”) of the Company’s common stock (the “Common Stock”). The closing of the Offering occurred on August 13, 2012 (“Original Issue Date”).
  The Company sold to the Purchaser the Debenture having a principal amount of $1,080,000. At any time after the six month anniversary of the Original Issue Date until the Debenture is no longer outstanding, the Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of holder, subject to certain conversion limitations set forth in the Debenture, at a conversion price equal to the lesser of (i) $0.08, subject to adjustment thereunder, and (ii) 80% of the average of the lowest 3 closing prices during the 3 trading days immediately prior to any such date of conversion.
  Upon any Event of Default (as defined in the Debenture), the outstanding principal amount of the Debenture, plus liquidated damages, interest and other amounts owing in respect thereof through the date of acceleration, shall become, at holder's election, immediately due and payable in cash. Commencing after the occurrence of any Event of Default, the interest rate on the Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. The Company is also subject to certain non-financial covenants under the Debenture.
  To secure the Company’s obligations under the Debenture, the Company granted a security interest in substantially all of its property to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debenture in accordance with that certain security agreement between the Company and the Purchaser, dated as of August 13, 2012 (the “Security Agreement”). Furthermore, the Company’s subsidiaries entered into a subsidiary guarantee, dated as of August 13, 2012 (the “Subsidiary Guarantee”), to guarantee the prompt and complete payment and performance when due of all of the obligations pursuant to the Debenture and transaction documents.
  Chardan Capital Markets acted as placement agent and received compensation in the amount of 1,500,000 restricted shares of Common Stock.
  The Company received net proceeds of $970,000 as a result of paying origination fees totaling $30,000 and the $80,000 Original Issue Discount (the "OID"). Pursuant to ASC 470-20-25, the Company recorded a debt discount related to the 5 million share issuance, beneficial conversion feature and origination fees. The Company first allocated between the Debenture and the 5 million shares issued based upon their relative fair values. The fair value of the stock issued with the Loan of $400,000 was calculated based on the closing price of our common stock. This resulted in allocating $291,892 to the issued shares and $788,108 to the Loan.
  Next, the intrinsic value of the beneficial conversion feature was computed as the difference between the fair value of the common stock and the total price to convert based on the effective conversion price. The calculated intrinsic value was $561,892.
  Finally, the sum of the origination fees and OID, or $110,000 was added to the value allocated to the share issuance and beneficial conversion feature for a total loan discount of $963,784, and included $853,784 recorded to equity. The debt discount is being accreted over the three month term of the note using the effective interest method from the Closing Date of the Loan on August 13, 2012.
  During the three months ended March 31, 2013, the Company converted $551,250 convertible notes into 64,992,061 common stocks and the outstanding convertible notes as of March 31, 2013 was $528,750.
   8
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
  
 During the three and nine months ended March 31, 2013, the Company recognized $0 and $963,784, respectively of accretion related to the debt discount.
  Convertible Note - $220,000 Financing
 
 On July 12, 2012, the Company issued a 10% Convertible Note Due March 1, 2013 (the "Note") to an accredited investor pursuant to which the Company borrowed $220,000. The Note matures approximately 7.5 months from the date of issue, bears interest of ten percent (10%) per annum on the face amount and is payable in full upon maturity. In the event of default, the note is subject to an increase in the interest rate to eighteen percent (18%) per annum. Upon issuance of the Note, the Creditor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Loan, and any or all accrued and unpaid interest thereon into shares of our common stock at a conversion price equal to the lesser of (a) $0.15 (“Fixed Price”) and (b) 70% of the lowest daily VWAP occurring during the ten(10) consecutive Trading Days immediately preceding the applicable Conversion Date.
  Pursuant to ASC 470-20-25, the Company recorded a debt discount related to $20,000 of origination fees and the beneficial conversion feature of $66,410. The Company is accreting the debt discount over the term of the Note from the date of issuance using the effective interest method.
  During the nine months ended March 31, 2013, the investor converted $51,288, including $50,000 of principle and $1,288 of accrued interest payable into 1,607,764 shares of common stock.
  During the three and nine months ended March 31, 2013, the Company recognized $4,192 and $12,156, respectively, of interest expense related to this Note. During the three and six months ended December 31, 2012, the Company recognized $29,005 and $86,410, respectively, of accretion related to this Note.
  Convertible Note- $55,000 Financing
 
 On September 26, 2012, the Company issued a 10% Convertible Note Due June 1, 2013 (the "Note") to an accredited investor pursuant to which the Company borrowed $55,000. The Note matures approximately 8 months from the date of issue, bears interest of ten percent (10%) per annum on the face amount and is payable in full upon maturity. In the event of default, the note is subject to an increase in the interest rate to eighteen percent (18%) per annum. Upon issuance of the Note, the Creditor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Loan, and any or all accrued and unpaid interest thereon into shares of our common stock at a conversion price equal to the lesser of (a) $0.08 (“Fixed Price”) and (b) 70% of the lowest daily VWAP occurring during the ten (10) consecutive Trading Days immediately preceding the applicable Conversion Date.
 
 Pursuant to ASC 470-20-25, the Company recorded a debt discount related to $5,000 of origination fees and the beneficial conversion feature of $12,522. The Company is accreting the debt discount over the term of the Note from the date of issuance using the effective interest method.
 
 During the three and nine months ended December 31, 2012, the Company accrued $1,356 and $2,803, respectively, of interest expense related to this Note. During the three and nine months ended March 31, 2013, the Company recognized $5,808 and $10,920, respectively, of accretion related to this Note.
   9
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
 
 
 Convertible Notes - $55,000 Financing
  On July 13, 2012, the Company issued a 10% Convertible Note Due March 1, 2013 (the "Note") to an accredited investor pursuant to which the Company borrowed $55,000. The Note matures one year from the date of issue, bears interest of ten percent (10%) per annum on the face amount and is payable in full upon maturity. In the event of default, the note is subject to an increase in the interest rate to eighteen percent (18%) per annum. Upon issuance of the Note, the Creditor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Loan, and any or all accrued and unpaid interest thereon into shares of our common stock at a conversion price equal to the lesser of (a) $0.08 (“Fixed Price”) and (b) 70% of the lowest daily VWAP occurring during the ten(10) consecutive Trading Days immediately preceding the applicable Conversion Date.
  Pursuant to ASC 470-20-25, the Company recorded a debt discount related to $5,000 of origination fees and the beneficial conversion feature of $16,602. The Company is accreting the debt discount over the term of the Note from the date of issuance using the effective interest method.
  During the three months ended March 31, 2013, the investor converted $36,937, including $35,000 of principle and $1,937 of accrued interest payable into 1,828,564 shares of common stock.
  During the three and nine months ended March 31, 2012, the Company recognized $297 and $2,452, respectively, of interest expense related to this Note. During the three and nine months ended December 31, 2012, the Company recognized $5,972 and $21,602 of accretion related to this Note.
  Convertible Notes - $100,000 Financing
 On June 11, 2012, the Company issued a 4% Convertible Note Due June 11, 2013 (the "Note") to an accredited investor pursuant to which the Company borrowed $100,000. The Note matures one year from the date of issue, bears interest of four percent (4%) per annum on the face amount and is payable in full upon maturity. In the event of default, the note is subject to a penalty of 5% of the then outstanding balance of the Note and increase in the interest rate to fourteen percent (14%) per annum. Starting on the 6 month anniversary of the Note issuance date, the Creditor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Loan, and any or all accrued and unpaid interest thereon into shares of our common stock at a conversion price equal to 60% of the lower of i) the average of the 5 lowest closing bid prices for the previous 10 trading days; or ii) the closing bid price on the date the shares clear the investor's broker dealer.
  Pursuant to ASC 470-20-25, the Company recorded a debt discount related to the beneficial conversion feature of $64,185. The Company is accreting the debt discount over the term of the Note from the date of issuance using the effective interest method.
  During the nine months ended March 31, 2013, the investor converted entire $100,000 of this note plus $4,778 interest into 5,807,693 shares of common stock.
  During the three and nine months ended March 31, 2013, the Company recognized $2,589 and $4,778, respectively, of interest expense related to this Note. During the three and nine months ended March 31, 2013, the Company recognized $74,735 and $100,000 of accretion related to this Note.
  10
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
  
 Convertible Notes - $285,000 Financing
  On December 10, 2012, the Company issued a 8% Convertible Note Due June 10, 2013 (the "Note") to an accredited investor pursuant to which the Company borrowed $285,000. The Note matures one year from the date of issue, bears interest of eight percent (8%) per annum on the face amount and is payable in full upon maturity. In the event of default, the note is subject to a penalty of 5% of the then outstanding balance of the Note.  Starting on the 6 month anniversary of the Note issuance date, the Creditor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Loan, and any or all accrued and unpaid interest thereon into shares of our common stock at a conversion price equal to $0.06 subject to adjustment
 
 Pursuant to ASC 470-20-25, since the conversion price is higher than the fair value of the stock issuance price, no beneficial conversion features would be recognized.   The Company recorded a debt discount related to $10,000 of origination fees and $25,000 of original issue discount. The Company is accreting the debt discount over the term of the Note from the date of issuance using the effective interest method.
  During the three and nine months ended March 31, 2013, the Company recognized $5,747 and $7,059, respectively, of interest expense related to this Note. During the three months and nine months ended March 31, 2013, the Company recognized $16,927 of accretion related to this Note.
  Convertible Notes - $310,750 Financing
  On January 15, 2013, the Company issued a 8% Convertible Note Due July 15, 2013 (the "Note") to an accredited investor pursuant to which the Company borrowed $310,750. The Note matures one year from the date of issue, bears interest of eight percent (8%) per annum on the face amount and is payable in full upon maturity. In the event of default, the note is subject to a penalty of 5% of the then outstanding balance of the Note.  Starting on the 6 month anniversary of the Note issuance date, the Creditor may elect, in its sole discretion, to convert all or any portion of the outstanding principal amount of the Loan, and any or all accrued and unpaid interest thereon into shares of our common stock at a conversion price equal to $0.06 subject to adjustment.
  Pursuant to ASC 470-20-25, since the conversion price is higher than the fair value of the stock issuance price, no beneficial conversion features would be recognized.   The Company recorded a debt discount related to $7,500 of origination fees and $25,000 of original issue discount and $28,250 of prepaid interest. The Company is accreting the debt discount over the term of the Note from the date of issuance using the effective interest method.
  During the three months and nine months ended March 31, 2013, the Company recognized $4,836 of interest expense related to this Note. During the three months and nine months ended March 31, 2013, the Company recognized $28,725 of accretion related to this Note.
 
 The following is the summary of convertible notes payable as of December 31, 2012:
 Balance as of July 1, 2012

$
100,000Additions from new convertible notes issued


2,005,750Debt discount on convertible notes issued


(56,700
)Conversion of convertible notes to common stocks


(756,250
)Balance as of March 31, 2013

$
1,292,800
  11
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
 Loan Payable for AR Financing
 
 On November 19, 2012 the company entered into an accounts receivable financing agreement with Gemini Finance Corp. in the amount of 383,400.00. The maturity date of the original note is February 18, 2013, due to the Companies customer delays the note was amended and restated into a convertible note as follows; the amended and restated secured promissory note is being issued in exchange for the secured promissory note due February 18, 2013 which was originally issued on November 19, 2012 in the original principal amount of $383,400.00. The new note carries a gross face value of 413,729.70 which includes a prepaid loan origination fee of 28,400.00 through the issuance of Senior Secured Convertible Notes (the “Notes”) now due on May 31, 2013 with a 6% per annum interest rate. For purposes of rule 144, this amended and restated note shall be deemed to have been issued on November 19, 2012.
 
 On January 9, 2013 the company entered into an accounts receivable financing agreement with Gemini Finance Corp. in the amount of $234,223. The proceeds of the term loan were used to purchase inventory specifically related to a contract agreement with Cornerstone Communities, Veranza Phases 7,8 &9.  Payment in the form of a joint check was received from the builder in the amounts of $172,066.82 on March 18, 2013.
 
 On February 5, 2013 the company entered into an accounts receivable financing agreement with Gemini Finance Corp. in the amount of 307,800. The proceeds of the term loan were used to purchase inventory specifically related to a contract agreement with Brookfield Homes, Phases 6,7 & 24.  The note carries a gross face value of 307,800 which includes a prepaid loan origination fee of 11,400.00.  Payment in the form of a joint check was subsequently received from the builder in the amount of $383,201,86 on April 16, 2013.
  Accrued interest for Accounts Receivable Financing at March 31, 2013 was $89,610.03.
  The following table summarizes the notes payable for the period ended March 31, 2013.
 
 As of March 31, 2013Description

Short term


Long termAuto notes payable

$
8,278


$
10,633MRL line of credit


5,000,000Loan payable related party


522,652



-Loan payable third parties


244,500



-Accounts Receivable Financing


766,049



-Convertible notes


1,292,800



-Total notes payable

$
7,834,279


$
10,633
 Moreover the following table summarizes the future minimum payment for 5-year commitments of the notes payable:
 Principal6/30/2013

$
6,292,8006/30/2014


1,543,8436/30/2015


7,5856/30/2016


6936/30/2017


-Thereafter


-Total

$
7,844,912
 12
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
   7. Fair Value of Assets and Liabilities
 
 The Company uses a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
 
 Line of Credit Payable – Related Party.The Company assessed that the fair value of this liability to approximate its carrying value based on the effective yields of similar obligations.
 
 Notes Payable.The Company assessed that the fair value of this liability to approximate its carrying value based on the effective yields of similar obligations.
 
 Loans Payable - Other. The Company assessed that the fair value of this liability approximates its carrying value due to its short-term nature.  The methodology described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. If readily determined market values became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts. The Company believes its method of determining fair value is appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.
 
 Assets and Liabilities Measured at Fair Value on a Recurring Basis
 The following table presents the fair value of financial instruments that are measured and recognized on a non-recurring basis classified under the appropriate level of the valuation hierarchy described above, as of March 31, 2013:
  March 31, 2013Fair value measured usingLevel 1


Level 2


Level 3


Total BalanceAssetCash

$
-0-









$
-0-Total assets measured at fair value


-0-










-0-LiabilitiesLine of credit - related party





$
5,000,000






$
5,000,000Notes payable





$
2,322,260






$
2,322,260Loan payable - related party and other





$
522,652






$
522,652Total liabilities measured at fair value

$
-


$
7,844,912






$
7,844,912
 
 8. Stockholders' Deficit
 
 Investment Agreement with MRL
 
 On February 14, 2011, the Company entered into an investment agreement (the “Investment Agreement”) with MRL and LTK, a controlling shareholder of MRL (the “Investment Agreement”).
    13
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   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
   On February 16, 2011, pursuant to the terms of the Investment Agreement, LTK subscribed for 81,000,000 shares in the Company, representing approximately 21.77 percent of the Company’s resulting total issued and outstanding common equity, for an aggregate consideration of $5,000,000. The agreement called for LTK to sell the Shares to MRL, for the same consideration, subject to approval from shareholders of MRL, which occurred on July 26, 2011.
 
 On February 14, 2011, the Company also entered into a revolving credit and warrant purchase agreement with MRL. The Credit and Warrant Agreement did not go into effect until it was ratified by the shareholders of MRL, which occurred on July 26, 2011. See Notes 4 and 6 for material terms of the Credit and Warrant Agreement.
 
 In the event MRL fully exercises the Warrant which was granted upon MRL shareholder approval of the Credit and Warrant Agreement on July 26, 2011, MRL would acquire an aggregate of 131,000,000 Shares representing approximately 32.17 percent of the resulting total issued and outstanding common equity of the Company, for an aggregate consideration of $10,000,000.
  Options
  In April 2011, the Company granted options to its President to purchase 800,000 shares of its common stock and options to its Chief Technical Officer to purchase 400,000 shares of its common stock. The 1,200,000 options have an exercise price of $0.10 per share and expire in five years. The options were valued at $113,520 using the Black-Scholes Option Model with a risk-free interest rate of 2.24%, volatility of 169.83%, and trading price of $0.10 per share. The $113,520 is being charged to operations over their two year vesting period. Compensation charged to operations for the three months ended March 31, 2013 on these options amounted to $14,190. As of March 31, 2013, a total of 1,200,000 of the 1,200,000 options were vested.
  Common Stocks
  During the three months ended March 31, 2013, the Company issued a total of 84,128,318 shares of its common stock, of which 4,000,000 were issued to compensate consultants, calculated for accounting at a stock closing price at the end of each trading date, being compensation for consulting services, for a total exercise of $120,000 as a consulting expense, 72,628,318 shares of its common stock in the amount of $692,965 in related to the conversion of convertible notes into common stocks, 2,500,000 shares of its common stock in the amount of $75,000 to the third party in related to the payment of the principle and interest to the third party loan payable, 2,000,000 shares in related to the true up shares issued to the convertible notes holder for the interest payment in the amount of $80,000.  The Company also issued 3,000,000 shares to the convertible notes holder in the amount of $120,000 as a collateral.  In case the loan is in default, the convertible notes holder can keep the 3,000,000 shares.
  9. Commitments and Contingencies
 
 Purchase, Distribution & Services Agreement #1
 
 On July 26, 2009, the Company entered into an AF21 Product, Purchase, Sales, Distribution & Service Agreement, (the “Agreement”), with Megola, Inc., the owner of technical data and intellectual property for a protective coating in order to obtain an exclusive supply of the product, together with certain distribution, marketing and sales rights. The product is a non-toxic non-corrosive fire inhibitor. Pursuant to the Agreement, the Company guaranteed it will purchase a minimum of four hundred fifty five (455) two hundred and forty five (245) gallon totes of product in the first twelve month period. The Company was required to increase the minimum quantities in the second year, to 842 totes and in the third year to 1,263 totes.
  The current agreement expired on November 11, 2010. In December 2010, the Company purchased 37,500 gallons of AF21 at a total price of $303,750. This inventory was used as partial security for the Company’s $570,500 short-term borrowing from Manhattan Resources Limited (see Note 6). As of the date of these financial statements, the Company has no obligation to purchase additional inventory from Megola, Inc.
   14
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
   Purchase, Distribution & Services Agreement #2
  On January 18, 2011, the Company entered into an AF21 Product, Purchase, Sales, Distribution & Service Agreement, (the “Agreement”), with Newstar Holding Pte Ltd, a Singapore Corporation, and Randall Hart, an Indonesian National, the inventors and owners of technical data and intellectual property for a protective coating in order to obtain an exclusive supply of the product, together with certain distribution, marketing and sales rights. In addition, a significant shareholder of Newstar Holding Pte Ltd is also a significant shareholder of MRL. The product is a non-toxic non-corrosive fire inhibitor. Pursuant to the Agreement, the Company guaranteed it will purchase a minimum of six hundred fifty (650) XXX gallon totes of product in the first two-year period at a cost of $XX.XX per gallon, making the total purchase commitment $1,815,450 for the first two years. The Company is required to increase the minimum quantities in the third year to 842 totes at $XX.XX per gallon, making the total purchase commitment $2,351,706 for year three. In the fourth year the Company is required to increase the minimum quantities to 1,264 totes at $XX.XX per gallon, making the total purchase commitment $3,530,352 for year four. There are no penalty clauses other than cancellation of the agreement if the minimum purchase commitments are not met. If the agreement were to be cancelled it would have a significant impact on the Company's operations until a replacement product could be arranged.
  Vehicle Lease – Ford Credit
  In September 2011, the Company entered into a two year automobile lease with scheduled payments of $390 per month.
  Legal Proceedings
  On August 23, 2010, EcoBlu Products Inc., now known as Eco Building Products, Inc. filed a legal action against Bluwood USA and Adolph Morando in the Superior Court of California, San Diego County, for breach of a Purchase, Distribution and Services Agreement, dated August 24, 2009.
  On November 28, 2010, Bluwood USA filed a demand for arbitration with the American Arbitration Association asserting claims against Eco for breach of the same Purchase, Distribution and Services Agreement.
  On January 5, 2011, Eco filed an amended complaint in the California Superior Court action naming as additional defendants, Edgefield Lumber Co., Mason McGowin, Bluwood International Corp. and Robert Seaman.
  On July 1, 2011, the California Superior Court action was stayed by Order of the Court and arbitration before the American Arbitration was compelled. On September 12, 2011, Eco filed claims in arbitration against Bluwood USA, Edgefield Lumber Co. and Mason McGowin.
  On or about February 18, 2013, the litigation between Eco, Bluwood USA, Edgefield Lumber Co. and Mason McGowin was resolved in a manner acceptable to each party and the California Superior Court action and the Arbitration proceedings were dismissed.
  The resolution shall not have any material effect on the Company's financial positions. Any and all business relationships and issues which may have existed between the parties prior to this resolution have been terminated. Each party has put the disputes behind it and will concentrate on developing its respective businesses.
   15
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
  
 The Company received a refund amount from the American Arbitration Association in the amount of 79,332.50 as a result of the above settlement.
  On or about September 7, 2012, Manhattan Resources Limited (“MRL”) sent correspondence to the Company in which MRL advises that the Company is in default of the Revolving Credit and Warrant Purchase Agreement and the Investment Agreement (the “Agreements”) between the parties, dated February 14, 2011.  MRL alleges that the Company defaulted on the Agreements through a transaction with a third party involving the sale of securities, issuance of debentures, and grating of security interests, dated August 13, 2012.  MRL further alleges that the Company has defaulted on the Agreements in failing to pay $5,000,000.00 and accrued interest due thereunder.
  The Company and MRL continue to work together to resolve the issues raised in MRL’s September 7, 2012 correspondence.  No assurance is given that the Company will successfully resolve the issues raised by MRL, and further, if the issues raised by MRL are litigated the Company may or may not be successful in defending against the claims.
  Alpha Capital Anstalt initiated an action against Eco Building Products, Inc., Eco Building and Trust, Inc. and Seattle Exchange Coffee on or about May 14, 2013, in the United States District Court, Southern District of New York.  The suit seeks $1,080,000.  Plaintiff alleges Eco Building sold a debenture in the principal amount of $1,080,000 to Alpha and that Eco Building failed to pay off the debenture on the maturity date.  Alpha agreed to assign the debenture to a third party.  Upon information and belief, this third party has paid Alpha $960,000 to date.
  10. Restatement of financial statements
  The Company has restated the financial statements as originally presented in its initial registration statement filed on May 20, 2013.  The changes and explanation of such are as follows:
  Originally

Reported





Restatement

Adjustment

As

restatedBalance Sheet Items:Convertible notes net of loan discount


2,107,247




A


(814,447
)
(b), (c)


1,292,800




BLoan payable - other


244,500




A


766,049

(c)


1,010,549




BCommon stocks


358,203




A


21,461

(a)


379,664




BAdditional paid-in capital


21,457,064




A


2,034,542

(a), (d)


23,491,606




BAccumulated deficit


(30,479,433
)



A


(2,007,905
)



(32,487,338
)



B    16
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   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
  3-month ended

March 31, 2013











3-month ended

March 31, 2013Statements of operations items:

Originally

Reported






Restatement

Adjustment

As

restatedCompensation and related expenses


(476,308
)



A


1,183,000

(a)


706,692




BInterest expense


374,340




A


303,826

(b)


678,166




BLoss on modification of debt


508,591




A


(462,254
)
(e)


46,337




BStatements of Cashflows items:

Originally

Reported






Restatement

Adjustment

As

restatedCash flows from operating activitiesLoss on modification of debt by issuance of common stock


1,734,794




A


(545,133
)
(e)


1,189,661




BInterest on amortization of loan fees


1,228,368




A


82,188

(b)


1,310,556




BCommon stock issuance for services


393,821




A


976,917

(f)


1,370,738




BCommon stock issuance for prepaid loan interest for convertible notes


-




A


350,000

(g)


350,000




BStock based compensation


(1,690,000
)



A


1,704,190

(a)


14,190




BCash flows from financing activitiesProceeds from third party loan payable


193,933




A


834,387

(h)


1,028,320




BProceeds from third party convertible notes payable


-




A


2,049,050

(h)


2,049,050




BProceed from debt issuance


2,761,835




A


(2,761,835
)
(h)


-




B
 
 A – Per March 31, 2013 Form 10-Q issued on May 20, 2013
 B– Per March 31, 2013 Form 10-QA issued on August 15, 2013
  (a) Restatement due to on April 30, 2013 the President & CEO of the Corporation has determined that it is in the best interests of the Corporation and its shareholders that the stock issuance approved by the board and transacted on June 5th 2012 providing employee stock options shall be cancelled effective immediately. Furthermore the board confirms that the share certificates issued were never presented, promised or distributed to the employee’s or otherwise and all stock certificates were held in the possession of the company at all times. The board consents to take the following action to cancel 16,900,000 shares of common stock into the authorized but unissued treasury of the corporation and reversed $1,183,000 stock based compensation. The Company determined that the fully vested 16,900,000 shares should not be consider as treasury stock until April 30, 2013, the cancellation date and the stock based compensation in the amount of $1,183,000 should not be reversed on March 31, 2013.
   17
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
 
 
 Moreover, the Company determined that $79,780 convertible notes plus interest for ICG convertible notes have been converted to 4,560,935 common stocks in the three months ended March 31, 2013.
  (b)   Reflects restatement due to correction of errors on convertible notes calculation.  The convertible notes are considered as equity and beneficial conversion features need to be calculated in accordance with ASC 470-20.  The convertible promissory notes have similar conversion terms and that include the following:
  ●
Conversion price – Fixed or VWAP based with a discount●
Conversion Settlement – must be settled in stock
 Thus, the debt discount derived from the BCF calculation is recorded as a debit to liabilities as a debt discount and a credit to additional-paid-in-capital. The discount is then accreted using the effective interest method (in accordance with ASC 835-30-55-2) over the term of the note in accordance with ASC 470-20-35-7.  Upon conversion of all or a portion of each CPN, the following entry would be recorded:
  Dr. Note payable - for the amount of the principle converted
  Dr. Accrued interest payable - for the portion of accrued interest being converted
  Dr. Interest expense – for any unrecognized debt discount related to the portion of debt converted
  Cr. Debt discount – for any unrecognized debt discount related to the portion of debt converted
  Cr. Common stock - for the par value of the shares issued
  Cr. APIC - For the difference between the par value of shares issued and the total debt and accrued interest converted.
  Due to the changes in the calculation of the convertible notes, the convertible notes, net of discount, additional paid in capital and interest expense are subject to change.
  (c)   Reflect due to separate loan payable from accounts receivable financing with Gemini Finance Corporation in the amount of $766,049 from the convertible notes net of discount from third parties.
  (d)   Reflect restatement due to the conversion price of convertible notes to common stock should be based on the outstanding loan that could be converted to common stocks rather than based on the fair value of the stock price at the date of conversion.
  (e)   Reflect restatement due to the issuance of shares to Redwood Management is for the conversion of convertible notes to common stocks rather than for the issuance of shares for the loss on modification of debt.
  (f)   Reflects restatement due to pricing the shares at the fair value at the stock grant date.  In accordance with ASC 718, shares need to be priced at fair value at the grant.  ECO priced the shares per the Stock Issuance Notice and the share price might not be equal to the fair value at the grant date.
  (g)   Reflect restatement due to the reclassification of $350,000 from consulting to prepaid loan fee as it is related to the prepaid loan fee for one of the convertible notes issued in the nine months ended March 31, 2013.
  (h)   Reflect restatement due to better presentation of classifying convertible notes payable to Proceeds from third party convertible notes payable and classifying loan payable from AR financing to Proceeds from third party loan payable rather than grouping them as proceeds from debt issuance.
   18
 Table of Contents
   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
  
 11. Subsequent Events
  On January 14, 2013, 2.5 million of non-restricted common stocks in the amount of $0.02/share equivalent to $50,000 were issued to Neil Dolgin for Debt Conversion from Irv Minnaker per Assignment and Assumption Agreement between Irving Minnaker (Assignor) and Neil Dolgin (Assignee).  The Company agreed to pay 12% interest on $50,000 and the loan will be matured on January 14, 2013.  On January 28, 2013, Certificate to be originally issued free trading on 2.5 million of common stocks was issued.
 On January 29, 2013, Redwood Management LLC converted $200,000 principal amount to 14,814,814 amounts of common stocks at 0.135 conversion price.  The balance of principal after conversion is $880,000.   On January 30, 2013, Redwood Management LLC converted $64,750 principal amount to 4,796,296 amounts of common stocks at 0.135 conversion price.  The balance of principal after conversion is $815,250.
 
 The Company issued shares of common stocks to different recipients.  On January 1, 2013, 1,000,000 shares of restricted common stock were issued to Royal Hudson, LLC with no cost basis for binding MOU between parties. On January 14, 2013, 1,000,000 shares of restricted common stocks with no cost basis were issued to Peter Kuhn for binding MOU between parties.  2,000,000 shares of restricted common stocks with $0.03/share were issued to Arthur Douglas for five months service based on existing contract.  On February 4, 2013, 3,000,000 restricted common stocks with no cost were issued to Tonaquint, Inc with no cost basis for debenture between parties.
  On February 6, 2013, Eco issued 2,000,000 shares of non-restricted stocks with $0.05/share for investment agreement dated and funded on July 9, 2012.  On the same date, Eco removed the restriction on trading on a total of 2,000,000 common stocks issued to Alpha Capital Anstalt for a debt conversion which last for six months.
  On or about February 18, 2013, the litigation between Eco, Bluwood USA, Edgefield Lumber Co. and Mason McGowin was resolved in a manner acceptable to each party and the California Superior Court action and the Arbitration proceedings were dismissed. The resolution shall not have any material effect on the Company's financial positions. Any and all business relationships and issues which may have existed between the parties prior to this resolution have been terminated. Each party has put the disputes behind it and will concentrate on developing its respective businesses. The Company received a refund amount from the American Arbitration Association in the amount of 79,332.50 as a result of the above settlement.
  On April 2, 2013, Redwood Management LLC converted $84,000 principal amount to 24,000,000 shares of common stock at 0.0035 conversion price.  On April 18, 2013, Redwood Management LLC converted $60,000 principal amount to 24,000,000 shares of common stock at 0.0025 conversion price. On May 2, 2013, Redwood Management LLC converted $45,000 principal amount to 18,750,000 shares of common stock at 0.0024 conversion price. The balance of principal after conversions is $339,750.
  On June 5, 2013 the President & CEO of the Corporation has determined that it is in the best interests of the Corporation and its shareholders that the stock issuance approved by the board and transacted on June 5th 2012 providing employee stock options shall be cancelled effective immediately. Furthermore the board confirms that the share certificates issued were never presented, promised or distributed to the employee’s or otherwise and all stock certificates were held in the possession of the company at all times per the list attached as exhibit A. The board consents to take the following action to retire SIXTEEN MILLION NINE HUNDRED THOUSAND (16,900,000) shares of common stock into the authorized but unissued treasury of the corporation. This action reverses the employee compensation stock option plan adopted on June 5, 2012.
  On or about May 14, 2013, Alpha Capital Anstalt initiated an action against Eco Building Products, Inc., E Build and Truss, Inc. and Seattle Exchange Coffee in the United States District Court, Southern District of New York.  The suit seeks $1,080,000.  Plaintiff alleges Eco Building sold a debenture in the principal amount of $1,080,000 to Alpha and that Eco Building failed to pay off the debenture on the maturity date.  Alpha agreed to assign the debenture to a third party.  Upon information and belief, this third party has paid Alpha $960,000 to date.
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  ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
  On or about June 7, 2013 a settlement to the above mentioned action from Alpha Capital Anstalt was agreed upon by all parties involved. The agreement settles the dispute in full providing for final payment to Alpha Capital Anstalt and a dismissal of the action in the United States District Court, Southern District of New York.
  On May 15, 2013 the President & CEO of the Corporation has determined that it is in the best interests of the Corporation and its shareholders that the shareholder Irving Minnaker loan and retire Five Million (5,000,000) shares of common stock into the authorized but unissued treasury of the corporation.  Furthermore the shares were fully owned and held by Irving Minnaker and have been loaned and retired into treasury in order to facilitate pressing business matters.  The Company will reissue shares to Irving Minnaker at a future date to be determined.The loan is to be settled in stock and no provision or expectation of settlement in cash was granted.
 
 On May 15, 2013 the President & CEO of the Corporation has determined that it is in the best interests of the Corporation and its shareholders that the shareholder Mark Vuozzo loan and retire One Million Seven Hundred Fifty Thousand (1,750,000) shares of common stock into the authorized but unissued treasury of the corporation.  Furthermore the shares were fully owned and held by Mark Vuozzo for over a period of two years, and have been loaned and retired into treasury in order to facilitate pressing business matters.  The Company will reissue shares to Mark Vuozzo at a future date to be determined. The loan is to be settled in stock and no provision or expectation of settlement in cash was granted.
  On May 15, 2013 the President & CEO of the Corporation has determined that it is in the best interests of the Corporation and its shareholders that the shareholder Steve Conboy loan and retire Twenty Six Million Four Hundred Eighty Seven Thousand Nine Hundred Two (23,487,902) shares of common stock into the authorized but unissued treasury of the corporation.  Furthermore the shares were fully owned and held by Steve Conboy for over two years period, and have been loaned and retired into treasury in order to facilitate pressing business matters.  The Company will reissue shares to Steve Conboy at a future date to be determined. The loan is to be settled in stock and no provision or expectation of settlement in cash was granted.
  On May 31, 2013, The Company (“ECOB”) entered into a Debt Assumption and Equity Cancellation Agreement (the “Agreement”) with Redwood Management, LLC (“Redwood”) and Manhattan Resources, Ltd (“MRL”). Terms of the Agreement are as set out below:
  1) Subject to the terms and conditions of the Agreement, MRL sells, assigns and transfers to Redwood, all of its liabilities, obligations and commitments with respect to the loan and all interest payable thereon amounting in aggregate to US$5,488,083 (the “Debt”) owing by ECOB to MRL under the Revolving Credit and Warrant Purchase Agreement dated 14 February 2011 between ECOB and MRL (the “Credit Agreement”).
 2) In consideration of the assignment of the Debt by MRL to Redwood, Redwood agrees to pay MRL an aggregate amount of US$3,300,000 (the “Aggregate Consideration”) as follows:
 (i) US$350,000 payable upon execution of the Agreement;
 (ii) US$125,000 payable on each of 17 June 2013, 15 July 2013 and 15 August 2013, unless the Authorization Event (as defined in (iii) below) has previously occurred;
 (iii) US$950,000 payable on the earlier of (a) the date that is thirty (30) days following the date on which ECOB’s shareholders approve an amendment to ECOB’s articles of incorporation providing for the increase of its authorized common shares (“Common Shares”) to 1,500,000,000 authorized Common Shares (the “Authorization Event”), if such approval occurs pursuant to an action by written consent of shareholders in lieu of a meeting which is subsequently noticed to all shareholders through an information statement filed with the Securities and Exchange Commission on Schedule 14C (for purposes of clarification, the measurement of the thirty (30) days shall begin with the taking of the action by written consent and not the effectiveness of the information statement on Schedule 14C) (or the next business day thereafter, if such date falls on a Saturday or Sunday); (b) the date of the Authorization Event, if such Authorization Event occurs pursuant to vote of shareholders at a shareholder meeting held pursuant to a notice and proxy statement filed with the Securities and Exchange Commission on Schedule 14A; or (c) 16 September 2013; and
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   ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
  
 (iv) US$300,000 per month commencing on the earlier of (a) the 15th of the month (or the next business day thereafter, if such date falls on a Saturday or Sunday) following the Authorization Event; or (b) 15 October 2013, and continuing until the balance of the Aggregate Consideration has been paid to MRL. In the event that ECOB repays any or all of the Debt, 100% of the proceeds received by Redwood with respect thereto shall be immediately paid to MRL, up to a maximum of US$3,300,000.
 3) On the terms and subject to the conditions of the Agreement, upon execution of the Agreement, MRL shall surrender for cancellation 40,500,000 of its Common Shares (the “Cancelled Equity”). Upon receipt of the balance of the final payment of the Aggregate Consideration, MRL shall surrender for cancellation its remaining 40,500,000 Common Shares and all of its warrants (“Warrants”) to purchase Common Shares.
 4) In the event any payment of the Aggregate Consideration is not paid within 5 days of the due date, for any reason, then, at the option of the Company, the Agreement may be terminated by MRL by providing written notice to Redwood, with a copy to ECOB (a “Termination Notice”). Upon receipt of a Termination Notice, Redwood shall assign and transfer the Debt back to MRL, less the aggregate amount paid by Redwood to MRL prior to such default, and MRL shall be entitled to retain any payments previously paid to it. In addition, upon termination of the Agreement, ECOB shall issue to MRL a number of Common Shares in an amount equal to the number of Common Shares that constitute the Cancelled Equity, with the same terms and conditions of the Common Shares that had previously been cancelled.
 5) Prior to the Authorization Event, provided that there has been no breach of the Agreement by Redwood, MRL agrees to vote all its Common Shares in favor of any amendment to ECOB’s articles of incorporation providing for the increase of ECOB’s authorized Common Shares.
 6) ECOB grants to Redwood a security interest in, all of ECOB’s right, title and interest in and to all of the personal property of ECOB whether now or hereafter existing, whether tangible or intangible, whether now owned or hereinafter acquired and wherever the same may be located. In the event that MRL exercises its termination right and the Debt is reassigned and returned to MRL, ECOB agrees that the foregoing security interest shall also be assigned and transferred to MRL in connection with the reassignment and return of the Debt.
 7) Conditioned on the satisfactory payment of the Aggregate Consideration by Redwood, and provided that the Agreement is not earlier terminated by MRL as set out in Paragraph 4 above, MRL shall release and discharge ECOB and each of its respective affiliates, representatives, advisors, partners, officers, directors and employees and their respective successors and assigns from any and all claims, demands, causes of action and rights of every kind, nature or character arising or existing on or before the date of the Agreement; whether determined or undetermined, known or unknown, proven or unproven; whether asserted or subject to assertion in any jurisdiction, in any court or other forum or with any federal, state, county, municipal or other governmental authority, agency or official; and whether arising at law, in equity or otherwise, arising out of or from or in any way related to the Common Shares or Warrants.
  On May 31, 2013, The Company (“ECOB”) entered into a Securities Settlement Agreement (the “Agreement”) with Redwood Management, LLC (“Redwood”). Terms of the Agreement are as set out below:
  1) The Principal value of the note is Five Million Dollars ($ 5,000,000.00) with an annual interest rate of 12%. The term of the agreement is twelve months. Description of Debt: See above Debt Assumption and Equity Cancellation Agreement Dated May 31, 2013.
 2) The COMPANY promises to pay to Redwood the Principal and Interest on the Maturity Date, or sooner if required hereby, unless to the extent of any completed conversion of Principal and or Interest as stated herein.   THE COMPANY MAY PREPAY ANY PORTION OF THE PRINCIPAL AMOUNT AT 130% OF SUCH AMOUNT FOR THE FIRST SIX (6) MONTHS ON $3,300,000 OR MAXIMUM ALLOWED PER LAW, WHICHEVER IS LOWER, ALONG WITH ANY ACCRUED INTEREST AT ANY TIME UPON SEVEN DAYS WRITTEN NOTICE TO REDWOOD, PROVIDED THE COMPANY IS NOT IN DEFAULT OF THIS AGREEMENT, SUBJECT TO THE TERMS HEREIN.  AFTER SIX MONTHS THE REDEMPTION STAYS ON AT 130% BUT ON THE FULL FACE VALUE OF $5,000,000.
 
 
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  ECO BUILDING PRODUCTS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2013
 (Unaudited)
  3) At such time this note is satisfied the COMPANY will relieve from the balance sheet 3,025,148 in accrued liability for the value of the 50,000,000 warrants to be cancelled and MRL shall surrender for cancellation 40,500,000 of its remaining Common Shares all to be surrendered by Manhattan Resources, Ltd in connection with this Agreement and the Debt Assumption and Equity Cancellation Agreement Dated May 31, 2013.
  On April 2, 2013, Redwood Management LLC converted $84,000 principal amount to 24,000,000 shares of common stock at 0.0035 conversion price.  On April 18, 2013, Redwood Management LLC converted $60,000 principal amount to 24,000,000 shares of common stock at 0.0025 conversion price. On May 2, 2013, Redwood Management LLC converted $45,000 principal amount to 18,750,000 shares of common stock at 0.0024 conversion price. The balance of principal after conversions is $339,750.














































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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations




The following management's discussion and analysis should be read in connection with the information presented in our unaudited condensed consolidated financial statements and related notes for the three months ended March 31, 2013 included in this report and our audited consolidated financial statements and related notes for the year ended June 30, 2012 included in our Annual Report on Form 10-K /A filed on July 22, 2013 with the Securities and Exchange Commission.





Forward-Looking Statements





Certain statements concerning our plans and intentions included herein may constitute forward-looking statements. There are a number of factors that may affect our future results, including, but not limited to, (a) our ability to obtain additional funding for operations, (b) the continued availability of management to develop the business plan and (c) continue to trim the labor portion of our business with E Build & Truss and focus on ramping the supply side which yields higher profits (d) successful development and market acceptance of our products.





This annual report may contain both historical facts and forward-looking statements. Any forward-looking statements involve risks and uncertainties, including, but not limited to, those mentioned above. Moreover, future revenue and margin trends cannot be reliably predicted.





Overview


Eco Building Products, Inc., or "ECOB", has developed a line of eco-friendly protective wood coatings that extend the life of framing lumber and other wood used in the construction of single-family homes, multi-story buildings as well as The Eco ShelterTM which serves as cost-effective housing for the world.
 
 Eco Building Products wood coatings are topically applied to lumber protecting the wood surface from mold, mildew, fungus, decay, wood rot, termites and Formosan termites. Eco’s newest product, Eco Red ShieldTM also serves as a fire inhibitor, now meeting class A – one hour ratings on structural lumber (Doug Fir), protecting lumber from fire, slowing ignition time and reducing the amount of smoke produced.
 
 The ECOB system of coatings is eco-friendly and remains chemically stable over time. The coatings emit virtually zero volatile organic compounds (VOCs), do not leech heavy metals or toxins into groundwater, and inhibit the growth and propagation of various molds that have the potential to contaminate occupant indoor air quality. More importantly, ECOB coatings prevent the degradation of structural lumber that potentially requires existing homes to be periodically rebuilt due to rot and/or wood ingesting insects/termite damage preserving our forests.
 
 The following milestones contribute to the viability and acceptance of the Company’s flag ship product Eco Red Shield;
 
 On July 2nd 2012 the Company was granted an Engineering Services Report (ESR 3255) from the International Code Commission (ICC-ES) providing evidence that Eco Red Shield meets building code requirements for wood ingesting organisms including Formosan termites and Wood-Rot Decay. This new certification renders Eco Red Shield equivalent to traditional pressure treated lumber typically used for sill plates, mounting against concrete, in above ground applications.
 
 On September 4th, 2012 the Company achieved QAI Laboratories (QAI) listing B1053-1, providing evidence that Eco Red Shield’s fire protection qualities now meets building code requirements for Class “A” structural performance on all dimensional Douglas Fir lumber, making Eco Red Shield protected lumber equivalent to the traditionally accepted fire retardant treated wood (FRTW) for interior use.
 
 On October 29th ,2012 Eco Red Shield has been approved for use in Hawaii by the Department of Planning and Permitting Building Division, City and County of Honolulu. The basis of approval for use is in conjunction with the ICC-ES Engineering Services Report (ESR-3255) currently in effect. Hawaii approval MM2012-0060 will remain in effect for three years and subject to standard building department regulations.
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 On March 8th, 2013 Eco Red ShieldTM protected lumber has been recognized for 'Material Excellence' and selected for inclusion into Material ConneXion's global material library, featuring the largest selection of sustainable materials and the only Cradle to Cradle materials library in the world. ECOB's material submission included physical samples that were sent to every Material ConneXion location worldwide.
 
 On or about April 15, 2013 the management made a decision to wind down the vertical labor portion of its business plan and start to relinquish all labor contracts. This part of our business plan was very successful creating product awareness as a vehicle to get Eco Red Shield vertical on several job sites. This was our plan as we knew the only way the national supply chain would recognize Eco Red Shield protected lumber was to take it vertical on every job E Build & Truss executed. Albeit part of our plan it was an impediment on our cash flow, our current move to relinquish all labor contracts has successfully transitioned the Company into the supply chain with only one five story labor project to complete by the end of May, 2013.
 
 On April 30th, 2013 Eco Red Shield was voted a GOLD winner for innovation at The Edison Awards April 25th event hosted at the Navy Pier in Chicago. Steve Conboy, President & Chief Executive Officer, Eco Building Products, Inc. (ECOB) joined hundreds of senior executives from some of the world's most recognized companies to acknowledge the hard work and commitment of all the 2013 Edison Award winners. Being recognized with an Edison Award has become one of the highest accolades a company can receive in the name of innovation and business. The awards are named after Thomas Alva Edison (1847-1931) whose inventions, new product development methods and innovative achievements literally changed the world, garnered him 1,093 U.S. patents, and made him a household name around the world.
 
 Throughout the course of the current quarter the Company has successfully created several accounts with The Home Depot, executing several supply buying agreements.  These agreements allow the Company and The Home Depot to perform business in the capacity of web commerce, direct to store sales, direct to distribution sales and special order sales. Currently the Company has successfully launched the Eco Fire Break and the Christmas Tree Protection on The Home Depot web commerce site.
 
 The Eco Building Products line includes dimensional lumber, wall and floor panels, I-joists, GluLam Beams, LVL beams, truss lumber and trim. These products can be coated at our production facilities and at the mill or distributor with our proprietary formula and coating machines. Additionally the company has six authorized affiliates producing Eco Red Shield coated products. The Company sells concentrated coating materials to the affiliate network creating additional revenue streams.
 
 By supporting and providing value added lumber materials direct from our facilities and/or our affiliates, ECOB can create a compelling value package. Eco Red Shield has been awarded several accolades and has obtained industry certifications never before combined into a single product. The overall treatment methodology is cost effective making Eco Red Shield a low cost alternative with greater value.





Critical Accounting Policies





Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis, including those related to revenue recognition, stock-based compensation, inventories, income taxes, warranty obligations and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and judgments used in the preparation of our financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, such as demand for our products and economic conditions.  Accordingly, our estimates and judgments may prove to be incorrect and actual results may differ, perhaps significantly, from these estimates.





We believe the following critical accounting policies reflect our more significant judgments used in the preparation of our consolidated financial statements.






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Lines of Credit with Detachable Warrants


Warrants issued to obtain a line of credit are recorded at fair value at contract inception.  When warrants are issued to obtain a line of credit rather than in connection with the issuance, the warrants are accounted for as equity, at the measurement date in accordance with ASC 505-50-25 “Equity-Based Payments to Non-Employees”. The issuance of these warrants is equivalent to the payment of a loan commitment or access fee, and, therefore, the offset is recorded akin to debt issuance costs. The deferred fee is amortized on a straight-line basis over the stated term of the line of credit





Issuances Involving Non-cash Consideration


All issuances of the Company’s stock for non-cash consideration have been assigned a dollar amount equaling the market value of the shares issued on the date the shares were issued for such services.





Stock Based Compensation


The Company accounts for stock options issued to employees and consultants under ASC 718“Share-Based Payment”. Under ASC 718, share-based compensation cost to employees is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee's requisite vesting period.




The Company accounts for stock-based compensation under ASC Topic 505-50 “Equity-Based Payments to Non-Employees”. This standard defines a fair value based method of accounting for stock-based compensation. In accordance with ASC Topic 505-50, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes option-pricing model, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.Options are granted at a price not less than the fair market value of the stock on the date of grant. Generally, options vest over periods not exceeding four years and are exercisable for up to ten years from the grant date.


Revenue Recognition and Concentration Risk


We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) – Accounting Standards Codification (“ASC”) 605-10-S25 Revenue Recognition – Overall – Recognition. ASC 605-10-S25 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgment regarding the fixed nature of the fee charged for products delivered and the collectability of those fees. The application of these criteria has resulted in our generally recognizing revenue upon shipment (when title passes) to customers. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely impacted.




All items sold, to end users, job sites and distributors are sold as is.  We offer a replacement warranty for items that are deemed not acceptable at the time of delivery.  We will offer the customer a maximum of a 30 day period of time to request a replacement item period. Any items that a customer wants to return for credit we charge a 25% restocking fee as this is stated in every quotation.




These arrangements do not include any special payment terms (our normal payment terms are 30-45 days for our distributors), price protection or exchange rights. Returns are limited to our standard product warranty. Certain of our distributors have contracts that include limited inventory rotation rights that permit the return of a small percentage of the previous six months' purchases.




Warranty Reserves.  We offer customer a 10 year replacement warranty against Mold, wood-Rot and Termite damage for the value added portion of company’s service such as the coating applied to the raw lumber.  This warranty is backed by an 11 million dollar product liability policy in which the company maintains a deductible policy on it.  As of current, the company has not yet experienced any warranty claim against this stated warranty policy.








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Inventory Valuation. We currently value our inventory at the average cost.  We write down inventory for obsolescence or lack of demand, based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. On the contrary, if market conditions are more favorable, we may be able to sell inventory that was previously reserved.
  Going Concern


The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. To date the Company has generated minimal operating revenues, losses from operations, significant cash used in operating activities, and is dependent upon its ability to obtain future financing and successful operations.
 Our continuation as a going concern is dependent upon obtaining the additional working capital necessary to sustain our operations. Our future is dependent upon our ability to obtain financing and upon future profitable operations. The Company estimates the current burn rate of approximately two hundred thousand dollars a month is required to continue to operate. Either through profit on sales or via management seeking additional financing through the sale of its common stock and or through private placements the minimum burn rate must be met in order to relive the threat of the company’s ability to continue as a going concern.. There is no assurance that our current operations will be profitable or we will raise sufficient funds to continue operating. The Company continues to trim overhead expenses to meet revenues. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event we cannot continue in existence. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
  Financial Condition and Results of Operations





The table below sets forth the data from our Condensed Consolidated Statement of Operations as a percentage of revenue for the periods indicated:





Results of Operations for the Three Months Ended March 31, 2013 as Compared to the Three Months Ended March 31, 2012





Revenues and Cost of Sales - For the three months ended March 31, 2013 we had total revenues of $1,717,001 from product sales, as compared to $1,089,724 in revenues from product and equipment sales for three month period ended March 31, 2012.  Our cost of sales and gross profit for the three months ended March 31, 2012 was $1,635,217 and $81,784, respectively. This is compared to our cost of sales and gross profit for the three months ended March 31,2013 of $1,010,638 and $79,086, respectively. Sales margins continue to remain flat; however gross sales have not yet developed to sufficient levels to improve efficiencies




Operating Expenses - For the three months ended March 31, 2013, our total operating expenses were $1,570,404.


This is compared to $1,894,772 for the three month period ended March 31, 2012. Included in our operating expenses for the three months ended March 31, 2013 were compensation and related costs of 706,692. Professional fees included in our operating expenses for the three months ended March 31, 2013 amounted to 89,824.  Other significant operating costs we incurred during the three months ended March 31, 2013 included rent of $243,332, consulting fees of $89,824, marketing of $54,246, research and development of $10,233, and other general and administrative costs of $462,982. Our operating expenses for the three months ended March 31, 2012 consisted of $556,619 of compensation and related costs, $476,894 of professional fees, $109,179 of rent expense, $476,894 of consulting fees, $86,160 of research and development expense, $12,369 of marketing expense, and $636,680 of other general and administrative expenses.
  Other Income and Expenses - For the three months ended March 31, 2013 we had other expenses that included interest expense of $678,166.  We incurred $46,337 for the loss on modification of our convertible notes payable. This is compared to the three months ended March 31, 2012, in which our other income and expenses included interest income of $95,272 and loss on modification of 300,000.
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   Liquidity and Capital Resources
  On March 31, 2013, we had $-0- cash on hand.  During the nine months ended March 31, 2013, net cash used in our operating activities amounted to $3,319,578. Net cash used during the same period for our investing activities totaled $55,136 which was used for the purchase of property and equipment.  Cash of $3,263,463 was provided by financing activities during the same period, which consisted of $1,028,320 proceeds from third party advances, $2,049,050 proceeds from third party convertible notes payable and $186,093 proceeds from related party advances and notes.
  During the nine month ending March 31, 2012, net cash used in our operating activities amounted to $4,015,164.  Cash of $393,331 was used by investing activities during the same period, which consisted of $529,391 of purchasing of property and equipment, $25,000 of purchasing of software license, $10,990 purchase of intangible assets and $172,050 payments for equipment deposits – related party.  Cash of $4,488,884 was provided by financing activities during the same period, which consisted of $5,024,845 proceeds from related party line of credit advances, less repayment of related party advances and notes of $1,526,434, proceeds from issuance of common stock during this period was $990,473.


During the year ended June 30, 2011, we entered into an investment agreement and a revolving line of credit and warrant purchase agreement with Manhattan Resources Limited, a Singapore Corporation (“MRL”) and Dato’ Low Tuck Kwong (“LTK”), a controlling shareholder of MRL. Under the investment agreement, we received $5,000,000 in exchange for issuing 81,000,000 shares of its common stock. Effective July 26, 2011, we obtained the ability to borrow up to an additional $5,000,000 on the revolving credit and warrant purchase agreement, in exchange for the issuance of warrants to purchase 50,000,000 shares of our common stock at $0.10 per share to MRL as a loan facility fee.  Of this amount $3,000,000 was borrowed in July 2011 and $2,000,000 was borrowed subsequent to November 30, 2011.  As of the date of this filing we had no cash on hand and the entire $5,000,000 of capital available under the MRL line of credit was borrowed during July and December, 2011. As of December 31, 2012, the Company drew down the entire $5.0 million dollars of the Loan Facility.  The $5.0 million dollar loan from MRL was in default, refer to Note 4, the Prepaid Loan Facility Fee in the Notes to Condensed Consolidated Financial Statements, the Company reclassified the $5.0 million dollars loan due to MRL as current liability and continue to accrue interest on the $5.0 million dollars due to MRL.  As of December 31, 2012, the Company paid a total of $260,339 towards the interest by issuing 4,412,517 shares to MRL.  As MRL rejected the Company’s proposal and the loan was in default, the Company retired the shares issued to MRL and continues to accrue interest expense on the $5.0 million dollar loan facility from MRL.  As of March 31, 2013, the Company accrued $444,028 interest expense on the $5.0 million dollar loan facility from MRL for the nine months ended March 31, 2013.
  If current and projected revenue growth does not meet management estimates and proceeds received from MRL are insufficient, we may choose to raise additional capital through debt and/or equity transactions, reduce certain overhead costs through the deferral of salaries and other means, and settle liabilities through negotiation. Currently, we do not have any commitments or assurances for additional capital, other than MRL, nor can we provide assurance that such financing will be available to us on favorable terms, or at all. If, after utilizing the existing sources of capital available to us, further capital needs are identified and we are not successful in obtaining the financing, we may be forced to curtail our existing or planned future operations.
  We may continue to incur operating losses over the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in our stage of development. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.





Off Balance Sheet Arrangements





We have no off-balance sheet arrangements or financing activities with special purpose entities.






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Item 3 - Quantitative and Qualitative Disclosures About Market Risk




We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.




Item 4 - Controls and Procedures


Effectiveness of internal control over financial reporting
  During the period ended March 31, 2013 we determined that because of the limited personnel, lack of segregation of duties and manual process related to the tracking and valuation of our inventory, management determined that a material weakness existed in the processes, procedures and controls related to the preparation of our financial statements.  This material weakness could result in the reporting of financial information and disclosures in future consolidated annual and interim financial statements that are not in accordance with generally accepted accounting principles.
  The Company expects to take the following steps to remedy these weaknesses:
  1.      Continue the implementation and training of an ERP system in which will improve the segregation of duties issues and automate the tracking of costs related to inventory
  2.      Hire additional staff to assist the Controller to implement procedures improving the transaction processing, reconciliation and reporting process of inventory.
  3.      Hire a Principle Financial Officer to solely act in the capacity of CFO and relieve the current duties as performed by the Principle Executive Officer.
  The Company expects to remediate these weaknesses prior to the completion of the quarter ended September 30, 2013.
  The Company deemed that the internal control over financial reporting for the Company as of March 31, 2013 is not effective.
  Changes in Internal Controls
 During the quarter ended March 31, 2013, there were no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
  Status of Remediation of Significant Deficiencies or Material Weaknesses in Internal Control over Financial Reporting
 We intend to continue our remediation of the material weaknesses disclosed in our Fiscal 2012 10-KA. For example, We will continue to hire or train sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of U.S. GAAP commensurate with our financial reporting requirements.
  Additionally, management is investing in ongoing efforts to continuously improve our internal control over financial reporting and has committed considerable resources to the improvement of the design, implementation, documentation, testing and monitoring of our internal controls. As of the date of this filing, we believe that we have made substantial progress in the implementation of the corrective actions, noted above, toward remediation of the material weakness.
 We believe that these corrective actions, taken as a whole, when fully implemented, will mitigate the material weaknesses identified above. However, we will continue to monitor the effectiveness of these actions and will make any changes that management deems appropriate. As of the Evaluation Date, the design and testing of the effectiveness of our remediation efforts has not been completed.
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   Part II - OTHERINFORMATION




Item 1 - Legal Proceedings




On August 23, 2010, EcoBlu Products Inc., now known as Eco Building Products, Inc. filed a legal action against Bluwood USA and Adolph Morando in the Superior Court of California, San Diego County, for breach of a Purchase, Distribution and Services Agreement, dated August 24, 2009.




On November 28, 2010, Bluwood USA filed a demand for arbitration with the American Arbitration Association asserting claims against Eco for breach of the same Purchase, Distribution and Services Agreement.




On January 5, 2011, Eco filed an amended complaint in the California Superior Court action naming as additional defendants, Edgefield Lumber Co., Mason McGowin, Bluwood International Corp. and Robert Seaman.




On July 1, 2011, the California Superior Court action was stayed by Order of the Court and arbitration before the American Arbitration was compelled. On September 12, 2011, Eco filed claims in arbitration against Bluwood USA, Edgefield Lumber Co. and Mason McGowin.




On or about February 18, 2013, the litigation between Eco, Bluwood USA, Edgefield Lumber Co. and Mason McGowin was resolved in a manner acceptable to each party and the California Superior Court action and the Arbitration proceedings were dismissed.




The resolution shall not have any material effect on the Company's financial positions. Any and all business relationships and issues which may have existed between the parties prior to this resolution have been terminated. Each party has put the disputes behind it and will concentrate on developing its respective businesses.




The Company received a refund amount from the American Arbitration Association in the amount of 79,332.50 as a result of the above settlement.




On or about September 7, 2012, Manhattan Resources Limited (“MRL”) sent correspondence to the Company in which MRL advises that the Company is in default of the Revolving Credit and Warrant Purchase Agreement and the Investment Agreement (the “Agreements”) between the parties, dated February 14, 2011.  MRL alleges that the Company defaulted on the Agreements through a transaction with a third party involving the sale of securities, issuance of debentures, and grating of security interests, dated August 13, 2012.  MRL further alleges that the Company has defaulted on the Agreements in failing to pay $5,000,000.00 and accrued interest due thereunder.


The Company and MRL continue to work together to resolve the issues raised in MRL’s September 7, 2012 correspondence.  No assurance is given that the Company will successfully resolve the issues raised by MRL, and further, if the issues raised by MRL are litigated the Company may or may not be successful in defending against the claims.
  Alpha Capital Anstalt initiated an action against Eco Building Products, Inc., Eco Building and Trust, Inc. and Seattle Exchange Coffee on or about May 14, 2013, in the United States District Court, Southern District of New York.  The suit seeks $1,080,000.  Plaintiff alleges Eco Building sold a debenture in the principal amount of $1,080,000 to Alpha and that Eco Building failed to pay off the debenture on the maturity date.  Alpha agreed to assign the debenture to a third party.  Upon information and belief, this third party has paid Alpha $960,000 to date.
  Item 2 - Unregistered Sales of Eq uity Securities and Use of Proceeds
  None.
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   Item 3 - Defaults Upon Senior S ec urities
 On or about September 7, 2012, a law firm claiming to represent Manhattan Resources Limited, or MRL, supplied a letter to Ecob. On September 19, 2012 Ecob obtained the advice of litigation counsel which, after review and consultation, concluded to the effect that the letter is material, notwithstanding current or recently past communications impacting upon the veracity of the contents of the letter, or the intention of the letter. The contents of the letter include statements advising Ecob that Ecob is in breach of the Revolving Credit and Warrant Purchase Agreement referenced above ("Revolving Agreement"), and the Investment Agreement dated February 14, 2011 referenced above. It is not clear if that law firm (the firm that sent the letter) also represents the other parties noted in the agreements other than MRL. The letter claims the transactions, previously reported, by Ecob relating to the Purchase Agreement and granting of a security interest, August 13, 2012, per the previously filed Form 8K of Ecob August 22, 2012, was a breach of various provisions of the agreements relating to MRL, they (MRL) will enforce their rights, and reserve rights, and that an Event of Default has happened under Section 6(a) of Revolving Agreement, in that Eco failed to pay the $5,000,000 allegedly due.  The same claims of default as to interest, and that they do not agree that MRL agreed to forebear from individually enforcing rights or remedies.
  Ecob takes the position that an agreement, altering the rights of MRL and related others, was previously offered and accepted and that it means that MRL and noted affiliates surrendered to Ecob rights and interests in Ecob and no longer can claim they own securities in Ecob, and this was in exchange for Ecob supplying the concurrent promise to pay the sum of $10,500,000 by June 13, 2014; that the securities held by MRL and affiliates are or should be deemed cancelled or retired; and that Ecob is willing to negotiate and entertain, though not obligated, repaying the sum with interest, as well as any "amendment" or terms for orderly procedures of the parties. This would mean that Ecob also believes the Past Agreements no longer apply.
  Ecob is now seeking the advice of counsel and has believes that MRL is open to settle and resolve the differences and demands of MRL communicated to Ecob and while it plans to vigorously defend and protect its interests, it also continues to express the interest to reach an amicable resolution with MRL. No assurance can be given that Ecob will be successful in the resolution, if possible, of such claims.
 As of December 31, 2012, the Company paid a total of $260,339 towards the interest by issuing 4,412,517 shares to MRL.  As MRL rejected the Company’s proposal and the loan was in default, the Company retired the shares issued to MRL and continue to accrue interest expense on the $5.0 million dollar loan facility from MRL.  As of March 31, 2013, the Company accrued $444,028 interest expense on the $5.0 million dollar loan facility from MRL for the nine months ended March 31, 2013.
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 Item 6 - Exhibits andReports
  Exhibits
  Eco Building Products, Inc. includes by reference the following exhibits:


3.1
Articles of Incorporation, filed as exhibit 3.1.1 with the registrant’s Registration Statement on Form SB-2, as amended; filed with the Securities and Exchange Commission on August 23, 2007.3.2
Bylaws, filed as exhibit 3.2 with the registrant’s Registration Statement on Form SB-2, as amended; filed with the Securities and Exchange Commission on August 23, 2007.3.3
Amended  Articles of Incorporation ; filed as exhibit 3.1 with the registrant’s Current Report on Form 8-K; filed with the Securities and Exchange Commission on October 22, 20093.4
Amended  Articles of Incorporation ; filed as exhibit 3.3 with the registrant’s Annual Report on Form 10-K; filed with the Securities and Exchange Commission on September 28, 20114.1
Convertible Promissory Note, dated December 22, 2009; filed as exhibit 10.5 with the registrant’s Current Report on Form 10-Q; filed with the Securities and Exchange Commission on February 22, 20104.2
Convertible Promissory Note, dated February 11, 2010; filed as exhibit 10.6 with the registrant’s Current Report on Form 10-Q; filed with the Securities and Exchange Commission on February 22, 201010.1
Investment Agreement – between Ecoblu Products, Inc.,  Manhattan Resources Limited and Dato’ Low Tuck Kwong , dated February 14, 2009, filed as exhibit 10.1 with the registrant’s Current Report on Form 8-K; filed with the Securities and Exchange Commission on February 16, 2011.10.2
Revolving Credit and Warrant Agreement – between Ecoblu Products, Inc. and Manhattan Resources Limited, dated February 14, 2009, filed as exhibit 10.2 with the registrant’s Current Report on Form 8-K; filed with the Securities and Exchange Commission on February 16, 2011.10.3
Warrant Termination Agreement – between Ecoblu Products, Inc. and SLM Holding PTE, Ltd., dated January 12, 2011; filed as exhibit 10.3 with the registrant’s Current Report on Form 8-K; filed with the Securities and Exchange Commission on February 16, 2011.10.4
Hartindo AF21 Product, Purchase, Sales,  Distribution & Service Agreement, between Ecoblu Products, Inc. and Newstar Holdings Pte Ltd, dated January 18, 2011;filed as exhibit 10.8 with the registrant’s Current Report on Form 10-Q; filed with the Securities and Exchange Commission on February 22, 2011.10.5
Employment Agreement – between Ecoblu Products, Inc. and Steve Conboy, Effective April 1, 2011.filed as exhibit 10.5 with the registrant’s Current Report on Form 10-Q; filed with the Securities and Exchange Commission on May 23, 2011.10.6
Employment Agreement – between Ecoblu Products, Inc. and Mark Vuozzo, Effective April 1, 2011filed as exhibit 10.6 with the registrant’s Current Report on Form 10-Q; filed with the Securities and Exchange Commission on May 23, 2011.21.1
Subsidiaries List filed as exhibit 21.1 with the registrant’s Current Report on Form 10-Q; filed with the Securities and Exchange Commission on November 15, 2011.
  Eco Building Products, Inc. includes herewith the following exhibits:
  31.1
Certification of Principal Executive Officer andPrincipal Financial Officer (Rule 13a-14(a)/15(d)-14(a))32.1
Certification of Principal Executive Officerand Principal Financial Officer (18 U.S.C. 1350)






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SIGNATURES




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






Eco Building Products, Inc.Date: August 15 , 2013
By:
/s/ Steve ConboySteve Conboy, PresidentPrincipal Executive OfficerDate: August 15, 2013
By:
/s/ Steve ConboySteve Conboy, Principal Financial Officer