ecobuilding10ka063012.htm

Organization

Eco Building Products, Inc. (the “Company”) was incorporated in the state of Colorado under the name N8 Concepts, Inc. on March 27, 2007.

On October 19, 2009, the Company merged with Ecoblu Products, Inc., a Nevada Corporation (“ECOBLU”). For financial reporting purposes, the acquisition was treated as a reverse acquisition whereby ECOBLU’s operations continue to be reported as if it had actually been the acquirer. Assets and liabilities continue to be reported at the acquiree’s historical cost because before the reverse acquisition; the Company had nominal assets, liabilities and operations, and accordingly, the fair value of the assets approximated their carrying value and no goodwill was recorded.

ECOBLU was organized May 20, 2009 in Nevada as a wholesale distributor and manufacturer of proprietary wood products coated with an eco-friendly chemistry that is designed to protect against mold, rot, decay, termites and fire. The Company has also developed an affiliate coating program that allows lumber companies to coat commodity lumber at their facilities contingent upon their stocking the Company’s inventory and supporting the Company’s products.

Through December 2010, the Company was deemed to be in the development stage, as defined in Accounting Codification Standard (“ACS”) topic 915 Development Stage Entities During year ended June 30, 2011, management determined that the Company exited the development stage. Thus, the Company is no longer required to report its stock issuances from inception, nor include inception-to-date information in its statements of operations and cash flows.

On April 8, 2011, the Company formed Red Shield Lumber, Inc. (“Red Shield”) in British Columbia, Canada. Red Shield was formed for the purpose of opening a plant in Canada utilizing the Company’s red coating process for sale and distribution. As of June 30, 2012, the wholly owned subsidiary is fully operated.

On May 31, 2011, the Company formed E Build & Truss, Inc. (E Build) on May 31, 2011 in the State of California. E Build was formed for the purpose of operating the Company’s Truss manufacturing activities. As of June 30, 2012, the Company has purchased equipment through this wholly owned subsidiary.

In December 2011, 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 as of June 30, 2012.

As of June 30, 2012, the Company owns 100% of E Build, Red Shield and Seattle

Going Concern

The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. To date the Company has generated minimal operating revenues, losses from operations, significant cash used in operating activities, and is dependent upon its ability to obtain future financing and successful operations.

Our continuation as a going concern is dependent upon obtaining the additional working capital necessary to sustain our operations. Our future is dependent upon our ability to obtain financing and upon future profitable operations. The Company estimates the current burn rate of approximately two hundred thousand dollars a month is required to continue to operate. Either through profit on sales or via management seeking additional financing through the sale of its common stock and or through private placements the minimum burn rate must be met in order to relive the threat of the company’s ability to continue as a going concern.. There is no assurance that our current operations will be profitable or we will raise sufficient funds to continue operating. The Company continues to trim overhead expenses to meet revenues. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event we cannot continue in existence. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

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. As of December 31, 2011, the Company has already borrowed the entire $5 million line of credit from MRL.

In order to continue to gain market shares in the lumber industry, on July 11, 2012, the company received one hundred million ($100,000,000.00) dollar standby letter of credit from InsurFinancial Holdings Plc backed by Bank of China to support the major expansion in the Company's core business. This facility credit support will last for four years and will not expire until December 4th, 2016.

Additionally, the agreement grants an option that allows InsurFinancial Holdings, Plc to convert their fee into an equity investment of up to five million ($5,000.000.00) dollars each year for the next four years. The option calls for the share price of the additional equity investment to be calculated at 120% of the three month trailing average of ECOB's stock. The Company now has the availability of credit which should enhance credit support for the future liabilities incurred in the rapid expansion of the demand for its products.

At the time the Company executed the agreement with InsurFinancial and accepted the assignment of the SBLC the Company was in negotiation with MRL to surrender all rights and interest in the Company. Verbal agreements had been reached with the management of MRL to achieve these set forth goals. These discussions included full payment of the original investment back to MRL of ten million dollars and five hundred thousand in interest payable over a 24 month period and to be secured by the hundred million SBLC. InsurFinancial was notified of the verbal agreement and had accepted the Company’s current negotiation as acceptable to move forth. These communications with MRL allowed management to be comfortable to move forth with the assignment of the SBLC. Subsequently MRL was not able to verify and accept the SBLC as a guarantee towards settlement.

The Company has faced many challenges over the past year. Management feels confident with all of the product certification achievements coupled with an improving housing market in the USA and the industry acceptance of Eco Red Shield as a viable competitive product we will start to earn a percentage of the total wood production as a function of our sales model. We continue to face financial challenges in the up-coming year however market acceptance of our product will create the sales revenue to allow the Company the ability to experience continued growth.

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 subsidiary, Ecoblu Products, Inc. of Nevada, E Build & Truss, Inc. and Red Shield Lumber, Inc. Intercompany transactions and balances have been eliminated in consolidation.

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.

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. The allowance for doubtful account was $18,727 and $0, respectively, as of June 30, 2012 and June 30, 2011.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

Inventories

Inventories primarily consist of chemicals, labor 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. The Company also evaluates its inventories in an ongoing basis based on the demand of its inventories. If the Company deemed that the inventories do not have demand, the Company reserves those slow moving inventories as obsolescence inventories. As of June 30, 2012, the Company wrote off $659,781 as obsolescence inventory and recorded under “cost of sales” under the Consolidated Statements of Operations. The gross profit before the inventory obsolescence write off of $659,781 would have been $278,295.

Property and Equipment

Property and equipment are stated at cost. Property and equipment purchases with useful lives exceeding one year and major renewals and improvements are charged to the asset accounts, while replacements and maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of assets that range from (3) to seven (7) years. Leasehold improvements are depreciated over their useful life or the term of the related lease, whichever is shorter. Depreciation expense is not recorded on idle property and equipment until such time as it is placed into service.

Long-Lived Assets

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. At June 30, 2012, the Company determined that none of its long-term assets were impaired.

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 a related party equipment purchase (See Note 7).

Stock-Based Compensation

The Company accounts for stock-based compensation 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. Options are granted at a price not less than the fair market value of the stock on the date of grant. Generally, options vest over periods not exceeding four years and are exercisable for up to ten years from the grant date.

Loss Per Share

The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, "Earnings per Share." A 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. Potential common shares at June 30, 2011 that have been excluded from the computation of diluted net loss per share included convertible debt of 1,029,111 convertible into 10,501,134 shares of common stock, warrants exercisable into 250,000 shares of common stock and options exercisable into 1,200,000 shares of common stock.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

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.

Credit Risk

At times, the Company maintains cash balances at a financial institution in excess of the $250,000 FDIC insurance limit.

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.

Convertible Debentures

If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method. If a BCF is convertible into a variable number of shares it is accounted for as a derivative liability.

Derivative Financial Instruments

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements.

The Company estimates the fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objectively measuring fair values. In selecting the appropriate technique, consideration is given to, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, the Company generally uses the Black-Scholes option valuation technique because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company's operating results will reflect the volatility in these estimate and assumption changes.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

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 $463,374, $821,277 and $491,691 to three major customers representing 12%, 22% and 13% of total sales for year ended June 30, 2012, respectively.

The Company had product sales revenue of $415,345, $204,322 and $169,783 to three major customers representing 31%, 15% and 13% of total sales for year ended June 30, 2011, respectively.

Cost of Revenues

Costs of revenues include costs related to revenue recognized; such costs represent materials, labor, depreciation and amortization, equipment rental, supplies, utilities, repair and maintenance.

General and Administrative Expenses

General and administrative expenses include management and administrative personnel costs; corporate office costs; accounting fees, legal expense, information systems expense, and product marketing and sales expense.

Research and Development Expenses

Research and development expenses consist of expenses related to its wood coating process. It is charged to operations when incurred. We incurred $221,187 and $113,733 for the years ended June 30, 2012 and 2011, respectively.

Deferred revenue

The Company recorded deferred revenue for products or services that have been paid by the customers but the products have not been shipped or services have not been provided to the customers. The Company recorded $33,640 and $20,500 on deferred revenue for the fiscal year ended June 30, 2012 and June 30, 2011, respectively.

Advertising Cost

Advertising costs are charged to operations when incurred. During in the years ended June 30, 2012 and 2011 the Company incurred $119,724 and $212,608 respectively in advertising and promotion costs.

Shipping and Handling Costs

The Company classifies shipping and handling costs associated with the receipt of product as part of cost of sales as reflected in the statement of operations. The Company classifies costs associated with shipping product to customers as part of selling expense as reflected in the statement of operations.

Income Taxes

The Company accounts for its income taxes under the provisions of ASC Topic 740”Income Taxes”. The method of accounting for income taxes under ASC 740 is an asset and liability method. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

Litigation and Settlement Costs

Legal costs are expensed as incurred. We are involved in disputes, litigation and other legal actions in the ordinary course of business. We continually evaluate uncertainties associated with litigation and record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the loss or range of loss can be reasonably estimated. In the event of settlement discussions, this generally occurs when an agreement in principle has been reached by both parties that include substantive terms, conditions and amounts. If a settlement has more than one element, we account for the agreement as a multiple element arrangement and allocate the consideration to the identifiable elements based on relative fair value. Past multiple element settlement agreements have included the licensing of intellectual property for future use and payments related to alleged prior infringement.

Recent Accounting Pronouncements

In June 2011 the Financial Accounting Standards Board, or FASB, issued guidance regarding the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. We adopted the provisions of this guidance effective July 1, 2012, as reflected in the unaudited condensed consolidated statements of comprehensive income herein.

3. Balance Sheet Components

Inventories

Inventories consisted of the following:

	For the year ended
	June 30,
	2012		2011
Chemicals	$	264,510	$	328,640
Lumber		658,136		1,213,738
Total	$	922,646	$	1,542,378

All of the Company’s inventories are pledged as collateral for the Company’s $1,500,000 Senior Secured Notes (see Note 6). In addition, inventory is considered finished goods as the Company sells and markets the chemical and treated and untreated lumber.

Accrued Liabilities

As of June 30, 2012, the Company owed $850,815 in past due payroll taxes and accrued penalties. The Company has not yet to file the necessary payroll tax reports with the impacted taxing authorities. These amounts are recorded within payroll and taxes payable on the accompanying condensed consolidated balance sheet. Also at June 30, 2012, the Company owed $121,948 in past due sales tax in which it has filed the appropriate reports and is making periodic payments.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

4. Prepaid Loan Fees

In March 2010, the Company received $1,500,000 from Iroquois Master Fund, Ltd through the issuance of senior convertible notes and warrants (See Note 6). In connection with this financing, the Company incurred loan fees totaling $202,000 of which $105,000 was due to the Placement Agent and evidenced by a convertible promissory note. The Company also issued 100,000 shares of its common stock to the Placement Agent as partial consideration for its services. The common shares were valued at their respective market value on date the loan closed of $36,000 and were included in loan fees. The remaining fees of $61,000 were paid from the proceeds received.

In May 2010, the Company issued additional common shares to the placement agent and other parties valued at $36,000 in connection with the above financing.

In September 2011, the Company issued 50,000,000 warrants in exchange for the payment of the $3.0 million prepaid loan fees in connection with the MRL $5 million line of credit. The $3,025,000 total prepaid loan fees were amortized using the straight line method over the three year terms of the underlying notes. Amortization charged to interest expense for the years ended June 30, 2012 and June 30, 2011 totaled $940,662 and $176,606, respectively. As of June 30, 2012, the current and non-current prepaid loan facility fee was $1,008,383 and $1,078,861, respectively.

5. Property and Equipment

Property and equipment consisted of the following:

	For the year ended
	June 30,
	2012			2011
Machinery and equipment (useful life of five to seven years)	$	908,778		$	629,721
Vehicles (useful life is three years)		65,991			33,896
Furniture (useful life of five years)		18,223			18,223
Software license		25,000
Computer equipment and software (useful life of three years)		88,054			74,582
Leasehold improvements (useful life of three years)		408,289			98,971
		1,514,335			855,393
Less accumulated depreciation		(307,300	)		(111,870	)
	$	1,207,035		$	743,523

Depreciation charged to operations for the year ended June 30, 2012 and 2011 amounted to $170,778 and $76,285, respectively. All of the Company’s property and equipment are pledged as collateral for the Company’s $1,500,000 Senior Secured Notes (see Note 6).

6. Notes Payable

Loan Facility and Credit and Warrant Agreement with MRL

On February 14, 2011, the Company entered into a revolving credit and warrant purchase agreement (the “Credit and Warrant Agreement”) with MRL. The Credit and Warrant Agreement did not go into effect until it is ratified by the shareholders of MRL, on July 26, 2011.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 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 June 30, 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. The Company paid $46,000 interest and accrued $181,217 interest during the fiscal year ended June 30, 2012.

Convertible Notes - $100,000 Financing

On June 11, 2012, the Company entered into a definitive agreement with accredited investors to borrow $100,000 in gross proceeds before fees and expenses through the issuance of Senior Secured Convertible Notes (the “Notes”) originally due June 11, 2013.

The Notes bear interest at an annual rate of 4% payable. At the Company's option, the interest can be paid in either cash or, subject to the satisfaction of certain customary conditions, registered shares of the Company’s common stock. The effective conversion price for a payment in shares is determined from a computation based on 85% of the volume weighted average price of the Company’s common stock for each of the twenty (20) consecutive Trading Days immediately preceding the applicable installment date.

Pursuant to the original terms, the holders were able convert the Notes into shares of common stock at a conversion price of $0.70 at any time which upon full conversion of the Notes would have resulted in the issuance of 1,388,889 shares of common stock. In connection with the issuance of the original Notes, the Company issued seven different series of warrants to the investors to purchase a total of 26,250,000 shares of its common stock at exercise prices ranging from $0.40 per share to $0.60 per share. The majority of the warrants expire five years from their respective date of issuance. The warrants allowed for cashless exercise.

In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the Senior Note were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. As of June 30, 2012 the Company recorded the relative fair values of the warrants issued to ICG USA in connection with the Senior Note in the amount of $100,000 as a debt discount upon each issuance, and expensed each debt discount as interest expense upon issuance. Additionally, as a result of issuing the warrants with the convertible promissory notes, a beneficial conversion option was recorded as a debt discount on each note reflecting the incremental intrinsic value benefit totaling $100,000 , at the time of each issuance provided to JTR in connection with the Senior Note up to an including June 30, 2012. The debt discount for each issuance under the Senior Note is expensed as interest expense upon issuance. We recorded interest expenses in the amounts of $0 and $0 for the three months ended June 30, 2012 and 2011, respectively, in connection with the Senior Note.

Loan payable – related party

At June 30, 2012, the Company had a non interest bearing note payable due to its Chief Executive Officer who is also a Director and significant shareholder with a balance of $201,480.

Loans Payable - Other

The Company received $44,500 in advances from the same party that originally held the $360,000 note payable described above. As of the date these financial statements were issued, no terms for repayment have been agreed to between the Company and this third party and the payment is paid on demand.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

The Company entered in an auto loan agreement on November 7, 2011 to lease a Ford 150 pickup truck. The principal amount of the loan is $27,095 and the interest rate 9.99%. The loan will be matured on October 7, 2015. The Company is currently paying $690 auto payment per month.

The following table summarizes the notes payable for the fiscal year ended June 30, 2012.

	As of June 30, 2012
Description	Short term		Long term
Auto notes payable	$	6,067	$	17,295
MRL line of credit		1,666,667		3,333,333
Loan payable related party		201,480		-
Loan payable other		44,500		-
Total notes payable	$	1,918,714	$	3,350,628

Moreover the following table summarizes the future minimum payment for 5-year commitments of the notes payable:

	Principal
6/30/2013	$	1,921,317
6/30/2014		3,340,342
6/30/2015		7,585
6/30/2016		2,701
6/30/2017		-
Thereafter		-
Total	$	5,271,945

Notes payable as of June 30, 2011

Convertible Notes - $1,500,000 Financing

On March 26, 2010, the Company entered into a definitive agreement with accredited investors to borrow $1,500,000 in gross proceeds before fees and expenses through the issuance of Senior Secured Convertible Notes (the “Notes”) originally due March 26, 2011.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

The Notes bear interest at an annual rate of 8% payable quarterly. At the Company's option, the interest can be paid in either cash or, subject to the satisfaction of certain customary conditions, registered shares of the Company’s common stock. The effective conversion price for a payment in shares is determined from a computation based on 85% of the volume weighted average price of the Company’s common stock for each of the twenty (20) consecutive Trading Days immediately preceding the applicable installment date.

Pursuant to the original terms, the holders were able convert the Notes into shares of common stock at a conversion price of $0.40 at any time which upon full conversion of the Notes would have resulted in the issuance of 3,750,000 shares of common stock.

In connection with the issuance of the original Notes, the Company issued seven different series of warrants to the investors to purchase a total of 26,250,000 shares of its common stock at exercise prices ranging from $0.40 per share to $0.60 per share. The majority of the warrants expire five years from their respective date of issuance. The warrants allowed for cashless exercise.

Beginning June 26, 2010, the Notes amortize in ten monthly installments. The amortization payments can be made in, at the Company’s option, either cash or, subject to the satisfaction of certain customary conditions, registered shares of common stock. The first installment payment of $75,000 was made in June 2010. Two installment payments of $158,413 each were made in August 2010. Another installment payment of $336,494 was made in October 2010, which included the September and October installments of $158,413 each, plus penalties and interest associated with the late payment and registration delay (as described below).

In August 2010, the Company agreed to reduce the exercise price of 3,750,000 of these warrants from $0.40 per share to $0.20 per share. A total of $140,981 was charged to interest expense for the re-pricing of these warrants.

The Company also entered into a Security Agreement to secure payment and performance of the Company's obligations under the Notes pursuant to which the Company granted the investors a security interest in all of its assets.

The Company also executed a Registration Rights Agreement pursuant to which the Company was required to file a registration statement within 30 days of the Closing Date, and the Company was to use its reasonable best efforts to cause the registration statement to be declared effective within 90 days of the Closing Date (120 days in the event the SEC reviews the registration statement). If the registration statement was not declared effective within the 120 days, the Company was obligated to pay the investors “Registration Delay Payments” equal 1% of 67% of each investor’s original principal amount as stated in such investor’s Note. The registration delay payment obligation accrued at a rate of $10,050 in each thirty-day period that the registration statement remained not effective commencing on August 23, 2010. Interest would accrue on any unpaid Registration Delay Payment at a rate of 1.5% per month. Pursuant to the Exchange Agreement described in the next paragraph, the Registration Delay Payment obligation has been extinguished.

Pursuant to ASC Topic 470-20, “Debt with Conversion and Other Options,” the convertible notes were recorded net of discounts that include the relative fair value of the warrants and the Notes’ beneficial conversion features totaling $1,500,000. The discounts were amortized and charged to operations over the life of the debt. The initial value of the warrants of $1,221,600 was calculated using the Black-Scholes Option Model with a risk free interest rate ranging from 1.04% to 2.59%, volatility of 108.37%, and trading price of $0.36 per share. The beneficial conversion feature of $278,400 was calculated pursuant to ASC Topic 470-20 using a trading price of $0.36 per share and an effective conversion price $0.0742 per share.

The $1,500,000 discount was originally offset to liabilities pursuant to ASC Topic 815-40-25,”Contracts in Entity’s Own Equity.” On the date the proceeds were received, the number of the Company’s authorized but unissued common shares were insufficient to meet all of the Company’s commitments for share issuances under the terms of its convertible notes, options and warrant agreements, thereby requiring liability accounting. As discussed in Note 8, on the valuation date of January 11, 2011, the former derivative liability was reclassified to additional paid-in capital due to the Company’s effective increase in its authorized shares and elimination of the warrants and conversion feature of the New Notes.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

On October 27, 2010, the Company entered into a separate Exchange Agreement with each of the investors whereby in exchange for each investor’s Note it issued to each investor a Senior Secured Convertible Note (each a “New Note” and collectively, the “New Notes”) which were convertible into shares of the Company’s common stock. Pursuant to the terms of each Exchange Agreement, the Company was also no longer obligated to register the shares of common stock issuable upon conversion of the New Notes or upon exercise of the warrants. In addition, the related Registration Delay Payment obligation described in the above paragraph has been extinguished by this Exchange Agreement.

Effective November 10, 2010, the Company filed a request with the SEC to withdraw the registration statement.

The aggregate original principal amount of all New Notes on the October 27, 2010 debt exchange date was $1,287,834. Pursuant to the terms thereof, each of the New Notes amortizes in six equal installments (November 24, 2010, December 23, 2010, January 24, 2011, February 22, 2011, March 22, 2011, and March 26, 2011). The Company may pay each monthly installment amount due under each of the New Notes, at its option, in cash or, subject to the satisfaction of customary equity conditions, in shares of the Company’s common stock. If the Company elected to make payment in shares of its common stock, the number of shares issued by the Company would be determined by dividing the installment amount being converted by the lowest of (a) the conversion price then in effect, (b) 70% of the average of the three (3) lowest closing bid prices of our common stock during the 20 consecutive trading day period immediately preceding the applicable installment date and (c) 70% of the closing bid price of our common stock on the trading day immediately preceding the applicable installment date. The New Notes continued to be secured by all of the assets of the Company.

As discussed below, the New Notes were purchased by a related party in December 2010 and the related warrants and conversion features were cancelled. The related party also purchased the note due a private placement agent as discussed below. The combined balance of the New Notes at June 30, 2011 was $1,029,111. The principal balance and accrued interest was fully paid on July 26, 2011.

Amortization of the discounts charged to operations for the year ended June 30, 2011 amounted to $745,701. Discount amortization after the New Notes were purchased by the related party of $366,950 was charged to equity. Interest charged to operations on the principal balance of the notes (including penalties and interest associated with the late payment and registration delay) for the year ended June 30, 2011 totaled $480,977.

Placement Agent Loan Fees

In addition, the Company engaged a placement agent with respect to the Notes. Accordingly, as consideration for the placement agent’s services, the placement agent received compensation equal to 7% of the aggregate amount raised in the form of the Notes in the aggregate amount of $105,000 with a voluntary conversion price of $0.40 which was convertible into 262,500 shares of common stock and also include seven different series of warrants to purchase a total of 787,500 shares of its common stock at exercise prices ranging from $0.40 per share to $0.60 per share. The convertible notes were recorded net of discounts that include the relative fair value of the warrants and the Notes’ beneficial conversion features totaling $105,000. The discounts are amortized and charged to operations over the life of the debt using the effective interest method. The initial value of the warrants of $68,535 was calculated using the Black-Scholes Option Model with a risk free interest rate ranging from 1.04% to 2.59%, volatility of 108.37%, and trading price of $0.36 per share. The beneficial conversion feature of $36,465 was calculated pursuant to ASC Topic 470-20 using a trading price of $0.36 per share and an effective conversion price $0.1389 per share.

In March 2010, the placement agent was also issued 100,000 shares of the Company’s common stock valued at $36,000. The placement agent was also entitled to compensation equal to 7% for any gross proceeds the Company receives from the exercise of any of the Warrants.

In May 2010, the Company issued additional common shares to the placement agent and other parties valued at $36,000 in connection with the same financing.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

Interest charged to operations on the principal balance of this note through October 27, 2010 totaled $2,149. Effective with the October 27, 2010 Exchange Agreement described above, the balance of this note was reclassified and combined with the balances of the other convertible notes from the original $1,500,000 financing.

The $105,000 discount was offset to liabilities pursuant to ASC Topic 815-40-25,”Contracts in Entity’s Own Equity.” On the date the proceeds were received, the number of the Company’s authorized but unissued common shares were insufficient to meet all of the Company’s commitments for share issuances under the terms of its convertible notes, options and warrant agreements, thereby requiring liability accounting. As discussed in Note 8, on the valuation date of January 11, 2011, the former derivative liability was reclassified to additional paid-in capital due to the Company’s effective increase in its authorized shares and elimination of the conversion feature of the New Notes.

As discussed below, the note was purchased by a related party in December 2010 and the related warrants and conversion features were cancelled in January 2011. Amortization of the discounts charged to operations for the year ended June 30, 2011 amounted to $52,308. Discount amortization after the note was purchased by the related party of $25,687 was charged to equity.

Purchase of Convertible Notes by Related Party

In December 2010, SLM Holding PTE, Ltd. (“SLM”), a wholly owned subsidiary of Manhattan Resources Limited (“MRL”) and related party, purchased the New Notes and the Placement Agent notes as discussed above. On January 12, 2011, SLM agreed to terminate 27,037,500 Series A through G warrants and conversion features related to these acquired notes for nominal consideration of $10. The conversion features formerly comprised all rights granted to the note holders to convert debt to 4,012,500 shares of the Company's common stock. The termination of the warrants and conversion features was deemed a substantial modification of terms and accounted for as an extinguishment of debt pursuant to ASC Topic 470-50 “Modifications and Extinguishments.” The unamortized discount from the warrants and beneficial conversion features totaled $392,647 on January 12, 2011, and this amount was written off to additional paid-in capital since the transaction was consummated with a related party. In addition, the payment terms of note were modified requiring that the balance of the note to be paid down to $1.0 million in February 2011 with the remainder of the note incurring monthly interest at 8% per annum with the principal balance due when $5.0 credit facility is authorized, see Note 10. As indicated above the balance due the related party at June 30, 2011 including accrued interest was $1,029,111. The balance due plus accrued interest was fully paid on July 26, 2011 through proceeds received from the credit facility.

Convertible Note - $127,000 Financing

The Company received $127,000 evidenced by a promissory note that is assessed interest at rate of 5% per annum commencing on December 22, 2009. The note was to mature on December 22, 2012, when the outstanding principal and accrued interest becomes fully due and payable. Prior to maturity, the holder has the right to convert the balance owed into 600,000 shares of the Company’s common stock.

Pursuant to ASC Topic 470-20, “Debt with Conversion and Other Options,” the convertible note was recorded net of a discount that includes a beneficial conversion feature (“BCF”) amounting to $107,000. The discount was amortized and charged to operations over the life of the debt using the effective interest method. The initial value of the BCF of $107,000 was calculated as the difference between the market value of the 600,000 potential conversion shares at December 22, 2009 (600,000 shares multiplied by the stock price of $0.39 per share, or $234,000), less the effective cost of the conversion at such date (the note balance, or $127,000).

During the year ended June 30, 2011, the Company was a party to an agreement whereby increments of the $127,000 convertible note payable were assigned by the original investor to a third party. The assignment agreement included modifications to the debt increments and embedded conversion features that were more favorable to the lender, resulting in a $161,667 loss on debt modification that was charged to operations. Such modifications included an increase in the interest rate to 12%, a shortening of the increments’ maturities to March 10, 2011, and a change in the conversion price to 50% of the lowest trading price for 5 trading days prior to conversion. During the year, a total of $132,054 of debt increments (inclusive of accrued interest) were assigned to this third party and converted into 2,685,861 shares of the Company's common stock at prices ranging from $0.07 to $0.17 per share. By June 30, 2011, the entire note balance was converted to common stock.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

For the year ended June 30, 2011, interest totaling $1,748 was accrued and charged to operations. During the same period, discount amortization charged to operations totaled $89,381.

Convertible Note - $360,000 Financing

The Company received $360,000 evidenced by a promissory note that is assessed interest at rate of 5% per annum commencing on February 11, 2010. The was to note mature on February 11, 2013, when the outstanding principal and accrued interest becomes fully due and payable. Prior to maturity, the holder has the right to convert 110% of the balance owed into cashless warrants to purchase the Company’s common stock at an exercise price of $0.50 per share.

During the year ended June 30, 2011, the Company was a party to an agreement whereby a $360,000 convertible note was assigned in full to the same third party as the note increments described above. The assignment agreement included modifications to the debt and its embedded conversion feature that were more favorable to the lender, resulting in a $259,933 loss on debt modification that was charged to operations. Such modifications included an increase in the interest rate to 12%, a shortening of the maturity to March 10, 2011, and a change in the conversion price to 50% of the lowest trading price for 5 trading days prior to conversion. Pursuant to this debt modification, the Company recognized a derivative liability with an initial value of $247,364 due to a change in the exercise price of the embedded conversion feature from fixed to variable (See Note 9).

During the year ended June 30, 2011, debt totaling $385,991 was converted into 15,457,776 shares of the Company’s common stock at prices ranging from $0.04 to $0.14 per share. Interest charged to operations on the principal balance of the notes for the year ended June 30, 2011 totaled $6,568. The balance of the note at June 30, 2011 was $0, due to the conversions of the entire note balance to common stock as described above.

Loans Payable - Other

In December 2010, the Company had received $200,000 in advances from an unrelated third party. In March 2011, the Company negotiated terms with this party to repay a total of $300,000, and has imputed interest on the balance due based on these negotiated terms. The $300,000 was fully paid by June 30, 2011 of which $100,000 was charged to operations as interest expense.

During the year ended June 30, 2011, the Company received a $570,500 short-term loan from MRL, partially secured by inventory purchased from Megola, Inc., valued at $303,750. The remainder of the loan was used to purchase inventory valued at $266,750. This loan was repaid in full in February 2011 in the amount of $739,200. Interest charged to operations on the principal balance of the notes for the year ended June 30, 2011 totaled $168,700. The Company has entered into a separate $5,000,000 revolving credit and warrant purchase with Manhattan Resources Limited, effective February 14, 2011.

7. Letter of Credit

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

8. Related Party Transactions

At June 30, 2012, the Company had a non interest bearing note payable due to its Chief Executive Officer who is also a Director and significant shareholder with a balance of $201,480.

At June 30, 2011, the Company had a note payable due to its Chief Executive Officer who is also a Director and significant shareholder with a balance of $174,217.

The Company had advances payable of $0 and $63,163, to the Chief Technical Officer who is also a director and significant shareholder as of June 30, 2012 and June 30, 2011, respectively. During the year ended June 30, 2011, the Company received advances totaling $171,500 from this officer and has repaid $108,337 during the same period. Such advances bear no interest and are due on demand.

As of June 30, 2012 and 2011, a total of $363,500 (or approximately 77%) of the Company’s Property and Equipment has been purchased from two related entities that are controlled by the Company’s President, who is also a majority shareholder. The Property and Equipment, which was purchased in fiscal 2010, was recorded based on the carryover basis which also represented the purchase price.

During the years ended June 30, 2012 and 2011, the Company made inventory purchases totaling $0 and $7,478, respectively, from companies controlled by the Company’s President. The 2010 inventory purchases were recorded based on the carryover basis which also represented the purchase price.

During the years ended June 30, 2012 and 2011, the Company recorded revenues of $0 and $38,527, respectively, through sales of their lumber products to an entity owned by the Company’s Chief Executive Officer. The Company maintains that the sales were at current pricing. As of June 30, 2012 and 2011, $0 and $6,421, respectively, is due from this entity and recorded in accounts receivable on the accompanying financial statements.

See Notes 6, 11 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. Key provisions of the agreement includes

(a)

Annual salary of $300,000

(b)

Cash bonus of $300,000 in the event that gross sales for the fiscal year ending June 30, 2012 exceed $34,000,000, subject to certain limitations.

(c)

Additional cash bonus of $300,000 in the event that gross sales for the fiscal year ending June 30, 2012 exceed $92,000,000, subject to certain limitations. In the event that gross sales for the prior fiscal year are with 35% of the $92,000,000 target, the target shall be adjusted up so that a minimum sales increase must be achieved for the bonus to vest.

(d)

Option grants to purchase 800,000 shares of the company’s common stock at an exercise price of $0.10 per share, expiring April 1, 2016 (five-year life). Such options will vest over a two-year period. These options were valued at $75,680, as determined using the Black-Scholes option-pricing model using a risk free rate of 2.24%, volatility of 169.83% and a trading price of the underlying shares of $0.10.

(e)

Severance pay is due the President upon separating from service, with or without cause, equaling his then current monthly salary multiplied by the number of full years that the President has been employed with the Company prior to separation.

Accrued compensation due the president at June 30, 2012 totaled $295,513. Compensation charged to operations during the year ended June 30, 2012 on the option granted totaled $37,840.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

Accrued compensation due the president at June 30, 2011 totaled $196,153. Severance pay accrued and charged to operations during the year ended June 30, 2011 totaled $16,027. Compensation charged to operations during the year ended June 30, 2011 on the option granted totaled $9,460.

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. Key provisions of the agreement includes

(a)

Annual salary of $250,000

(b)

Cash bonus of $250,000 in the event that gross sales for the fiscal year ending June 30, 2012 exceed $34,000,000, subject to certain limitations.

(c)

Additional cash bonus of $250,000 in the event that gross sales for the fiscal year ending June 30, 2012 exceed $92,000,000, subject to certain limitations. In the event that gross sales for the prior fiscal year are with 35% of the $92,000,000 target, the target shall be adjusted up so that a minimum sales increase must be achieved for the bonus to vest.

(d)

Option grants to purchase 400,000 shares of the company’s common stock at an exercise price of $0.10 per share, expiring April 1, 2016 (five-year life). Such options will vest over a two-year period. These options were valued at $37,840, as determined using the Black-Scholes option-pricing model using a risk free rate of 2.24%, volatility of 169.83% and a trading price of the underlying shares of $0.10.

(e)

Accrued compensation due the Chief Technical Officer and Director at June 30, 2012 totaled $265,975. Compensation charged to operations during the year ended June 30, 2012 on the option granted totaled $18,920.

Accrued compensation due the Chief Technical Officer and Director at June 30, 2011 totaled $158,638. Severance pay accrued and charged to operations during the year ended June 30, 2011 totaled $13,356. Compensation charged to operations during the year ended June 30, 2011 on the option granted totaled $4,730.

9. Derivative and Warrant Liabilities

During the year ended June 30, 2011, the Company decreased its derivative and warrant liabilities and made a correlating credit to operations in the amount of 121,590 pursuant to ASC 815-40-19 “Contracts in Entity's Own Equity,” as the number of Company’s potential common shares plus the number of actual common shares outstanding (“Committed Shares”) at the valuation date exceeded the number of common shares the Company had authorized to issue. The shortage in the number of committed shares over the number of authorized but unissued shares at the final valuation date of January 11, 2011 totaled 26,086,100. The total liabilities of $1,534,627 at the valuation date are the maximum amount management believes it would have been liable for if the Company were required to meet all its committed share obligations.

On the valuation date of January 11, 2011, the $1,534,627 former derivative liability was reclassified to additional paid-in capital due to the Company’s (a) increase in the number of its authorized shares to meet all of its committed share obligations, (b) reporting of such action to its shareholders and the Securities and Exchange Commission (the SEC) via an effective information statement, and (c) submission of amended articles of incorporation and receipt of approval from the State of Colorado (d) elimination of the warrants and conversion feature of the notes due to the assignment of the note to MRL.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

The derivative liabilities were valued prior to extinguishment based on the following components:

The first component is valuing the shortage of common shares of 7,725,000 using the fair value of Series A and E warrants at the valuation date of $0.0644 per share. The fair value of the Series A and E Warrants of $497,490 was calculated using the Black-Scholes Option Model with a risk free interest rate of 1.98%, volatility of 161.45%, exercise price of $0.40 per share, and trading price of $0.08 per share.

The second component is valuing the shortage of common shares of 7,725,000 using the fair value of Series B and F warrants at the valuation date of $0.0629 per share. The fair value of the Series B and F Warrants of $485,903 was calculated using the Black-Scholes Option Model with a risk free interest rate of 1.98%, volatility of 161.45%, exercise price of $0.50 per share, and trading price of $0.08 per share.

The third component is valuing the shortage of common shares of 7,725,000 using the fair value of Series C and G warrants at the valuation date of $0.0617 per share. The fair value of the Series C and G Warrants of $476,633 was calculated using the Black-Scholes Option Model with a risk free interest rate of 1.98%, volatility of 161.45%, exercise price of $0.60 per share, and trading price of $0.08 per share.

The fourth and final component is valuing the shortage of common shares of 3,161,100 using the fair value of Series D warrants at the valuation date of $0.0236 per share. The fair value of the Series D Warrants of $74,601 was calculated using the Black-Scholes Option Model with a risk free interest rate of 0.28%, volatility of 165.47%, exercise price of $0.20 per share, and trading price of $0.08 per share.

10. Fair Value of Assets and Liabilities

Determination of Fair Value

The Company’s financial instruments consist of convertible notes payable, loans payable and a derivative liability. 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. Derivative instruments include the derivative liabilities as Level 2. Derivative instruments are valued using standard calculations/models that are primarily based on observable inputs, including volatilities and interest rates. Therefore, derivative instruments are included in Level 2.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

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.

Advances from Related Party. The Company assessed that the fair value of this liability approximates its carrying value due to its short-term nature.

Notes 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.

Convertible 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 - Related Party. The Company assessed that the fair value of this liability approximates its carrying value due to its short-term nature.

Loans Payable - Other. The Company assessed that the fair value of this liability approximates its carrying value due to its short-term nature.

Derivative and Warrant Liabilities. The Company assessed that the fair value of these liabilities approximate their carrying value since the carrying value is determined from the trading price of the Company’s common shares.

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 June 30, 2012 and 2011:

Liabilities measured at fair value at June 30, 2012:	Level 1		Level 2		Level 3		Total

Advances from related party	$	--	$	--	$	--	$	--

Notes payable – related party	$	--	$	5,000,000	$	--	$	5,000,000

Loans payable – related party	$	--	$	201,480	$	--	$	201,480

Liabilities measured at fair value at June 30, 2011:	Level 1		Level 2		Level 3		Total

Advances from related party	$	--	$	63,163	$	--	$	63,163

Notes payable – related party	$	--	$	1,029,111	$	--	$	1,029,111

Loans payable – related party	$	--	$	174,217	$	--	$	174,217

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

11. Stockholders' Deficit

Common Stock Issuances

During the year ended June 30, 2012, the Company issued a total of 112,675,569 shares of its common stock of which 16,500,000 shares were issued for cash for $1,032,000, 6,879,172 shares were issued for debt conversions of increments totaling $730,597 the related to losses on debt modification. Also 14,496,397 shares valued at $1,473,009 were issued for legal services, 16,900,000 shares valued at $1,183,000 were issued for officers and employees compensation, 7,200,000 shares valued at $504,000. Per Board minutes dated on January 5, 2012, the Board approved to issue75 million shares to employees, officers and consultants. On June 5, 2012, ECO decided to issue 74.8 million shares officers, employees and consultants. Among the 74.8 million shares, 7.2 million shares granted to the consultants which were vested 100% immediately on June 5, 2012 issuance date. The rest of the 67.6 million shares are vested 25% per year. However, the Transfer Agent made the mistake and issued the entire 74.8 million shares to officers, employees and consultants at the issuance date on June 5, 2012. ECO notified the Transfer Agent in May 2013 to cancel the 75% of 67.6 million shares issuance which is 50.7 million shares to employees and officers. For detail, please refer to Note 15 - Restatement in the Notes to Consolidated Financial Statements.

During the year ended June 30, 2011, the Company issued a total of 102,691,767 shares of its common stock of which 81,000,000 shares were issued for cash (as described below), 2,685,861 shares were issued for debt conversions of increments totaling $132,054 on the Company’s $127,000 note payable, which included related losses on debt modification totaling $161,667. During the same period, another 15,457,776 shares were issued for debt conversions totaling $385,991 on the Company’s $360,000 note payable. The Company recognized a $161,667 loss on the cancelation of the $385,991 of indebtedness. In addition, 400,000 shares valued at $80,000 were issued as additional consideration for the cancellation of the Company’s lease on its Texas facilities, 1,774,000 shares valued at $153,840 were issued for consulting and advisory services, 500,000 shares valued at $35,000 were issued for sales commissions, 736,106 shares valued at $85,221 were issued for legal services, and 138,024 shares were issued to various consultants and advisors in connection with the cancellation of $42,711 of debt due them. The 138,024 common shares were valued at $30,005 resulting in a net gain from the cancellation of indebtedness of $12,706 that was credited to operations.

Investment Agreement with MRL

On February 14, 2011, the Company entered into an investment agreement (the “Investment Agreement”) with Manhattan Resources Limited, a Singapore Corporation (“MRL”) and Dato’ Low Tuck Kwong (“LTK”), a controlling shareholder of MRL (the “Investment Agreement”).

On February 16, 2011, the Company received $5,000,000 from LTK pursuant to the Investment Agreement.

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. LTK will sell the Sale Shares to MRL, for the same consideration, subject to approval from shareholders of MRL.

On February 14, 2011, the Company also entered into a revolving credit and warrant purchase agreement (the “Credit and Warrant Agreement”) with MRL. The Credit and Warrant Agreement does not go into effect until it is ratified by the shareholders of MRL, which occurred on July 26, 2011, see Note 13.

A summary of the material terms of these two agreements are as follows:

(i) Pursuant to the terms of the Investment Agreement, LTK will subscribe for 81,000,000 shares in the Company (“Sale Shares”), representing approximately 45.5 percent of the Company’s resulting total issued and outstanding common shares, for an aggregate consideration of $5,000,000. LTK will sell the Sale Shares to MRL, for the same consideration, subject to approval from shareholders of MRL.

(ii) Pursuant to the terms of the Credit and Warrant Agreement, MRL will extend a $5,000,000 revolving facility (the “Loan Facility”). In consideration of the Loan Facility, the Company issued MRL a 5-year warrant to subscribe for 50,000,000 common shares at an exercise price of $0.10 per share (the “Warrant”). 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. The Loan Facility is secured by substantially all the assets of the Company.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

In the event MRL purchases the Sale Shares from LTK and if they fully exercised the Warrant which would be granted upon final approval of the Credit and Warrant Agreement, both of which are subject to MRL shareholder approval, 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. As of the date of these financial statements, the Loan Facility is not yet effective, and no warrants have been issued to MRL due to the remaining approval requirements.

During the year ended June 30, 2012, the Company offered MRL, an arrangement for all their interests in Eco and all obligations of Eco to any of them would be exchanged for a promise to make a future buyout payment. On July 9, 2012 lawyers for Eco advised Eco that the aspect of the Offer, below, and the communication that an agreement was reached is legal grounds, subject to potential judicial determination, supporting Eco's conclusion that MRL has agreed to Eco's offer including selling all interests back to Eco for promise of a future payment, as stated below. If judicial action was taken, Eco may or may not be successful.

Previously, on June 13, 2012, Eco was advised that MRL had accepted Eco's Offer.

The Offer was as follows:

1. MRL surrenders all rights and interests in Eco. This includes all securities.

2. Eco agrees to repay or pay MRL the sum of $10,000,000 USD on or before 24 months from acceptance, or June 13, 2014. (Recently determined to be an additional $500,000 USD, total $10,500,000.)

3. The only obligation that survives the settlement or agreement is the obligation of Eco to pay the sum stated.

Warrants

On April 28, 2011, the Company issued warrants pursuant to a consulting agreement to purchase 250,000 shares of the Company common of stock of which 100,000 shares have a purchase price per share of $0.15, 100,000 shares have a purchase price per share of $0.25, and 50,000 shares have a purchase price per share of $0.35. The warrants were valued at $14,925 using the Black-Scholes Option Model with a risk free interest of 0.61%, volatility of 171.46%, and trading price of $0.09 per share. The $14,925 is included in prepaid expense and is being amortized to operations over the two year term of the agreement.

In September 2011, the Company issued 50,000,000 warrants in exchange for the payment of the $3.0 million prepaid loan fees in connection with the MRL $5 million line of credit and the warrants are expired in 5 years. The $3,025,000 total prepaid loan fees were amortized using the straight line method over the three year terms of the underlying notes. For detail, please refer to Note 4, Prepaid loan fee.

During the year ended June 30, 2011, the Company agreed to reduce the exercise price of 3,750,000 of its warrants from $0.40 per share to $0.20 per share. A total of $140,981 was charged to interest expense for the re-pricing of these warrants.

In December 2010, SLM Holding PTE, Ltd. (SLM), a wholly owned subsidiary of MRL and related party, purchased convertible notes issued by the Company from a group of third party investors and a placement agent for the aggregate sum of $1,000,000 (see Note 6). In January 2011, SLM agreed to terminate 27,037,500 Series A through G warrants and conversion features related to these acquired notes for nominal consideration of $10. The conversion features formerly comprised all rights granted to the note holders to convert debt to 4,012,500 shares of the Company's common stock.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

	Warrants outstanding			Weighted average exercise price		Weighted average remaining life			Aggregate intrinsic value

Balance, June 30, 2010		27,037,500		$	0.49		4.74	Years	$	-

Warrants granted		250,000			0.23		2.00	Years
Warrants expired
Warrants canceled		(27,037,500	)		0.46		4.20	Years

Balance, June 30, 2011		250,000			0.23		1.83	Years		-

Warrants granted		50,000,000			0.01		5.00	Years
Warrants expired		-
Warrants canceled		-

Balance, June 30, 2012		50,250,000		$	0.01		3.98	Years	$	-

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 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 operation for the years ended June 30, 2012 and June 30, 2011 on these options amounted to $56,760 and $14,190, respectively.

A schedule of compensation expense on the option grants for the next year is as follows:

June 30, 2013

42,570

The following is a schedule of options outstanding as of June 30, 2012:

	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Life	Aggregate Intrinsic Value

Balance, June 30, 2010		-	$	-		$	-
Options granted		1,200,000		0.10	5.00 Years		-
Options expired		-		-	-		-
Options cancelled		-		-			-
Balance, June 30, 2011		1,200,000		0.10	4.75 Years		-
Options granted							-
Options expired		-		-	-		-
Balance, June 30, 2012		1,200,000	$	0.10	3.75 Years	$	-

As of June 30, 2012, 600,000 of the 1,200,000 options were vested.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

12. Income Taxes

Deferred income tax assets and liabilities are computed annually for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

The effective tax rate on the net loss before income taxes differs from the U.S. statutory rate as follows:

	June 30,
	2012			2011
Current expense – Benefit
Federal	$	-		$	-
State		-			-
Total current expense (benefit)		-			-

Deferred Benefit
Federal	$	-		$	-
State		-			-
Total deferred benefit		-			-

U.S statutory rate		34.00	%	$	34.00	%
Permanent differences		43.00	%		22.00	%
Less valuation allowance and other		-48.3	%		-56.00	%
Effective tax rate		0.00	%		0.00	%

The significant components of deferred tax assets and liabilities are as follows:

	June 30,
	2012		2011
Deferred tax assets
Bad debt reserve	$	6,367	$	1,526
Stock based compensation		1,244,299		809,260
Net operating losses		3,796,571		1,914,388
Inventories		229,278		24,405
Payroll and taxes payable		542,248		247,775
		5,818,763		2,997,354
Deferred tax liability
Accumulated depreciation		307,230		150,583
		307,230		150,583

Net deferred tax assets		5,511,533			2,846,771
Less valuation allowance		(5,511,533	)		(2,846,771	)
Deferred tax asset - net valuation allowance	$	-		$	-

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

The net change in the valuation allowance for 2012 was approximately $2,664,762.

As of June 30, 2012, the Company had net operating loss carryovers of approximately $11,167,000 available to offset future income for income tax reporting purposes, which will expire in various years through 2032, if not previously utilized. Due to the significant change in ownership in 2011, the Company's NOLS are restricted. The amounts disclosed take into account this restriction.

We adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes. We had no material unrecognized income tax assets or liabilities for the years ended June 30, 2012 and 2011.

Our policy regarding income tax interest and penalties is to expense those items as general and administrative expense but to identify them for tax purposes. During the years ended June 30, 2012 and 2011, there were no income tax interest and penalty items in the income statement, or as a liability on the balance sheet. We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to U.S. federal or state income tax examination by tax authorities for years before 2014. We are not currently involved in any income tax examinations.

As of June 30, 2012, the Company owed $850,815 in past due payroll taxes and accrued penalties. The Company has yet to file the necessary payroll tax reports with the impacted taxing authorities. Starting in May 2012, the Company has started paying the most recent payroll tax liability. These amounts are recorded within payroll and taxes payable on the accompany consolidated balance sheet. Also at June 30, 2012, the Company owed $121,948 in past due sales tax in which it has filed the appropriate reports and is making periodic payments.

13. Commitments and Contingencies

Lease commitments

Real Estate Lease – Vista, California

1.	Base rentals - $5,500 per month beginning October 1, 2009.
2.	Base rentals increase to $6,000 monthly beginning October 1, 2010 and $6,500 monthly beginning October 1, 2011.
3.	Company is responsible to pay its proportionate share of property taxes, insurance and common area maintenance – estimated at $875 per month
4.	Termination date – September 30, 2012.
5.	Renewal Option – one option for an additional three year period.
6.	Security Deposit - $5,500.

7.	Rent for month six (March 2010) shall be discounted to by 50%
8.	Rent for month twelve (March 2011) shall be discounted by 50%

Effective January 1, 2011, the Company entered into a one-year sublease with a related party for 460 square feet in this Vista facility at $900 per month.

Rent expense related to this lease was $118,335 and $80,443 for the year ended June 30, 2012 and 2011, respectively.

Real Estate Lease – Colton, California

In January 2010, the company entered into a lease of a manufacturing facility in Colton, CA for nine months. This leased was renewed in November 2010 for five years at a rate of $17,391 per month from December 2011 to November 2012. The lease rate will be increased by 3% effective beginning in December 2012. Rent expense related to this lease was $213,581 and $202, 677 for the years ended June 30, 2012 and 2011, respectively.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

Real Estate Lease – Oceanside, CA

In June 2011, the company entered into an agreement to lease the manufacturing facility for one year with security deposit of $3,500. This lease was renewed effective in August 1, 2012 for 5 years at a rate of $3,250 in August 2012 and $5,000 beginning in September 2012 per month. Rent related to this lease was $42,000 and $3,500 for the years of June 30, 2012 and 2011, respectively.

Real Estate Lease – Salem, OR

In October 2011, the company entered into an agreement to lease the coating facility for 5 years with a security deposit of $5,796. The lease rate will be $2,500 from November 2011 to April, 2012 per month and $5,000 beginning in May to November 2012 per month. In December 2012, the rent will be increased by 3% per annual. Rent related to this lease was $28,053.91 and $ - for the years ended June 30, 2012 and 2011, respectively.

Rent Disclosure:

	Oceanside, CA		Colton, CA		Salem, OR		Vista, CA		Total
2013		56,750.00		218,177.05		61,200.00		23,625.00		359,752.05
2014		60,000.00		224,722.34		63,036.00		-		347,758.34
2015		60,000.00		231,463.97		64,927.12		-		356,391.09
2016		60,000.00		238,407.91		66,874.96		-		365,282.87
2017		60,000.00		120,965.58		22,510.20		-		203,475.78
Thereafter
		296,750.00		1,033,736.85		278,548.28		23,625.00		1,632,660.13

Purchase commitments

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 has guaranteed it will purchase a minimum of fifty (50) 275 gallon totes of product in the first twelve month period. The Company is required to increase the minimum quantities by 25% in the second year, to 62.5 totes. The initial term of the agreement is two years and will renew for additional one year terms without further action unless otherwise terminated.

With regard to the above agreement, the Company learned 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. The Company’s management does not know how long the toxin has been in the solution. Testing and investigation is ongoing. The seller has indicated nothing as to removing the toxin and is continuing its own investigation of its liabilities.

The Company has not made all of its original purchase commitments in this agreement, due to non-performance by the seller and the existence toxins as described above. Further, the Company had temporarily discontinued selling the product and was pursuing alternative solutions internationally. Management believes that the issue has been isolated to the concentrate form and is not affecting the end user coated product. The Company is currently in the discovery phase of determining the overall impact of this issue, but legal counsel has advised the Company that the seller is responsible for any liabilities generated from the use of the product.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

Purchase, Distribution & Services Agreement #2

On January 18, 2011, the Company entered into an AF21 Product, Purchase, Sales, Distribution & Service Agreement, (the “Agreement”), with Newstar Holding Pte Ltd, a Singapore Corporation, and Randall Hart, an Indonesian National, the inventors and owners of technical data and intellectual property for a protective coating in order to obtain an exclusive supply of the product, together with certain distribution, marketing and sales rights. In addition, a significant shareholder of Newstar Holding Pte Ltd is also a significant shareholder of MRL. The product is a non-toxic non-corrosive fire inhibitor. Pursuant to the Agreement, the Company guaranteed it will purchase a minimum of six hundred fifty (650) two hundred and forty five (245) gallon totes of product in the first two-year period at a cost of $11.40 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 $11.40 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 $11.40 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 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 (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.

Moreover, on or about September 7, 2012, a law firm claiming to represent MRL supplied a letter to Eco. On September 19, 2012 Eco obtained the advice of litigation counsel which, after review and consultation, concluded to the effect that the letter is material, notwithstanding current or recently past communications impacting upon the veracity of the contents of the letter, or the intention of the letter. The contents of the letter include statements advising Eco that Eco is in breach of the Revolving Credit and Warrant Purchase Agreement referenced above ("Revolving Agreement"), and the Investment Agreement dated February 14, 2011 referenced above. It is not clear if that law firm (the firm that sent the letter) also represents the other parties noted in the agreements other than MRL. The letter claims the transactions, previously reported, by Eco relating to the Purchase Agreement and granting of a security interest, August 13, 2012, per the previously filed Form 8K of Eco August 22, 2012, was a breach of various provisions of the agreements relating to MRL, they (MRL) will enforce their rights, and reserve rights, and that an Event of Default has happened under Section 6(a) of Revolving Agreement, in that Eco failed to pay the $5,000,000 allegedly due. The same claims of default as to interest, and that they do not agree that MRL agreed to forebear from individually enforcing rights or remedies.

Eco takes the position that an agreement, altering the rights of MRL and related others, was previously offered and accepted and that it means that MRL and noted affiliates surrendered to Eco rights and interests in Eco and no longer can claim they own securities in Eco, and this was in exchange for Eco supplying the concurrent promise to pay the sum of $10,500,000 by June 13, 2014; that the securities held by MRL and affiliates are or should be deemed cancelled or retired; and that Eco is willing to negotiate and entertain, though not obligated, repaying the sum with interest, as well as any "amendment" or terms for orderly procedures of the parties. This would mean that Eco also believes the Past Agreements no longer apply.

Eco is now seeking the advice of counsel and has believes that MRL is open to settle and resolve the differences and demands of MRL communicated to Eco and while it plans to vigorously defend and protect its interests, it also continues to express the interest to reach an amicable resolution with MRL. No assurance can be given that Eco will be successful in the resolution, if possible, of such claims.

ECO Building Products, Inc. (“ECO”) and Manhattan Resources Limited (“MRL”) entered into an Investment Agreement on or about February 14, 2011, wherein MRL agreed to purchase 81,000,000 shares of Common Stock and MRL agreed to pay ECO $5,000,000. Additionally, ECO and MRL executed a Revolving Credit and Warrant Purchase Agreement on or about February 14, 2011 wherein MRL loaned ECO $5,000,000. MRL claims that their percentage of ownership of shares has been diluted. MRL claims ECO is in default on the loan.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

14. Subsequent Events

On June 13, 2012, Eco was in negotiation with MRL regarding the offer Eco has presented to MRL and MRL can response to the offer on or before September 15, 2012.

The Offer was as follows:

1. MRL surrenders all rights and interests in Eco. This includes all securities.

2. Eco agrees to repay or pay MRL the sum of $10,000,000 USD on or before 24 months from acceptance, or June 13, 2014. (Recently determined to be an additional $500,000 USD as an interest, total $10,500,000.)

3. The only obligation that survives the settlement or agreement is the obligation of Eco to pay the sum stated.

In order to continue to gain market shares in the lumber industry, on July 11, 2012, the company received one hundred million or $100,000,000.00 dollar standby letter of credit from InsurFinancial Holdings Plc backed by Bank of China to support the major expansion in the Company's core business. This facility credit support will last for four years and will not expire until December 4th, 2016.

Additionally, the agreement grants an option that allows InsurFinancial Holdings, Plc to convert their fee into an equity investment of up to five million or $5,000.000.00 dollars each year for the next four years. The option calls for the share price of the additional equity investment to be calculated at 120% of the three month trailing average of ECOB's stock. The Company now has the availability of credit which should enhance credit support for the future liabilities incurred in the rapid expansion of the demand for its products.

On August 13, 2012, the Company entered into a Securities Purchase Agreement wherein the Company agreed to privately issue and sell and the purchaser identified on the signature page to the Purchase Agreement or the Purchaser agreed to purchase (i) $1 million, in the aggregate, of Original Issue Discount Senior Secured Convertible Debentures due on November 13, 2012 or the Debentures and (ii) an aggregate of 3,500,000 shares of the Company's common stock, par value $0.001 per share. The closing of the Offering occurred on August 13, 2012.

The Company sold to the Purchaser the Debenture having a principal amount of $1,080,000. At any time after the six month anniversary of the Original Issue Date until the Debenture is no longer outstanding, the Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of holder, subject to certain conversion limitations set forth in the Debenture, at a conversion price equal to the lesser of (i) $0.08, subject to adjustment there under, and (ii) 80% of the average of the lowest 3 closing prices during the 3 trading days immediately prior to any such date of conversion.

Upon any Event of Default as defined in the Debenture, the outstanding principal amount of the Debenture, plus liquidated damages, interest and other amounts owing in respect thereof through the date of acceleration, shall become, at holder's election, immediately due and payable in cash. Commencing after the occurrence of any Event of Default, the interest rate on the Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. The Company is subject to certain non-financial covenants under the Debenture also. The Debenture contains full anti-dilution protective provisions as described therein.

On September 6, 2012 ECOB was notified by MRL that ECOB was in default of the Revolving Credit and Warrant Purchase Agreement and a 45-day period to cure the default. The Company has until October 20, 2012 to cure the default.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

On October 19, 2012, the Company has not been successful to monetize or obtain a beneficial credit enhancement with vendors or customers or others, relating to the $100 million standby letter of credit (SBLC) with Bank of China or SBLC in several business transactions as it was intended to be useful for. The Company was unable to monetize the SBLC to meet the intended expectations. The SBLC had a provision to be assignable. The Company successfully assigned the SBLC back to InsurFinancial Holdings releasing the Company of any ability to utilize the SBLC or incur any expenses as a result.

On October 25, 2012, the Board of Directors of the Corporation determined it is in the best interests of the Corporation to issue 4,412,512 restricted common stock shares to Manhattan Resources Limited (MRL) in lieu of a cash interest payment as part of an offer or resolution it is seeking to cure the default as stated above. Subsequently the stock certificate was rejected by MRL. The stock certificate was held by MRL attorney and never in the possession of MRL.

On October 25, 2012, the Board decided to present an offer to MRL to pay, in 24 months or less, the $10,000,000 reflecting the $5,000,000 worth of stocks and $5,000,000 outstanding line of credit of MRL, or take steps with the goal of registering the stock of MRL, and also, as part of a proposal to MRL, pay interest on the $5,000,000 outstanding line of credit from MRL quarterly in payment of shares of common stock.

On January 14, 2013, 2.5 million of non-restricted common stocks in the amount of $0.02/share equivalent to $50,000 were issued to Neil Dolgin for Debt Conversion from Irv Minnaker per Assignment and Assumption Agreement between Irving Minnaker (Assignor) and Neil Dolgin (Assignee). The Company agreed to pay 12% interest on $50,000 and the loan will be matured on January 14, 2013. On January 28, 2013, Certificate to be originally issued free trading on 2.5 million of common stocks was issued.

On January 29, 2013, Redwood Management LLC converted $200,000 principal amount to 14,814,814 amounts of common stocks at 0.135 conversion price. The balance of principal after conversion is $880,000. On January 30, 2013, Redwood Management LLC converted $64,750 principal amount to 4,796,296 amounts of common stocks at 0.135 conversion price. The balance of principal after conversion is $815,250.

The Company issued shares of common stocks to different recipients. On January 1, 2013, 1,000,000 shares of restricted common stock were issued to Royal Hudson, LLC with no cost basis for binding MOU between parties. On January 14, 2013, 1,000,000 shares of restricted common stocks with no cost basis were issued to Peter Kuhn for binding MOU between parties. 2,000,000 shares of restricted common stocks with $0.03/share were issued to Arthur Douglas for five months service based on existing contract. On February 4, 2013, 3,000,000 restricted common stocks with no cost were issued to Tonaquint, Inc with no cost basis for debenture between parties.

On February 6, 2013, Eco issued 2,000,000 shares of non-restricted stocks with $0.05/share for investment agreement dated and funded on July 9, 2012. On the same date, Eco removed the restriction on trading on a total of 2,000,000 common stocks issued to Alpha Capital Analyst for a debt conversion which last for six months.

On or about February 18, 2013, the litigation between Eco, Bluwood USA, Edgefield Lumber Co. and Mason McGowin was resolved in a manner acceptable to each party and the California Superior Court action and the Arbitration proceedings were dismissed. The resolution shall not have any material effect on the Company's financial positions. Any and all business relationships and issues which may have existed between the parties prior to this resolution have been terminated. Each party has put the disputes behind it and will concentrate on developing its respective businesses. The Company received a refund amount from the American Arbitration Association in the amount of 79,332.50 as a result of the above settlement.

On April 2, 2013, Redwood Management LLC converted $84,000 principal amount to 24,000,000 shares of common stock at 0.0035 conversion price. On April 18, 2013, Redwood Management LLC converted $60,000 principal amount to 24,000,000 shares of common stock at 0.0025 conversion price. On May 2, 2013, Redwood Management LLC converted $45,000 principal amount to 18,750,000 shares of common stock at 0.0024 conversion price. The balance of principal after conversions is $339,750.

On June 5, 2013 the President & CEO of the Corporation has determined that it is in the best interests of the Corporation and its shareholders that the stock issuance approved by the board and transacted on June 5th 2012 providing employee stock options shall be cancelled effective immediately. Furthermore the board confirms that the share certificates issued were never presented, promised or distributed to the employee’s or otherwise and all stock certificates were held in the possession of the company at all times per the list attached as exhibit A. The board consents to take the following action to retire SIXTEEN MILLION NINE HUNDRED THOUSAND (16,900,000) shares of common stock into the authorized but unissued treasury of the corporation. This action reverses the employee compensation stock option plan adopted on June 5, 2012.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

On or about May 14, 2013, Alpha Capital Anstalt initiated an action against Eco Building Products, Inc., E Build and Truss, Inc. and Seattle Exchange Coffee in the United States District Court, Southern District of New York. The suit seeks $1,080,000. Plaintiff alleges Eco Building sold a debenture in the principal amount of $1,080,000 to Alpha and that Eco Building failed to pay off the debenture on the maturity date. Alpha agreed to assign the debenture to a third party. Upon information and belief, this third party has paid Alpha $960,000 to date.

On or about June 7, 2013 a settlement to the above mentioned action from Alpha Capital Anstalt was agreed upon by all parties involved. The agreement settles the dispute in full providing for final payment to Alpha Capital Anstalt and a dismissal of the action in the United States District Court, Southern District of New York.

On May 15, 2013 the President & CEO of the Corporation has determined that it is in the best interests of the Corporation and its shareholders that the shareholder Irving Minnaker loan and retire Five Million (5,000,000) shares of common stock into the authorized but unissued treasury of the corporation. Furthermore the shares were fully owned and held by Irving Minnaker and have been loaned and retired into treasury in order to facilitate pressing business matters. The Company will reissue shares to Irving Minnaker at a future date to be determined.

On May 15, 2013 the President & CEO of the Corporation has determined that it is in the best interests of the Corporation and its shareholders that the shareholder Mark Vuozzo loan and retire One Million Seven Hundred Fifty Thousand (1,750,000) shares of common stock into the authorized but unissued treasury of the corporation. Furthermore the shares were fully owned and held by Mark Vuozzo for over a period of two years, and have been loaned and retired into treasury in order to facilitate pressing business matters. The Company will reissue shares to Mark Vuozzo at a future date to be determined.

On May 15, 2013 the President & CEO of the Corporation has determined that it is in the best interests of the Corporation and its shareholders that the shareholder Steve Conboy loan and retire Twenty Three Million Four Hundred Eighty Seven Thousand Nine Hundred Two (23,487,902) shares of common stock into the authorized but unissued treasury of the corporation. Furthermore the shares were fully owned and held by Steve Conboy for over two years period, and have been loaned and retired into treasury in order to facilitate pressing business matters. The Company will reissue shares to Steve Conboy at a future date to be determined.

On May 31, 2013, The Company (“ECOB”) entered into a Debt Assumption and Equity Cancellation Agreement (the “Agreement”) with Redwood Management, LLC (“Redwood”) and Manhattan Resources, Ltd (“MRL”). Terms of the Agreement are as set out below:

1) Subject to the terms and conditions of the Agreement, MRL sells, assigns and transfers to Redwood, all of its liabilities, obligations and commitments with respect to the loan and all interest payable thereon amounting in aggregate to US$5,488,083 (the “Debt”) owing by ECOB to MRL under the Revolving Credit and Warrant Purchase Agreement dated 14 February 2011 between ECOB and MRL (the “Credit Agreement”).

2) In consideration of the assignment of the Debt by MRL to Redwood, Redwood agrees to pay MRL an aggregate amount of US$3,300,000 (the “Aggregate Consideration”) as follows:

(i) US$350,000 payable upon execution of the Agreement;

(ii) US$125,000 payable on each of 17 June 2013, 15 July 2013 and 15 August 2013, unless the Authorization Event (as defined in (iii) below) has previously occurred;

(iii) US$950,000 payable on the earlier of (a) the date that is thirty (30) days following the date on which ECOB’s shareholders approve an amendment to ECOB’s articles of incorporation providing for the increase of its authorized common shares (“Common Shares”) to 1,500,000,000 authorized Common Shares (the “Authorization Event”), if such approval occurs pursuant to an action by written consent of shareholders in lieu of a meeting which is subsequently noticed to all shareholders through an information statement filed with the Securities and Exchange Commission on Schedule 14C (for purposes of clarification, the measurement of the thirty (30) days shall begin with the taking of the action by written consent and not the effectiveness of the information statement on Schedule 14C) (or the next business day thereafter, if such date falls on a Saturday or Sunday); (b) the date of the Authorization Event, if such Authorization Event occurs pursuant to vote of shareholders at a shareholder meeting held pursuant to a notice and proxy statement filed with the Securities and Exchange Commission on Schedule 14A; or (c) 16 September 2013; and

(iv) US$300,000 per month commencing on the earlier of (a) the 15th of the month (or the next business day thereafter, if such date falls on a Saturday or Sunday) following the Authorization Event; or (b) 15 October 2013, and continuing until the balance of the Aggregate Consideration has been paid to MRL. In the event that ECOB repays any or all of the Debt, 100% of the proceeds received by Redwood with respect thereto shall be immediately paid to MRL, up to a maximum of US$3,300,000.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

3) On the terms and subject to the conditions of the Agreement, upon execution of the Agreement, MRL shall surrender for cancellation 40,500,000 of its Common Shares (the “Cancelled Equity”). Upon receipt of the balance of the final payment of the Aggregate Consideration, MRL shall surrender for cancellation its remaining 40,500,000 Common Shares and all of its warrants (“Warrants”) to purchase Common Shares.

4) In the event any payment of the Aggregate Consideration is not paid within 5 days of the due date, for any reason, then, at the option of the Company, the Agreement may be terminated by MRL by providing written notice to Redwood, with a copy to ECOB (a “Termination Notice”). Upon receipt of a Termination Notice, Redwood shall assign and transfer the Debt back to MRL, less the aggregate amount paid by Redwood to MRL prior to such default, and MRL shall be entitled to retain any payments previously paid to it. In addition, upon termination of the Agreement, ECOB shall issue to MRL a number of Common Shares in an amount equal to the number of Common Shares that constitute the Cancelled Equity, with the same terms and conditions of the Common Shares that had previously been cancelled.

5) Prior to the Authorization Event, provided that there has been no breach of the Agreement by Redwood, MRL agrees to vote all its Common Shares in favor of any amendment to ECOB’s articles of incorporation providing for the increase of ECOB’s authorized Common Shares.

6) ECOB grants to Redwood a security interest in, all of ECOB’s right, title and interest in and to all of the personal property of ECOB whether now or hereafter existing, whether tangible or intangible, whether now owned or hereinafter acquired and wherever the same may be located. In the event that MRL exercises its termination right and the Debt is reassigned and returned to MRL, ECOB agrees that the foregoing security interest shall also be assigned and transferred to MRL in connection with the reassignment and return of the Debt.

7) Conditioned on the satisfactory payment of the Aggregate Consideration by Redwood, and provided that the Agreement is not earlier terminated by MRL as set out in Paragraph 4 above, MRL shall release and discharge ECOB and each of its respective affiliates, representatives, advisors, partners, officers, directors and employees and their respective successors and assigns from any and all claims, demands, causes of action and rights of every kind, nature or character arising or existing on or before the date of the Agreement; whether determined or undetermined, known or unknown, proven or unproven; whether asserted or subject to assertion in any jurisdiction, in any court or other forum or with any federal, state, county, municipal or other governmental authority, agency or official; and whether arising at law, in equity or otherwise, arising out of or from or in any way related to the Common Shares or Warrants.

On May 31, 2013, The Company (“ECOB”) entered into a Securities Settlement Agreement (the “Agreement”) with Redwood Management, LLC (“Redwood”). Terms of the Agreement are as set out below:

1) The Principal value of the note is Five Million Dollars ($ 5,000,000.00) with an annual interest rate of 12%. The term of the agreement is twelve months. Description of Debt: See above Debt Assumption and Equity Cancellation Agreement Dated May 31, 2013.

2) The COMPANY promises to pay to Redwood the Principal and Interest on the Maturity Date, or sooner if required hereby, unless to the extent of any completed conversion of Principal and or Interest as stated herein. THE COMPANY MAY PREPAY ANY PORTION OF THE PRINCIPAL AMOUNT AT 130% OF SUCH AMOUNT FOR THE FIRST SIX (6) MONTHS ON $3,300,000 OR MAXIMUM ALLOWED PER LAW, WHICHEVER IS LOWER, ALONG WITH ANY ACCRUED INTEREST AT ANY TIME UPON SEVEN DAYS WRITTEN NOTICE TO REDWOOD, PROVIDED THE COMPANY IS NOT IN DEFAULT OF THIS AGREEMENT, SUBJECT TO THE TERMS HEREIN. AFTER SIX MONTHS THE REDEMPTION STAYS ON AT 130% BUT ON THE FULL FACE VALUE OF $5,000,000.

3) At such time this note is satisfied the COMPANY will relieve from the balance sheet 3,025,148 in accrued liability for the value of the 50,000,000 warrants to be cancelled and MRL shall surrender for cancellation 40,500,000 of its remaining Common Shares all to be surrendered by Manhattan Resources, Ltd in connection with this Agreement and the Debt Assumption and Equity Cancellation Agreement Dated May 31, 2013.

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ECO BUILDING PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2012 and 2011

15. Restatement

The Company has restated the financial statements as originally presented in its initial registration statement filed on October 15, 2012. The changes and explanation of such are as follows:

	Year Ended June 30, 2012

	Originally				Restatement				As
Balance Sheet Items:	Reported				Adjustment				Restated

Common stock		216,162		A		24,100		(a)		240,262		B
Accumulated (deficit)		(21,432,553	)	A		(7,497	)	(a),(b)(c)		(21,440,050	)	B

Statements of Operations Items:	For the year ended June 30, 2012

Compensation and related expenses		4,461,765		A		10,100		(b)		4,471,865		B

Statements of Cashflows Items:	For the year ended June 30, 2012
Cash flows from operating activities
Loss on modification of debt by issuance of common stock		(420,002	)	A		(310,594	)	(b)		(730,596	)	B
Common stock issuance for services		(3,602,944	)	A		(442,934	)	(b)		(3,160,010	)	B
Cash flows from financing activities
Proceeds from issuance of common stocks		(889,500	)	A		(142,500	)	(b)		(1,032,000	)	B

(a)	Reflects restatement due to the recording of the 74.8 million at $0.001 par value = $74,800 on June 5, 2012 less 75% retirement of 74.8 million shares on April 23, 2012 because of the Transfer Agent error.

74.8 million shares issuance	74,800
Less cancelation of 50.7 million shares	(50,700	)
Net changes	24,100

(b)

Reflects restatement due to pricing the shares at the fair value at the stock grant date. In accordance with ASC 718, shares need to be priced at fair value at the grant date and the changes in the stock based compensation expense of $10,100. ECO priced the shares per the Stock Issuance Notice and the share price might not be equal to the fair value at the grant date.

(c)	Reflects restatement due to adjustment on the debt discount on the convertible note issued in June 2012 in the amount of $2,603.

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) as of June 30, 2012 and all interim subsequent periods. 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).

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. The material weakness and significant deficiency identified by our management as of June 30, 2012 and all interim subsequent periods relates to the ability of the Company to record transactions and provide disclosures in accordance with U.S. GAAP. We did not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of U.S. GAAP commensurate with our financial reporting requirements. Our staff needs substantial training to meet the demands of a U.S. public company and our staff’s understanding of the requirements of U.S. GAAP-based reporting are inadequate.

Remediation Initiative

We intend to provide U.S. GAAP training sessions to our accounting team and intend to increase the amount of training that each member of our accounting team receives. The training sessions will be organized to help our corporate accounting team gain experience in U.S. GAAP reporting and to enhance their awareness of new and emerging pronouncements with potential impact over our financial reporting.

Inherent Limitations Over Internal Controls

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:

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(i)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Management, including our principal executive officer and principal financial officer, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Controls

During the period covered by this report, there was no significant 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.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Other Information

None.

Directors, Executive Officers and Corporate Governance

Our Current Management

The following table sets forth each of our directors name, age, position and office. Each of their current terms as our directors expires at our next annual shareholder meeting.

Name	Age	Position
Steve Conboy	58	President, Chief Executive Officer, Principal Executive Officer , Principal Financial Officer and sole Director
Mark Vuozzo	48	Chief Technical Officer

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All executive officers are elected by the Board of Directors and hold office until the next annual meeting of shareholders, or until their successors are duly elected and qualified.

The following is information on the business experience of each director and officer.

Steven Conboy, President and Chief Executive Officer, Director

Steve started his career in Southern California in 1979. Following 17 years of framing he went to work for Trus Joist, Weyerhaeuser. During his tenure with Trus Joist Mr. Conboy was transferred to Las Vegas to convert the market from Open-Web joists to I- Joists.

In 2001 Mr. Conboy started Framers Choice Inc. (“FCI”) in Las Vegas, Nevada. FCI teamed with Nascor products to market I-Joist in the Western United States. Mr. Conboy’s framing background and engineered wood experience were applied to create the “Wide and Deep”™ floor system. He defined and branded the framing package as the Frame Right System™ in the spring of 2006.

In the fall of 2006 Mr. Conboy created Southern California Bluwood, Inc. with the purchase of BluWood licensing for Southern California and Arizona. By the end of 2007, Mr . Conboy secured all of the BluWood licensing for the Western United States and renamed the company to SC Bluwood, Inc. FCI and SC Bluwood have developed a family of Blu building products and a builder program utilizing these products. Mr. Conboy served as founder and president of SC Bluwood until the company entered into a Definitive Merger Agreement with ECO Building Products, Inc. on July 28, 2009, at which point, Mr. Conboy became the president of the newly formed, ECO Building Products, Inc.

Mark Vuozzo, Chief Technical Officer was the founder and CEO of MV Technical Sales, LLC a privately held company that serviced the Semiconductor Automated Test industry. Mr. Vuozzo grew the company to span across USA, Asia and Europe with sales in excess of 25 million. In 2006, Mr. Vuozzo sold his interest in MV Technical Sales, LLC. In 2007, Mr. Vuozzo joined Steven Conboy to manage SC Bluwood, Inc., and Framers Choice, Inc. Mr. Vuozzo acted in the capacity of General Manager and Director of both organizations. In 2009, Mr. Vuozzo joined Ecoblu Products, Inc., as a General Manager and Corporate Secretary. Mr. Vuozzo continues to act in the capacity of Chief Technical Officer and Director.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and officers, and persons who own more than ten-percent (10%) of the company’s common stock, to file with the Securities and Exchange Commission reports of ownership on Form 3 and reports of change in ownership on Forms 4 and 5. Such officers, directors and ten-percent stockholders are also required to furnish the company with copies of all Section 16(a) reports they file. Based solely on its review of the copies of such forms received by the company and on written representations from certain reporting persons, the company believes that none of the Section 16(a) reports applicable to its officers, directors and ten-percent stockholders with respect to the fiscal year ended June 30, 2011 were filed timely.

Code of Ethics

The Company has always encouraged its employees, including officers and directors to conduct business in an honest and ethical manner. Additionally, it has always been the Company’s policy to comply with all applicable laws and provide accurate and timely disclosure. Despite the foregoing, we currently do not have a formal written code of ethics for either our directors or employees. We do not have a formal written code of ethics because we currently only have only a few employees and executives. Our officers and directors are held to the highest degree of ethical standards. Once we expand the executive and management further, we will adopt a written code of ethics for all of our directors, executive officers and employees.

Board of Director Meetings and Committees

The Board of Directors is a sole director and held no meetings during the year ended June 30, 2011.

Eco Building Products does not have a designated Audit, Nominating or Compensation Committee and relies on the board of directors to perform those functions.

EXECUTIVE COMPENSATION –

We provide named executive officers and our other employees with a salary to compensate them for services rendered during the fiscal year. Salary amounts for the named executive officers are determined for each executive based on his or her position and responsibility, and on past individual performance. Salary levels are typically considered annually as part of our performance review process. Merit based increases to salaries of the named executive officers are based on our board of directors’ assessment of the individual’s performance.

The following table shows for the year ended June 30, 2012 and fiscal year ended June 30, 2011, the compensation awarded (earned) or paid by the Company to its named executive officers as that term is defined in Item 402(a)(2) of Regulation S-K.

Name and Principal Position	Fiscal Year		Salary ($)		Bonus		Option Awards		All Other Compensation		Total ($)

Steve Conboy, President, CEO, CFO Director (1)		2012 2011	$ $	315,000 201,923	$ $	0 0	$ $	0 0	$ $	0 0	$ $	315,000 201,923
Principal Executive & Financial Officer

Mark Vuozzo (2) Chief Technical Officer		2012 2011	$ $	235,000 160,577	$ $	0 0	$ $	0 0	$ $	0 0	$ $	235,000 160,577

(1) On April 23, 2009, Mr. Steve Conboy assumed the role of President. Effective April 1, 2011, the Company entered into an employment agreement with Steve Conboy, its President and Chief Executive Officer for a term of two years. Steve Conboy’s compensation for year ended June 30, 2011 amounted to $201,923, of which $190,385 was accrued and not paid. Accrued compensation due the Steve Conboy at June 30, 2011 totaled $196,153. Severance pay accrued and charged to operations during the year ended June 30, 2011 totaled $16,027. Compensation charged to operations during the year ended June 30, 2011 on the option granted totaled $9,460.

(2) In late 2009, Mr. Vuozzo joined ECO Building Products, Inc., as a General Manager and Corporate Secretary. Effective April 1, 2011, the Company entered into an employment agreement with Mark Vuozzo, its Chief Technical Officer for a term of two years. Mark Vuozzo’s compensation for year ended June 30, 2011 amounted to $160,577, of which $108,0165 was accrued and not paid. Accrued compensation due the Mark Vuozzo at June 30, 2011 totaled $148.400. Severance pay accrued and charged to operations during the year ended June 30, 2011 totaled $13,356. Compensation charged to operations during the year ended June 30, 2011 on the option granted totaled $4,730

Employment Agreements

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. Key provisions of the agreement includes

	(a)	Annual salary of $300,000
	(b)	Cash bonus of $300,000 in the event that gross sales for the fiscal year ending June 30, 2012 exceed $34,000,000, subject to certain limitations.
	(c)	Additional cash bonus of $300,000 in the event that gross sales for the fiscal year ending June 30, 2012 exceed $92,000,000, subject to certain limitations. In the event that gross sales for the prior fiscal year are with 35% of the $92,000,000 target, the target shall be adjusted up so that a minimum sales increase must be achieved for the bonus to vest.

(d)

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. Key provisions of the agreement includes

	(a)	Annual salary of $250,000
	(b)	Cash bonus of $250,000 in the event that gross sales for the fiscal year ending June 30, 2012 exceed $34,000,000, subject to certain limitations.
	(c)	Additional cash bonus of $250,000 in the event that gross sales for the fiscal year ending June 30, 2012 exceed $92,000,000, subject to certain limitations. In the event that gross sales for the prior fiscal year are with 35% of the $92,000,000 target, the target shall be adjusted up so that a minimum sales increase must be achieved for the bonus to vest.
	(d)	Option grants to purchase 400,000 shares of the company’s common stock at an exercise price of $0.10 per share, expiring April 1, 2016 (five-year life). Such options will vest over a two-year period. These options were valued at $37,840, as determined using the Black-Scholes option-pricing model using a risk free rate of 2.24%, volatility of 169.83% and a trading price of the underlying shares of $0.10.

We have no other executive employment agreements currently in place.

Eco Building Products, Inc. has not, nor proposes to do so in the future, make loans to any of its officers, directors, key personnel, 10% stockholders, relatives thereof, or controllable entities.

We have no pension plans or plans or agreements which provide compensation on the event of termination of employment or change in control of us and have therefore eliminated a column specified by Item 402 (c)(2) titled “Change in Pension Value and Nonqualified Deferred Compensation Earnings (h)” in the above Summary Compensation Table. Except pursuant to their employment agreements, severance pay is due the Steve Conboy and Mark Vuozzo upon separating from service, with or without cause, equaling the then current monthly salary multiplied by the number of full years that they have been employed with the Company prior to separation.

No family relationships exist among any directors, executive officers, or persons nominated or chosen to become directors or executive officers.

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OPTION EXERCISES AND STOCK VESTED

	Option Awards
Name	Number of Shares Acquired on Exercise (#)		Value Realized on Exercise ($)
Steven Conboy, President, Chief Executive Officer, Principal Executive Officer, Director		0	$	0

Mark Vuozzo Chief Technical Officer		0	$	0

Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

None.

Outstanding Equity Awards at Fiscal Year-End

Steve Conboy: Option grants to purchase 800,000 shares of the company’s common stock at an exercise price of $0.10 per share, expiring April 1, 2016 (five-year life). Such options will vest over a two-year period. These options were valued at $75,680, as determined using the Black-Scholes option-pricing model using a risk free rate of 2.24%, volatility of 169.83% and a trading price of the underlying shares of $0.10.

Mark Vuozzo: Option grants to purchase 400,000 shares of the company’s common stock at an exercise price of $0.10 per share, expiring April 1, 2016 (five-year life). Such options will vest over a two-year period. These options were valued at $37,840, as determined using the Black-Scholes option-pricing model using a risk free rate of 2.24%, volatility of 169.83% and a trading price of the underlying shares of $0.10.

Director Compensation

We do not have a formal plan for director compensation. Our sole director did not receive any type of compensation for serving as a director for the years ended June 30, 2012 or June 30, 2011 .

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Beneficial Ownership Table

The following table sets forth, as of June 7, 2013 ; the beneficial ownership of our common stock by each person known to beneficially own more than five percent (5%) of our common stock, including options, outstanding as of such date and by our officers and directors as a group. Except as otherwise indicated, all shares are owned directly:

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Common Stock

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership (1)		Acquirable		Percentage of Class (1) (2) (3)
Steve Conboy , President and CEO		0		0		0	%

Manhattan Resources Limited (3)		40,500,000		50,000,000		21.03	%

Officers and Directors as a Group (1 persons)		0		0		0	%

Total		40,500,000		0		9.41	%

(1) Gives effect to the shares of Common Stock issuable upon the exercise of all options exercisable within 60 days of September 23, 2011 and other rights beneficially owned by the indicated stockholders on that date. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to shares.

(2) The denominator is based on total shares outstanding as of June 7, 2013 equal to 430,175,676 shares held by approximately 140 shareholders of record and an undetermined number of holders in street name.

(3) In consideration of a Loan Facility, the Company issued Manhattan Resources Limited a 5-year warrant to subscribe for 50,000,000 common shares at an exercise price of $0.10 per share. All are vested and if all were exercised MRL would own 131,000,000 common shares of the resulting common shares that would be outstanding for a beneficial ownership of 30.45%

(4) On June 5, 2012 the Company issued 62 million shares, 50 million shares to Steve Conboy and 12 million to Mark Vuozzo collectively. The shares were to be issued at a 25% vesting per year however the transfer agent mistakenly issued the full number of shares. In May 2013 the company cancelled the remaining 75% of the stock issued on June 5, 2012.

(5) On June 5, 2013 the Company cancelled the remaining shares issued on June 5, 2012 under the employee stock option plan, effectively retiring the remaining 25% of shares issued to Steve Conboy and Mark Vuozzo. For further details see note 14.

(6) On May 15, 2013 the board of directors felt it was in the best interest of the company for Steve Conboy to loan and retire Twenty Three Million Four Hundred Eighty Seven Thousand Nine Hundred Two (23,487,902) shares of common stock into the authorized but unissued treasury of the corporation leaving Steve Conboy with 0% interest in the company. For further details see note 14.

(7) On May 31, 2013, The Company (“ECOB”) entered into a Debt Assumption and Equity Cancellation Agreement (the “Agreement”) with Redwood Management, LLC (“Redwood”) and Manhattan Resources, Ltd (“MRL”) the terms of this agreement called for the retirement of 40,500,000 shares on behalf of MRL. For further details see note 14.

All ownership is beneficial and of record except as specifically indicated otherwise. Beneficial owners listed above have sole voting and investment power with respect to the shares shown unless otherwise indicated.

Equity Compensation Plan Information

The Eco Building Products, Inc. 2012 Employee and Consultant Stock Plan was adopted by majority vote of the Board of Directors on June 14, 2012. The plan authorizes 10, 000,000 shares to be issued under the plan. As of June 30, 2012 a total of 7,000,000 shares remain available for issuance under the plan.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

In December 2010, SLM Holding PTE, Ltd. (“SLM”), a wholly owned subsidiary of Manhattan Resources Limited (“MRL”) and related party, purchased the New Notes and the Placement Agent notes held by a 3rd party from a prior financing. On January 12, 2011, SLM agreed to terminate 27,037,500 Series A through G warrants and conversion features related to these acquired notes for nominal consideration of $10. The conversion features formerly comprised all rights granted to the note holders to convert debt to 4,012,500 shares of the Company's common stock. The payment terms of note were modified requiring that the balance of the note to be paid down to $1.0 million in February 2011 with the remainder of the note incurring monthly interest at 8% per annum with the principal balance due when an intended $5.0 million credit facility is authorized. As indicated above the balance due the related party at June 30, 2011 including accrued interest was $1,029,111. The balance due plus accrued interest was fully paid on July 26, 2011 through proceeds received from the credit facility.

At June 30, 2011, the Company had a note payable due to its Chief Executive Officer who is also a Director and significant shareholder with a balance of $174,217, including accrued interest. This note is due on demand and accrues interest at 9% per annum. Any unpaid principal after the date that demand is made accrues interest at 18% per annum. A total of $20,029 of interest was accrued on this note during the year ended June 30, 2011 and was charged to operations. During the year, borrowings on this note totaled $814,638 and principal repayments totaled $640,401.

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 bear no interest and are due on demand. During the year June 30, 2011, the Company received advances totaling $171,500 from this officer and has repaid $108,337 during the same period.

As of June 30, 2011, a total of $363,500 (or approximately 77%) of the Company’s Property and Equipment had been purchased from two related entities that are controlled by the Company’s President, who is also a majority shareholder. The Property and Equipment, which was purchased in fiscal 2010, was recorded based on the carryover basis which also represented the purchase price.

During the years ended June 30, 2011 and 2010, the Company made inventory purchases totaling $7,478 and $400,886, respectively, from companies controlled by the Company’s President. The 2010 inventory purchases were recorded based on the carryover basis which also represented the purchase price.

During the year ended June 30, 2011, the Company recorded revenues of $38,527 through sales of their lumber products to an entity owned by the Company’s Chief Executive Officer. The Company maintains that the sales were at current pricing. As of June 30, 2011, $6,421 is due from this entity.

In January 2010, the Company entered into a lease of a manufacturing facility in Colton, California for nine months. These facilities were previously leased and utilized by a company controlled by the Company’s President and majority shareholder.

On February 14, 2011, the Company also 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 facility (the “Loan Facility”) in advances of $500,000, each, from time to time. On July 26, 2011, the Company drew down $3.0 million on the Loan Facility. In consideration of the Loan Facility, the Company issued MRL a 5-year warrant to subscribe for 50,000,000 common shares at an exercise price of $0.10 per share (the “Warrant”). The warrants were valued at $12,170,000 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 142.69%, and a trading price of the underlying shares of $0.26.

On July 26, 2011, principal balance and accrued interest of the debt outstanding to MRL as of June 30, 2011 of $1,029,111 was fully paid using the funds received from a $3.0 million draw down on the Loan Facility.

For the period from July 1, 2011 through July 27, 2011, the Company received loan advances from its President totaling $166,000. During the same period, the Company repaid him a total of $448,476 of which $1,615 was allocated to interest.

Director Independence

Our Common Stock trades on the OTC Bulletin Board. As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent. We are not currently subject to corporate governance standards defining the independence of our directors, and we have chosen to define an “independent” director in accordance with the NASDAQ Global Market’s requirements for independent directors. We do not list the “independent” director definition we use on our Internet website.

Currently, Mr. Conboy serves as the sole member of our Board of Directors, and he is the only member of management who also serves on the Board of Directors. Under the NASDAQ rules, we have determined that Mr. Conboy currently does not qualify as an independent director.

Our Board of Directors will review at least annually the independence of each director. During these reviews, our Board of Directors will consider transactions and relationships between each director (and his or her immediate family and affiliates) and us and our management to determine whether any such transactions or relationships are inconsistent with a determination that the director was independent. The Board of Directors will conduct its annual review of director independence and to determine if any transactions or relationships exist that would disqualify any of the individuals who then served as a director under the rules of the NASDAQ Stock Market, or require disclosure under SEC rules.

Principal Accountant Fees and Services

(1)	Audit Fees

The aggregate fees billed for each of the last two fiscal years for professional services rendered by dbbmckennon, the former principal accountant, for the audit of the registrant's annual financial statements and review of financial statements included in the registrant's Form 10-K and 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ending June 30, 2011 were: $36,000.

The aggregate fees billed for each of the last two fiscal years for professional services rendered by Sam Kan & Co. the principal accountant, for the audit of the registrant's annual financial statements and review of financial statements included in the registrant's Form 10-K and 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ending June 30, 2012 were: $40,000.

The aggregate fees billed for each of the last two fiscal years for professional services rendered by Cordovano and Honeck LLP, the formal principal accountant, for the audit of the registrant's annual financial statements and review of financial statements included in the registrant's Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ending June 30, 2011 was: $42,973 and June 30, 2010 was: $13,643.

The aggregate fees billed for each of the last three quarters for professional services rendered by ProAccurate Tax Consulting Group, the formal principal accountant, for the audit of the registrant's annual financial statements and review of financial statements included in the registrant's Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ending June 30, 2012 was: $40,000.

(2)	Audit-Related Fees

No aggregate fees were billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the registrant's financial statements and are not reported under item (1) for the fiscal years ending June 30, 2012 and 2011.

(3)

Tax Fees

No aggregate fees were billed for professional services rendered by the principal accountants for tax compliance, tax advice, and tax planning for the fiscal years ending June 30, 2012 and 2011.

(4)	All Other Fees

No aggregate fees were billed for professional services provided by the principal accountants, other than the services reported in items (1) through (3) for the fiscal years ending June 30, 2012 and 2011.

(5)	Audit Committee

The registrant's Audit Committee, or officers performing such functions of the Audit Committee, have approved the principal accountant's performance of services for the audit of the registrant's annual financial statements and review of financial statements included in the registrant's Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ending June 30, 2012. Audit-related fees, tax fees, and all other fees, if any, were approved by the Audit Committee or officers performing such functions of the Audit Committee.

(6)	Work Performance by others

The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was zero percent.

Exhibits, Financial Statement Schedules

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
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.
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, 2011 filed 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..

Eco Building Products, Inc. includes herewith the following exhibits:

31.1	Certification of Principal Executive Officer and Principal Financial Officer (Rule 13a-14(a)/15(d)-14(a))

32.1	Certification of Principal Executive Officer and Principal Financial Officer (18 U.S.C. 1350)

Table of Contents

SIGNATURES

In accordance with Section 13 or 15(d) 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.
	Registrant


Date: June 13, 2013	By:	/s/ Steve Conboy
		Steve Conboy, President
		Principal Executive Officer & Principal Financial Officer

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

Date: June 13, 2013	By:	/s/ Steve Conboy
		Steve Conboy, President and Director
		Principal Executive Officer & Principal Financial Officer

CONSOLIDATED STATEMENTS OF OPERATIONS (Restated for June 30, 2012) (USD $)

12 Months Ended

Jun. 30, 2012

Jun. 30, 2011

REVENUE

Product sale, net

$ 3,723,374

$ 1,338,962

TOTAL REVENUE

3,723,374

1,338,962

COST OF SALES

4,104,860

1,588,430

GROSS LOSS

(381,486)

(249,468)

OPERATING EXPENSES

Research and development

221,187

113,733

Marketing

119,724

212,608

Goodwill/Donation

51,777

Compensation and related expenses

4,471,865

1,189,775

Professional fees

2,105,651

863,390

Consulting

202,017

356,034

Other general and administrative expenses

1,388,864

668,420

Total operating expenses

9,208,860

3,757,545

LOSS FROM OPERATIONS

(9,590,346)

(4,007,013)

OTHER INCOME (EXPENSE)

Interest income

333

Interest expense

(1,181,282)

(1,990,230)

Gain (loss) on settlement of debt

310,900

Other (Expense)

(3,500)

Other Income

21,247

Loss on modification of debt

(420,002)

(421,600)

Change in fair value of derivative liability

121,590

Total other income (expense)

(1,583,537)

(1,979,007)

LOSS BEFORE PROVISION FOR INCOME TAXES

(11,173,883)

(5,986,020)

NET LOSS

$ (11,173,883)

$ (5,986,020)

NET LOSS PER COMMON SHARE - BASIC

$ (0.06)

$ (0.05)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

188,505,763

118,896,970

4. Prepaid Loan Fees

12 Months Ended

Jun. 30, 2012

Notes

4. Prepaid Loan Fees

4. Prepaid Loan Fees

In May 2010, the Company issued additional common shares to the placement agent and other parties valued at $36,000 in connection with the above financing.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (PERIOD OF JULY 1, 2010 TO JUNE 30, 2012) (Restated for June 30, 2012) (USD $)

Total

Common Stock

Additional Paid-in Capital

Common Stock Receivable

Accumulated Deficit

Totals

BALANCE, Value at Jun. 30, 2010

$ 75,594

$ 3,368,972

$ (20,000)

$ (4,280,147)

$ (855,581)

BALANCE, Shares at Jun. 30, 2010

75,594,333

Issuance of common stock for cash, Value

81,000

4,919,000

5,000,000

Issuance of common stock for cash, Shares

81,000,000

Issuance of common stock for settlement of debt, Value

18,682

771,036

789,718

Issuance of common stock for settlement of debt, Shares

18,681,661

Issuance of common stock for professional services, Value

2,510

236,551

239,061

Issuance of common stock for professional services, Shares

2,510,106

Issuance of common stocks for consulting services, Value

500

34,500

35,000

Issuance of common stocks for consulting services, Shares

500,000

Stock based compensation from option grants

14,190

Compensation recognized on warrant grant

14,925

Repricing of warrant grant

140,981

Reclassification of derivative liability

1,534,627

Discount amortization on related party convertible debt

(392,647)

Cancelation of subscription receivable

(20,000)

20,000

Compensation recognized on options grant

(14,190)

Net loss

(5,986,020)

BALANCE, Value at Jun. 30, 2011

178,286

10,622,135

(10,266,167)

534,254

BALANCE, Shares at Jun. 30, 2011

178,286,100

Issuance of common stock for cash, Value

16,500

1,015,500

1,032,000

Issuance of common stock for cash, Shares

16,500,000

Issuance of common stock for settlement of debt, Value

6,880

723,717

730,597

Issuance of common stock for settlement of debt, Shares

6,879,172

Issuance of common stock for legal services, Value

14,496

1,458,513

1,473,009

Issuance of common stock for legal services, Shares

14,496,397

Issuance of warrants for prepaid loan fee

3,025,148

Issuance of common stock for officers' compensation, Value

13,700

945,300

959,000

Issuance of common stock for officers' compensation, Shares

13,700,000

Issurance of common stock for employees, Value

3,200

220,800

224,000

Issurance of common stock for employees, Shares

3,200,000

Issuance of common stock for consultants, Value

7,200

496,800

504,000

Issuance of common stock for consultants, Shares

7,200,000

Compensation recognized on options grant

(56,700)

56,700

Net loss

(11,173,883)

BALANCE, Value at Jun. 30, 2012

$ 240,262

$ 18,564,613

$ (21,440,050)

$ (2,635,175)

BALANCE, Shares at Jun. 30, 2012

240,261,669

2. Summary of Significant Accounting Policies

12 Months Ended

Jun. 30, 2012

Notes

2. Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Consolidation

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.

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

Inventories

Property and Equipment

Long-Lived Assets

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. At June 30, 2012, the Company determined that none of its long-term assets were impaired.

Issuances Involving Non-cash Consideration

Stock-Based Compensation

Loss Per Share

The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, "Earnings per Share." A 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. Potential common shares at June 30, 2011 that have been excluded from the computation of diluted net loss per share included convertible debt of 1,029,111 convertible into 10,501,134 shares of common stock, warrants exercisable into 250,000 shares of common stock and options exercisable into 1,200,000 shares of common stock.

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.

Credit Risk

At times, the Company maintains cash balances at a financial institution in excess of the $250,000 FDIC insurance limit.

Use of Estimates

Convertible Debentures

If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method. If a BCF is convertible into a variable number of shares it is accounted for as a derivative liability.

Derivative Financial Instruments

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

Revenue Recognition and Concentration Risk

The Company had product sales revenue of $463,374, $821,277 and $491,691 to three major customers representing 12%, 22% and 13% of total sales for year ended June 30, 2012, respectively.

The Company had product sales revenue of $415,345, $204,322 and $169,783 to three major customers representing 31%, 15% and 13% of total sales for year ended June 30, 2011, respectively.

Cost of Revenues

Costs of revenues include costs related to revenue recognized; such costs represent materials, labor, depreciation and amortization, equipment rental, supplies, utilities, repair and maintenance.

General and Administrative Expenses

Research and Development Expenses

Deferred revenue

Advertising Cost

Advertising costs are charged to operations when incurred. During in the years ended June 30, 2012 and 2011 the Company incurred $119,724 and $212,608 respectively in advertising and promotion costs.

Shipping and Handling Costs

Income Taxes

The Company accounts for its income taxes under the provisions of ASC Topic 740”Income Taxes”. The method of accounting for income taxes under ASC 740 is an asset and liability method. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities.

Litigation and Settlement Costs

Recent Accounting Pronouncements

Statement of Financial Position - Parenthetical (USD $)

Jun. 30, 2012

Jun. 30, 2011

Statement of Financial Position

Common Stock, Par Value

$ 0.001

Common Stock, Shares Authorized

500,000,000

Common Stock, Shares Issued

240,261,669

178,286,100

Common Stock, Shares Outstanding

240,261,669

178,286,100

CONSOLIDATED STATEMENT OF CASH FLOWS (Restated for June 30, 2012) (USD $)

12 Months Ended

Jun. 30, 2012

Jun. 30, 2011

Cash flows from operating activities

NET LOSS

$ (11,173,883)

$ (5,986,020)

Loss on modification of debt by issuance of common stock

730,596

421,600

(Gain) on settlement of debt

(310,900)

Interest on amortization of debt discount

888,946

Amortization of loan fees

940,662

176,606

Interest on repricing of warrant

140,981

Change in fair value of derivative liability (increase/decrease)

(121,590)

Charge off of trademark costs

4,871

Common stock issuance for services

3,160,010

273,927

Common stock issuance for payment of rent and lease settlement

80,000

Compensation recognized on option grants

56,700

14,190

Depreciation and amortization expense

171,536

76,285

Reserve for obsolesence inventory

674,348

Bad debt expense

18,727

6,305

(Increase) in accounts receivable

(233,462)

(447,430)

(Increase) in customer deposit

20,500

(Increase) decrease in other receivable

1,000

(Increase) decrease in inventory

(54,616)

(862,998)

(Increase) decrease in prepaid expenses & other current assets

71,570

(48,540)

Decrease in deposits

45,155

Increase in accounts payable

(14,292)

160,748

(Increase) in prepaid expenses & other non current assets

(2,758)

Increase in other payable and accrued expenses

975,823

664,790

Increase in accrued interest added to principle

181,217

8,316

Net cash used by operating activities

(4,497,822)

(4,793,258)

Cash flows from investing activities

Purchase of property and equipment

(609,290)

(204,330)

Purchase of software licenses

(25,000)

Purchase of intangible assets

(17,083)

Payments for equipment deposits - related party

188,447

(26,830)

Payment for leasehold improvements

(35,565)

Net cash used by investing activities

(462,926)

(266,725)

Cash flows from financing activities

Proceeds from related party line of credit advances

5,000,000

Proceeds from debt issuance

200,000

Proceeds from issuance of common stocks

1,032,000

5,000,000

Proceeds from related party advances and notes

1,596,118

Repayments of debt issuances

(704,772)

Repayments of related party advances and notes

(1,041,649)

(1,335,239)

(10)

Net cash provided by financing activities

4,990,351

4,756,097

Net change in cash and cash equivalent

29,603

(303,886)

Cash and cash equivalent at the beginning of year

81,648

385,534

Cash and cash equivalent at the end of year

111,251

81,648

Supplemental disclosures of cash flow information:

Cash paid for interest

46,000

745,377

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

7. Letter of Credit

12 Months Ended

Jun. 30, 2012

Notes

7. Letter of Credit

7. Letter of Credit

1. Organization and Basis of Presentation

12 Months Ended

Jun. 30, 2012

Notes

1. Organization and Basis of Presentation

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 of June 30, 2012, the Company owns 100% of E Build, Red Shield and Seattle

Going Concern

9. Derivative and Warrant Liabilities

12 Months Ended

Jun. 30, 2012

Notes

9. Derivative and Warrant Liabilities

9. Derivative and Warrant Liabilities

The derivative liabilities were valued prior to extinguishment based on the following components:

14. Subsequent Events

12 Months Ended

Jun. 30, 2012

Notes

14. Subsequent Events

14. Subsequent Events

On June 13, 2012, Eco was in negotiation with MRL regarding the offer Eco has presented to MRL and MRL can response to the offer on or before September 15, 2012.

The Offer was as follows:

1. MRL surrenders all rights and interests in Eco. This includes all securities.

3. The only obligation that survives the settlement or agreement is the obligation of Eco to pay the sum stated.

2) In consideration of the assignment of the Debt by MRL to Redwood, Redwood agrees to pay MRL an aggregate amount of US$3,300,000 (the “Aggregate Consideration”) as follows:

(i) US$350,000 payable upon execution of the Agreement;

(ii) US$125,000 payable on each of 17 June 2013, 15 July 2013 and 15 August 2013, unless the Authorization Event (as defined in (iii) below) has previously occurred;

Document and Entity Information (USD $)

12 Months Ended

Jun. 30, 2012

Document and Entity Information

Entity Registrant Name

ECO Building Products, Inc.

Document Type

10-K

Document Period End Date

Jun. 30, 2012

Amendment Flag

true

Entity Central Index Key

0001409885

Current Fiscal Year End Date

--06-30

Entity Common Stock, Shares Outstanding

240,261,669

Entity Public Float

$ 3,647,016

Entity Filer Category

Smaller Reporting Company

Entity Current Reporting Status

Yes

Entity Voluntary Filers

Entity Well-known Seasoned Issuer

Document Fiscal Year Focus

2012

Document Fiscal Period Focus

Amendment Description

Amendment #1

Colorado	20-8677788
(State of incorporation)	(IRS Employer Identification #)

	Page
Reports of Independent Registered Public Accounting Firms	18 - 19
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2012 and 2011	20
Consolidated Statements of Operations for the years ended June 30, 2012 and 2011	21
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) through June 30, 2012	22
Consolidated Statements of Cash Flows for the years ended June 30, 2012 and 2011	23 - 25
Notes to Consolidated Financial Statements	26 - 54

ECO BUILDING PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS

	RESTATED
	June 30			June 30
	2012			2011

ASSETS
CURRENT ASSETS
Cash	$	111,251		$	81,648
Accounts receivable, net of allowance for doubtful accounts of $18,727
and $0 at June 30, 2012 and June 30, 2011		666,223			369,840
Inventories		922,646			1,542,378
Prepaid loan facility fee - related party, current portion		1,008,383
Prepaid expenses		7,297			85,967
Deposits		7,100
Other current assets		-
Total current assets		2,722,900			2,079,833

PROPERTY AND EQUIPMENT, net		1,207,035			743,523

OTHER ASSETS
Accounts receivable - long-term portion		-			81,648
Intangible assets		16,325			-
Prepaid loan facility fee - related party		1,078,861			-
Equipment deposits - related party		-			188,447
Total other assets		1,095,186			270,095

TOTAL ASSETS	$	5,025,121		$	3,093,451

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	426,179		$	440,471
Payroll and taxes payable		1,594,848			728,751
Advances from related party		-			63,163
Other payables and accrued expenses		336,287			58,484
Deferred revenue		33,640			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		201,480			174,217
Loans payable - other		44,500			44,500
Total current liabilities		4,309,668			2,559,197

LONG TERM LIABILITIES
Line of credit payable - related party		3,333,333			-
Notes payable, less current maturities		17,295			-
Total long term liabilities		3,350,628			-

TOTAL LIABILITIES		7,660,296			2,559,197

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value, 500,000,000 shares authorized,
240,261,669 shares issued and outstanding at June 30, 2012 and
178,286,100 shares issued and outstanding at June 30, 2011		240,262			178,286
Additional paid-in capital		18,564,613			10,622,135
Accumulated deficit		(21,440,050	)		(10,266,167	)
Total stockholders' equity (deficit)		(2,635,175	)		534,254

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	5,025,121		$	3,093,451

Business	2
Properties	10
Legal Proceedings	10
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Financial Statements	17
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	55
Controls and Procedures	55
Other Information	56
Directors, Executive Officers and Corporate Governance	56
Executive Compensation	58
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60
Principal Accounting Fees and Services	63
Exhibits, Financial Statement Schedules	65
Signatures	66

Fiscal Quarter Ended	High		Low
June 30, 2012	$	0.14	$	0.07
March 31, 2012	$	0.15	$	0.07
December 31, 2011	$	0.19	$	0.11
September 30, 2011	$	0.31	$	0.16
June 30, 2011	$	0.30	$	0.08
March 31, 2011	$	0.10	$	0.06
December 31, 2010	$	0.14	$	0.03
September 30, 2010	$	0.26	$	0.09
June 30, 2010	$	0.40	$	0.23

ECO BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

	RESTATED
	Year ended
	June 30
	2012			2011

REVENUE
Product sale, net	$	3,723,374		$	1,338,962

TOTAL REVENUE		3,723,374			1,338,962

COST OF SALES		4,104,860			1,588,430

GROSS LOSS		(381,486	)		(249,468	)

OPERATING EXPENSES
Research and development		221,187			113,733
Marketing		119,724			212,608
Goodwill/Donation		51,777			-
Compensation and related expenses		4,471,865			1,189,775
Rent - facilities		647,775			353,585
Professional fees		2,105,651			863,390
Consulting		202,017			356,034
Other general and administrative expenses		1,388,864			668,420
Total operating expenses		9,208,860			3,757,545

LOSS FROM OPERATIONS		(9,590,346	)		(4,007,013	)

OTHER INCOME (EXPENSE)
Interest income		-			333
Interest expense		(1,181,282	)		(1,990,230	)
Gain (loss) on settlement of debt		-			310,900
Other (Expense)		(3,500	)		-
Other Income		21,247			-
Loss on modification of debt		(420,002	)		(421,600	)
Change in fair value of derivative liability		-			121,590
Total other income (expense)		(1,583,537	)		(1,979,007	)

LOSS BEFORE PROVISION FOR INCOME TAXES		(11,173,883	)		(5,986,020	)

PROVISION FOR INCOME TAXES		-			-

NET LOSS	$	(11,173,883	)	$	(5,986,020	)

NET LOSS PER COMMON SHARE - BASIC	$	(0.06	)	$	(0.05	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		188,505,763			118,896,970

ECO BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - RESTATED
PERIOD OF JULY 1, 2010 TO JUNE 30, 2012

					Additional			Common
	Common Stock				Paid-in			Stock			Accumulated
	Shares		Amount		Capital			Receivable			Deficit			Totals
BALANCE, July 1, 2010		75,594,333	$	75,594	$	3,368,972			(20,000	)	$	(4,280,147	)	$	(855,581	)
Issuance of common stock for cash		81,000,000		81,000		4,919,000			-			-			5,000,000
Issuance of common stock for settlement of debt		18,681,661		18,682		771,036			-			-			789,718
Issuance of common stock for professional services		2,510,106		2,510		236,551			-			-			239,061
Issuance of common stocks for consulting services		500,000		500		34,500			-			-			35,000
Stock based compensation from option grants		-		-		14,190			-			-			14,190
Compensation recognized on warrant grant		-		-		14,925			-			-			14,925
Repricing of warrant grant		-		-		140,981			-			-			140,981
Reclassification of derivative liability		-		-		1,534,627			-			-			1,534,627
Discount amortization on related party convertible debt		-		-		(392,647	)		-			-			(392,647	)
Cancelation of subscription receivable		-		-		(20,000	)		20,000			-			-
Net loss		-		-		-			-			(5,986,020	)		(5,986,020	)
BALANCE, June 30, 2011		178,286,100		178,286		10,622,135			-			(10,266,167	)		534,254

Issuance of common stock for cash		16,500,000		16,500		1,015,500			-			-			1,032,000
Issuance of common stock for settlement of debt		6,879,172		6,880		723,717			-			-			730,597
Issuance of common stock for legal services		14,496,397		14,496		1,458,513			-			-			1,473,009
Issuance of warrants for prepaid loan fee		-		-		3,025,148			-			-			3,025,148
Issuance of common stock for officers		13,700,000		13,700		945,300			-			-			959,000
Issurance of common stock for employees		3,200,000		3,200		220,800			-			-			224,000
Issurance of common stock for consultants		7,200,000		7,200		496,800			-			-			504,000
Compensation recognized on options grant		-		-		56,700			-			-			56,700
Net loss		-		-		-			-			(11,173,883	)		(11,173,883	)
BALANCE, June 30, 2012		240,261,669	$	240,262	$	18,564,613		$	-		$	(21,440,050	)	$	(2,635,175	)

ECO BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS

	RESTATED
	Year Ended June 30,
	2012			2011

Cash flows from operating activities
Net loss	$	(11,173,883	)	$	(5,986,020	)
Adjustments to reconcile net loss to net cash used by operating activities:
Loss on modification of debt by issuance of common stock		730,596			421,600
(Gain) on settlement of debt		-			(310,900	)
Interest on amortization of debt discount		-			888,946
Amortization of loan fees		940,662			176,606
Interest on repricing of warrant		-			140,981
Change in fair value of derivative liability		-			(121,590	)
Charge off of trademark costs		-			4,871
Common stock issuance for services		3,160,010			273,927
Common stock issuance for payment of rent and lease settlement		-			80,000
Compensation recognized on option grants		56,700			14,190
Depreciation and amortization expense		171,536			76,285
Reserve for obsolesence inventory		674,348			-
Bad debt expense		18,727			6,305
Changes in operating assets and liabilities:
(Increase) in accounts receivable		(233,462	)		(447,430	)
(Increase) in customer deposit		-			20,500
(Increase) decrease in other receivable		-			1,000
(Increase) decrease in inventory		(54,616	)		(862,998	)
(Increase) decrease in prepaid expenses & other current assets		71,570			(48,540	)
Decrease in deposits		-			45,155
Increase in accounts payable		(14,292	)		160,748
(Increase) in prepaid expenses & other non current assets		(2,758	)		-
Increase in other payable and accrued expenses		975,823			664,790
Increase in accrued interest added to principle		181,217			8,316
Net cash used by operating activities		(4,497,822	)		(4,793,258	)

Cash flows from investing activities
Purchase of property and equipment		(609,290	)		(204,330	)
Purchase of software licenses		(25,000	)		-
Purchase of intangible assets		(17,083	)		-
Payments for equipment deposits - related party		188,447			(26,830	)
Payment for leasehold improvements		-			(35,565	)
Net cash used by investing activities		(462,926	)		(266,725	)

Cash flows from financing activities
Proceeds from related party line of credit advances		5,000,000			-
Proceeds from debt issuance		-			200,000
Proceeds from issuance of common stocks		1,032,000			5,000,000
Proceeds from related party advances and notes		-			1,596,118
Repayments of debt issuances		-			(704,772	)
Repayments of related party advances and notes		(1,041,649	)		(1,335,239	)
Payment to related party for cancellation of warrant		-			(10	)
Net cash provided by financing activities		4,990,351			4,756,097

Net change in cash and cash equivalent		29,603			(303,886	)

Cash and cash equivalent at the beginning of year		81,648			385,534

Cash and cash equivalent at the end of year	$	111,251		$	81,648

Supplemental disclosures of cash flow information:
Cash paid for interest	$	46,000		$	745,377
Cash paid for taxes	$	-		$	-

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		$	-