10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(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, 2012

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 May 15, 2012:   209,061,669 shares of common stock

1

Eco Building Products, Inc.

Contents

		Page
		Number
PART I	FINANCIAL INFORMATION	3
Item 1	Unaudited Condensed Consolidated Financial Statements March 31, 2012	3
	Balance Sheet	3
	Statement of Operations	4
	Statement of Cash Flows	5
	Notes to the Interim Financial Statements	6
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4	Controls and Procedures	18
Part II	OTHER INFORMATION	20
Item 1	Legal Proceedings	20
Item 6	Exhibits and Reports	20
SIGNATURES		22

2

PART I  -  FINANCIAL INFORMATION

Item 1  -  Financial Statements

ECO BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	March 31			June 30
	2012			2011
ASSETS
CURRENT ASSETS
Cash	$	162,037		$	81,648
Accounts receivable, net of allowance for doubtful accounts of $0 at March 31, 2012 and June 30, 2011		914,474			369,840
Inventories		1,803,606			1,542,378
Prepaid loan facility fee - related party, current portion		1,008,383			-
Prepaid expenses		35,132			85,967
Deposits		-			-
Other current assets		16,414			-
Total current assets		3,940,046			2,079,833
PROPERTY AND EQUIPMENT, net		1,141,054			743,523
OTHER ASSETS
Accounts receivable - long-term portion		-			81,648
Intangible assets		10,807			-
Other assets		25,000			-
Deposit - Long Term		16,397			-
Prepaid loan facility fee - related party		1,330,957			-
Equipment deposits - related party		-			188,447
Total other assets		1,383,161			270,095
TOTAL ASSETS	$	6,464,261		$	3,093,451
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	266,648		$	440,471
Payroll and taxes payable		1,252,339			728,751
Advances from related party		-			63,163
Other payables and accrued expenses		189,147			58,484
Deferred revenue		-			20,500
Current maturities of notes payable		6,067			-
Line of credit payable - related party		1,666,667			1,029,111
Loans payable - related party		273,384			174,217
Loans payable - other		44,500			44,500
Total current liabilities		3,698,752			2,559,197
LONG TERM LIABILITIES
Line of credit payable - related party		3,333,333			-
Notes payable, less current maturities		18,777			-
Total long term liabilities		3,352,110			-
TOTAL LIABILITIES		7,050,862			2,559,197
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 500,000,000 shares authorized,
198,145,003 shares issued and outstanding at March 31, 2012
and December 31, 2011		198,145			178,286
Additional paid-in capital		15,008,790			10,622,135
Accumulated deficit		(15,793,536	)		(10,266,167	)
Total stockholders' equity		(586,601	)		534,254
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	6,464,261		$	3,093,451

See accompanying notes to condensed consolidated financial statements

3

ECO BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	3-month ended			3-month ended			9-month ended			9-month ended
	March 31			March 31			March 31			March 31
	2012			2011			2012			2011
REVENUE
Product sale	$	1,089,724		$	16,513		$	2,777,248		$	739,112
Equipment and other sales	$	-		$	28,800		$	-		$	31,800
TOTAL REVENUE	$	1,089,724		$	45,313		$	2,777,248		$	770,912
COST OF SALES		1,010,638			41,644			2,541,613			678,268
GROSS PROFIT		79,086			3,669			235,635			92,644
OPERATING EXPENSES
Research and development		86,160			95,831			142,365			140,795
Marketing		12,369			33,879			86,401			45,314
Goodwill/Donation		16,871			-			30,601			-
Compensation and related expenses		556,619			289,270			1,812,218			640,642
Rent - facilities		109,179			89,216			284,171			323,106
Professional fees		429,251			319,711			949,225			631,193
Consulting		47,643			103,500			158,660			155,111
Other general and administrative expenses		636,680			213,122			1,590,316			453,391
Total operating expenses		1,894,772			1,144,529			5,053,957			2,389,552
LOSS FROM OPERATIONS		(1,815,686	)		(1,140,860	)		(4,818,322	)		(2,296,908	)
OTHER INCOME (EXPENSE)
Interest income		-			-			20,199			-
Interest expense		(95,272	)		(309,089	)		(354,246	)		(1,954,093	)
Gain (loss) on settlement of lease
Gain (loss) on settlement of debt		-			-			-			12,706
Loss on modification of debt		(300,000	)					(375,000	)		(421,600	)
Change in fair value of derivative liability		-			213,491			-			368,954
Total other income (expense)		(395,272	)		(95,598	)		(709,047	)		(1,994,033	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(2,210,958	)		(1,236,458	)		(5,527,369	)		(4,290,941	)
NET LOSS	$	(2,210,958	)	$	(1,236,458	)	$	(5,527,369	)	$	(4,290,941	)
NET LOSS PER COMMON SHARE - BASIC		(0.01	)		(0.01	)		(0.03	)		(0.04	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		188,531,543			136,533,322			185,804,807			99,317,004

See accompanying notes to condensed consolidated financial statements

4

ECO BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
	Nine Months Ended March 31,
	2012			2011
Cash flows from operating activities
Net Loss	$	(5,527,369	)	$	(4,290,941	)
Adjustments to reconcile net income to net cash used by operating activities:
Loss on modification of debt by issuance of common stock		375,000			421,600
(Gain) loss on settlement of debt		-			(12,706	)
Interest on amortization of debt discount		-			888,946
Amortization of loan fees		1,235,027			176,606
Interest on repricing of warrant		-			140,981
Change in fair value of derivative liability		-			(368,954	)
Common stock issuance for services		-			218,927
Common stock issuance for payment of rent and lease settlement					80,000
Depreciation expense		132,043			54,594
Bad debt expense		-			13,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable		(462,985	)		(25,946	)
(Increase) in other receivable		-			5,886
(Increase) in inventory		(261,228	)		(867,795	)
(Increase) in prepaid expenses & other current assets		34,421			(5,000	)
Decrease (Increase) in deposits		-			45,155
Increase in accounts payable		(173,823	)		120,785
Increase in rent payable		-			-
Increase in other payable and accrued expenses		534,838			368,282
Increase in deferred rent expense		-			-
Increase in accrued interest added to principle		98,912			17,427
Net cash used by operating activities		(4,015,164	)		(3,019,153	)
Cash flows from investing activities
Purchase of property and equipment		(529,391	)		(9,375	)
Purchase of software licenses		(25,000	)		-
Purchase of intangible assets		(10,990	)		-
Payments for equipment deposits - related party		172,050			(91,732	)
Payments for prepaid trademark costs					(1,110	)
Net cash used by investing activities		(393,331	)		(102,217	)
Cash flows from financing activities
Proceeds from related party line of credit advances		5,000,000			5,000,000
Proceeds from debt issuance		-			770,500
Proceeds from issuance of common stocks		990,473			-
Proceeds from related party advances and notes		24,845			873,118
Repayments of debt issuances		-			(1,212,192	)
Repayments of related party advances and notes		(1,526,434	)		(524,371	)
Payment to related party for cancellation of warrants		-			(10	)
Net cash provided by financing activities		4,488,884			4,907,045
Net change in cash and cash equivalent		80,389			1,785,675
Cash and cash equivalent at the beginning of year		81,648			385,534
Cash and cash equivalent at the end of year	$	162,037		$	2,171,209
Supplemental disclosures of cash flow Information:
Cash Paid for Interest	$	46,000		$	-
Supplemental disclosure of non-cash investing and financing activities:
Issuance of warrant in connection with the loan fee of line of credit	$	3,025,148		$	-

 

See accompanying notes to condensed consolidated financial statements

5

ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(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.  As detailed herein, for the nine months ended March 31, 2012, the Company experienced revenues of $2,777,248.

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 quarter ended September 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 March 31, 2012, the wholly owned subsidiary has had little operating activity.

On May 31, 2011, the Company formed E Build & Truss, Inc. (“E Build”) in the State of California. E Build was formed for the purpose of operating the Company’s Framing Labor and Truss manufacturing activities. This wholly-owned subsidiary commenced operations during the three months ended March 31, 2012.

During the quarter ended December 31, 2012, the Company formed Seattle Coffee Exchange (“Seattle”) in the State of California.  Seattle is a coffee shop which is located in the 1st floor of the Company’s corporate headquarters in Vista, CA.  This wholly-owned subsidiary has not started its operations during the three months ended March 31, 2012.

As of March 31, 2012, the Company owns 100% of E Build, Red Shield and Seattle Coffee Exchange.

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. These factors raise doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

6

ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

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, management believes it the funding provides sufficient capital to continue operating the Company and allow it to become profitable, however; 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, 2012, the Company had cash on hand of $162,037 and $5,000,000 of capital available to them under the MRL line of credit, of which the entire $5,000,000 was borrowed between July and December, 2011 and the Company paid no interest and accrued $98,912 interest for the nine months ended March 31, 2012.  Since the Company had borrowed the entire $5,000,000 line of credit from MRL since December 31, 2011, which made no available credit under this agreement at this period.

If current and projected revenue growth does not meet Management estimates and proceeds received from MRL are insufficient, the Management 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, the Company does not have any commitments or assurances for additional capital, other than MRL, 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.  The Company has significant inventories on hand and will generate profits and cash flow from turns of sales and or contracts already on the books. The Company has already taken steps to reduce expenses.  As of first of January of 2012, the Company has increased the sales price of the Eco Red Shield coatings as applied to finished good lumber sales.  The Company feels that it now has gained good traction in the market place with our technology therefore can command a higher premium which will equate to greater margins and increased cash flows.

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, 2012, and the results of its operations and cash flows for the nine months ended March 31, 2012 and 2011. 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 for the year ended June 30, 2011.

2.  Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Ecoblu Products, Inc. and its wholly owned subsidiaries, Ecoblu Products, Inc. of Nevada, E Build & Truss, Inc. and Red Shield Lumber, Inc. Intercompany transactions and balances have been eliminated in consolidation.

7

ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affects the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purpose of the statements of cash flows, the Company considers cash and cash equivalents to include all stable, highly liquid investments with maturities of three months or less.

Accounts Receivable

Accounts receivable are reported at the customers’ outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.  All of the Company’s receivables are pledged as collateral for the Company’s $5,000,000 Loan Facility; refer to Note 6, “Notes Payable”, and Note 9, “Stockholders’ Deficit” in the notes to condensed consolidated financial statements for detail.

The Company discounts sales with extended terms where no interest is charged to their respective present value pursuant to ASC Topic 310-10-30-3 “Receivables.”

Allowance for Doubtful Accounts

An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages, information collected from individual customers related to past transaction history, credit-worthiness, changes in payments terms and current economic industry trends. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. To date write-offs and allowances have been insignificant.

Inventories

Inventories primarily consist of chemicals and lumber and are stated at lower of first-in-first out (FIFO) cost or market (net realizable value). Net realizable value is the respective inventory’s estimated selling price reduced by the cost of completion and disposal. As of March 31, 2012, there were no write-downs of inventory to net realizable value.

Lines of Credit with Detachable Warrants

Warrants issued to obtain a line of credit should be 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. The non-cash consideration received pertains to debt placement fees, consulting and advisory services, debt cancellation, rent, and related party equipment purchases.

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.

8

ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

The Company accounts for stock-based compensation to non-employees under ACS 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 ACS 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.

Loss Per Share

The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. A diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect.

Revenue Recognition and Concentration Risk

The Company records revenue when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the prices for the services performed and the collectability of those amounts.

The Company generally recognizes revenue from product sales, including equipment, at the time product is shipped and title passes to the customer assuming all the other revenue recognition criteria stated above are satisfied. Revenues earned on non-refundable licensing fees are generally recognized when the licensing fees are delivered assuming all the other revenue recognition criteria stated above are satisfied. Sales are recorded net of any applicable sales tax.

The Company had product sales revenue of $1,089,724 and $2,777,248 for the three months and nine months ended March 31, 2012, respectively.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (ASU) No. 2011-11, Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities (ASU 2011-11), that requires an entity to disclose additional information about offsetting and related arrangements to enable users of the financial statements to understand the effect of those arrangements on the financial position. ASU 2011-11 will be effective for us beginning July 1, 2013. The Company believes that the adoption of ASU 2011-11 may impact future disclosures but will not impact our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-5, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income, which provides guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. This portion of the guidance will be effective for us beginning July 1, 2012 and will require retrospective financial statement presentation changes only. The new guidance also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. However, in December 2011, the FASB issued ASU No. 2011-12 which indefinitely defers the guidance related to the presentation of reclassification adjustments.

9

ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

3.  Inventories

As of March 31, 2012, inventories consisted of the following:

Chemicals	$	271,280
Lumber		1,532,326
	$	1,803,606

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, Notes Payable in the Notes to Condensed Consolidated Financial Statements.

4.  Prepaid Loan Facility Fee

As discussed in Note 6, Notes Payable in the Notes to Condensed Consolidated Financial Statements as consideration for a $5,000,000 Loan Facility, the Company issued MRL warrants to purchase 50,000,000 common shares at an exercise price of $0.10 per share (the “Warrants”). 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 the Black-Scholes option pricing model using an exercise period of 5 years, risk free rate of 1.51%, volatility of 163%, 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 amortization expense over the three year availability period of the Loan Facility.  A total of $252,096 and $685,809 of amortization expense was recognized on the amortization of the prepaid loan fees during the three months and nine months ended March 31, 2012 with $2,339,339 remaining to be amortized.

5.  Accrued Liabilities

As of March 31, 2012, the Company owed $705,539 in past due payroll taxes and accrued penalties. These amounts are recorded within payroll and taxes payable on the accompanying consolidated balance sheet. Also at March 31, 2012, the Company owed $90,235 in accrued sales tax in which it has filed the appropriate reports and is making periodic payments.

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.

10

ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

As of March 31, 2012, the Company drew down $5,000,000 on the Loan Facility and the short term portion and the long term portion were $1,666,667 and $3,333,333, respectively.  During the three months ended March 31, 2012, the Company paid no interest and accrued $98,912 interest during the nine months ended March 31, 2012.

Loan Payable – Related Party

During the nine months ended March 31, 2012, the Company borrowed a $273,384 non-interest bearing loan from Stephen Conboy, CEO.  As of March 31, 2012, the outstanding loan payable from related party is 273,384.

Loan Payable - Other

At March 31, 2012, the Company has a $44,500 liability for advances from a third party.  This third party had other debt and equity transactions with the Company that were settled during the year ended June 30, 2011.  As of the date these financial statements were issued, no terms for repayment have been agreed to between the Company and this third party.

Cancelation of loan payable - other

On December 16 and 27, 2011, the Company issued a 1.5 million shares to a creditor converting $100,000 of the principal and accrued interest of past debt.  The Company recorded the transaction as a loss on modification of debt in other expenses of the consolidated statements of operations for the three months ended March 31, 2012.

7.  Related Party Transactions

At June 30, 2011, the Company had a note payable to its Chief Executive Officer, who is also a Director and significant shareholder, with a balance of $174,217, including accrued interest. This note was due on demand and accrued interest at 9% per annum. During the three months ended December 31, 2011 the Company made principal repayments of $174,217 on this obligation, thus repaying it in full.

At June 30, 2011, the Company had advances payable of $63,163 to the Chief Technical Officer, who is also a director and significant shareholder. Such advances bore no interest and were due on demand. During the three months ended  December 31, 2011, the Company made principal repayments of $63,163 on this obligation, thus repaying it in full.

See Note 4, “Prepaid loan facility”, Note 6, “Notes Payable”, and Note 9, “Stockholders’ Deficit” in the notes to condensed consolidated financial statements for transactions with MRL, a significant shareholder.

Employment Agreement – President and Chief Executive Officer

Effective April 1, 2011, the Company entered into an employment agreement with its President and Chief Executive Officer for a term of two years, the terms of which are provided in the Company’s most recent Form 10-K filed with the Securities and Exchange Commission (“SEC”).

Accrued compensation due the Chief Executive Officer at March 31, 2012 totaled $221,713.  Severance pay accrued and charged to operations during the three months ended March 31, 2012 totaled $75,000.  The Company made repayments of accrued compensation totaling $9,000 to the Chief Executive Officer during the three months ended March 31, 2012.

Employment Agreement – Chief Technical Officer and Director

Effective April 1, 2011, the Company entered into an employment agreement with its Chief Technical Officer and Director for a term of two years, the terms of which are provided in the Company’s most recent Form 10-K filed with SEC.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

Accrued compensation due the Chief Technical Officer at March 31, 2012 totaled $237,169.  Severance pay accrued and charged to operations during the three months ended March 31, 2012 totaled $62,500.  The Company made repayments of accrued compensation totaling $33,846 to the President during the three months ended March 31, 2012.

8.  Fair Value of Assets and Liabilities

Determination of Fair Value

The Company’s financial instruments consist of the Loan Facility and notes payable. The Company believes all of the financial instruments’ recorded values approximate their fair values because of their nature and respective durations.

The Company complies with the provisions of ASC No. 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures.” ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy under ASC 820-10 are described below:

Level 1. Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means

Level 3. Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.

Application of Valuation Hierarchy

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

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.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

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.

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, 2012:

Liabilities measured at fair value at March 31, 2012:	Level 1		Level 2		Level 3		Total
Line of credit payable – related party (include accrued interest)	$	--	$	5,098,912	$	--	$	5,098,912
Notes payable	$	--	$	24,844	$		$	24,844
Loans payable – other	$	--	$	44,500	$	--	$	44,500

9.  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”).

On February 16, 2011, pursuant to the terms of the Investment Agreement, LTK subscribed for 81,000,000 shares in the Company, representing approximately 45.5 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 Sale 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 54.5 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, 2012 on these options amounted to $14,190. As of March 31, 2012, a total of 300,000 of the 1,200,000 options were vested.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

Common Stocks

During the three months ended March 31, 2012, the Company issued 6,829,731 shares of its common stock, under options, to compensate outside law firms, calculated for accounting at a stock closing price at the end of each trading date, being compensation for legal services, for a total exercise of $318,000 in cash to the Company and the Company recorded the remaining $366,676 as a legal expense for legal services.

Debt conversion

During the three months ended March 31, 2012, the Company issued 5,379,172 shares of its common stock to the third party lender with a conversion price of $0.055771 per share to settle the debt that has been outstanding in prior years.  The Company recorded $300,000 loss on modification of debt under Other expense in the Condensed Consolidated Statements of Operations.

10.  Commitments and Contingencies

Purchase, Distribution & Services Agreement #1

On August 24, 2009, the Company entered into a Purchase, Distribution & Services Agreement, (the “Agreement”) with the owner of technical data and intellectual property for a protective coating, in order to obtain an exclusive supply of the product, use of the technical data, intellectual property and other information relating to the product and use of the trademarks, together with certain distribution, marketing and sales rights. Pursuant to the Agreement, the Company was to purchase minimum product.  The initial term of the agreement was two years.

With regard to the above agreement, the Company learned, among other things, in fiscal 2010 from third parties that the seller's formula contains a toxic and carcinogenic contaminant known as chlorothalonil. After confronting the manufacturer, it was confirmed the toxin exists in the product and the Company immediately terminated the agreement with cause and all such issues including developments are part of an ongoing litigation and arbitration, see Legal Proceedings below.

Purchase, Distribution & Services Agreement #2

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.

Purchase, Distribution & Services Agreement #3

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

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

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.

Legal Proceedings

The Company has filed a legal action against the company, and others, with which it has signed a Purchase, Distribution and Services Agreement, for lack of performance in the delivery of chemical product and protection of sales territory, among other things (see Purchase, Distribution & Services Agreement #1, described above). The Company accrues the legal costs associated with loss contingencies as the associated legal services are rendered. In, EcoBlu v. Bluwood USA, et.al., on August 23, 2010, the Company filed a legal action in The Superior Court San Diego, County of San Diego, Case # 37-2010-00058482-CU-MC-NC, against Bluwood USA, Inc., for failure of perform pursuant to the Purchase, Distribution and Services Agreement in the delivery of chemical product and protection of sales territory. A variety of defendants have been added to the case and a variety of claims apply. The case is presently in the discovery phase. The Company is making numerous claims and the Defendants are countering with others centering on a variety of legal claims like breach of contract, fraud, lack of performance, and others. This case has been sent to arbitration and a portion of the case has been stayed in court. The Company is seeking relief in the amount of approximately $20,000,000 and other relief. The parties are currently in the arbitration process.

The Company accrues the legal costs associated with loss contingencies as the associated legal services are rendered.

In, EcoBlu v. Bluwood USA, et.al., on August 23, 2010, the Company filed a legal action in The Superior Court San Diego, County of San Diego, Case # 37-2010-00058482-CU-MC-NC, against Bluwood USA, Inc., for failure of perform pursuant to the Purchase, Distribution and Services Agreement in the delivery of chemical product and protection of sales territory. A variety of defendants have been added to the case and a variety of claims apply. The case is presently in the discovery phase. The Company is making numerous claims and the Defendants are countering with others centering on a variety of legal claims like breach of contract, fraud, lack of performance, and others. This case has been sent to arbitration and a portion of the case has been stayed in court. The Company is seeking relief in the amount of approximately $20,000,000 and other relief. The parties are currently in the arbitration process.

11.  Subsequent Events

The Company evaluated all events or transactions that occurred after December 31, 2011 through the date of this filing in accordance with FASB ASC 855 “Subsequent Events”. The Company determined that it does not have any additional subsequent event requiring recording or disclosure.

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Eco Building Products, Inc.

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

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) successful development and market acceptance of our products.

This quarterly 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.

Financial Condition and Results of Operations

Results of Operations for the Three Months Ended March 31, 2012 as Compared to the Three Months Ended March 31, 2011

Revenues and Cost of Sales - For the three months ended March 31, 2012 we had total revenues of $1,089,724 from product sales, as compared to $16,513 in revenues from product and equipment sales for three month period ended March 31, 2011.  Our cost of sales and gross profit for the three months ended March 31, 2012 was $1,010,638 and $79,086, respectively. This is compared to our cost of sales and gross profit for the three months ended March 31, 2011 of $41,644 and $3,669, respectively. Sales have not yet developed to sufficient levels to improve efficiencies and margins.

Operating Expenses - For the three months ended March 31, 2012, our total operating expenses were $1,894,772 as compared to $1,144,529 for the three month period ended March 31, 2011. Included in our operating expenses for the three months ended March 31, 2012 were compensation and related costs of $556,619. Professional fees included in our operating expenses for the three months ended March 31, 2012 amounted to $429,251. Other significant operating costs we incurred during the three months ended March 31, 2012 included rent of $109,179, consulting fees of $47,643, marketing of $12,369, research and development of $86,160, and other general and administrative costs of $636,680.  Include in the other general and administrative costs, our amortization expense for the three months ended March 31, 2012 was inclusive of $252,096 amortization of prepaid loan fees that arose from the issuance of 50,000,000 warrants in July 2011 to a related party as consideration for access to a $5,000,000 revolving line of credit.

Our operating expenses for the three months ended March 31, 2011 consisted of $1,144,529 of compensation and related costs, $289,270 of professional fees, $89,216 of rent expense, $103,500 of consulting fees, $95,831 of research and development expense, $33,879 of marketing expense, and $213,122 of other general and administrative expenses.

Other Income and Expenses - For the three months ended March 31, 2012 we had other expenses that included interest expense of $95,272.  We incurred $300,000 for the loss on modification of five of our convertible notes payable as the Company issued 5 million shares for the three months ended March 31, 2012 in order to offset the loan that owed to the third party lender in prior years.  This is compared to the three months ended March 31, 2011, in which our other income and expenses included interest expense of $309,089 and a $213,491 gain from a change in the fair value of our derivative liabilities.

Liquidity and Capital Resources

On March 31, 2012, we had $162,037 cash on hand.  During the nine months ended March 31, 2012, net cash used in our operating activities amounted to $4,015,164. Net cash used during the same period for our investing activities totaled $393,331.  During the same nine month period, net cash provided by our financing activities totaled $4,488,884, of which $5,000,000 was received through borrowings on a line of credit with a related party, $990,473 was received from issuance of common stocks, $24,845 was received from related party advances and notes and $1,526,434 was paid to related parties as repayments of advances and notes.

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Eco Building Products, Inc.

During the nine months ended March 31, 2011, net cash used in our operating activities amounted to $3,019,153. Cash of $102,217 was used by investing activities during the same period, which consisted of $9,375 of purchase of property and equipment, $91,732 payments for equipment deposits - related party and $1,110 of payments of prepaid trademark cost. Cash of $4,907,045 was provided by financing activities during the same period, which consisted of $770,500 proceeds from debt issuance, $873,118 proceeds from related party advances, less repayments of debt totaling $1,212,192 and repayment of related party advances and notes of $524,371.

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 December 31, 2011 and the entire $5,000,000 revolving line of credit has been used since December 31, 2011.  As of the date of this filing we had cash on hand of $162,037.

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.

Critical Accounting Policies

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 to non-employees under ACS 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 ACS 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 a mulit-nominal lattice model or the Black-Scholes option-pricing model, whereby

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Eco Building Products, Inc.

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.

Revenue Recognition and Concentration Risk

The Company records revenue when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the prices for the services performed and the collectability of those amounts.

The Company generally recognizes revenue from product sales, including equipment, at the time product is shipped and title passes to the customer assuming all the other revenue recognition criteria stated above are satisfied. Revenues earned on non-refundable licensing fees are generally recognized when the licensing fees are delivered assuming all the other revenue recognition criteria stated above are satisfied. Sales are recorded net of any applicable sales tax.

Going Concern

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. Management plans to seek additional financing through the sale of its common stock through private placements. There is no assurance that our current operations will be profitable or we will raise sufficient funds to continue operating. 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.

Off-Balance Sheet Arrangements

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

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

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” pursuant to Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.  

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company in accordance with as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the (i) effectiveness and efficiency of operations, (ii) reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and (iii) compliance with applicable laws and regulations. Our internal controls framework is based on the criteria set forth in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Eco Building Products, Inc.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on that evaluation, our principal executive officer and our principal financial officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are not effective in ensuring that information required to be disclosed in our Exchange Act reports is recorded, processed, and summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms to allow timely decisions regarding required disclosure.

Changes in Internal Controls

During the period covered by this report, there was no change in our internal controls over financial reporting or in other factors that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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Eco Building Products, Inc.

Part II  -  OTHER INFORMATION

Item 1  -  Legal Proceedings

EcoBlu v. Bluwood USA

On August 23, 2010, the Company filed a legal action in The Superior Court San Diego, County of San Diego, Case # 37-2010-00058482-CU-MC-NC, against Bluwood USA, Inc., for failure of perform pursuant to the Purchase, Distribution and Services Agreement in the delivery of chemical product and protection of sales territory. A variety of defendants have been added to the case and a variety of claims apply. The case is presently in the discovery phase. The Company is making numerous claims and the Defendants are countering with others centering on a variety of legal claims like breach of contract, fraud, lack of performance, and others.  This case has been sent to arbitration and a portion of the case has been stayed in court. The Company is seeking relief in the amount of approximately $20,000,000 and other relief.  The arbitration panel has been selected and approved.

From time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims, other than those disclosed above, are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.

Item 6  -  Exhibits and Reports

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, 2009
3.4	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, 2011
4.1	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, 2010
4.2	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, 2010
10.1	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.

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Eco Building Products, Inc.

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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Eco Building Products, Inc.

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: May 21, 2012	By:	/s/ Steve Conboy
		Steve Conboy, President
		Principal Executive Officer
		Principal Financial Officer

22

EX-31.1

Exhibit 31.1

Certification

I, STEVE CONBOY, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ECO BUILDING PRODUCTS, INC.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 21, 2012

/s/ Steve Conboy

Steve Conboy

President

Principal Executive Officer and Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT 0F 2002

In connection with the Quarterly Report of ECO BUILDING PRODUCTS, INC. (the "Company") on Form 10-Q for the period ending March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, STEVE CONBOY, President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)     The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Steve Conboy

Steve Conboy

President

Principal Executive Officer and Principal Financial Officer

May 21, 2012

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Debt

3 Months Ended

Mar. 31, 2012

Debt:

Debt Disclosure

4.  Prepaid Loan Facility Fee

As discussed in Note 6, Notes Payable in the Notes to Condensed Consolidated Financial Statements as consideration for a $5,000,000 Loan Facility, the Company issued MRL warrants to purchase 50,000,000 common shares at an exercise price of $0.10 per share (the “Warrants”). 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 the Black-Scholes option pricing model using an exercise period of 5 years, risk free rate of 1.51%, volatility of 163%, 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 amortization expense over the three year availability period of the Loan Facility.  A total of $252,096 and $685,809 of amortization expense was recognized on the amortization of the prepaid loan fees during the three months and nine months ended March 31, 2012 with $2,339,339 remaining to be amortized.

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.

As of March 31, 2012, the Company drew down $5,000,000 on the Loan Facility and the short term portion and the long term portion were $1,666,667 and $3,333,333, respectively.  During the three months ended March 31, 2012, the Company paid no interest and accrued $98,912 interest during the nine months ended March 31, 2012.

Loan Payable – Related Party

During the nine months ended March 31, 2012, the Company borrowed a $273,384 non-interest bearing loan from Stephen Conboy, CEO.  As of March 31, 2012, the outstanding loan payable from related party is 273,384.

Loan Payable - Other

At March 31, 2012, the Company has a $44,500 liability for advances from a third party.  This third party had other debt and equity transactions with the Company that were settled during the year ended June 30, 2011.  As of the date these financial statements were issued, no terms for repayment have been agreed to between the Company and this third party.

Cancelation of loan payable - other

On December 16 and 27, 2011, the Company issued a 1.5 million shares to a creditor converting $100,000 of the principal and accrued interest of past debt.  The Company recorded the transaction as a loss on modification of debt in other expenses of the consolidated statements of operations for the three months ended March 31, 2012.

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Inventory

3 Months Ended

Mar. 31, 2012

Inventory:

Inventory Disclosure

3.  Inventories

As of March 31, 2012, inventories consisted of the following:

Chemicals	$	271,280
Lumber		1,532,326
	$	1,803,606

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, Notes Payable in the Notes to Condensed Consolidated Financial Statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited for March 31, 2012) (USD $)	Mar. 31, 2012		Jun. 30, 2011
CURRENT ASSETS
Cash	$ 162,037		$ 81,648
Accounts receivable	914,474	[1]	369,840	[1]
Inventories	1,803,606		1,542,378
Prepaid loan facility fee - related party, current portion	1,008,383
Prepaid expenses	35,132		85,967
Other current assets	16,414
Total current assets	3,940,046		2,079,833
PROPERTY AND EQUIPMENT, net	1,141,054		743,523
OTHER ASSETS
Accounts receivable - long-term portion			81,648
Intangible assets	10,807
Other assets	25,000
Deposit - Long Term	16,397
Prepaid loan facility fee - related party	1,330,957
Equipment deposits - related party			188,447
Total other assets	1,383,161		270,095
TOTAL ASSETS	6,464,261		3,093,451
CURRENT LIABILITIES
Accounts payable	266,648		440,471
Payroll and taxes payable	1,252,339		728,751
Advances from related party			63,163
Other payables and accrued expenses	189,147		58,484
Deferred revenue			20,500
Current maturities of notes payable	6,067
Line of credit payable - related party (current)	1,666,667		1,029,111
Loans payable - related party	273,384		174,217
Loans payable - other	44,500		44,500
Total current liabilities	3,698,752		2,559,197
LONG TERM LIABILITIES
Line of credit payable - related party (long-term)	3,333,333
Notes payable, less current maturities	18,777
Total long term liabilities	3,352,110
TOTAL LIABILITIES	7,050,862		2,559,197
STOCKHOLDERS' EQUITY
Common stock	198,145		178,286
Additional paid-in capital	15,008,790		10,622,135
Accumulated deficit	(15,793,536)		(10,266,167)
Total stockholders' equity	(586,601)		534,254
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 6,464,261		$ 3,093,451

[1] Net of allowance for doubtful accounts of $0 at March 31, 2012 and June 30, 2011.

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Organization, Consolidation and Presentation of Financial Statements

3 Months Ended

Mar. 31, 2012

Organization, Consolidation and Presentation of Financial Statements:

Organization, Consolidation and Presentation of Financial Statements Disclosure

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.  As detailed herein, for the nine months ended March 31, 2012, the Company experienced revenues of $2,777,248.

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 quarter ended September 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 March 31, 2012, the wholly owned subsidiary has had little operating activity.

On May 31, 2011, the Company formed E Build & Truss, Inc. (“E Build”) in the State of California. E Build was formed for the purpose of operating the Company’s Framing Labor and Truss manufacturing activities. This wholly-owned subsidiary commenced operations during the three months ended March 31, 2012.

During the quarter ended December 31, 2012, the Company formed Seattle Coffee Exchange (“Seattle”) in the State of California.  Seattle is a coffee shop which is located in the 1st floor of the Company’s corporate headquarters in Vista, CA.  This wholly-owned subsidiary has not started its operations during the three months ended March 31, 2012.

As of March 31, 2012, the Company owns 100% of E Build, Red Shield and Seattle Coffee Exchange.

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. These factors raise doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

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, management believes it the funding provides sufficient capital to continue operating the Company and allow it to become profitable, however; 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, 2012, the Company had cash on hand of $162,037 and $5,000,000 of capital available to them under the MRL line of credit, of which the entire $5,000,000 was borrowed between July and December, 2011 and the Company paid no interest and accrued $98,912 interest for the nine months ended March 31, 2012.  Since the Company had borrowed the entire $5,000,000 line of credit from MRL since December 31, 2011, which made no available credit under this agreement at this period.

If current and projected revenue growth does not meet Management estimates and proceeds received from MRL are insufficient, the Management 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, the Company does not have any commitments or assurances for additional capital, other than MRL, 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.  The Company has significant inventories on hand and will generate profits and cash flow from turns of sales and or contracts already on the books. The Company has already taken steps to reduce expenses.  As of first of January of 2012, the Company has increased the sales price of the Eco Red Shield coatings as applied to finished good lumber sales.  The Company feels that it now has gained good traction in the market place with our technology therefore can command a higher premium which will equate to greater margins and increased cash flows.

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, 2012, and the results of its operations and cash flows for the nine months ended March 31, 2012 and 2011. 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 for the year ended June 30, 2011.

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Accounting Policies

3 Months Ended

Mar. 31, 2012

Accounting Policies:

Significant Accounting Policies

2.  Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Ecoblu Products, Inc. and its wholly owned subsidiaries, Ecoblu Products, Inc. of Nevada, E Build & Truss, Inc. and Red Shield Lumber, Inc. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affects the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purpose of the statements of cash flows, the Company considers cash and cash equivalents to include all stable, highly liquid investments with maturities of three months or less.

Accounts Receivable

Accounts receivable are reported at the customers’ outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.  All of the Company’s receivables are pledged as collateral for the Company’s $5,000,000 Loan Facility; refer to Note 6, “Notes Payable”, and Note 9, “Stockholders’ Deficit” in the notes to condensed consolidated financial statements for detail.

The Company discounts sales with extended terms where no interest is charged to their respective present value pursuant to ASC Topic 310-10-30-3 “Receivables.”

Allowance for Doubtful Accounts

An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages, information collected from individual customers related to past transaction history, credit-worthiness, changes in payments terms and current economic industry trends. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. To date write-offs and allowances have been insignificant.

Inventories

Inventories primarily consist of chemicals and lumber and are stated at lower of first-in-first out (FIFO) cost or market (net realizable value). Net realizable value is the respective inventory’s estimated selling price reduced by the cost of completion and disposal. As of March 31, 2012, there were no write-downs of inventory to net realizable value.

Lines of Credit with Detachable Warrants

Warrants issued to obtain a line of credit should be 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. The non-cash consideration received pertains to debt placement fees, consulting and advisory services, debt cancellation, rent, and related party equipment purchases.

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 to non-employees under ACS 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 ACS 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.

Loss Per Share

The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. A diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect.

Revenue Recognition and Concentration Risk

The Company records revenue when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the prices for the services performed and the collectability of those amounts.

The Company generally recognizes revenue from product sales, including equipment, at the time product is shipped and title passes to the customer assuming all the other revenue recognition criteria stated above are satisfied. Revenues earned on non-refundable licensing fees are generally recognized when the licensing fees are delivered assuming all the other revenue recognition criteria stated above are satisfied. Sales are recorded net of any applicable sales tax.

The Company had product sales revenue of $1,089,724 and $2,777,248 for the three months and nine months ended March 31, 2012, respectively.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (ASU) No. 2011-11, Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities (ASU 2011-11), that requires an entity to disclose additional information about offsetting and related arrangements to enable users of the financial statements to understand the effect of those arrangements on the financial position. ASU 2011-11 will be effective for us beginning July 1, 2013. The Company believes that the adoption of ASU 2011-11 may impact future disclosures but will not impact our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-5, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income, which provides guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. This portion of the guidance will be effective for us beginning July 1, 2012 and will require retrospective financial statement presentation changes only. The new guidance also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. However, in December 2011, the FASB issued ASU No. 2011-12 which indefinitely defers the guidance related to the presentation of reclassification adjustments.

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Statement of Financial Position - Parenthetical (USD $)	Mar. 31, 2012	Jun. 30, 2011
Common Stock, Par Value	$ 0.001	$ 0.001
Common Stock, Shares Authorized	500,000,000	500,000,000
Common Stock, Shares Issued	198,145,003	198,145,003
Common Stock, Shares Outstanding	198,145,003	198,145,003

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Document and Entity Information (USD $)	3 Months Ended
	Mar. 31, 2012
Document and Entity Information
Entity Registrant Name	ECO Building Products, Inc.
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Entity Central Index Key	0001409885
Current Fiscal Year End Date	--06-30
Entity Common Stock, Shares Outstanding	198,145,003
Entity Public Float	$ 4,053,249
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	No
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012	Mar. 31, 2011
REVENUE
Product sale	$ 1,089,724	$ 16,513	$ 2,777,248	$ 739,112
Equipment and other sales		28,800		31,800
TOTAL REVENUE	1,089,724	45,313	2,777,248	770,912
COST OF SALES	1,010,638	41,644	2,541,613	678,268
GROSS PROFIT	79,086	3,669	235,635	92,644
OPERATING EXPENSES
Research and development	86,160	95,831	142,365	140,795
Marketing	12,369	33,879	86,401	45,314
Goodwill/Donation	16,871		30,601
Compensation and related expenses	556,619	289,270	1,812,218	640,642
Rent - facilities	109,179	89,216	284,171	323,106
Professional fees	429,251	319,711	949,225	631,193
Consulting	47,643	103,500	158,660	155,111
Other general and administrative expenses	636,680	213,122	1,590,316	453,391
Total operating expenses	1,894,772	1,144,529	5,053,957	2,389,552
LOSS FROM OPERATIONS	(1,815,686)	(1,140,860)	(4,818,322)	(2,296,908)
OTHER INCOME (EXPENSE)
Interest income			20,199
Interest expense	(95,272)	(309,089)	(354,246)	(1,954,093)
Gain (loss) on settlement of debt				12,706
Loss on modification of debt	(300,000)		(375,000)	(421,600)
Change in fair value of derivative liability		213,491		368,954
Total other income (expense)	(395,272)	(95,598)	(709,047)	(1,994,033)
LOSS BEFORE PROVISION FOR INCOME TAXES	(2,210,958)	(1,236,458)	(5,527,369)	(4,290,941)
NET LOSS	$ (2,210,958)	$ (1,236,458)	$ (5,527,369)	$ (4,290,941)
NET LOSS PER COMMON SHARE - BASIC	$ (0.01)	$ (0.01)	$ (0.03)	$ (0.04)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	188,531,543	136,533,322	185,804,807	99,317,004

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Fair Value Measures and Disclosures

3 Months Ended

Mar. 31, 2012

Fair Value Measures and Disclosures:

Fair Value Disclosures

8.  Fair Value of Assets and Liabilities

Determination of Fair Value

The Company’s financial instruments consist of the Loan Facility and notes payable. The Company believes all of the financial instruments’ recorded values approximate their fair values because of their nature and respective durations.

The Company complies with the provisions of ASC No. 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures.” ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy under ASC 820-10 are described below:

Level 1. Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means

Level 3. Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.

Application of Valuation Hierarchy

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

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.

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, 2012:

Liabilities measured at fair value at March 31, 2012:	Level 1		Level 2		Level 3		Total
Line of credit payable – related party (include accrued interest)	$	--	$	5,098,912	$	--	$	5,098,912
Notes payable	$	--	$	24,844	$		$	24,844
Loans payable – other	$	--	$	44,500	$	--	$	44,500

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Related Party Disclosures

3 Months Ended

Mar. 31, 2012

Related Party Disclosures:

Related Party Transactions Disclosure

7.  Related Party Transactions

At June 30, 2011, the Company had a note payable to its Chief Executive Officer, who is also a Director and significant shareholder, with a balance of $174,217, including accrued interest. This note was due on demand and accrued interest at 9% per annum. During the three months ended December 31, 2011 the Company made principal repayments of $174,217 on this obligation, thus repaying it in full.

At June 30, 2011, the Company had advances payable of $63,163 to the Chief Technical Officer, who is also a director and significant shareholder. Such advances bore no interest and were due on demand. During the three months ended  December 31, 2011, the Company made principal repayments of $63,163 on this obligation, thus repaying it in full.

See Note 4, “Prepaid loan facility”, Note 6, “Notes Payable”, and Note 9, “Stockholders’ Deficit” in the notes to condensed consolidated financial statements for transactions with MRL, a significant shareholder.

Employment Agreement – President and Chief Executive Officer

Effective April 1, 2011, the Company entered into an employment agreement with its President and Chief Executive Officer for a term of two years, the terms of which are provided in the Company’s most recent Form 10-K filed with the Securities and Exchange Commission (“SEC”).

Accrued compensation due the Chief Executive Officer at March 31, 2012 totaled $221,713.  Severance pay accrued and charged to operations during the three months ended March 31, 2012 totaled $75,000.  The Company made repayments of accrued compensation totaling $9,000 to the Chief Executive Officer during the three months ended March 31, 2012.

Employment Agreement – Chief Technical Officer and Director

Effective April 1, 2011, the Company entered into an employment agreement with its Chief Technical Officer and Director for a term of two years, the terms of which are provided in the Company’s most recent Form 10-K filed with SEC.

Accrued compensation due the Chief Technical Officer at March 31, 2012 totaled $237,169.  Severance pay accrued and charged to operations during the three months ended March 31, 2012 totaled $62,500.  The Company made repayments of accrued compensation totaling $33,846 to the President during the three months ended March 31, 2012.

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Subsequent Events

3 Months Ended

Mar. 31, 2012

Subsequent Events:

Subsequent Events

11.  Subsequent Events

The Company evaluated all events or transactions that occurred after December 31, 2011 through the date of this filing in accordance with FASB ASC 855 “Subsequent Events”. The Company determined that it does not have any additional subsequent event requiring recording or disclosure.

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Equity

3 Months Ended

Mar. 31, 2012

Equity:

Stockholders' Equity Note Disclosure

9.  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”).

On February 16, 2011, pursuant to the terms of the Investment Agreement, LTK subscribed for 81,000,000 shares in the Company, representing approximately 45.5 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 Sale 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 54.5 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, 2012 on these options amounted to $14,190. As of March 31, 2012, a total of 300,000 of the 1,200,000 options were vested.

Common Stocks

During the three months ended March 31, 2012, the Company issued 6,829,731 shares of its common stock, under options, to compensate outside law firms, calculated for accounting at a stock closing price at the end of each trading date, being compensation for legal services, for a total exercise of $318,000 in cash to the Company and the Company recorded the remaining $366,676 as a legal expense for legal services. 

Debt conversion

During the three months ended March 31, 2012, the Company issued 5,379,172 shares of its common stock to the third party lender with a conversion price of $0.055771 per share to settle the debt that has been outstanding in prior years.  The Company recorded $300,000 loss on modification of debt under Other expense in the Condensed Consolidated Statements of Operations.

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Commitment and Contingencies

3 Months Ended

Mar. 31, 2012

Commitment and Contingencies:

Commitments and Contingencies Disclosure

10.  Commitments and Contingencies

Purchase, Distribution & Services Agreement #1

On August 24, 2009, the Company entered into a Purchase, Distribution & Services Agreement, (the “Agreement”) with the owner of technical data and intellectual property for a protective coating, in order to obtain an exclusive supply of the product, use of the technical data, intellectual property and other information relating to the product and use of the trademarks, together with certain distribution, marketing and sales rights. Pursuant to the Agreement, the Company was to purchase minimum product.  The initial term of the agreement was two years.

With regard to the above agreement, the Company learned, among other things, in fiscal 2010 from third parties that the seller's formula contains a toxic and carcinogenic contaminant known as chlorothalonil. After confronting the manufacturer, it was confirmed the toxin exists in the product and the Company immediately terminated the agreement with cause and all such issues including developments are part of an ongoing litigation and arbitration, see Legal Proceedings below.

Purchase, Distribution & Services Agreement #2

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.

Purchase, Distribution & Services Agreement #3

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.

Legal Proceedings

The Company has filed a legal action against the company, and others, with which it has signed a Purchase, Distribution and Services Agreement, for lack of performance in the delivery of chemical product and protection of sales territory, among other things (see Purchase, Distribution & Services Agreement #1, described above). The Company accrues the legal costs associated with loss contingencies as the associated legal services are rendered. In, EcoBlu v. Bluwood USA, et.al., on August 23, 2010, the Company filed a legal action in The Superior Court San Diego, County of San Diego, Case # 37-2010-00058482-CU-MC-NC, against Bluwood USA, Inc., for failure of perform pursuant to the Purchase, Distribution and Services Agreement in the delivery of chemical product and protection of sales territory. A variety of defendants have been added to the case and a variety of claims apply. The case is presently in the discovery phase. The Company is making numerous claims and the Defendants are countering with others centering on a variety of legal claims like breach of contract, fraud, lack of performance, and others. This case has been sent to arbitration and a portion of the case has been stayed in court. The Company is seeking relief in the amount of approximately $20,000,000 and other relief. The parties are currently in the arbitration process.

The Company accrues the legal costs associated with loss contingencies as the associated legal services are rendered.

In, EcoBlu v. Bluwood USA, et.al., on August 23, 2010, the Company filed a legal action in The Superior Court San Diego, County of San Diego, Case # 37-2010-00058482-CU-MC-NC, against Bluwood USA, Inc., for failure of perform pursuant to the Purchase, Distribution and Services Agreement in the delivery of chemical product and protection of sales territory. A variety of defendants have been added to the case and a variety of claims apply. The case is presently in the discovery phase. The Company is making numerous claims and the Defendants are countering with others centering on a variety of legal claims like breach of contract, fraud, lack of performance, and others. This case has been sent to arbitration and a portion of the case has been stayed in court. The Company is seeking relief in the amount of approximately $20,000,000 and other relief. The parties are currently in the arbitration process.

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Statement of Financial Position, Classified (USD $)	Mar. 31, 2012	Jun. 30, 2011
Statement of Financial Position, Classified:
Common Stock, Par Value	$ 0.001	$ 0.001
Common Stock, Shares Authorized	500,000,000	500,000,000
Common Stock, Shares Issued	198,145,003	198,145,003
Common Stock, Shares Outstanding	198,145,003	198,145,003

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (USD $)	6 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash flows from operating activities
NET LOSS	$ (5,527,369)	$ (4,290,941)
Loss on modification of debt by issuance of common stock	375,000	421,600
(Gain) loss on settlement of debt		(12,706)
Interest on amortization of debt discount		888,946
Amortization of loan fees	1,235,027	176,606
Interest on repricing of warrant		140,981
Change in fair value of derivative liability (increase/decrease)		(368,954)
Common stock issuance for services		218,927
Common stock issuance for payment of rent and lease settlement		80,000
Depreciation expense	132,043	54,594
Bad debt expense		13,000
(Increase) in accounts receivable	(462,985)	(25,946)
(Increase) in other receivable		5,886
(Increase) in inventory	(261,228)	(867,795)
(Increase) in prepaid expenses & other current assets	34,421	(5,000)
Decrease (Increase) in deposits		45,155
Increase in accounts payable	(173,823)	120,785
Increase in other payable and accrued expenses	534,838	368,282
Increase in accrued interest added to principle	98,912	17,427
Net cash used by operating activities	(4,015,164)	(3,019,153)
Cash flows from investing activities
Purchase of property and equipment	(529,391)	(9,375)
Purchase of software licenses	(25,000)
Purchase of intangible assets	(10,990)
Payments for equipment deposits - related party	172,050	(91,732)
Payments for prepaid trademark costs		(1,110)
Net cash used by investing activities	(393,331)	(102,217)
Cash flows from financing activities
Proceeds from related party line of credit advances	5,000,000	5,000,000
Proceeds from debt issuance		770,500
Proceeds from issuance of common stocks	990,473
Proceeds from related party advances and notes	24,845	873,118
Repayments of debt issuances		(1,212,192)
Repayments of related party advances and notes	(1,526,434)	(524,371)
Payment to related party for cancellation of warrants		(10)
Net cash provided by financing activities	4,488,884	4,907,045
Net change in cash and cash equivalent	80,389	1,785,675
Cash and cash equivalent at the beginning of year	81,648	385,534
Cash and cash equivalent at the end of year	162,037	2,171,209
Supplemental disclosures of cash flow Information:
Cash Paid for Interest	46,000
Supplemental disclosure of non-cash investing and financing activities:
Issuance of warrant in connection with the loan fee of line of credit	$ 3,025,148

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Payables and Accruals

3 Months Ended

Mar. 31, 2012

Payables and Accruals:

Accounts Payable and Accrued Liabilities Disclosure

5.  Accrued Liabilities

As of March 31, 2012, the Company owed $705,539 in past due payroll taxes and accrued penalties. These amounts are recorded within payroll and taxes payable on the accompanying consolidated balance sheet. Also at March 31, 2012, the Company owed $90,235 in accrued sales tax in which it has filed the appropriate reports and is making periodic payments.