UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________
to ______________
Commission file number: 000-53875
Eco Building Products, Inc.
( Exact name of registrant as specified
in its charter )
Colorado |
|
20-8677788 |
(State or other jurisdiction of
incorporation or
organization) |
|
(I.R.S. Employer
Identification No.) |
909 West Vista Way
Vista, CA |
|
92083 |
(Address of principal
executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (760) 732-5826 |
Securities registered under Section 12(b) of the Act: |
|
|
Title of each class: |
Name of each exchange on which registered: |
None |
None. |
|
Securities registered under Section 12(g) of the Act: |
(Title of class)
Common Stock, par value $0.001 per share |
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes ¨
No x
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x
No ¨
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer. ¨ |
Accelerated filer. ¨ |
Non-accelerated
filer. ¨
(Do not check if a smaller reporting company) |
Smaller reporting company. x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨
No x
State the aggregate market value of the
voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last
sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter, December 31, 2014: $962,678
Number of the issuer’s common stock
outstanding as of November 6, 2015: 2,077,190,961
Documents incorporated by reference: None.
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report on Form 10-K (this “Report”)
contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking
statements may include words such as “anticipate,” “believe,” “estimate,” “intend,”
“could,” “should,” “would,” “may,” “seek,” “plan,” “might,”
“will,” “expect,” “predict,” “project,” “forecast,” “potential,”
“continue” negatives thereof or similar expressions. These forward-looking statements are found at various places throughout
this Report and include information concerning possible or assumed future results of our operations; business strategies; future
cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash
needs, business plans and future financial results, and any other statements that are not historical facts.
From time to time, forward-looking statements
also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in our presentations, on our website
and in other materials released to the public. Any or all of the forward-looking statements included in this Report
and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and
are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause
actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these
risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to
a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning
other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we
undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events,
a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
PART I
Our Company
Eco Building Products, Inc. (the “Company”)
was incorporated in the state of Colorado under the name N8 Concepts, Inc. on March 27, 2007. As detailed herein, for
the fiscal year ended June 30, 2014 and June 30, 2015, the Company experienced revenues of $1,188,005 and $2,090,084.
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 continued to be reported as if it had actually been the acquirer.
ECOBLU was organized May 20, 2009 in Nevada
as a wholesale distributor and manufacturer of proprietary wood products coated with an eco-friendly chemistry 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.
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 coating process to support sales and distribution. As of June 30, 2015,
the wholly owned subsidiary has had little operating activity and we do not expect this subsidiary to begin operations in the near
future.
On May 31, 2011, the Company formed E
Build & Truss, Inc. (“E Build”) in the State of California. E Build was formed for the purpose of operating the
Company’s framing labor and truss manufacturing activities. This wholly-owned subsidiary commenced operations during the
three months ended December 31, 2011. The assets of this Company were sold in May 2015 pursuant to a Limited Assets Purchase Agreement
with Stone Truss, LLC, a California corporation, dated April 15, 2015. Pursuant to the terms of the Limited Assets Purchase Agreement,
the Company agreed to sell certain assets owned by E Build consisting of all floor and rood truss equipment, hand and power tools,
5 delivery trailers, existing lumber inventory, truss plate inventory, office equipment, 2 computers, software, 3 printers, 3
file cabinets, plan table and a plan storage bin, for total consideration of $100,000. As satisfaction of the $100,000 payment,
the Buyer agreed to pay past due lease payments totaling $32,633.94 plus attorney’s fees of $1,500 and the Buyer would then
thereafter takeover and make all future lease payments to the landlord. The remaining balance of the $100,000 sales price was
to be paid by the Buyer in monthly payments of $2,500 commencing on the 13th month following the execution date of
the agreement. As of the most recent practicable date, the Buyer has not made any payments on this agreement but has paid approximately
$41,000 of ECOB accounts payable and has accrued salary of $71,847 and is trying to set-off the amounts owed with the accrued
salary. But, as a result of the sale of the assets in May 2015, the operations of E Build have ceased.
In December 2011, the Company formed Seattle
Coffee Exchange (“Seattle”) in the State of California. Seattle is a coffee shop which is located on the
1st floor of the Company’s corporate headquarters in Vista, CA. This wholly-owned subsidiary has not commenced
its operations as of June 30, 2015, and the Company has no intention of operating Seattle Coffee Exchange.
As of June 30, 2015, the Company owns 100%
of Red Shield Lumber and Seattle Coffee Exchange.
Going Concern –
The Company's financial statements are
prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States
of America and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of
liabilities in the normal course of business. To date, the Company has generated minimal operating revenues, losses from operations,
significant cash used in operating activities, and is dependent upon its ability to obtain future financing.
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 operational expenses of approximately
two hundred and fifty thousand dollars a month is required to continue to operate. This is achieved either through profit from
sales or by management seeking additional financing through the sale of its common stock, and/or through private placements. The
minimum operational expenses 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 that we will raise sufficient funds to continue operating.
The Company continues to try to trim overhead expenses at the same time increasing sales to meet revenue goals. 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.
If current and projected revenue growth
does not meet Management estimates, the Management may continue to choose to raise additional capital through debt and/or equity
transactions, reduce certain overhead costs through the deferral of salaries and other means, and settle liabilities through negotiation.
Currently, the Company does not have any commitments or assurances for additional capital, nor can the Company provide assurance
that such financing will be available to it on favorable terms, or at all. If, after utilizing the existing sources of capital
available to the Company, further capital needs are identified and the Company is not successful in obtaining the financing, it
may be forced to curtail its existing or planned future operations. The Company has already taken steps to reduce expenses. Additionally,
the Company has recently changed the product offering to better align with our product certifications and the intended use. This
has resulted in three products now marketed as “Sill Plate” to meet the accolades of our ESR-3255, “Advanced
Framing Lumber” includes the attributes of Sill Plate with the addition of our Fire Inhibitor. This product is meant for
the full framing package of a wood framed building and is sold as a value added protection. Our third product is offered as “Fire
Treatment or FT” includes all of the prior two accolades and is the original formulation meant to address code required fire
ratings. This change has afforded the company the ability to address each segment of the market increasing sales opportunities
and allowing the Company to make a consistent margin on every sale. Orders continue to increase as demand and market acceptance
for Eco Red Shield increases. Nevertheless the Company continues to experience cash flow difficulties and there is no assurance
of when it may be profitable.
Business
Products
Eco Building Products, Inc., or "ECOB",
has developed a line of eco-friendly protective wood coatings, Eco Red ShieldTM and Eco Clear ShieldTM, that
extend the lifecycle of framing lumber and other wood products used in the construction of single-family homes and multi-story
buildings. The Company has expanded its’ product offering to include Eco Fire BreakTM, Eco Disaster BreakTM,
Eco Armor PaintTM, Eco D-FenceTM, Eco Disaster CleanerTM, Eco Flood CaulkTM, Eco TrimTM,
and Eco Christmas Tree ProtectionTM.
Eco Building Products wood coatings are
topically applied to a wide range of lumber products providing protection from mold, mildew, fungus, decay, wood rot, wood ingesting
insects, including Formosan termites. Eco Red Shield™ also serves as a fire inhibitor; significantly increasing treated lumber’s
resistance to fire, by way of decreasing the smoke (fire gases) index, slowing ignition time and flame spread.
The ECOB system of coatings is eco-friendly
and remains chemically stable over time. The coatings emit virtually zero volatile organic compounds (VOCs), do not leech heavy
metals or toxins into groundwater, and do not allow for the growth and propagation of various molds on the cured film surface,
that have the potential to contaminate occupant indoor air quality. More importantly, ECOB coatings prevent the degradation of
structural lumber that potentially requires existing homes to be periodically renovated resultant of rot and/or insect damage,
thereby indirectly preserving our forests.
In 2015, the Company changed its business
model to focus on coating services only and chemical sales. The Company no longer purchases lumber for coating and resells the
treated lumber. Customers have their lumber shipped to one of three facilities: (i) Fair Lawn, New Jersey, (ii) Tacoma, Washington;
or (iii) Augusta, Georgia. These sites were selected for geographical efficiency, reducing shipping costs as well as, the types
of lumber used in different areas of the country.
Eco Red Shield™
Our proprietary eco-friendly formula controls
moisture and protects lumber from mold, mildew, fungus, decay, rot, termites (and other wood boring insects including Formosan
termites), while simultaneously serving as a fire inhibitor.
Eco Clear Shield™
Our proprietary eco-friendly formula was
designed specifically for staining - it controls moisture and protects lumber from mold, mildew, fungus, decay, rot, termites while
simultaneously serving as a fire inhibitor. (fire protection optional)
Eco D-FenceTM
Eco D-Fence represents your first line
of defense against nature's fury. This fire resistant fencing is constructed with a special blend of eco-friendly lumber protection,
capable of standing up to the threat of wildfire, and other nuances commonly encountered by your fence and mine. Say goodbye to
rotten posts, termite eaten structural members and rickety old fencing. Eco D-Fence offers protection against fire, mold, termite
and wood-rot decay; with the addition of moisture and UV protection.
Eco Disaster BreakTM
Eco Disaster Break™ (EDB) is a Class
A Fire Rated, UV Resistant, high performance, non-toxic, acrylic coating that forms a waterproof and seamless monolithic membrane.
When applied to Eco Red Shield™ protected wood surfaces, EDB™ forms the most advanced defensive construction assembly
available against water penetration, fire ignition, mold, rot and termites.
Eco Armor Defensive PaintTM
Eco Armor Defensive Paint is the result
of collaboration between Eco and the largest paint recycler in California. This joint effort now comes to market with a defensive
paint product that has been uniquely blended, further enhancing Eco’s existing family of defensive products. Eco Armor complements
existing lumber protection by adding valuable UV and moisture protection. The added protection safeguards original American traditions
– using one of our greatest commodities, lumber - already in existence on exterior lumber architectural details, while providing
additional protection from termites, rot and fire.
Markets
The Company views the overall market opportunity
in two large sectors: 1) The overall softwood lumber market for which heretofore there has been no cost effective protection chemistry
or technology and 2) the traditional preservation market. We believe Eco Building Products is uniquely positioned to penetrate
both.
Eco Building Products chemistry can be
applied to any wood substrate where the end-user desires protection against the risks associated with mold, wood rot, termites
and fire and hence the market opportunity is extremely large. RISI (Resource Information Systems, Inc.) estimates the North American
domestic consumption of softwood lumber in 2015 to be 54.1 billion board feet.
The Company recognizes the magnitude of
the overall opportunity but has recently narrowed its focus during this critical period to wood frame construction used in new
single and multi-family residential; light commercial and light industrial construction as well as renovation through multiple
channels including wholesale distribution, pro-lumber dealers, large lumber traders and home centers. The Company will not, however,
sell builders and contractors on a direct basis.
Eco Red Shield™ can be factory applied
to all wood substrates for the entire super-structure prior to construction, preserving the wood’s structural integrity,
while only adding an estimated 10% to 30% to the cost of building materials.
The Company understands that the traditional
wood preservation and or treating industry currently comprise approximately six to eight percent of the overall lumber industry.
Traditional wood preservation is performed in a cylinder under pressure or vacuum process. Its limited market penetration is due
in large part to the cost of this process and that it fundamentally degrades the strength of wood fiber while potentially employing
hazardous chemicals. Eco Red Shield is topically applied, employs no heavy metals, 2B carcinogens, heavy aldehydes or solvents
and does not degrade the strength of wood fiber.
The Company has benefited from various
code approvals allowing Eco Red Shield to compete with the current wood preservation market and has invested a significant resources
aimed at continually improving the Eco Red Shield product line with R&D and technical market acceptance. Through the use of
independent wood scientists employed by the company, we have successfully lobbied with the International Code Commission (ICC)
to create an acceptance criteria (AC) defining a market space in the building codes for a topical borate treatment for wood members.
On June 20, 2011 the ICC adopted, by unanimous vote, a new Acceptance Criteria for Liquid Borate Fungal Decay and Termite-resistant
Treatment Applied to Wood Members, AC433-0611-R1. This acceptance criteria was subsequently updated in June of 2012 to include
structural wood fiber testing and was adopted into the 2012 Uniform Building Code (UBC). Eco Red Shield successfully achieved
building code acceptance as deemed by the International Code Commission (ICC-ES) meeting the requirements as set forth by AC433,
resulting in the issuance of an Engineering Services Report ESR-3255 on July 2nd, 2012. The evaluation report (ESR-3255)
from ICC Evaluation Service (ICC-ES), provided evidence that Eco Red Shield protection against Wood Ingesting Organisms including
Formosan Termites and Wood-Rot Decay now meets building code requirements. Additionally, the product provides value added protection
from Mold and Fire Inhibition. Building officials, architects, contractors, specifiers, designers and others utilize ICC-ES Evaluation
Reports to provide a basis for using or approving Eco Red Shield coated lumber products in construction projects under the “AC433”
Acceptance Criteria. The creation of a building code (AC433) and the subsequent ESR-3255, addresses a key element (Termite Protection
– Wood Rot/Decay) in the wood protection offered by Eco Building products and has started to open up significant market opportunities.
Eco Red Shield coated lumber products now
meet industry standard Use Categories UC1, UC2 and UC3a as defined by the AWPA guidelines for usage of treated lumber. These use
categories define the product use for above ground, (anchored to concrete not exposed to constant wetting) which is the most common
use for sill plates and exterior decking. Approximately 65% of the treated wood components sold annually fall into the UC1, UC2
and UC3a & b use categories opening up significant opportunities for Eco Red Shield products as a direct substitute or competitive
product. Having achieved an ESR designation as defined by the ICC-ES process allows for product recognition by every building
official across the United States as well as over 220 countries worldwide. (Source: www.iccsafe.org)
On September 4, 2012 the Company successfully
achieved QAI Laboratories (QAI) listing B1053-1, providing evidence that Eco Red Shield’s fire protection qualities now meet
building code requirements for Class “A”, structural rated, flammability performance on Douglas Fir solid sawn lumber,
making Eco Red Shield protected lumber equivalent to the traditionally accepted fire retardant treated wood (FRTW) for interior
use.
Achieving the QAI listing for flame spread
properties makes Eco Red Shield protection the first topical wood treatment of its kind for interior Class “A” flammability.
Additionally providing protection against Wood Ingesting Organisms including Formosan Termites and Wood-Rot Decay to meet building
code requirements. Building officials, architects, contractors, specifiers, designers and others utilize QAI listings and product
labeling to provide a basis for using or approving Eco Red Shield coated lumber products in construction projects under the International
Building Code. The Company will continue to qualify other species and panel products for similar ratings. The Company has also
submitted for and received acceptance for Eco Red Shield approval in Hawaii and the City of Los Angeles to achieve the issuance
of an LA Research Report.
In 2013, the Company engaged with QAI Laboratories,
a similar consumer rating and product monitoring agency as Underwriters Laboratories (UL), to certify the coating process and provide
a listing for the fire efficacy of Eco Red Shield treated lumber products. The Company has further engaged QAI Laboratories
as the third party factory Quality Control auditing company, providing audit services and third party inspections to all ESR listed
facilities, and facilities producing Eco Red Shield for the purposes of satisfying FRTW lumber per ASTM E84 requirements. Eco
Red Shield is now successfully qualified to produce code approved lumber products in five locations across the country. Having
the ability to stamp/label the lumber with the equivalence to traditional pressure treated lumber presents enormous opportunities
in the supply chain, and not limited to, Big Box Retailers, national homebuilding supply companies, wholesalers and manufacturers.
Patents: The Company previously
had a patent pending filing in the USA and Canada. Our patent pending Pub file no in USA: 2012/0121809 A1 in Canada our application
no: 2,757,126 – The title of our patent pending is as follows: FORMULATION AND PROCESS FOR TREATING WOOD SUBSTRATES. The
Company received examiner comments but the patent application was abandoned due to our failure to respond. Although, we have not
revived the patent as of today, we are working with a patent attorney to file a petition to revive. We do not, however, know when
that petition will be filed.
Trademarks: The Company has filed
for trademark protection on various service marks in several categories to include the “Eco” logo, “Eco Red Shield”
name, “FRC Technology” - Fire Retardant Coatings and “Wood Surface Film” technology.
Licensing: The Company had a licensing
agreement with Newstar Chemical for the rights to use AF21 fire inhibitor on all wood substrates worldwide as updated and amended
during this reporting period. This contract is filed in our Quarterly Report on Form 10Q from the period ended December 31, 2010.
Newstar had notified us that they wished to terminate this arrangement. Subsequent to the termination, we have agreed with Newstar
for them to continue providing us with the chemical rights and are working with Newstar for the supply of the chemical.
Affiliates Relationships: We have
four affiliates that are approved to produce our Eco Red Shield product in various locations around the USA. We have formal written
agreements with two of these affiliates while the other two affiliates purchase chemical concentrates and adhere to our quality
control program. Revenues that are generated from our affiliates are booked as chemical sales. The Company has also developed an
affiliate coating program that allows lumber companies to coat commodity lumber at their facilities.
Competitive Advantages
Management believes it is positioned to
penetrate both the unprotected, overall softwood lumber market as well as the incumbent preservation market.
There is a growing awareness and latent
demand that stems from the importance of indoor air quality (IAQ); the structural risks associated with wood decay from
termites and rot and the heightened risks from fire with modern construction materials and techniques.
| · | Red Shield is the only application that is proven to protect across all four risk dimensions of
mold, rot, insects and fire. |
| · | Eco's proprietary, patent pending process results in NO strength degradation, allowing the entire
wood structure to be protected which is something no competitor has been able to duplicate to date. |
| · | Eco’s chemistry is the ONLY application with virtually no VOC leaching, no metals or copper
sulfates. It carries a Level 1 health rating from the NFPA and Eco coated lumber emits less formaldehyde than raw lumber
earning it the coveted GREENGUARD Gold certification. |
Competition
We believe that our coatings and coated
wood products are positioned to capture significant market share of the current non-treated wood market. The treated wood market
is a mature market with large established biocide and chemical manufacturers, some with functionally equivalent technologies and
fierce competition. However, we appear to have a unique product with a combination mold, rot, decay, termite and fire inhibitor
coating that meets HUD standards for above ground structural and sheathing wood components.
It is likely that competitors will field
their own offerings, and a few already exist in partial or equivalent form, such as FrameGuard and Wolman® AG wood treatment
offered by Arch/Lonza Chemical, TRUE-CORE® offered by Kop-Coat and Nature Wood offered by Osmose, Inc. These products and more
are continuing to show up in the market resultant of the many years ECOB has spent identifying the need for topical coatings. To
date none of these topical coatings have the full suite of protection offered by Eco Red Shield. These chemical companies sell
to independent wood treaters and lumberyards. The unique position of ECOB is to provide protection to the wood framing components
that never before employed any such protection. Being able to offer the treatment at a reasonable cost value proposition will be
an ECOB competitive advantage. ECOB’s vision is providing protection to the majority of wood framed structures that nobody,
up until now, has paid attention to.
The Fire Pressure Treating Industry is
dominated by three incumbent players – Koppers, Inc., Hoover Treated Wood Products, Inc. and Arch Chemicals, Inc. It is likely
that competitors will field their own offerings, and a few already exist in partial or equivalent form, such as FrameGuard offered
by Arch/Lonza Chemical and Nature Wood offered by Osmose, Inc.
Employees
As of June 30, 2015, we had nine full time
employees consisting of Mr. Tom Comery, our Chief Executive Officer, Mr. Mark Vuozzo, our Chief Technical Officer, a VP of
National Accounts, a Controller, Production Coordinator as well as various production staff.
After our fiscal year end of June 30, 2015,
we hired a part-time Chief Financial Officer, Mr. Randall Smith who devotes approximately 20 hours per week to our business.
We expect to continue to use contract labor, management consultants,
attorneys, accountants, engineers, and other professionals as necessary to support our management and administrative requirements. The
need for employees and their availability will be addressed on a continuing basis.
Governmental Regulation
The use of assets and/or conduct of business
that we are pursuing will be subject to environmental, public health and safety, land use, trade, EPA and other governmental regulations,
as well as state and/or local taxation. The coating product offered by the Company, Eco Red Shield, falls into the “Treated
Article Exemption 40 CFR 152.25(a) as stated by the EPA. The company has taken all necessary steps including legal review of all
claims made to assure strict compliance for product claims meeting the treated article exemption. Furthermore, compliance with
product labeling of all constituents employed in the manufacturing have been reviewed by third party consultants to insure proper
use as specified by product manufacturers. These consultants ensure that product labeling is in strict compliance with local, state
and federal regulations as represented in the original manufacturer - or supplier-published materials. In acquiring and/or developing
businesses in the wood treatment industry, management will endeavor to ascertain, to the extent possible due to its current limited
resources, the effects of such government regulation on our prospective business. In certain circumstances, however, such as the
acquisition of an interest in a new or start-up business activity, it may not be possible to predict with any degree of accuracy
the impact of all potential government regulation. Additionally, ECOB complies with Rules and Regulations of the Securities and
Exchange Commission.
This information is not required for smaller
reporting companies.
| Item 1B. | Unresolved Staff Comments |
None.
We maintain our official US address of
record at 909 West Vista Way, Vista, CA 92083. We do not own any properties and at this time have no agreements to acquire any
properties.
Corporate Headquarters
In June 2009,
the Company entered into an agreement to lease warehouse and office facilities at our Vista, CA location. The term of the lease
was for three years and was subsequently extended for an additional five year term. Facilities include a 3,500 square foot
building with a detached 1,200 square foot warehouse, retail showroom of 1,500 square feet and lumber yard of 1 acre. The
details on the lease are as follows:
| · | Base rentals - $13,704.50 per month. |
| · | Base rental increase of 3% per year is incorporated in lease modification. |
| · | Company is responsible to pay its proportionate share of property taxes, insurance and common area maintenance – estimated
at $875 per month |
| · | Termination date – September 30, 2017 |
| · | Security Deposit - $5,500. |
The Company failed to make the monthly
lease payments and we have downsized this location and no longer occupy or use the warehouse, showroom or lumber yard. We are in
discussions with the landlord to reduce the lease payments to $6,000 but to date we have not executed any formal arrangement.
Operations Facilities
The Company also maintains three facilities
of operation. The following locations are currently leased and in effect.
| - | Tacoma Washington (Leased April 30,2015) |
| · | Our lease in Tacoma is a month-to-month arrangement. |
| · | We pay monthly rent of $12,041. |
| · | The Premises can be used for processing and treating lumber with eco-friendly products and loading
and off- loading lumber to rail. |
| - | Fair Lawn, New Jersey (Leased June 1, 2014) |
| · | The lease is a five year lease that was executed on June 1, 2014 and terminates on June 1, 2019. |
| · | The fixed monthly rent increases in each year from $9,244/month in year 1 to $9,521.32/month in
year 2 to $9,806.96/month in year 3 to $10,101.16 in year 4 to $10,404.20 in year 5. |
| · | We are permitted to use the space for the warehousing, treatment, sale and distribution of manufactures
and related associated lumber products.. |
| · | Security Deposit - $14,029 |
| - | Augusta, Georgia (Leased June 30, 2015) |
| · | Lease was entered into on June 30, 2015 for a term of 1-year from July 1, 2015 thru June 30, 2016. |
| · | We pay a monthly lease payment of $3,000. |
| · | We can use the premises for processing and treatment of wood and wood products. |
Except as disclosed below, we are currently
not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of
operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries,
threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s
subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse
effect.
On June 4, 2013, Trical
Construction, Inc. filed a complaint against the Company in Superior Court of California, County of Los Angeles. The nature
of the litigation involved Trical’s claim that it suffered various construction delays and other damages from Eco
Building Products in connection with the construction of a 77 unit apartment building. The matter was ultimately resolved by
settlement on August 1, 2014 in the amount of $180,564.50, with payment of $30,000.00 by Eco Building Products to Trical on
that date and scheduled payments of $10,000 each month beginning on November 1, 2014 through February 1, 2016. This was
amended on April 15, 2015, extending payments to October 2016 and reducing the payment amount to $2,500 per month. The
balance on this settlement is $123,065 at June 30, 2015 and no payments have been made since June 15, 2015. The Company is in
default on this settlement agreement.
At June 30, 2015, the Company owed approximately $730,000 in
past due federal and state payroll taxes, of which approximately $660,000 is due to the Internal Revenue Service (IRS). The Company
subsequently paid $25,000 to the IRS under a $20,000 per month payment arrangement which the Company is in default. The Company
is currently is in negotiations with the IRS to re-establish a payment plan for past due taxes. No such arrangement exists for
State tax purposes.
On October 6, 2015, the landlord for the Vista, CA location
filed a complaint against us in the Superior Court of California, County of San Diego for a Breach of Contract for a Promissory
Note that we issued to him in connection with unpaid lease payments that we owed in the amount of $151,272.65 under the terms of
the lease that we entered into for our Vista, CA location.
| Item 4. | Mine Safety Disclosures |
Not Applicable.
PART II
| Item 5. | Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
Our Common Stock is quoted on the OTC Pink
Market under the symbol “ECOB”.
Price Range of Common Stock
The table below sets forth the high and
low closing price per share of our common stock for each quarter of our last two years. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
Fiscal Quarter Ended | |
High | | |
Low | |
June 30, 2015 | |
$ | 0.0200 | | |
$ | 0.0019 | |
March 31, 2015 | |
$ | 0.0100 | | |
$ | 0.0001 | |
December 31, 2014 | |
$ | 0.002 | | |
$ | 0.0000 | |
September 30, 2014 | |
$ | 0.0025 | | |
$ | 0.0005 | |
June 30, 2014 | |
$ | 0.0073 | | |
$ | 0.0018 | |
March 31, 2014 | |
$ | 0.0096 | | |
$ | 0.0066 | |
December 31, 2013 | |
$ | 0.0174 | | |
$ | 0.0013 | |
September 30, 2013 | |
$ | 0.0250 | | |
$ | 0.0100 | |
Approximate Number of Equity Security
Holders
At June 30, 2015, there were approximately 112
holders of record of our Common Stock. Because shares of our common stock are held by depositaries, brokers and other nominees,
the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.
There are no warrants outstanding to purchase
shares of our Common Stock subject to conditions and limitations.
There were no warrants issued during the
year of 2015.
Stock Option Grants
| - | The Company issued 2,000,000 shares as options to the Chief Technical Officer in fiscal 2014. |
| - | The Company granted 25,000,000 shares as options to a consultant. |
| - | As partial consideration for the Executive Severance Agreement and General Release of All Claims
Agreement (the “Separation Agreement”) entered into between ECOB and Steve Conboy on June 15, 2015, the Company issued
an option to purchase 5,772,857 shares which equals one percent (1%) of the total number of shares outstanding on the date of the
Separation Agreement with an exercise price of $0.0038 (which is the closing price on the date of the grant). This option grants
vests as follows: (i) 50% vested immediately; and (ii) 50% vests on December 18, 2015. |
Unregistered Sales of Equity Securities
On June 3, 2014, Eco Building Products,
Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”) with Dominion Capital,
LLC, (“Dominion”) Redwood Management, LLC, Redwood Fund II, LLC and Redwood Fund III, LLC (together with Redwood Management,
LLC and Redwood Fund II, LLC, “Redwood”), (Redwood and Dominion together, the “Investors”) whereby the
Investors agreed to fund the Company with a total of up to $3,400,000 in a newly created Series C 12% Convertible Preferred Stock
(the “Preferred Stock”). Pursuant to the Agreement, the Company sold (i) $325,000 of Preferred Stock to Dominion and
(ii) $75,000 of Preferred Stock to Redwood. On the three week anniversary of the Agreement the Company will sell an additional
(i) $325,000 of Preferred Stock to Dominion and (ii) $75,000 of Preferred Stock to Redwood. This funding will be used for Company
capital investment and expansion with a portion to pay off outstanding convertible notes to institutional investors. As a result
of this transaction, the only outstanding convertible debt will be held by management of the Company and the Investors.
Additionally, at least once per month,
the Company agrees to sell to each of Dominion and Redwood, on an equal basis, an amount of Preferred Stock equal to the amount
of aged accounts payable of the Company to be held by Dominion and Redwood on such date, up to a maximum of $1,200,000 of face
amount of accounts payable in the aggregate during the term of this Agreement. The Company anticipates that as a result of this
funding the Company will be able to retire aged debt and maintain a healthy balance sheet moving forward.
Substantially concurrent with the execution
and delivery of this Agreement by the parties hereto, and on each of the next three monthly anniversaries of the date of this Agreement,
the Company agrees to sell (i) $175,000 of Preferred Stock to Dominion and (ii) $175,000 of Preferred Stock to Redwood. This funding
will be used to cover Company overhead costs, including, but not limited to, payroll, facility rents, tax payments, investor and
public relations, professional and administrative services, insurance, travel and warehouse supplies.
Series D Preferred Stock Financing
On March 31, 2015, we filed a Certificate
of Designations for Series D Preferred Stock which authorized 10,000 shares of a newly-created Series D 12% Convertible Preferred
Stock, par value $0.001 per share (the “Preferred D Stock”).
The terms of the Preferred D Stock are
as follows:
|
● |
The Preferred D Stock shall have no voting rights. |
|
● |
The Preferred D Stock is convertible at any time at 60% of the lowest VWAP of the 25 days leading up to conversion multiplied by the stated value of $100. |
|
● |
The Preferred D Stock has a 12% per annum stated dividend rate, which is calculated daily on a 360 day year. Any dividends, whether paid in cash or shares of Common Stock, that not paid within five trading days following a dividend payment date shall continue to accrue and shall entail a late fee at 18% per annum. In addition, the dividend rate of 12% is subject to an adjustment up to 18% if at any time the Company does not have an amount equal to or greater than 150% of the authorized but unissued common shares that would be required (on an “if converted” basis) to settle the conversion of Preferred C Stock outstanding. |
| ● | The
Preferred D Stock shall have a liquidation preference equal to the stated value of each share of Preferred Stock or $100 per share. |
On July 2, 2015, the Board approved, and
on July 8, 2015 filed with the Secretary of State for the State of Colorado, the Articles of Amendment to the Certificate of Designation
of the Preferences, Rights and Limitations of the Series D 12% Convertible Preferred Stock. The amendment increased the number
of shares of Series D 12% Convertible Preferred Stock that are designated to be issued from 10,000 shares to 20,000 shares of Series
D 12% Convertible Preferred Stock. There were no other changes to the terms of our Series D 12% Convertible Preferred Stock. This
amendment was approved in writing by a majority of the holders of the Series D 12% Convertible Preferred Stock. The Articles of
Amendment is attached hereto as an exhibit.
As of June 30, 2015, we have issued 9,979
shares of Series D Preferred Stock. And, as of the date of this filing, we have issued 15,518 shares of Series D Preferred Stock.
All of these Series D shares remain outstanding. None have been converted or redeemed by the Company.
Series C Preferred Stock Financing
In accordance with the Agreement, the Company
agreed to designate and issue to the Investors up to 34,000 shares of Preferred Stock, for an aggregate purchase price of
up to $3,400,000 (the “Financing”) which are convertible into shares of the Company’s common stock (the “Common
Stock”). The initial closing of the sale of these securities took place on June 3, 2014 (the “Closing”).
As of the date of this filing, we have
issued 115,929 shares of Series C Preferred Stock. 101,650 of these Series C shares remain outstanding. The other issued shares
have all been converted to Common Stock.
Exchange Agreements
In connection with the Agreement, the Investors
have agreed to enter into exchange agreements whereby they will exchange outstanding promissory notes and Series B Preferred Stock
for Series C Preferred Stock in the Company. A total of 9,250 Series B Preferred Stock and $7,661,784 due in connection with outstanding
promissory notes will be exchange for Series C Preferred Stock. The table below details the original note amount and approximate
amount due to each Investor.
Investor | |
Original Amount Due on Notes (number of notes issued to Investor) | |
Approximate Balance Due to Investor | |
Redwood Management, LLC | |
$5,740,089 (5 notes) | |
$ | 4,489,794 | |
Redwood Fund II, LLC | |
$600,000 (4 notes) | |
$ | 660,000 | |
Redwood Fund III, LLC | |
$235,000 (3 notes) | |
$ | 254,000 | |
Dominion Capital, LLC | |
$3,339,490 (8 notes) | |
$ | 3,182,990 | |
Total | |
| |
$ | 8,586,784 | |
| Item 6. | Selected Financial Data |
We are not required to provide the information
required by this Item because we are a smaller reporting company.
| Item 7. | Management’s Discussion and Analysis of Financial
Condition and Results of Operations. |
The following discussion and analysis
of the results of operations and financial condition for the fiscal years ended June 30, 2015 and 2014 and should be read in conjunction
with our financial statements, and the notes to those financial statements that are included elsewhere in this Report.
Results of Operations for the Year end June 30, 2015 as
Compared to the Year ended June 30, 2014
On November 6, 2013, the Company unveiled Eco Armor – Defensive Paint as a result of collaboration
between Eco Building Products and the largest paint recycler in North America, Visions Paint Recycling, LLC. Together, we have
been successful in bringing this uniquely blended defensive paint to market, further enhancing the Company’s existing family
of defensive products. Eco Armor complements existing lumber protection by adding valuable UV and moisture protection.
On or around March 26, 2014 the Company
purchased automated coating equipment from Eco Prime, LLC, a previously owned and operated Eco affiliate, in Augusta, Georgia.
Subsequently, we defaulted on that agreement for failure to make the necessary payments. In July 2015, we entered into a Settlement
and Release Agreement (the “Settlement Agreement”) with Eco Prime, LLC. The Settlement Agreement resolves any disputes
arising from the Limited Asset Purchase Agreement entered into between the parties on March 19, 2014. Pursuant to the terms of
the Settlement Agreement, we paid One Hundred Thousand Dollars ($100,000.00) to acquire the assets from EcoPrime and released each
party from any liability under the March 2014 agreement. The newly acquired facility and equipment is fully-functional and complete
with automation, enabling the Company to obtain increased output rate. In addition to the automated line, ECOB will refurbish the
existing production line under the provisions of the Company’s current quality control program, complete with post-conditioning
tunnels in an effort to produce the highest quality finished goods. Moreover, this increased production capacity and strategically
located facility will allow ECOB to reinforce its market position in the Northeastern and Southern U.S. to meet the growing demand
for Eco Red Shield protected lumber.
On April 21, 2014 the Company took appropriate
steps and measures to begin producing the proprietary substrate fire inhibitor here in the U.S, resulting in approximately 95%
of the constituents now being supplied from U.S. stocking distributors. The Company takes pride in producing almost everything
that goes into our Intellectual Property right here in America, as it has been our goal since inception, that our red lumber will
one day be recognized as the true American Brand of Lumber.
On April 15, 2015, the Company sold E
Build & Truss to a group of employees in exchange for the acceptance of accounts payable and cancellation of accrued salaries
(See Note 12 of the Footnotes to the Financial Statements).
In January and April, 2015, the Company
consolidated the Colton and Salem facilities into a new coating services only plant in Tacoma, Washington to serve the Western
United States. Operations began in April 2015 and are currently treating lumber for various customers. This is an important expansion
and the plant is strategically located near saw mills and shipping centers.
In the execution of the Company’s
business plan, it has been observed that the traditional wood treating market has demonstrated resistance of market acceptance
for Eco Red Shield technology as a competitive product or alternative. The Company views this resistance in a positive manner as
this perception of competition is misplaced. Eco Red Shield technology was developed to provide protection for the entire super
structure of wood framed construction not typically employed by traditional wood treatment process. The traditional treatment industry
comprises approximately 6 to 8 percent of the entire industry. Eco Red Shield was developed to provide a low cost protection for
the other 94 percent of the market currently not employing any protection for lumber products. The Company recognized this market
segment as a greater opportunity than trying to compete with a smaller segment of the industry. Albeit our building code approvals
allow Eco Red Shield to compete, very few of our sales target this market segment. We have positioned Eco Red Shield to be
an Advanced Framing Material to service the much larger segment of traditional raw lumber products. The Company feels that
the paradigm shift towards full framing protection has happened and the category within the industry has been created and will
never go away. It is now time for Eco Building Products to capitalize on the opportunity in which we have fought so hard
and successfully created.
Revenues and Cost of Sales - For the fiscal year
ended June 30, 2015 we had total revenues of $2,090,084, as compared to $1,188,005 in revenues for the previous year. Increase
in revenue was primarily due to sales to The Home Depot, Our cost of sales for the fiscal years ended June 30, 2015 and June
30, 2014 was $3,164,324 and $2,553,612, respectively. The gross loss for the fiscal years ended June 30, 2015 and June 30, 2014
was $1,074,240 and $1,365,607, respectively. The gross loss for both years can be attributed to under-pricing products, production
worker over-staffing, plant consolidation and closing costs and excess capacity in all of our production facilities.
Operating Expenses - For the fiscal
year ended June 30, 2015, our total operating expenses were $2,862,767 as compared to $5,094,225 for the fiscal year ended June
30, 2014. Included in our operating expenses for the fiscal year ended June 30, 2015 was compensation costs of $1,230,619, rent
of $220,457, other general and administrative costs of $806,125 and professional fees of $474,924. The main change in operating
expenses is contributed to a reduction in employee head count and other cost reduction measures.
Other Income
(Expenses) - For the fiscal year ended June 30, 2015, total interest expense was $1,908,748 primarily representing interest
on the convertible notes and interest to secured promissory note holders. The Company recognized $18,584,275 gain on derivative
due to change in the fair value of the derivative liability, the derivative expense of $11,058,541 related to convertible debt
and convertible preferred shares issued and loss on extinguishment of debt of $826,455 for the fiscal year ended June 30, 2015.
For the fiscal
year ended June 30, 2014, total interest expense was $18,113,022. Of the total interest expense $14,656,639 was the initial interest
expense on the value of the derivative (excess). The remaining interest expense of $3,456,383 is interest on the convertible notes
and interest to secured promissory note holders. The Company recognized $8,317,610 gain on derivative due to change in the fair
value of the derivative liability and a loss on extinguishment of debt of $9,345,735 for the fiscal year ended June 30, 2014.
Liquidity and Capital Resources
On June 30, 2015, we had $40,306 in cash
on hand. During the year ended June 30, 2015, net cash used in our operating activities amounted to$2,238,144. Net cash
used during the same period for our investing activities totaled $131,104. During the same year, we received proceeds resulting
in net cash from financing activities of $2,124,488of which $1,997,939 was received from the issuance of convertible Preferred
C and D stock.
The following
table sets forth selected cash flow information for the year ended June 30, 2015:
Net cash used in operating activities | |
$ | (2,328,144 | ) |
Net cash used in investing activities | |
| (131,104 | ) |
Net cash provided by financing activities | |
| 2,124,488 | |
| |
| | |
Net change in cash | |
$ | (334,760 | ) |
PLAN OF OPERATION AND FUNDING
We expect that working capital requirements
will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital
requirements are expected to increase in line with the growth of our business.
Existing working capital, further advances
and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. We
have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds
of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional
increases in operating expenses and capital expenditures relating to: (i) acquisition of inventory and raw materials; (ii) developmental
expenses associated with a development stage business; and (iii) marketing expenses. We intend to finance these expenses with further
issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues
to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution
to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock.
Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available
on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly
and materially restrict our business operations.
Critical Accounting Policies
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.
Issuances Involving Non-Cash Consideration
All issuances of the Company’s stock
for non-cash consideration have been assigned a dollar amount equaling the market value of the shares issued on the date the shares
were issued for such services.
Stock-Based Compensation
The Company accounts for stock-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.
Convertible Debentures
If the conversions feature 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 the Black-Scholes option valuation technique. Estimating fair values
of derivative financial instruments requires the development of significant and subjective estimates (such as volatility, estimated
life and interest rates) 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.
The Company recorded
derivative liability of $14,198,848 and $20,504,553 and a gain of $18,584,275 and a gain of $8,317,610 on derivative valuation
for the years ended June 30, 2015 and 2014, respectively.
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. Contract revenue where labor services are performed is generally recognized
when the labor services are performed assuming all the other revenue recognition criteria stated above is satisfied. Sales are
recorded net of any applicable sales tax.
The Company had product sales revenue of
$787,096 and $340,770 to two customers, representing 32% and 14% of total sales for year ended June 30, 2015, respectively. No
long term fixed contracts control any future sales to these customers.
The Company had product sales revenue of
$472,539, $211,523 and $200,741 to three customers, representing 32%, 14% and 14% of total sales for year ended June 30, 2014,
respectively
Warranty Costs
The Company provides a ten-year warranty
on its products. The Company accrues for the estimated warranty costs at the time when revenue is recognized. The warranty accruals
are regularly monitored by management based upon historical experience and any specifically identified failures. While the Company
engages in extensive product quality assessment, actual product failure rates, material usage or service delivery has resulted
in no warranty claims to date.
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 operational expenses of approximately
three hundred thousand dollars a month is required to continue to operate. This is achieved either through profit from sales; or
by management seeking additional financing through the sale of its common stock, and/or through private placements the minimum
operational expenses 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.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
or financing activities with special purpose entities.
| Item 7A. | Quantitative and Qualitative Disclosures About Market
Risk |
We are not required to provide the information
required by this Item because we are a smaller reporting company.
| Item 8. | Financial Statements and Supplementary Data |
ECO Building Products, Inc.
Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors
Eco Building Products, Inc.
We have audited the accompanying
balance sheets of Eco Building Products, Inc. as of June 30, 2015 and 2014, and the related statements of income, stockholders’
equity, and cash flows for each of the years in the two-year period ended June 30, 2015 and 2014. Eco Building Products, Inc.’s
management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of Eco Building Products, Inc. as
of June 30, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the two-year period ended
June 30, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has an accumulated deficit of $74,876,514, negative working capital, and negative gross margin as of June 30, 2015
which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters
are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Sadler, Gibb & Associates, LLC
Salt Lake City, UT
November 9, 2015
ECO BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
| |
June 30 | | |
June 30 | |
| |
2015 | | |
2014 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
CURRENT ASSETS | |
| | | |
| | |
Cash | |
$ | 40,306 | | |
$ | 375,066 | |
Accounts receivable, net of allowance for doubtful accounts of $1,607 and $1,607, respectively | |
| 14,042 | | |
| 60,965 | |
Inventories, net | |
| 171,631 | | |
| 468,411 | |
Prepaid expenses | |
| 3,000 | | |
| 8,797 | |
Notes receivable - related party | |
| - | | |
| 98,669 | |
Other current assets | |
| 58,089 | | |
| 29,875 | |
Total current assets | |
| 287,068 | | |
| 1,041,783 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT, net | |
| 592,679 | | |
| 869,424 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 879,747 | | |
$ | 1,911,207 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 1,256,160 | | |
$ | 1,197,474 | |
Payroll and taxes payable | |
| 1,571,786 | | |
| 2,398,502 | |
Accrued interest | |
| 237,907 | | |
| 89,413 | |
Other payables and accrued expenses | |
| 167,565 | | |
| 205,646 | |
Derivative Liability | |
| 14,198,848 | | |
| 20,504,553 | |
Convertible notes payable, net of debt discount - related parties | |
| 749,874 | | |
| 52,480 | |
Convertible notes payable, net of debt discount - non-related parties | |
| 10,082 | | |
| 91,174 | |
Current maturities of notes payable | |
| 23,916 | | |
| 6,986 | |
Loans payable – other
| |
| 399,334 | | |
| 484,500 | |
Loans payable – related parties | |
| 483,911 | | |
| 924,676 | |
Total current liabilities | |
| 19,099,383 | | |
| 25,955,404 | |
| |
| | | |
| | |
LONG TERM LIABILITIES | |
| | | |
| | |
Notes payable, less current maturities | |
| 69,778 | | |
| 2,703 | |
Total long term liabilities | |
| 69,778 | | |
| 2,703 | |
| |
| | | |
| | |
TOTAL LIABILITIES | |
$ | 19,169,161 | | |
$ | 25,958,107 | |
| |
| | | |
| | |
LIABILITIES RELATED TO DISCONTINUED OPERATIONS | |
| 1,148,229 | | |
| 1,109,737 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Preferred stock, Series A, $0.001 par value, 30,000
shares authorized, -0- and 30,000 shares issued and outstanding at June 30, 2015 and at June 30, 2014 | |
$ | - | | |
$ | 30 | |
Preferred stock, Series B, $0.001 par value, 9,250
shares authorized, -0- shares issued and outstanding at June 30, 2015 and June 30, 2014 | |
| - | | |
| - | |
Preferred stock, Series C, $0.001 par value, 120,000
shares authorized, 104,440 and 94,394 shares issued and outstanding at June 30, 2015 and June 30, 2014
respectively | |
| 104 | | |
| 94 | |
Preferred stock, Series D, $0.001 par value, 10,000
shares authorized, 9,979 and -0- shares issued and outstanding at June 30, 2015 and June 30, 2014 | |
| 10 | | |
| - | |
Common stock, $0.001 par value, 10,000,000,000 shares
authorized, 608,622,815 and 160,175,508 shares issued and 607,189,768 and 158,742,461 outstanding at June 30, 2015
and June 30, 2014 respectively | |
| 608,623 | | |
| 160,176 | |
Treasury Stock | |
| (1,434 | ) | |
| (1,434 | ) |
Additional paid-in capital | |
| 54,831,568 | | |
| 49,660,883 | |
Accumulated deficit | |
| (74,876,514 | ) | |
| (74,976,386 | ) |
Total stockholders' deficit | |
| (19,437,643 | ) | |
| (25,156,637 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | |
$ | 879,747 | | |
$ | 1,911,207 | |
See accompanying notes to condensed consolidated
financial statements
ECO BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
| |
12 months ended
June 30, | |
| |
2015 | | |
2014 | |
REVENUE | |
| | | |
| | |
Product sale, net of discount | |
$ | 2,090,084 | | |
$ | 1,182,727 | |
Labor sale | |
| - | | |
| 5,278 | |
| |
| | | |
| | |
TOTAL REVENUE | |
| 2,090,084 | | |
| 1,188,005 | |
| |
| | | |
| | |
COST OF SALES | |
| | | |
| | |
Cost of sales – product | |
| 3,164,324 | | |
| 2,553,612 | |
| |
| - | | |
| - | |
| |
| | | |
| | |
TOTAL COST OF SALES | |
| 3,164,324 | | |
| 2,553,612 | |
| |
| | | |
| | |
GROSS LOSS | |
| (1,074,240 | ) | |
| (1,365,607 | ) |
| |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | |
Research and development | |
| 71,921 | | |
| 117,236 | |
Marketing | |
| 58,771 | | |
| 111,381 | |
Compensation and related expenses | |
| 1,230,619 | | |
| 2,382,222 | |
Rent – facilities
| |
| 220,407 | | |
| 759,739 | |
Professional and consulting fees | |
| 474,924 | | |
| 537,008 | |
Other general and administrative expenses | |
| 806,125 | | |
| 1,186,639 | |
| |
| | | |
| | |
Total operating expenses | |
| 2,862,767 | | |
| 5,094,225 | |
| |
| | | |
| | |
LOSS FROM OPERATIONS | |
| (3,937,007 | ) | |
| (6,459,832 | ) |
| |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | |
Interest expense | |
| (1,908,748 | ) | |
| (18,113,022 | ) |
Gain on derivative liability | |
| 18,584,275 | | |
| 8,317,610 | |
Impairment expense | |
| (207,172 | ) | |
| (21,128 | ) |
Other income | |
| - | | |
| 11,793 | |
Loss on legal settlement | |
| - | | |
| (180,565 | ) |
Gain (loss) on settlement of debt | |
| (330,316 | ) | |
| 590,000 | |
Loss on extinguishment of debt | |
| (826,455 | ) | |
| (9,345,735 | ) |
Derivative expense | |
| (11,058,541 | ) | |
| (3,515,836 | ) |
| |
| | | |
| | |
Total other income | |
| 4,253,043 | | |
| (22,256,883 | ) |
| |
| | | |
| | |
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | |
| 316,035 | | |
| (28,716,715 | ) |
| |
| | | |
| | |
NET LOSS FROM DISCONTINUED OPERATIONS | |
| (216,164 | ) | |
| (223,784 | ) |
| |
| | | |
| | |
NET INCOME (LOSS) | |
$ | 99,871 | | |
$ | (28,940,499 | ) |
| |
| | | |
| | |
NET INCOME (LOSS) PER COMMON SHARE, FROM CONTINUING OPERATIONS - Basic & Diluted | |
$ | 0.00 | | |
$ | (0.02 | ) |
NET INCOME (LOSS) PER COMMON SHARE, FROM DISCONTINUED OPERATIONS - Basic & Diluted | |
$ | 0.00 | | |
$ | (0.02 | ) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |
| | | |
| | |
Basic - | |
| 390,787,135 | | |
| 52,874,470 | |
Diluted - | |
| 8,422,618,126 | | |
| 52,874,470 | |
See accompanying notes to condensed consolidated
financial statements
ECO BUILDING PRODUCTS, INC.
CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS' (DEFICIT)
For Year Ended June
30, 2015
| |
Common Stock | | |
Treasury Stock | | |
Series A Preferred Stock | | |
Series B Preferred Stock | | |
Series C Preferred Stock | | |
Series D Preferred Stock | | |
| | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Additional Paid-in Capital | | |
Deficit | | |
Totals | |
Balance, June
30, 2013 | |
| 24,961,091 | | |
$ | 24,962 | | |
| 2,694,943 | | |
$ | (2,696 | ) | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
$ | 30,366,504 | | |
$ | (46,035,888 | ) | |
$ | (15,647,118 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for convertible notes | |
| 118,534,115 | | |
| 118,534 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 8,375,273 | | |
| | | |
| 8,493,807 | |
Shares issued for accrued compensation | |
| 2,500,000 | | |
| 2,500 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 697,500 | | |
| | | |
| 700,000 | |
Shares issued for services | |
| 1,250,000 | | |
| 1,250 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 41,250 | | |
| | | |
| 42,500 | |
Shares issued for cash | |
| 11,583,334 | | |
| 11,583 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 598,417 | | |
| | | |
| 610,000 | |
Retirement of shares | |
| (2,025,000 | ) | |
| (2,025 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,025 | | |
| | | |
| - | |
Issuance of Series A preferred for services | |
| | | |
| | | |
| | | |
| | | |
| 30,000 | | |
| 30 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,220,938 | | |
| | | |
| 1,220,968 | |
Issuance of Series B preferred for cash | |
| | | |
| | | |
| | | |
| | | |
| | | |
| - | | |
| 9,250 | | |
| 9 | | |
| | | |
| | | |
| | | |
| | | |
| 924,982 | | |
| | | |
| 924,991 | |
Issuance of Preferred C for Preferred B shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| - | | |
| (9,250 | ) | |
| (9 | ) | |
| 2,539 | | |
| 3 | | |
| | | |
| | | |
| (671,086 | ) | |
| | | |
| (671,093 | ) |
Issuance of Preferred C for convertible notes | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 79,719 | | |
| 80 | | |
| | | |
| | | |
| 7,971,865 | | |
| | | |
| 7,971,945 | |
Issuance of Preferred C for cash | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 12,500 | | |
| 13 | | |
| | | |
| | | |
| (13 | ) | |
| | | |
| - | |
Shares issued for Preferred C share conversion | |
| 1,594,564 | | |
| 1,595 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (364 | ) | |
| (0 | ) | |
| | | |
| | | |
| 7,982 | | |
| | | |
| 9,577 | |
Shares issued for interest | |
| 1,777,404 | | |
| 1,777 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| - | | |
| - | | |
| | | |
| | | |
| 126,508 | | |
| | | |
| 128,285 | |
Reissue treasury shares to officer | |
| | | |
| | | |
| (1,261,896 | ) | |
| 1,261 | | |
| | | |
| | | |
| | | |
| | | |
| - | | |
| - | | |
| | | |
| | | |
| (1,261 | ) | |
| | | |
| - | |
Net loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| - | | |
| (28,940,499 | ) | |
| (28,940,499 | ) |
Balance, June
30, 2014 | |
| 160,175,508 | | |
$ | 160,176 | | |
| 1,433,048 | | |
$ | (1,435 | ) | |
| 30,000 | | |
$ | 30 | | |
| - | | |
$ | - | | |
| 94,394 | | |
$ | 94 | | |
| - | | |
$ | - | | |
$ | 49,660,886 | | |
$ | (74,976,387 | ) | |
$ | (25,156,636 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for Preferred C shares | |
| 329,098,857 | | |
| 329,098 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (10,725 | ) | |
| (11 | ) | |
| | | |
| | | |
| (318,363 | ) | |
| | | |
| 10,724 | |
Shares issued for cash | |
| 37,500,000 | | |
| 37,500 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 62,500 | | |
| | | |
| 100,000 | |
Issuance of Preferred C for cash | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 10,000 | | |
| 10 | | |
| | | |
| | | |
| | | |
| | | |
| 10 | |
Issuance of Preferred D for Cash | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 9,979 | | |
| 10 | | |
| | | |
| | | |
| 10 | |
Shares issued for convertible notes | |
| 14,598,450 | | |
| 14,598 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 73,520 | | |
| | | |
| 88,118 | |
Shares issued for settlement of debt | |
| 12,250,000 | | |
| 12,250 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 96,750 | | |
| | | |
| 109,000 | |
Shares issued for interest expense and debt discount | |
| 55,000,000 | | |
| 55,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 207,678 | | |
| | | |
| 262,678 | |
Preferred A shares cancelled by former officer | |
| | | |
| | | |
| | | |
| | | |
| (30,000 | ) | |
| (30 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (30 | ) |
Issuance of Preferred C in settlement of debt | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 10,771 | | |
| 11 | | |
| | | |
| | | |
| 1,077,202 | | |
| | | |
| 1,077,213 | |
Derivative liability converted | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,870,900 | | |
| | | |
| 2,870,900 | |
Cancellation of debt to former officer | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,089,505 | | |
| | | |
| 1,089,505 | |
Options issued to former officer with debt cancellation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 10,994 | | |
| | | |
| 10,994 | |
Net Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 99,871 | | |
| 99,871 | |
Balance, June
30, 2015 | |
| 608,622,815 | | |
$ | 608,623 | | |
| 1,433,048 | | |
$ | (1,435 | ) | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 104,440 | | |
$ | 104 | | |
| 9,979 | | |
$ | 10 | | |
$ | 54,831,571 | | |
$ | (74,876,515 | ) | |
$ | (19,437,643 | ) |
See accompanying notes to consolidated financial
statements
ECO BUILDING PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
| |
12 months ended June 30, | |
| |
2015 | | |
2014 | |
Cash flows from operating activities | |
| | | |
| | |
Net Income (Loss) | |
$ | 99,871 | | |
$ | (28,940,499 | ) |
Adjustments to reconcile net income (loss) to net cash used by operating activities: | |
| | | |
| | |
Depreciation and amortization expense | |
| 237,671 | | |
| 241,910 | |
Bad debt expense | |
| 98,669 | | |
| - | |
Impairment of property & equipment | |
| 207,172 | | |
| 181,000 | |
Impairment of inventory | |
| - | | |
| - | |
Amortization of debt discount & deferred financing costs | |
| 1,496,746 | | |
| 8,278,456 | |
Initial interest expense on value of derivative (excess) | |
| - | | |
| 11,140,803 | |
Derivative expense | |
| 11,058,541 | | |
| - | |
Stock Based Compensation | |
| 27,292 | | |
| 700,000 | |
Common Stock issuance for interest and OID | |
| 262,678.00 | | |
| 128,285 | |
Common Stock issuance for services | |
| - | | |
| 42,500 | |
Preferred shares issuance for services | |
| - | | |
| 1,221,000 | |
Loss on derivative liability fair value adjustment | |
| (18,584,275 | ) | |
| (8,317,611 | ) |
Loss on extinguishment of Convertible Notes and Accounts Payable | |
| 826,655 | | |
| 9,345,651 | |
Loss on legal settlement | |
| - | | |
| 180,565 | |
Gain on settlement of notes payable | |
| 330,316 | | |
| (590,000 | ) |
Expense paid on behalf of the Company | |
| 1,684,752 | | |
| (35,000 | ) |
Assignment of accounts receivable to note payable holder | |
| (541,575 | ) | |
| - | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 46,923 | | |
| 147,411 | |
Inventory | |
| 296,780 | | |
| 132,727 | |
Prepaid expenses | |
| 4,638 | | |
| (22,775 | ) |
Accounts payable | |
| 859,939 | | |
| 19,704 | |
Payroll and taxes payable | |
| (783,708 | ) | |
| 706,631 | |
Deferred Revenue | |
| - | | |
| (140,000 | ) |
Other payable and accrued expenses | |
| (167,704 | ) | |
| (71,039 | ) |
Accrued interest | |
| 171,983 | | |
| 1,560,131 | |
Net cash from continuing operations | |
| (2,366,636 | ) | |
| (4,090,150 | ) |
Net cash from discontinued operations | |
| 38,492 | | |
| - | |
Net cash from operating activities | |
| (2,328,144 | ) | |
| - | |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchase of property and equipment | |
| (131,104 | ) | |
| (84,002 | ) |
Notes receivable payments | |
| - | | |
| 8,000 | |
Net cash used by investing activities | |
| (131,104 | ) | |
| (76,002 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Payments on related party notes | |
| (100,158 | ) | |
| (138,824 | ) |
Proceeds from issuance of common stock | |
| 100,000 | | |
| 610,000 | |
Proceeds from issuances of series C convertible preferred stock | |
| 1,000,000 | | |
| 2,175,000 | |
Proceeds from issuances of series D convertible preferred stock | |
| 997,939 | | |
| - | |
Proceeds from convertible notes payable - non-related parties | |
| 80,000 | | |
| 1,380,166 | |
Proceeds notes payable | |
| 153,500 | | |
| 650,000 | |
Proceeds from notes payable - related parties | |
| 120,000 | | |
| - | |
Payments on convertible notes payable - related parties | |
| (78,704 | ) | |
| (37,500 | ) |
Payments on convertible notes payable - non-related parties | |
| (45,855 | ) | |
| - | |
Payments on notes payable | |
| (80,955 | ) | |
| (218,650 | ) |
Payments on notes payable - vehicles loan | |
| (21,279 | ) | |
| (7,692 | ) |
Proceeds from related party line of credit advances | |
| - | | |
| 95,000 | |
Payments on accrued interest | |
| - | | |
| (5,000 | ) |
Net cash provided by financing activities | |
| 2,124,488 | | |
| 4,502,500 | |
| |
| | | |
| | |
Net change in cash and cash equivalent | |
| (334,760 | ) | |
| 336,348 | |
Cash and cash equivalent at the beginning of year | |
| 375,066 | | |
| 38,718 | |
| |
| | | |
| | |
Cash and cash equivalent at the end of year | |
$ | 40,306 | | |
$ | 375,065 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow Information: | |
| | | |
| | |
Cash Paid for Interest | |
$ | 8,333 | | |
| - | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
Common shares issued for conversion of notes payable | |
$ | - | | |
$ | - | |
Common shares issued for settlement of investor loans | |
$ | 118,498 | | |
$ | - | |
Options issued in exchange for series A preferred stock and forgiveness of liabilities | |
$ | 1,100,498 | | |
$ | - | |
Convertible notes issued for extinguishment of notes payable | |
$ | - | | |
$ | 1,868,778 | |
Shares issued for conversion of notes payable | |
$ | 273,831 | | |
$ | - | |
Preferred shares issued for extinguishment of convertible notes payable & A/P | |
$ | 2,384,026 | | |
$ | - | |
Pref C shares issued for cancellation of 9,250 shs of Pref B and multiple convertible notes | |
$ | - | | |
$ | 28,836,539 | |
Shares issued for conversion of Pref C convertible preferred stock | |
$ | 2,701,848 | | |
$ | 31,891 | |
Disposition of assets for assumption of liabilities - discontinued operations | |
$ | 236,419 | | |
$ | - | |
Convertible notes issued for assumption of notes payable | |
$ | 410,000 | | |
$ | - | |
Declared dividends | |
$ | - | | |
$ | 140,498 | |
Reissue shares from treasury to officers | |
$ | - | | |
$ | 25,238 | |
Derivative liabilities - new (interest expense over discount) | |
$ | - | | |
$ | 14,211,051 | |
Purchase of property & equipment with loans payable | |
$ | 105,284 | | |
$ | - | |
Settlement of notes payable | |
$ | - | | |
$ | 240,000 | |
Debt Discount on convertible notes | |
$ | 1,567,516 | | |
$ | - | |
OID | |
$ | 96,515 | | |
$ | - | |
See accompanying notes to condensed consolidated
financial statements
Eco Building Products, Inc.
Footnotes to Consolidated Financial Statements
June 30, 2015
1. Organization and Basis of Presentation
Organization
Eco Building Products, Inc. (the “Company”)
was incorporated in the state of Colorado under the name N8 Concepts, Inc. on March 27, 2007.
On October 19, 2009, the Company merged
with Ecoblu Products, Inc., a Nevada Corporation (“ECOBLU”). For financial reporting purposes, the acquisition
was treated as a reverse acquisition whereby ECOBLU’s operations continue to be reported as if it had actually been the acquirer.
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.
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, 2014, 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, 2015, and the Company has no intentions of operating Seattle.
As of June 30, 2015, the Company owns 100%
of Red Shield and Seattle. In April, 2015, E Build and Truss was sold. See “Discontinued Operations” footnote 12.
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 recorded an accumulated deficit of $74,876,514, current year
net income of $99,871, recurring losses from operations and significant cash used in operating activities over the last two years,
and is dependent upon its ability to obtain future financing and successful operations. The Company is experiencing negative working
capital from 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 operational expenses of approximately
two hundred and fifty thousand dollars a month is required to continue to operate. This is achieved either through profit from
sales, obtaining additional financing through the sale of its common stock and/or through private placements, and trimming overhead
expenses. The minimum operational expenses must be met in order to relieve 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 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.
2. Summary of Significant Accounting
Policies
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of the Eco Building Products, Inc. and its wholly owned subsidiaries, E Build & Truss, Inc.,
Red Shield Lumber, Inc., and Seattle Coffee Exchange. Intercompany transactions and balances have been eliminated in
consolidation. E Build & Truss was sold in April of 2015. See footnote 12.
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.
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, $1,607 and $1,607, respectively,
as of June 30, 2015 and June 30, 2014, correspondingly, bad debt expense was $138,216 and $0 for June 30, 2015 and June 30, 2014
respectively.
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 obsolete inventories. As
of the fiscal year ended June 30, 2015 and June 30, 2014, the Company reserved $47,264 and $47,264 for obsolete inventory, respectively,
recorded in cost of sales in the Consolidated Statements of Operations.
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. Accordingly, as
of the fiscal years ended June 30, 2015 and 2014, the Company recorded on impairment expense of $207,172 and $0, respectively.
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 settlement of accrued compensation, consulting and
advisory services, debt cancellation, conversion of Preferred Series C shares and a related party equipment purchase (See Note
8).
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." 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. The Company had approximately 8,036,836,992 and 8,622,011,614 potentially dilutive shares at June
30, 2015 and 2014, respectively. These potentially issuable common shares were excluded from the June 30, 2014 calculation of diluted
loss per share because the effects were anti-dilutive.
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 the Black-Scholes option valuation technique. Estimating fair values
of derivative financial instruments requires the development of significant and subjective estimates (such as volatility, estimated
life and interest rates) 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.
The Company recorded
derivative liability of $14,198,848 and $20,504,553 and a gain of $18,584,275 and a gain of $8,317,610 on derivative valuation
for the years ended June 30, 2015 and 2014, respectively.
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. Contract revenue where labor services are performed is generally recognized
when the labor services are performed assuming all the other revenue recognition criteria stated above is satisfied. Sales are
recorded net of any applicable sales tax.
The Company had product sales revenue of
$787,096 and $340,770 to two customers, representing 32% and 14% of total sales for year ended June 30, 2015, respectively. No
long term fixed contracts control any future sales to these customers.
The Company had product sales revenue of
$472,539, $211,523 and $200,741 to three customers, representing 32%, 14% and 14% of total sales for year ended June 30, 2014,
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. Certain expense reclassifications were made to the 2014 financial statements to be consistent with the
Company’s current accounting practices.
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 $71,921 and $117,236 for
the years ended June 30, 2015 and 2014, respectively.
Advertising Cost
Advertising costs are charged to operations when incurred. During
in the years ended June 30, 2015 and 2014 the Company incurred $58,771 and $111,381 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 cost of goods sold 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.
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.
Reclassifications
Certain expenses previously included in general and administrative
in the prior year have been reclassified to cost of goods sold to reflect current accounting practices. Dividends have also been
reclassified to conform to current accounting practices. (See also Note 8)
Recent Accounting Pronouncements
In August 2014, FASB issued Accounting
Standards Update (ASU) No. 2014-15 Preparation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern. Under generally accepted accounting principles (GAAP), continuation
of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s
liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern
basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under
the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements—Liquidation
Basis of Accounting. Even when an entity’s liquidation is not imminent, there may be conditions or events that raise substantial
doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue
to be prepared under the going concern basis of accounting, but the amendments in this Update should be followed to determine whether
to disclose information about the relevant conditions and events. The amendments in this Update are effective for the annual period
ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company
will evaluate the going concern considerations in this ASU, however, at the current period, management does not believe that it
has met conditions which would subject these financial statements for additional disclosure.
3. Balance Sheet Components
Inventories
Inventories consisted of the following:
| |
For the year ended | |
| |
June 30, | |
| |
2015 | | |
2014 | |
Chemicals | |
$ | 160,920 | | |
$ | 34,733 | |
Lumber | |
| 10,711 | | |
| 433,678 | |
Total | |
$ | 171,631 | | |
$ | 468,411 | |
All of the Company’s inventories
are pledged as collateral for the Company’s Senior Secured Notes (see Note 5). In addition, inventory is considered finished
goods as the Company sells and markets chemicals and treated and untreated lumber.
Accrued Liabilities
As
of June 30, 2015, the Company owed $888,145 in past due payroll taxes and accrued penalties. The Company has successfully made
an arrangement with the IRS for monthly payments for a $740,000 portion of the liability. These amounts are recorded within payroll
and taxes payable on the accompanying consolidated balance sheet. Also at June 30, 2015, the Company owed $21,397 in past due sales
tax in which it has filed the appropriate reports and is making periodic payments.
As
of June 30, 2014, the Company owed $1,453,319 in past due payroll taxes and accrued penalties. These amounts are recorded within
payroll and taxes payable on the accompanying consolidated balance sheet. Also at June 30, 2014, the Company owed $137,359 in past
due sales tax in which it has filed the appropriate reports and is making periodic payments.
4. Property and Equipment
Property and equipment consisted of the
following:
| |
For the year ended | |
| |
June 30, | |
| |
2015 | | |
2014 | |
Machinery and equipment (useful life of five to seven years) | |
$ | 904,066 | | |
$ | 862,291 | |
Vehicles (useful life is three years) | |
| 103,090 | | |
| 44,095 | |
Furniture (useful life of five years) | |
| 20,407 | | |
| 20,407 | |
| |
| | | |
| | |
Computer equipment and software (useful life of three years) | |
| 11,580 | | |
| 151,638 | |
Leasehold improvements (useful life of three years) | |
| 88,737 | | |
| 406,652 | |
| |
| 1,127,880 | | |
| 1,485,083 | |
Less accumulated depreciation | |
| (535,201 | ) | |
| (615,659 | ) |
| |
$ | 592,679 | | |
$ | 869,424 | |
Depreciation charged to operations for
the fiscal year ended June 30, 2015 and 2014 amounted to $211,884and $240,414, respectively.
See Note 12 for sale of E Build & Truss
assets and discontinued operations.
5. Notes Payable
The following tables summarize the Company’s Notes Payable.
| |
As of June 30, 2015 | |
Description | |
Short term | | |
Long term | |
| |
| | |
| |
Convertible notes – related
party | |
$ | 980,779 | | |
$ | — | |
Less discount to notes payable – related party | |
| (230,905 | ) | |
| — | |
Convertible notes – related party, net | |
| 749,874 | | |
| — | |
| |
| | | |
| | |
Convertible notes – non-related party | |
| 80,000 | | |
| — | |
Less discount to notes payable – non-related
party | |
| (69,918 | ) | |
| — | |
Convertible notes – non-related party, net | |
| 10,082 | | |
| — | |
| |
| | | |
| | |
Total convertible notes, net of discount of $300,823 | |
| 759,956 | | |
| — | |
| |
| | | |
| | |
Auto notes payable | |
| 23,916 | | |
| 69,778 | |
Loan payable - related party | |
| 483,911 | | |
| — | |
Loan payable – other | |
| 399,334 | | |
| — | |
| |
| | | |
| | |
| |
$ | 1,667,117 | | |
$ | 69,778 | |
| |
As of June 30, 2014 | |
Description | |
Short term | | |
Long term | |
| |
| | |
| |
Convertible notes – related party | |
$ | 173,041 | | |
$ | — | |
Less discount to notes payable –related party | |
| (120,561 | ) | |
| — | |
Convertible notes – related party, net | |
| 52,480 | | |
| — | |
| |
| | | |
| | |
Convertible notes – non-related party | |
$ | 120,502 | | |
$ | — | |
Less discount to notes payable –related party | |
| (29,328 | ) | |
| — | |
Convertible notes – non-related party, net | |
| 91,174 | | |
| — | |
| |
| | | |
| | |
Total convertible notes, net of discount of $149,889 | |
| 143,654 | | |
| — | |
| |
| | | |
| | |
Auto notes payable | |
| 6,986 | | |
| 2,703 | |
Loan payable - related party | |
| 924,677 | | |
| — | |
Loan payable – other | |
| 484,500 | | |
| — | |
| |
| | | |
| | |
| |
$ | 1,559,817 | | |
$ | 2,703 | |
Convertible Notes
The following table is a roll-forward
of the Company’s Convertible Notes from July 1, 2013 to June 30, 2015:
| |
| |
Gross Convertible Notes Payable | | |
Discount on Convertible Notes Payable | | |
Net Convertible Notes Payable | |
| |
| |
| | |
| | |
| |
Balance as of June 30, 2013 | |
| |
$ | 6,312,574 | | |
$ | (4,779,674 | ) | |
$ | 1,532,900 | |
| |
| |
| | | |
| | | |
| | |
Additions from new convertible notes issued for cash | |
(1) | |
| 1,380,166 | | |
| (1,380,166 | ) | |
| — | |
Conversion of other debt to convertible notes | |
(2) | |
| 1,107,793 | | |
| (1,107,793 | ) | |
| — | |
Repayment of Convertible Debt in cash | |
| |
| (37,500 | ) | |
| — | | |
| (37,500 | ) |
Capitalization of Accrued Interest to Convertible Debt | |
(3) | |
| 46,904 | | |
| (13,500 | ) | |
| 33,404 | |
Conversion of convertible notes - principal to common stocks | |
(4) | |
| (2,440,661 | ) | |
| (1,147,212 | ) | |
| (3,587,873 | ) |
Conversion of convertible notes – principal to Preferred C stock | |
(5) | |
| (6,075,733 | ) | |
| — | | |
| (6,075,733 | ) |
Accretion of discount to interest expense | |
| |
| — | | |
| 8,278,456 | | |
| 8,278,456 | |
| |
| |
| | | |
| | | |
| | |
Balance as of June 30, 2014 | |
(6) | |
| 293,543 | | |
| (149,889 | ) | |
| 143,654 | |
| |
| |
| | | |
| | | |
| | |
Additions from new convertible notes issued for cash | |
(7) | |
| 80,000 | | |
| (80,000 | ) | |
| — | |
Original issue discount | |
(8) | |
| 96,515 | | |
| — | | |
| 96,515 | |
Additions on convertible inventory note | |
(9) | |
| 1,001,326 | | |
| (1,001,326 | ) | |
| — | |
Assignment and assumption of debt | |
(10) | |
| 410,000 | | |
| (410,000 | ) | |
| — | |
Repayment of Convertible Debt in cash | |
| |
| (124,559 | ) | |
| — | | |
| (124,559 | ) |
Conversion of convertible notes – principal to common stock | |
(11) | |
| (100,518 | ) | |
| — | | |
| (100,518 | ) |
Forgiveness of Convertible Debt | |
(12) | |
| (40,000 | ) | |
| — | | |
| (40,000 | ) |
Settlement of Convertible Debt for common stock | |
(13) | |
| 27,513 | | |
| — | | |
| 27,513 | |
Settlement of Convertible Debt for Preferred C stock | |
(14) | |
| (583,041 | ) | |
| — | | |
| (583,041 | ) |
Accretion of discount to interest expense | |
| |
| — | | |
| 1,340,392 | | |
| 1,340,392 | |
| |
| |
| | | |
| | | |
| | |
Balance as of June 30, 2015 | |
(15) | |
$ | 1,060,779 | | |
$ | (300,823 | ) | |
$ | 759,956 | |
Year ended June 30, 2014:
| (1) | During the year ended June 30, 2014, the Company issued a total of 19 separate convertible notes
totaling $1,380,166 face value and ranging in size from $5,000 to $400,000. The notes were issued with beneficial conversion features
and were convertible in to shares of the Company’s common stock at variable prices. Conversion prices were at a discount
to the Company’s market price, typically a 40% to 80% discount to the lowest closing market price for either 10, 20, or 60
days prior to any notice of conversion. The Company determined that the beneficial conversion features should be accounted for
as a derivative liability and the conversion features were valued at the market value on the date of issuance as described below
in derivative liabilities. A debt discount was recorded up to the face value of the debt on the date of issuance. Any excess of
fair value of the derivatives over the face value of the notes issued was recorded to interest expense. The notes were issued with
stated interest rates of between 6% and 12% annual interest rates and may have included stated minimum interest amounts. All convertible
notes issued for cash were issued with conversion features valued in excess of the face value of the notes. A total of $2,157,365
of additional interest expense was recorded as a result of the excess fair value over the face value of the notes. |
| (2) | During the year ended June 30, 2014, the Company converted $1,107,793 of other notes payable into
convertible notes payable at terms consistent with those described above for notes issued for cash described above. Typically,
these other notes payable were either purchased by one of several investors in the company who purchased notes from third parties
or the notes payable were converted from notes payable which were approaching maturity dates. The Company recorded a debt discount
up to the face value of the debt issued. Certain of the notes had the embedded conversion features with fair values in excess of
the face value and for those notes, the combined excess fair value, charged to interest expense, was $8,397,730. |
| (3) | During the year ended June 30, 2014, the Company issued an additional $46,904 in convertible notes for minimum interest payments
on notes payable issued for cash or in exchange for other notes payable. These convertible notes were immediately converted into
Preferred Stock as part of the June 3, 2014 conversion to Preferred stock for substantially all of the convertible debt outstanding
as of that date. |
| (4) | During the year ended June 30, 2014, the Company converted $2,440,661 of convertible notes into
118,534,114 post-split (2,370,682,283 pre-split) shares of the Company’s common stock as described in Note 9. |
| (5) | On June 3, 2014, the Company converted substantially all of the convertible notes in existence
into 3,959 post-split shares of the Company’s Preferred C stock, as described below in Note 9. |
| (6) | As of June 30, 2014, the Company had $293,543 of convertible notes consisting of $173,041 issued
to Redwood in exchange for the assumption of accounts payable of the Company which were converted into Preferred C Shares during
the year ended June 30, 2015, and $120,502 issued to four investors of which were $80,502 were converted to common shares during
the year ended June 30, 2015 and $40,000 of which was forgiven. |
Year ended June 30, 2015:
| (7) | On November 12, 2014, the Company issued a promissory note of $100,000 with an original issue discount
of $20,000. Further terms are described further below in “Note Payable - $100,000.” |
| (8) | During the year ended June 30, 2015, the Company issued promissory notes of $833,333 and $100,000
with original issue discounts of $76,515 and $20,000, respectively. |
| (9) | On September 16, 2014, the Company issued a promissory note of $833,333 with funding used exclusive
to purchase inventory that was disbursed from an escrow account. The Company drew $765,151 for purchased and was charged $236,175
for late payment penalties. This note is further described below in “Inventory Note Payable - $833,333.” |
| (10) | On May 15, 2015, the Company issued a $410,000 convertible note for the assumption of a note payable
to Redwood. |
| (11) | During the year ended June 30, 2015, the Company converted $88,118 of convertible notes into 14,598,450
shares of common stock. |
| (12) | During the year ended June 30, 2015, the Company had convertible debt forgiven of $40,000 plus
$8,498 of accrued interest. |
| (13) | During the year ended June 30, 2015, the Company recognized a loss of $27,513 in settlement of
a note that was converted into 1,950,000 shares of common stock. |
| (14) | During the year ended June 30, 2015, the Company issued 5,830 preferred C shares in settlement
of $583,041 debt to Redwood, inclusive of the $410,000 convertible note described in (10) above. |
| (15) | As of June 30, 2015, the Company had $1,060,779 of convertible notes consisting of $980,779 and
$80,000 as further described below. |
Inventory Note Payable
- $833,333
On September 16, 2014, the Company
entered into a Securities Purchase Agreement with Dominion Capital, LLC, whereby Dominion agreed to fund the Company with an aggregate
of up to $750,000 in Subscription Amount corresponding to an aggregate of up to $833,333 in the form of a 10% Original Issue Discount
Senior Secured Convertible Promissory Note due September 16, 2015 and a Common Stock Purchase Warrant for up to 20,000,000 (400,000,000
pre-split) shares. This funding will be used exclusively to purchase lumber and chemicals and is to be dispersed from an escrow
account. On September 29, 2014, Dominion transferred and assigned the Note and the Warrant to M2B Funding Corporation. The Note
has a fixed conversion price of $0.20 subject to certain adjustments. The Company will repay the Note in monthly installments,
with the final payment due on October 16, 2015. The Company plans on using the receivables from the sale of lumber and chemicals
to comply with the terms of the repayment schedule. In the event of default, the Note is subject to an increase in the interest
rate to eighteen percent (18%) per annum. In accordance with the Agreement, the Company issued a Common stock Purchase Warrant,
allowing M2B Funding Corporation the right to purchase up to 20,000,000 post-split (400,000,000 pre-split) shares of Common Stock
on September 16, 2015 and expiring on September 16, 2019. The Company purchased all of the 20,000,000 available warrants under
this agreement. The exercise price per share of the Common Stock under this Warrant is $0.02 post-split ($0.001 pre-split) subject
to certain adjustments. The Warrant may be exercised in whole or in part, at such time by means of a cashless exercise (see note
8). The Common Shares cannot be sold and or assigned for a period of one year from the original Warrant issue date. The note balance
was increased by $236,175 as a result of late payment penalties per the agreement. The Company drew $765,151 and paid $78,704 during
the year ended June 30, 2015 and recorded discounts totaling $1,001,326, of which $770,421 was amortized at year end representing
the fair value of the warrants issued. In May 2015 this investor converted $18,358 into 10,298,450 shares of common stock. The
balance of this note at June 30, 2015 is $980,779, inclusive of original issue discount of $76,515. Accrued interest at June 30,
2015 is $135,355.
Note
Payable - $100,000
On November
12, 2014, the Company entered into, with a private investor, a Promissory Note for $100,000, with an original issues discount of
$20,000, for net proceeds to the Company of $80,000 for the purpose of funding operations and for general working capital. In
addition the Company issued 12,500,000 restricted common shares (250,000,000 pre-split). On May 14, 2015, the holder converted
$20,000 of this note into 10,000,000 shares of common stock. The conversion represented a substantial modification of the note’s
original terms and as a result the Company recognized a loss of $47,000. The note was in default on May 15, 2015. Default provisions
included additional interest at 18%. The balance of this note at June 30, 2015 is $80,000. Accrued interest at June 30, 2015 is
$1,815.
Derivative Liabilities:
During the years ended June 30, 2015 and
2014, the Company issued convertible notes, convertible preferred stock, warrants, and stock options that can be converted to common
stock in connection with raising equity and debt financing and granting compensation. As of June 30, 2015 and 2014, the Company’s
number of potential common shares plus the number of actual common shares outstanding (“Committed Shares”) exceeded
the number of common shares authorized to issue in accordance with ASC 815-40-19 “Contracts in Entity’s Own Equity”.
The number of outstanding common shares plus the potential common share liability has exceeded the amount of authorized shares,
therefore the Company has to employ ASC 815-40-19 (“ASC 815”) to value common share equivalents potentially issuable
to settle conversions of convertible notes, convertible preferred shares and exercise of options and warrants.
The Company values its derivative financial
instruments, consisting primarily of embedded conversion features for its stock options, warrants, convertible debt, and convertible
preferred stock at issuance at fair value and revalues its derivative financial instruments at the end of each reporting period
or in the case of any conversion or modification of terms, at the date of any such modification or conversion. Any change in fair
value is charged to earnings of the period where the derivative financial instrument is modified or converted. The fair values
of the embedded conversion features for the stock options, warrants, convertible debt, and convertible preferred stock were determined
using the Black-Scholes option pricing model.
The ranges of inputs (or assumptions) the
Company used to value the derivative liabilities at note or equity issuance, conversion dates, and at period end during the year
ended June 30, 2015 were as follows:
(1) dividend yield of 0%
(2) expected daily volatility of 13.24% to 36.98%
(3) risk-free interest rate of 0.23% to 1.85%
(4) expected life of 0.5 days to 3 years, and
(5) estimated fair value of the Company’s common stock
of $0.002 to $0.046 per share.
For the year ended June 30, 2015, the Company
issued an aggregate of $913,333 of convertible promissory notes net of debt discount, including $100,000 in new convertible notes,
and increasing existing notes outstanding balances by $236,175 for additional fees and conversion terms, to various creditors that
mature from to September 16, 2014 to May 14, 2015. These notes are convertible into the Company’s common shares, at the holder’s
option, at conversion prices equal to the lesser of (a) a “Fixed Price” ranging from $0.002 to $0.20 or (b) an amount
ranging from 50% to 60% of the stock’s trading price, defined as the lowest average or actual (range of) (1) one to (5) five
trading prices of the (range of) 1 to 20 trading days immediately prior to the date of conversion.
The ranges of inputs (or assumptions) the
Company used to value the derivative liabilities at note or equity issuance, conversion dates, and at period end during the year
ended June 30, 2014 were as follows:
(1) dividend yield of 0%
(2) expected daily volatility of 8.71% to 27.42%
(3) risk-free interest rate of 0.01% to 0.88%
(4) expected life of 33 days to 2 years, and
(5) estimated fair value of the Company’s common stock
of $0.00023 to $0.214 per share ($0.00114 to $0.0107 per share pre-split)
For the year ended June 30, 2014, the Company
issued an aggregate of $3,845,587 convertible promissory notes net of debt discount, including $968,125 in new convertible notes,
and increasing existing notes outstanding balances by $960.610 for additional fees and conversion terms, to various creditors that
mature from November 30, 2013 to April 4, 2015. These notes are convertible into the Company’s common shares, at the holder’s
option, at conversion prices equal to the lesser of (a) a “Fixed Price” ranging from $0.0025 to $0.08 or (b) an amount
ranging from 40% to 80% of the stock’s trading price, defined as the lowest average or actual (range of) (3) three to (5)
five trading prices of the (range of) 3 to 20 trading days immediately prior to the date of conversion.
For all convertible notes described in
the paragraphs above and for the options, warrants and convertible preferred Series C and Series D shares described in Note 8,
the fair value of the resulting derivative liability was $14,198,848 and $20,504,553 at June 30, 2015 and June 30, 2014, respectively,
with corresponding debt discounts with an aggregate balance of $300,823 and $149,889, respectively.
The following is a roll-forward of derivative
liabilities from June 30, 2013 to June 30, 2015:
Balance as of June 30, 2013 | |
$ | 9,179,309 | |
| |
| | |
Additions related to embedded conversion features of convertible notes issued | |
| 14,208,977 | |
Additions related to embedded conversion features of Preferred C issued | |
| 25,630,468 | |
Gain on Debt Extinguishment and reduction of derivative liability at fair value of embedded conversion features of Convertible Debt converted into Preferred C Stock | |
| (14,478,476 | ) |
Conversion of convertible debt to common stock | |
| (5,720,189 | ) |
Gain on decrease in value of derivative liabilities | |
| (8,317,611 | ) |
Issuance of Options, net of change in fair value | |
| 2,075 | |
| |
| | |
Balance as of June 30, 2014 | |
| 20,504,553 | |
| |
| | |
Additions related to embedded conversion features of convertible notes issued | |
| 3,400,061 | |
Additions related to embedded conversion features of Preferred C Stock issued | |
| 3,804,541 | |
Additions related to embedded conversion features of Preferred D Stock issued | |
| 8,260,305 | |
Additions related to embedded conversion features of warrants issued | |
| 438,590 | |
Additions related to embedded conversion features of stock options issued | |
| 27,292 | |
Decrease from extinguishment of convertible note for Preferred C shares | |
| (781,319 | ) |
Conversion of convertible debt to common stock | |
| (165,713 | ) |
Conversion of Preferred C shares to common stock | |
| (2,701,837 | ) |
Other decreases | |
| (3,350 | ) |
Gain on decrease in value of derivative liabilities | |
| (18,584,275 | ) |
| |
| | |
Balance as of June 30, 2015 | |
$ | 14,198,848 | |
Auto Notes
Payable
The Company entered
in an auto loan agreement on November 7, 2011 to purchase a Ford 150 pickup truck. The principal amount of the loan
is $27,095 and the interest rate 9.99%. The loan matured on October 7, 2015. The Company was making auto
loan payments of $690 per month. At June 30, 2015 and 2014, the balances of the auto loan were $3,862 and $6,986 (all
current maturities), respectively.
The Company entered
in an auto loan agreement on September 13, 2014 to purchase a Ford Raptor F150 pickup truck. The principal amount of
the loan is $105,284 and the interest rate 5.49%. The loan matures on November 13, 2019. The Company is making
auto loan payments of $1,671 per month. At June 30, 2015 the balance of the auto loan was $89,832.
Maturities of
auto notes payable over the next 5 years are as follows:
Year ending June 30, | |
| | |
2016 | |
$ | 23,916 | |
2017 | |
| 20,054 | |
2018 | |
| 20,054 | |
2019 | |
| 20,054 | |
2020 | |
| 9,616 | |
| |
| 93,694 | |
Less current maturities | |
| (23,916 | ) |
| |
| | |
Long-term portion | |
$ | 69,778 | |
Loans Payable
– Other at June 30, 2015 consist of:
Secured
Promissory Note - $44,500
At June 30, 2012,
the Company was indebted for $44,500 for amounts received in prior years for operating expenses in exchange for a secured promissory
note from a third party entered into during 2010. This amount was due on demand and non-interest bearing. No payments were made
on this note during the fiscal years ending June 30, 2015 and June 30, 2014, leaving balances of $44,500 at June 30, 2015 and June
30, 2014.
Inventory
Note Payable – up to $1,200,000
On July 18, 2014,
the Company signed a Secured Revolving Promissory Note for up to One Million Two Hundred Thousand Dollars ($1,200,000) with an
investor to facilitate purchase of inventory for orders from the Company’s material customer. The note is secured by the
inventory. Repayment of the note is facilitated by the assignment of the accounts receivable directly from the Company’s
material customer to the investor. The initial term of the note is for six months with an option to extend for an additional six
month period. The note will bear an 18% interest rate per annum with a maximum default interest of 24% per annum. Within three
(3) Business Days after the date of this Note, the Company shall deliver to Payee a Warrant, in a form acceptable to Payee, exercisable
for 900,000 (18,000,000 pre-split) shares of the Company’s Common Stock at a price per share equal to the closing price of
the Common Stock on the trading day prior to the date of such Warrant. Upon receipt of such Warrant, Payee shall execute a 12-month
lock-up agreement in customary form and reasonably acceptable to Payee, currently no warrant or lock-up agreements have been issued
or executed. During the year ended June 30, 2015 the Company drew $504,593 in payments made on behalf of the Company to its suppliers
and the Company’s customers repaid $321,137 during the year ended June 30, 2015. The balance of the note as of
June 30, 2015 is $ 183,456. This note has not been renewed at the six month anniversary. No
payments have been made after June 30, 2015.
Lease in
Default - $151,275
Effective April
1, 2015 through June 30, 2015, the Company incurred $151,275 due to a default on their facilities lease. The default rate on the
lease is 10%. No repayments were made in that period, leaving a balance of $151,275 due at June 30, 2015.
Future Receivables Sale Agreement
Effective March 6, 2015, the Company entered
into an agreement whereby it sold a percentage of its future receivables in exchange for $75,000. Per the terms of this agreement,
the Company would repay a total of $102,750 via daily remittance of twelve percent (12%) of its accounts receivable collections
and other receipts from the sale of its products and services. Alternatively, the Company could elect to repay $120,750 total via
a flat daily remittance of $1,038 (“Alternative Daily Amount”) until that amount is repaid in full. The Company elected
to repay $120,750 at the Alternative Daily Amount of $1,038, which gives the agreement the character of a $73,500 note. The interest
rate was imputed at 184.23% and the $102,750 purchase price was paid off in July 2015. The balance of the note was $20,103 at June
30, 2015.
Settlement
Note - $440,000
At June 30, 2013,
the Company had notes totaling $200,000, maturing from due on demand to September 1, 2013, bearing interest ranging from 0% to
12%, with default interest ranging from 0% to 18% and $5,000 per week. During the year ended June 30, 2014, the Company
was in default of the notes and settled with the note holder for an additional $240,000 in interest and further agreed to assign
this note at $410,000 with the Company’s Preferred C shareholder under a debt assignment agreement. See note 5.
Loans Payable
– Related Party
At June 30, 2013,
the Company had a non-interest bearing note payable due to its Chief Executive Officer who is also a Director and significant shareholder
with a balance of $509,151. During 2014, the Company paid $128,824, leaving a balance
of $380,327 at June 30, 2014. Effective June 15, 2015, this debt was forgiven in connection with the termination of the Chief Executive
Officer’s Employment Agreement described in note 6.
At June 30, 2013, the Company had interest
bearing notes payable due to its Chief Technical Officer with a balance of $95,000. During the year ended June 30, 2014, the Company
paid $10,000, leaving a balance of $85,000 at June 30, 2014. During the year ended June 30 2015, the Company paid $40,000, leaving
a balance of $45,000 at June 30, 2015.
On February 14,
2014 the Company entered into a Note agreement with a shareholder greater than 10% for $500,000 for the purpose of purchasing inventory.
The note is secured by the Company’s inventory and is to be repaid out of the proceeds of the subsequent inventory sales.
The note was due May 14, 2014 and was extended until March 31, 2015. The Note carries minimum interest of $45,000 for the initial
term and an additional $45,000 of interest for the extension of the due date. During the year ended June 30, 2014 a total of $193,651
was repaid leaving a balance due of $306,349 as of June 30, 2014. During the year ended June
30, 2015, $220,438 was repaid, leaving a balance due of $85,911 as of June 30, 2015. No payments have been made after June 30,
2015.
On April 11, 2014,
the Company entered into a Note agreement with a shareholder greater than 10% for $250,000 for the purpose of funding operations
and for general working capital. The Note carries minimum interest of $22,500 and the note
was due July 1, 2014 and was extended until March 31, 2015. The Company made a partial draw-down of the Note for $150,000
during the year ended June 30, 2014. During the year ended June 30, 2015, no additional draw-downs
were made. No payments have been made after June 30, 2015.
On November 19,
2014, the Company entered into, with a greater-than 10% investor who is considered a related party, a Promissory Note for $100,000
with annual interest of 6% for the purpose of funding operations and for general working capital. In addition the Company
issued 12,500,000 (250,000,000 pre-split) restricted common shares. The note was due on February 19, 2015. As of May 18, 2015 the
Company has extended the note to August 21, 2015 with the agreement to issue, prior to the new maturity date, an additional 25,000,000
common shares post-split adjusted. No payments have been made after June 30, 2015.
On
January 16, 2015 the Company entered into an additional promissory note with greater-than 10% investor noted above for
$20,000 with annual interest of 6%. This note was due on July 16, 2015. In addition the Company issued 30,000,000 restricted
common shares. No payments have been made after June 30, 2015.
On March 25, 2015,
the Company entered into, with a shareholder greater than 10%, a Promissory Note for $20,000 with annual interest of 6% for the
purpose of funding operations and for general working capital. The note was due on April 24, 2015. Default interest
of an additional 10% per annum on the original loan amount will accrue if the repayment term goes beyond 30 days. No
payments have been made after June 30, 2015. Additionally, the Company borrowed an additional $3,000 from this same party
at 0% and no terms of repayment.
On April 2, 2015, a shareholder greater
than 10% loaned the company $60,000 on a secured promissory note with a 6% per annum interest rate and a 30 day maturity date. Default
interest of an additional 10% per annum is incurred on this note if repayment is not made by July 2, 2015.
No payments have been made after June 30, 2015.
6. Related Party Transactions
See also Note 5 for Loans payable –
related parties and equity issuances in Note 8.
Employment Agreement – President
and Chief Executive Officer
Effective November 1, 2013, the Company
entered into an employment agreement with its President and Chief Executive Officer for a term of five (5) years and shall be renewed
automatically for succeeding terms of one (1) year each (“Renewal Terms”) unless either party gives notice to the other
at least 30 days prior to the expiration of any term of said party’s intention not to renew this Agreement. Key
provisions of the agreement include:
| (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, 2014 exceed $25,000,000, subject to certain limitations. If the company achieves 80% of the bonus target then the employee is entitled to 50% of the defined bonus for the defined period. |
|
(c) |
Additional cash bonus of $300,000 in the event that gross sales for the fiscal year ending June 30, 2015 exceed $50,000,000, subject to certain limitations. In addition when the aforementioned gross sales targets are obtained the employee will be eligible for a 20% increase in salary year over year. |
|
(d) |
Option grants to purchase 60,000 (1,200,000 pre-split) shares of the company’s common stock at an exercise price of $2.00 per share ($0.10 pre-split), expiring April 1, 2016 (five-year life). Such options will vest over a two-year period. These options were valued at $6,984, as determined using the Black-Scholes option-pricing model using a risk free rate of 1.37%, volatility of 149% and a trading price of the underlying shares of $0.16 ($0.008 pre-split). |
|
(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. |
Effective June 15, 2015, this agreement
and the loan payable described in note 5 was terminated in exchange for the following:
| (a) | Severance payments totaling $37,500, to be paid in 3 monthly installments of $12,500 each, payments
made 30, 60, 90 days after the effective date of the agreement. |
| (b) | An option to purchase shares of Common Stock equal to one percent (1%) of the total number of shares
outstanding on the date of grant with an exercise price equal to the closing bid price on the date of grant ($0.0038 per share),
and expiration date of ten (10) years from the date of issuance. A total of 5,786,227 options were granted under these terms. The
options vest fifty percent (50%) on the effective date of the agreement, with the remaining fifty percent (50%) vesting six (6)
months after the effective date of the agreement. The options were valued at $21,987, as determined using the Black-Scholes option-pricing
model using a risk free rate of 2.35%, volatility of 257% and a trading price of the underlying shares of $0.038. Effective with
the President’s termination a total of 30,000 Series A preferred shares were cancelled. See note 8. |
The termination and exchange transaction
was accounted for as an extinguishment of debt. As a result, Additional Paid-in Capital was increased by $1,089,505. No gain was
recognized on the transaction since it was with a related party.
Accrued compensation
due the president at June 30, 2014 totaled $782,882. Compensation charged to operations
during the year ended June 30, 2014 on the option granted totaled $4,365. The CEO also had 800,000 options granted from the previous
employment agreement (see note 8).
Employment Agreement –Chief Technical
Officer
Effective November 1, 2013, the Company
entered into an employment agreement with its Chief Technical Officer or “CTO” for a term of five (5) years and shall
be renewed automatically for succeeding terms of one (1) year each (“Renewal Terms”) unless either party gives notice
to the other at least 30 days prior to the expiration of any term of said party’s intention not to renew this Agreement. Key
provisions of the agreement include:
|
(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, 2014 exceed $25,000,000, subject to certain limitations. If the company achieves 80% of the bonus target then the employee is entitled to 50% of the defined bonus for the defined period. |
|
(c) |
Additional cash bonus of $250,000 in the event that gross sales for the fiscal year ending June 30, 2015 exceed $50,000,000, subject to certain limitations. In addition when the aforementioned gross sales targets are obtained the employee will be eligible for a 20% increase in salary year over year. |
|
(d) |
Option grants to purchase 40,000 (800,000 pre-split) shares of the company’s common stock at an exercise price of $2.00 per share ($0.10 pre-split), expiring April 1, 2016 (five-year life). Such options will vest over a two-year period. These options were valued at $4,656, as determined using the Black-Scholes option-pricing model using a risk free rate of 1.37%, volatility of 149% and a trading price of the underlying shares of $0.16 ($0.008 pre-split). |
|
(e) |
Severance pay is due the CTO upon separating from service, with or without cause, equaling his then current monthly salary multiplied by the number of full years that he has been employed with the Company prior to separation. |
Accrued compensation
due the Chief Technical Officer at June 30, 2015 totaled $634,011. Compensation charged
to operations during the year ended June 30, 2015 on option grants totaled $554.
Accrued compensation
due the Chief Technical Officer at June 30, 2014 totaled $610,153. Compensation charged
to operations during the year ended June 30, 2014 on the option grants totaled $2,910. The CTO also had 20,000 (400,000 pre-split)
options granted from a previous employment agreement.
7. Fair
Value of Assets and Liabilities
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or
most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market
participants at the measurement date. Further, entities are required to maximize the use of observable inputs and minimize the
use of unobservable inputs in measuring fair value, and to utilize a three-level fair value hierarchy that prioritizes the inputs
used to measure fair value. The three levels of inputs used to measure fair value are as follows:
Level
1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 —
Observable inputs other than quoted prices included within Level 1, 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; and inputs
other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation
or other means.
Level
3 — Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets
or liabilities, and reflect the Company’s own assumptions about the assumptions market participants would use in pricing
the asset or liability developed based on the best information available in the circumstances.
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 approximates its carrying value due to its short-term
nature.
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
Liabilities. The Company assessed that the fair value of these liabilities using observable inputs described in level
2 above. 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.
8. Stockholders' Deficit
Preferred Stock
Series A Preferred Stocks:
On January 27, 2014 the Board of Directors
authorized 30,000 shares of Class A Preferred Stock with a par value of $0.001 per share.
The terms of the preferred series A shares
are as follows:
| · | Series A Preferred stock is not convertible. |
| · | Each share of Series A Preferred stock
is entitled to 100,000 votes on matters that the holders of the Company's common stock may vote. |
| · | The Series A Preferred stock is redeemable
by the company for no consideration at any time. |
| · | The Series A Preferred stock cannot vote
on election or removal of directors. |
| · | The Series A Preferred stock has no stated
dividend rate and has no liquidation preference. |
On January 27, 2014 the Board of Directors
issued Steve Conboy, the Company’s Chief Executive Officer, 11,000 shares of Class A Preferred Stock. On February 26, 2014
the Board of Directors issued Steve Conboy an additional 19,000 shares of Preferred Series A stock. The Voting Control Valuation
of the Securities at issuance were valued at $1,221,000 based upon the industry control premiums and the Company’s
market cap at the time of the transaction, which has been recorded as compensation expense during the year ended June 30, 2014.
Effective with the Chief Executive Officer’s
termination on June 15, 2015, a total of 30,000 Series A preferred shares were cancelled (note 6). There were no issuances of Series
Preferred A stock during the year ended June 30, 2015.
The following table provides the activity
of the Company’s preferred A stock for the year ended June 30, 2015:
Balance as of June 30, 2014 | |
| 30 | |
| |
| | |
Preferred A Stock issued for cash | |
| — | |
Preferred A Stock issued for debt assumption | |
| — | |
Preferred A Stock cancelled | |
| (30 | ) |
Preferred A Stock converted into Common Stock | |
| (—) | |
| |
| | |
Balance as of June 30, 2015 | |
| - | |
Series B 12% Convertible Preferred
Stock:
On February 26, 2014 the Board of Directors
authorized 6,750 shares of Class B Preferred Stock (“Preferred B Stock”) with a par value of $0.001. On April 17, 2014,
an additional 2,500 shares of Preferred B Stock with a par value of $0.001, for a total authorized and issued amount of 9,250.
The terms of the Preferred B Stock are
as follows:
| · | The Preferred B Stock shall have no voting
rights. |
| · | The Preferred B Stock convertible at any
time at 60% of the lowest VWAP of the 20 days leading up to conversion multiplied by the stated value of $100. |
| · | The Preferred B Stock has a 12% per annum
stated dividend rate, which is calculated daily on a 360 day year. |
| · | The Preferred B Stock shall have a liquidation
preference equal to the stated value of each share of Preferred Stock or $100 per share. |
On February 26, 2014, the Company entered
into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”)
providing for the issuance and sale by the Company (the “Offering”) of 6,750 shares of Preferred B Stock,
par value $0.001 per share (the “Preferred B Stock”), for a purchase price of $675,000 (the “Financing”)
which are convertible into shares of the Company’s common stock (the “Common Stock”). The closing
of the sale of these securities took place on February 27, 2014 (the “Closing”).
On April 17, 2014, the Company issued an
additional 2,500 shares of Preferred B Stock for a purchase price of $250,000 to the same investor.
On June 3, 2014, all 9,250 shares of the
Preferred B Stock were converted into an equal number of shares of the Company’s Series C Convertible Preferred Stock as
described below. There were no Preferred B shares outstanding at June 30, 2015 and June 30, 2014.
Series C 12% Convertible Preferred
Stock:
On May 30, 2014, the Company authorized
120,000 shares of a newly-created Series C 12% Convertible Preferred Stock, par value $0.001 per share (the “Preferred C
Stock”).
The terms of the Preferred C Stock are
as follows:
| · | The Preferred C Stock shall have no voting
rights. |
| · | The Preferred C Stock is convertible at
any time at 60% of the lowest VWAP of the 20 days leading up to conversion multiplied by the stated value of $100. |
| · | The
Preferred C Stock has a 12% per annum stated dividend rate, which is calculated daily
on a 360 day year. Any dividends, whether paid in cash or shares of Common Stock, that
are not paid within five trading days following a dividend payment date shall continue
to accrue and shall entail a late fee at 18% per annum. In addition, the dividend rate
of 12% is subject to an adjustment up to 18% if at any time the Company does not have
an amount equal to or greater than 150% of the authorized but unissued common shares
that would be required (on an “if converted” basis) to settle the conversion
of Preferred C Stock outstanding. As of June 30, 2015, the Company has accrued dividends
on Preferred C Stock in the amount of $431,376. The amount of dividends has not yet been
determined by the Company and the holders whether to be payable in cash, common stock
or additional shares of Preferred C Stock. |
| · | The Preferred C Stock shall have a liquidation
preference equal to the stated value of each share of Preferred Stock or $100 per share. |
Preferred C Stock issued in Exchange
Agreement
On June 3, 2014,
the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with institutional investors whereby
the investors agreed to fund the Company by means of both contributing cash and settling convertible notes payable principal and
interest outstanding for shares of Preferred C Stock at various times during the year. Accordingly, for the year ended June 30,
2014, the Company:
| 1. | Issued 12,500 shares of Preferred C Stock for cash of $1,250,000; |
| 2. | Issued of 9,250 shares of Series C Preferred Stock in exchange for the 9,250 shares of Series B
Preferred Stock; |
| 3. | Issued 73,008 shares of Series C Preferred Stock in exchange for the settlement of $7,337,502 of
principal and interest of convertible notes outstanding (See Note 5); |
| 4. | Agreed to issue additional shares of Preferred C for future cash receipts and assumption of aged
accounts payable (see subsequent events in Note 11). |
Preferred C Stock converted to Common
Stock
During the year ended June 30, 2014, according
to the conversion terms described above, the investors converted 364 shares of Preferred C Stock representing value of $36,400
into 31,891,267 shares of the Company’s Common Stock. The Company had 94,394 and 0 shares of Preferred C stock issued and
outstanding as of June 30, 2014 and 2013, respectively.
Preferred C Stock issued for cash
During the year
ended June 30, 2015, the investors purchased 10,000 shares of Preferred C Stock for $1,000,000 of cash.
Preferred C Stock issued for debt
assumption
During the year
months ended June 30, 2015, at total of 10,771 shares of Preferred C Stock were issued to investors for debt assumption.
In exchange for 4,941 of these shares, $494,172 of accounts payable was assumed by one investor. Additionally, in exchange for
the remaining 5,830 shares, a convertible note with a balance of $590,428 was exchanged for Preferred C shares by the same investor.
Preferred C Stock, have been valued similar
to the convertible notes, comprising a part of the derivative liability which is calculated using the Black-Scholes option pricing
model. The range of inputs (or assumptions) the Company used to value the derivative liabilities at date of issuances, conversion
dates, and at period end during the years ended June 30, 2015 and June 30, 2014 are disclosed under the derivative liabilities
section (See Note 5).
The following table provides the activity
of the Company’s preferred C stock for the year ended June 30, 2015:
Balance as of June 30, 2014 | |
| 94,394 | |
| |
| | |
Preferred C Stock issued for cash | |
| 10,000 | |
Preferred C Stock issued for debt assumption | |
| 10,771 | |
Preferred C Stock converted into Common Stock | |
| (10,725 | ) |
| |
| | |
Balance as of June 30, 2015 | |
| 104,440 | |
During
the year ended June 30, 2015, according to the conversion terms described above, the investors converted 10,725 shares of Preferred
C Stock representing value of $1,072,500 into 329,098,857 post-split shares of the Company’s Common Stock.
Series D
12% Convertible Preferred Stock:
On March 31, 2015,
the Company authorized 10,000 shares of a newly-created Series D 12% Convertible Preferred Stock, par value $0.001 per share (the
“Preferred D Stock”). Effective July 2, 2015, the Company increased the number of authorized shares to 20,000.
The terms of the
Preferred D Stock are as follows:
|
● |
The Preferred D Stock shall have no voting rights. |
|
● |
The Preferred D Stock is convertible at any time at 60% of the lowest VWAP of the 30 days leading up to conversion multiplied by the stated value of $100. |
|
● |
The Preferred D Stock has a 12% per annum stated dividend rate, which is calculated daily on a 360 day
year. Any dividends, whether paid in cash or shares of Common Stock, that not paid within five trading days following
a dividend payment date shall continue to accrue and shall entail a late fee at 18% per annum. In addition, the dividend rate of
12% is subject to an adjustment up to 18% if at any time the Company does not have an amount equal to or greater than 150% of the
authorized but unissued common shares that would be required (on an “if converted” basis) to settle the conversion
of Preferred C Stock outstanding. As of June 30, 2015, the Company has accrued dividends on Preferred D Stock in the amount of
$24,563. The amount of dividends has not yet been determined by the Company and the holders whether to be payable in cash, common
stock or additional shares of Preferred D Stock. |
|
● |
The Preferred D Stock shall have a liquidation preference equal to the stated value of each share of Preferred Stock or $100 per share. |
Preferred D Stock issued for cash
During the year
ended June 30, 2015, investors purchased 9,979 shares of Preferred D Stock for $997,939 of cash.
Common Stock
On March 20, 2015 the Company effectuated
a 1 for 20 reverse split of the common stock as ratified by the investors and filed with the secretary of state.
Common Stock Issuances
During the year ended June 30, 2015, the
Company issued a total of 448,447,307 shares of its common stock as follows:
| |
Shares | | |
Amount | |
Shares issued for cash | |
| 37,500,000 | | |
$ | 100,000 | |
Shares issued for convertible debt conversions | |
| 14,598,450 | | |
| 88,118 | |
Shares issued in settlement of debt | |
| 12,250,000 | | |
| 109,000 | |
Shares issued for interest expense and debt discount | |
| 55,000,000 | | |
| 262,678 | |
Shares issued for conversion of Preferred C shares | |
| 329,098,857 | | |
| 10,725 | |
Total | |
| 448,447,307 | | |
$ | 570,521 | |
During the year ended June 30, 2014, the
Company issued a total of 135,214,417 shares of its common stock as follows:
| |
Shares | | |
Amount | |
Shares issued for cash | |
| 11,583,334 | | |
$ | 610,000 | |
Shares issued for accrued compensation | |
| 2,500,000 | | |
| 700,000 | |
Shares issued for services | |
| 1,250,000 | | |
| 42,500 | |
Shares issued for convertible debt conversions | |
| 118,534,115 | | |
| 2,595,661 | |
Shares issued in lieu of interest | |
| 1,777,404 | | |
| 128,285 | |
Shares issued for conversion of Preferred C shares | |
| 1,594,564 | | |
| 36,400 | |
Total | |
| 137,239,417 | | |
$ | 4,112,846 | |
Treasury Stock
As of July 1, 2013, the Company held 2,694,942
(53,898,837 pre-split) shares of common stock as treasury stock, resulting in 24,961,093 (499,221,857 pre-split) shares issued
and 22,266,151 (445,323,020 pre-split) outstanding shares.
During the year ended June 30, 2014, the
Company reissued 1,261,895 (25,237,902 pre-split) shares of common stock for $25,238 to the Chief Executive Officer and Chief Technical
Officer, and retired 2,025,000 (40,500,000 pre-split) shares for $40,500 related to the retirement of shares for the convertible
notes conversion and line of credit assumption discussed in Note 5 above, both of which dollar amounts have been recorded in paid
in capital. The Company held 1,433,046 (28,660,935 pre-split) shares of common stock as treasury stock as of June 30, 2014 and
June 30, 2015. There were no treasury stock transactions during the year ended June 30, 2015.
Warrants
In December 2013,
the Company granted warrants to Emergent Capital to purchase 25,000,000 shares of its common stock. The warrants have
an exercise price of $0.0012 per share and were scheduled to expire in 2 years. On January 26, 2015, by mutual agreement the Company
and Emergent Capital have formally agreed to immediately expire and terminate the 25,000,000 warrants.
As discussed in note 5, the Company issued a Common Stock Purchase Warrant, allowing M2B Funding Corporation
the right to purchase up to 20,000,000 post-split (400,000,000 pre-split) shares of Common Stock on September 16, 2015 and expiring
on September 16, 2019. The exercise price per share of the Common Stock under these warrants is $0.02 post-split ($0.001 pre-split)
subject to certain adjustments. The 20,000,000 warrants were valued at $438,590 using the Black-Scholes Option Model with a risk
free interest rate of 1.78%, volatility of 261.05%, and trading price of $0.022 ($0.00111 pre-split) per share.
The following is a schedule of warrants
outstanding as of June 30, 2015:
| |
Warrants Outstanding | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Life | |
| |
| | |
| | |
| |
Balance, June 30, 2013 | |
| - | | |
$ | - | | |
| - | |
Warrants issued | |
| 25,000,000 | | |
| - | | |
| - | |
Warrants expired | |
| - | | |
| - | | |
| - | |
Warrants cancelled | |
| - | | |
| - | | |
| - | |
Balance, June 30, 2014 | |
| 25,000,000 | | |
$ | 0.00 | | |
| 1.42 years | |
Warrants issued | |
| 20,000,000 | | |
$ | 0.02 | | |
| 5.0 years | |
Warrants expired | |
| - | | |
| - | | |
| - | |
Warrants cancelled | |
| (25,000,000 | ) | |
| - | | |
| - | |
Balance, June 30, 2015 | |
| 20,000,000 | | |
$ | 0.02 | | |
| 4.21 Years | |
As of June 30, 2015, all of the 20,000,000
warrants were fully exercisable.
Options
In December 2013,
the Company granted options to its President to purchase 1,200,000 shares of its common stock and options to its Chief Technical
Officer to purchase 800,000 shares of its common stock. The 2,000,000 options have an exercise price of $0.10 per share and expire
in 5 years.
As discussed in note 6, the Company granted
options to its Chief Executive Officer as in connection with his termination agreement. A total of 5,786,227 options were granted
based on the number of shares of Common Stock equal to one percent (1%) of the total number of shares outstanding on the date of
grant. The options have an exercise price equal to the closing bid price on the date of grant ($0.0038 per share) and an expiration
date of ten (10) years from the date of issuance. A total of 5,786,227 options were granted under these terms. The options vest
fifty percent (50%) on the effective date of the agreement, with the remaining fifty percent (50%) vesting six (6) months after
the effective date of the agreement. The options were valued at $21,987, as determined using the Black-Scholes option-pricing model
using a risk free rate of 2.35%, volatility of 257% and a trading price of the underlying shares of $0.038.
The following is a schedule of options
outstanding as of June 30, 2015:
| |
Options Outstanding | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Life | | |
Aggregate Intrinsic
Value | |
| |
| | |
| | |
| | |
| |
Balance, June 30, 2013 | |
| 1,200,000 | | |
$ | 2.00 | | |
| 3.75 Years | | |
| - | |
Options granted | |
| 2,000,000 | | |
$ | 0.17 | | |
| | | |
| - | |
Options cancelled/expired | |
| - | | |
| - | | |
| - | | |
| - | |
Balance, June 30, 2014 | |
| 3,200,000 | | |
$ | 0.01 | | |
| 2.01 Years | | |
$ | - | |
Options granted | |
| 5,786,227 | | |
$ | 0.0038 | | |
| | | |
| - | |
Balance, June 30, 2015 | |
| 8,986,227 | | |
$ | 0.0089 | | |
| 9.98 Years | | |
$ | - | |
As of June 30, 2015, a total of 3,200,000
of the 5,946,227 options were fully vested. Compensation expense of $16,299 remaining, will be recognized over the remaining lives
of the options.
9. 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, | |
| |
2015 | | |
2014 | |
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 | % | |
| 43.00 | % |
Less valuation allowance and other | |
| -48.3 | % | |
| -48.3 | % |
Effective tax rate | |
| 0.00 | % | |
| 0.00 | % |
The significant components of deferred
tax assets and liabilities are as follows:
| |
June 30, | |
| |
2015 | | |
2014 | |
Deferred tax assets | |
| | | |
| | |
Bad debt reserve | |
$ | 59,215 | | |
$ | 58,668 | |
Stock based compensation | |
| 4,179,570 | | |
| 3,526,430 | |
Net operating losses | |
| 25,458,015 | | |
| 25,491,971 | |
Inventories | |
| 245,487 | | |
| 245,207 | |
Payroll and taxes payable | |
| 2,751,328 | | |
| 1,660,732 | |
| |
| 32,693,615 | | |
| 30,983,288 | |
Deferred tax liability | |
| | | |
| | |
Accumulated depreciation | |
| 453,938 | | |
| 419,642 | |
| |
| | | |
| | |
Net deferred tax assets | |
| 32,239,676 | | |
| 30,563,646 | |
Less valuation allowance | |
| (32,239,676 | ) | |
| (30,563,646 | ) |
Deferred tax asset - net valuation allowance | |
$ | - | | |
$ | - | |
The Company has incurred operating losses of $74,876,514 which,
if unutilized, will expire through to 2035. Future tax benefits, which may arise as a result of these losses, have not been recognized
in these financial statements, and have been offset by a valuation allowance.
10. Commitments and Contingencies
Lease commitments
Real Estate Lease – Vista, California
In June 2009,
the Company entered into an agreement to lease warehouse and office facilities for three years subsequently extended for an additional
five year term. Facilities include a 3,500 square foot building with a detached 1,200 square foot warehouse, retail showroom
of 1,500 square feet and lumber yard of 1 acre. The details on the lease are as follows:
| 1. | Base rentals - $13,704.50 per month. |
| 2. | Base rental increase of 3% per year are incorporated in
lease modification. |
| 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, 2017 |
| 6. | Security Deposit - $5,500. |
Rent
expense related to this lease was $135,925and $171,029 for the fiscal year ended June 30, 2015 and 2014, respectively.
Real Estate Lease-Fairlawn, New Jersey
In June 2014, the company entered into
a lease of a manufacturing facility in Fairlawn New Jersey.
| 1. | Base rental is $9,244 per month. |
| 2. | Base rental is increased by 3% annually. |
| 3. | Company is responsible to pay its proportionate share of
property taxes, insurance and common area maintenance. |
| 4. | Termination date – May 31, 2019 |
| 5. | Renewal Option – Five years. |
| 6. | A security deposit equal to two month’s rent or $18,844
was paid. |
Rent expense related to this lease was
$121,212 in 2015.
Real Estate Lease – Tacoma, Washington
In April 2015,
the company entered into a lease of a manufacturing facility in Tacoma, Washington on a month to month basis. The lease can be
terminated by either party with 30 days notice.
| 1. | Base rentals - $4,676 and will increase should the company
rent additional space. |
| 2. | Base rental is increased by the change in the Consumer
Price Index (CPI) annually. |
| 3. | Initial security deposit is $14,029. |
Rent expense related to this lease
was $12,814 in 2015
Real Estate lease-Augusta Georgia
On June 30, 2015, the company entered a
lease for a manufacturing facility in Augusta, Georgia.
| 1. | Base rentals-$3,000 per month. |
| 2. | Lease term is one year beginning July 1, 2015. |
| 3. | Security deposit is $1,950. |
| 4. | The company is obligated to pay the pro-rata share of property taxes. |
| 5. | The company has the option to renew the lease for an additional year with 90 days written notice. |
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 lease 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.
| 1. | Base rentals - $17,780.85 per month for period January
2014 to December 2014. |
| 2. | Base rental is increased by 3% annually. |
| 3. | Company is responsible to pay its proportionate share of
property taxes, insurance and common area maintenance – estimated at $5,000 per month |
| 4. | Termination date – November 30, 2015 |
| 5. | Renewal Option – with the mutual consideration of
both Lessor and Lessee, with terms to be mutually determined by both parties. |
| 6. | No security deposit for this facility is in existence at
this time. |
Rent expense related to this lease
was $341,694 and $298,776 for the fiscal year ended June 30, 2015 and 2014, respectively.
This lease was cancelled in January
2015 and operations were ultimately moved to Tacoma, Washington.
Real Estate Lease – Salem,
Oregon
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 year.
| 1. | Base rentals - $5,000 per month beginning May 2012. |
| 2. | Base rental is increased by 3% annually. |
| 3. | Termination date – September 30, 2017 |
| 4. | Renewal Option – with the mutual consideration of
both Lessor and Lessee, with terms to be mutually determined by both parties. |
| 5. | Security Deposit - $5,500. |
Rent expense related
to this lease was $52,147and $61,800 for the fiscal year ended June 30, 2015 and 2014, respectively.
This lease was
canceled in April, 2015 and operations were consolidated at the Tacoma, Washington facility.
Real Estate Lease – Oceanside,
California
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.
Facilities include
approximate 1.7 acres of land area and 6 metal structures. The details on the lease are as follows:
| 1. | Base rentals - $5,000 per month beginning August 1, 2012 |
| 2. | Annual Lease Escalator at 3% |
| 3. | Company is responsible to pay its proportionate share of
property taxes, insurance and common area maintenance |
| 4. | Termination date – July 31, 2017 |
| 6. | Security Deposit - $3,500 |
Rent expense related to this lease
was $61,874 and $60,750 for the fiscal year ended June 30, 2015 and 2014, respectively.
The Company is no longer obligated
for this lease as this was related to a subsidiary “Eco Truss, which was sold in May, 2015. See discontinued operations footnote.
Rent Disclosure:
| |
Fairlawn NJ | | |
Tacoma WA | | |
Augusta GA | | |
Vista, CA | | |
Total | |
| |
| | |
| | |
| | |
| | |
| |
2015 | |
| 121,212 | | |
| 12,814 | | |
| 0 | | |
| 174,954 | | |
| 308,980 | |
2016 | |
| 124,848 | | |
| | | |
| 36,000 | | |
| 174,954 | | |
| 335,802 | |
2017 | |
| 128,553 | | |
| | | |
| | | |
| 174,954 | | |
| 303,507 | |
2018 | |
| 132,409 | | |
| | | |
| | | |
| 43,739 | | |
| 176,408 | |
2019 | |
| 125,016 | | |
| | | |
| | | |
| | | |
| 125,016 | |
Thereafter | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| 632,038 | | |
| 12,814 | | |
| 36,000 | | |
| 568,601 | | |
| 1,750,061 | |
Purchase commitments
Hartindo AF21
Product Purchase, Distribution & Services Agreement
On January 18,
2011, the Company entered into an AF21 Product, Purchase, Sales, Distribution & Service Agreement, (the “Agreement”),
with Newstar Holding Pte Ltd, a Singapore Corporation, and Randall Hart, an Indonesian National, the inventors and owners of technical
data and intellectual property for a protective coating in order to obtain an exclusive supply of the product, together with certain
distribution, marketing and sales rights. In addition, a significant shareholder of Newstar Holding Pte Ltd is also a significant
shareholder of MRL. The product is a non-toxic non-corrosive fire inhibitor. Pursuant to the Agreement, the Company guaranteed
it will purchase a minimum of six hundred fifty (650) XXX gallon totes of product in the first two-year period at a cost of $XX.XX
per gallon, making the total purchase commitment $1,815,450 for the first two years. The Company is required to increase the minimum
quantities in the third year to 842 totes at $XX.XX per gallon, making the total purchase commitment $2,351,706 for year three.
In the fourth year the Company is required to increase the minimum quantities to 1,264 totes at $XX.XX per gallon, making the total
purchase commitment $3,530,352 for year four. There are no penalty clauses other than cancellation of the agreement if the minimum
purchase commitments are not met. If the agreement were to be cancelled it would have a significant impact on the Company's operations
until a replacement product could be arranged.
First Amendment
to Hartindo AF21 Product, Purchase, Sales, Distribution, Marketing and Service Agreement
The following
Amendment, entered into on the 5th day of March, 2014 will modify the current HARTINDO AF21 PRODUCT Agreement (the “Agreement”)
made on the 18th day of January, 2011 by and among Newstar Holdings Pte Ltd, a Singapore Corporation (“Newstar”) and
Randall Hart, an Indonesian national (jointly the “Suppliers”) and formerly know EcoBlu Products, Inc. now known as
Eco Building Products, Inc, a Colorado Corporation (“Buyer”). The following modifications to the Agreement will supersede
and control the Agreement between the parties moving forward;
As in good faith
and for the consideration of the achievements and recent announcements of Eco Building Products, Inc for the success in building
a relationship to move forward with The Home Depot the parties would like to update and amend the relationship between the parties
as follows:
All parties
agree;
· The
“Buyer” has changed their corporate name from EcoBlu Products, Inc to Eco Building Products, Inc. and this change has
no impact on the validity or assignment of the contract other than a corporate name change.
· To
modify section 1.3 Rights to use Product Technology - sub section (A) to substitute the sentence defining “of and rights
within the USA and Canada to use the Product as a component of the Enhanced Products” to now state “of and rights within
the Entire World to use the Product as a component of the Enhanced Products” the change from USA and Canada to Entire World
or Worldwide also effects language in section D.
· All
parties agree that the original agreement referenced hereto and the modifications as defined in this Amendment are in good standing.
Legal Proceedings
Except as disclosed below, we are currently
not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of
operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries,
threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s
subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse
effect.
Matter’s in litigation during the current period, was
the case of Trical Construction, Inc. v. Eco Building Products. The nature of the litigation involved Trical’s claim that
it suffered various construction delays and other damages from Eco Building Products in connection with the construction of a 77
unit apartment building. The matter was ultimately resolved by settlement on August 1, 2014 in the amount of $180,564.50, with
payment of $30,000.00 by Eco Building Products to Trical on that date and scheduled payments of $10,000 each month beginning on
November 1, 2014 through February 1, 2016. No payments have been made since June, 2015, and the current balance is $123,065. The
Company is in default on the payment arrangement.
The Company has received a formal inquiry from the Depository
Trust Corporation DTC to review the prior five year DTC stock transactions requesting our legal counsel provide a review and opine
over the compliance of such issuances. The Company and legal staff have engaged discussions with DTC and continues to comply with
their requests. The Company feels confident that we will be able to comply by the end of the 2014 calendar year.
From time to time the Company may be named
in claims arising in the ordinary course of business. Currently, no legal proceedings or claims, other than those disclosed above,
are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material
adverse effect on its business and financial condition.
11. Subsequent Events
Effective July 29, 2015, the Company entered
into an agreement whereby it sold a percentage of its future receivables in exchange for $225,000. Per the terms of this agreement,
the Company would repay a total of $309,375 via daily remittance of a percentage of its accounts receivable collections and other
receipts from the sale of its products and services. Pursuant to the terms of the agreement, the Company elected to repay $225,000
total via a flat daily remittance of $2,163 until that amount is repaid in full. The Company has made payments totaling $142,949
from July 1, 2015 to November 5, 2015 on this agreement.
Effective September 16, 2015, the Company
entered into a second agreement whereby it sold a percentage of its future receivables in exchange for $61,600 ($70,000 less a
$6,300 setup fee and a $2,100 broker fee). Per the terms of the agreement, the Company is to repay a total of $96,260 via a flat
daily remittance of $1,019 until that amount is repaid in full. The Company has made payments totaling $22,418 from July 1, 2015
to November 5, 2015 on this agreement.
Effective September 28, 2015, the Company
entered into a third agreement whereby it sold a percentage of its future receivables in exchange for $120,000. Per the terms of
the agreement, the Company is to repay a total of $153,000 via a flat daily remittance of $1,196 until that amount is repaid in
in full. The Company has made payments totaling $2,391 on this agreement to-date.
Pursuant to a default on a note dated November
19, 2014 and due August 21, 2015, a greater-than 10% investor who is a related party is due 15,000,000 shares of common stock.
During the period from July 1, 2015 to
November 5, 2015, an investor converted $19,500 of his convertible note balance into 60,000,000 shares of common stock. A second
investor converted approximately $26,304 of convertible debt into 84,767,042 shares of common stock during the same period.
From July 1, 2015 to October 20, 2015,
the Company issued 5,488 series D preferred shares to investors for a total of $548,833 in gross proceeds.
From July 1,
2015 to November 6, 2015, according to the conversion terms of the series C preferred shares, the investors converted 2,790 shares
of Preferred C Stock representing a value of $279,002 into 1,308,801,104 shares of the Company’s Common Stock.
In July 2015,
we entered into a Settlement and Release Agreement (the “Settlement Agreement”) with Eco Prime, LLC. The Settlement
Agreement resolves any disputes arising from the Limited Asset Purchase Agreement entered into between the parties on March 19,
2014. Pursuant to the terms of the Settlement Agreement, we paid One Hundred Thousand Dollars ($100,000.00) to acquire the assets
from EcoPrime and released each party from any liability under the March 2014 agreement. In order to fund the $100,000 payment,
we entered into a Promissory Note with Redwood Management LLC dated July 14, 2015. Pursuant to the terms of the note, it had a
60-day maturity and a flat 25% interest rate. The note was due on September 14, 2015 but, to date, has not been paid off and is
currently in default.
12. Discontinued Operations
On April 15, 2015,
the company completed the sale of E Build & Truss to former employees of the company. In exchange for certain assets, the purchaser
accepted $112,102 of liabilities related to E Build and Truss. As such, this has been accounted for as a discontinued operation
in the June 30, 2015 financial statements. The company has recorded a loss from discontinued operations of $216,164 as a result
of this transaction, which is comprised of $363,500 in revenues, $44,702 in gain on asset sale and $624,366 in costs and expense.
Included in the $1,148,229 of liabilities from discontinued operations in 2015 are $205,113 in accounts payable and $943,116 in
accrued expenses related to E Build and Truss.
| Item 9. | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure |
There have been
no disagreements between the Company and its independent accountants on any matter of accounting principles or practices or financial
statement disclosure.
| Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls
and Procedures
Regulations under the Securities Exchange
Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,”
which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the
issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer
in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including
its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. A material weakness is a control deficiency (within the meaning of the Public Company
Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies, that result in more than a
remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
The Company carried out an evaluation,
with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”),
of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange
Act) as of June 30, 2015, the end of the period covered by this report. Based upon that evaluation, the Company’s CEO concluded
that the Company’s disclosure controls and procedures are not effective at the reasonable assurance level due to the material
weaknesses described below:
1. |
Up until June 15, 2015, the Company’s board of directors did not have an audit committee, independent director or member with financial expertise which causes ineffective oversight of the Company’s external financial reporting and internal control over financial reporting. |
2. |
The Company does not have sufficient segregation of duties within its accounting functions, which is a basic internal control. Due to its size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. |
3. |
Manual process of the tracking and process of our inventory. |
In light of the material weaknesses, the
management of the Company performed additional analysis and other post-closing procedures to ensure our consolidated financial
statements were prepared in accordance with the accounting principles generally accepted in the United States of America. Accordingly,
we believe that our consolidated financial statements included herein fairly present, in all material respects, our consolidated
financial condition, consolidated results of operations and cash flows as of and for the reporting periods then ended.
Remediation of Material Weaknesses
We intend to remediate the material weaknesses
in our disclosure controls and procedures identified above. We have already adopted an Audit Committee Charter and appointed independent
members from our Board to an Audit Committee and our Chairman of the Audit Committee has sufficient financial expertise. In addition,
we have hired a part-time CFO with SEC reporting experience
Management's Report on Internal Control
Over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined
in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s
principal executive and principal financial officer and effected by the issuer’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally accepted in the United States of America and includes
those policies and procedures that:
|
· |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; |
|
· |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the issuer; and |
|
· |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control,
there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the financial reporting process. Therefore,
it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of the end of our most recent fiscal
year, management assessed the effectiveness of our internal control over financial reporting based on the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework 1992 and SEC
guidance on conducting such assessments. Based on that evaluation, management concluded that, as of June 30, 2015,
such internal control over financial reporting was not effective. This was due to deficiencies that existed in the design
or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered
to be material weaknesses.
The matters involving internal control
over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting
Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of
a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring
of required internal controls and procedures; and (2) inadequate segregation of duties consistent with control objectives of having
segregation of the initiation of transactions, the recording of transactions and the custody of assets. The aforementioned
material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as
of June 30, 2015.
To address the material weaknesses set
forth above, management performed additional analyses and other procedures to ensure that the financial statements included herein
fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
This annual report does not include an
attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's
report was not subject to attestation by the Company's independent registered public accounting firm pursuant to the rules of the
SEC that permit the Company to provide only the management's report in this annual report.
Changes in Internal Controls over Financial
Reporting
We have hired a part-time Chief Financial
Officer and appointed independent members to our Board of Directors to oversee the financial reporting of our operations. Other
than these two items, there were no significant changes in the Company’s internal controls or in other factors that could
significantly affect these controls subsequent to the evaluation date.
| Item 9B. | Other Information |
None.
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
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 |
Tom Comery |
|
61 |
|
Chief Executive Officer, Principal Executive Officer and Director |
Randall Smith, CPA* |
|
60 |
|
Chief Financial Officer |
Mark Vuozzo |
|
50 |
|
Chief Technical Officer |
Gerald M. Czarnecki |
|
75 |
|
Director |
Judith Muhlberg |
|
|
|
Director |
* Randall Smith was hired on August 18, 2015, as our Chief Financial
Officer on a part-time basis. He devotes approximately 20 hours per week to our company.
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.
Tom Comery, Chief Executive Officer
and Director
Mr. Comery,
age 61, has been a director of Eco Building Products, Inc. since April 6, 2015 and comes to Eco Building Products, Inc. with
30 years of building products manufacturing and distribution experience. He has broad business experience including
mid-market CEO; supply chain and specialty product management at the Fortune 500 Group Director level; mid-market sales and marketing
as well as accounting management. In 2009/2011 he was SVP of Building Material Distributors, Inc. with full P&L
responsibility of a multi-state, multi-warehouse wholesale distribution business focused on commodity and specialty building products,
forest products and imported metal fencing and fasteners. In 2012/2013 Mr. Comery led a green-field start-up in the
LED lighting space as President and CEO of B-Efficient, Inc. serving the commercial, residential and industrial markets. Most
recently he was SVP of Sales for Leedo Manufacturing, the largest supplier of kitchen and bath cabinetry to the new construction
multi-family housing industry.
Throughout his
career Mr. Comery has successfully led two start-ups and two turnarounds.
The Company and
Mr. Comery have not finalized the terms of the employment and have not entered into a formal engagement agreement but expect to
work out the terms and finalize an employment agreement in the near future.
No family relationship
has ever existed between Mr. Comery and the Company.
Randall Smith, Chief Financial Officer
Mr. Smith, age 60, has assisted companies with all aspects
of strategic business planning, forecasting, mergers and acquisitions, fund raising, and business restructuring. He has expertise in
international business, publicly-traded companies and new product introductions. Mr. Smith was an auditor with KPMG and achieved
the level of Senior Audit Manager. He managed several initial public offerings and two $300 million public bond offerings. Clients
included Revlon, US Airways, and the Jack in the Box chain of restaurants.
Mr. Smith was Vice President, Finance and Operations for a digital
broadcast software designer and high technology equipment manufacturer. Mr. Smith successfully negotiated the sale of the Company
to a U.K. based company with over $300 million in annual revenues.
Mr. Smith has raised private equity and venture capital for
a number of companies. He has also completed a reverse merger followed by a PIPE offering with a public company.
He held the position of Chief Financial Officer for Winfield
Medical, a high growth, $40 million in annual revenues medical device manufacturing company. Mr. Smith negotiated the acquisition
of Ryan Medical, and Infusion Technology, Inc., as well as funding the development and growth of the Company through raising a
series of equity and debt financings, including a $6 million line of credit and private placement equity fundings. He was responsible
for all aspects of worldwide company management, including: financial, operational, business development, and significant areas
of distribution and sales. Mr. Smith was instrumental in the sale of the Company to a U.S. publicly traded medical device
manufacturer. He also completed a $5.5 million favorable financing package for a new manufacturing facility on the East coast.
There are no family relationships between Mr. Smith and
any director or executive officer of the Company and there are no transactions between Mr. Smith and the Company that would
be reportable under Item 404(a) of Regulation S-K.
Mark Vuozzo, Chief Technical Officer
Mr. Vuozzo 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 the Company, as a General Manager and
Corporate Secretary. Mr. Vuozzo continues to act in the capacity of Chief Technical Officer.
Gerald M. Czarnecki, Director
Mr. Czarencki became a Director of
the Company on April 6, 2015 and Chairman of our Board of Directors on June 15, 2015. Mr. Czarnecki is an ex officio member of
each of the Audit Committee, Compensation Committee and Governance and Nomination Committee. Mr. Czarnecki has been the Chairman
and CEO of The Deltennium Group, Inc., a privately held consulting and direct investment firm, since its founding in 1995. From
August 2007 until April 2012, Mr. Czarnecki has served as President and CEO of 02Media, Inc., a private organization providing
direct response marketing campaign management and infomercial production, educational and branded entertainment TV programming
and Internet marketing campaign management. From April 1, 2007 to January 15, 2008, Mr. Czarnecki served as interim President &
CEO of Junior Achievement Worldwide, Inc., where he also serves on the board of directors, and as member of the Executive Committee,
and Chairman of its Human Resources, Compensation and Pension Committees. Mr. Czarnecki is a member of the Board of Directors of
State Farm Insurance Company and is Chairman of the Audit Committee, and a member of the Board of Directors of State Farm Bank
and State Farm Fire & Casualty. He is also a member of the advisory board for Private Capital, Inc. and serves as a member
of the Board of Trustees of National University and is Chairman of its Investment Committee. In addition he is Chairman of the
Board of National Leadership Institute, a nonprofit organization dedication to facilitating quality leadership and governance in
nonprofit organizations; Chairman of the National Association of Corporate Directors - Florida Chapter. Mr. Czarnecki holds a B.S.
in Economics from Temple University, and M.A. in Economics from Michigan State University, a Doctor of Humane Letters from National
University and is a Certified Public Accountant. Mr. Czarnecki is also the author of five books on Leadership and corporate governance.
From June 2003 to April 2010, Mr. Czarnecki served on the Board of Directors of Del Global Technology, Inc., where he also served
as the Chairman of its Audit Committee. From June 2006 to February 2010, Mr. Czarnecki served on the Board of Directors
of Junior Achievement of South Florida, Inc. Mr. Czarnecki brings to the Board significant experience as a management change agent,
corporate leadership, knowledge and experience in the information technology industry, and development of corporate strategy. His
experience at companies as large as IBM or as small as the Company have enabled him to understand how to drive best practices across
either large or small organizations and creation of a dynamic organization – capable of adapting to the new paradigm of constant
change in business.
Judith Muhlberg,
Directors
Judith Muhlberg
joined the Board of Directors for Eco Building Products on April 8, 2015. She serves as Chair of the Compensation Committee.
As a consultant for strategy execution firm, Gagen MacDonald since 2004, Judith has supported efforts at Fortune 500 companies
-- including United Airlines, BASF, Collective Brands, Inc., Estee Lauder, Mars, Novartis Pharmaceuticals Corporation, Dean Foods,
Financial Services Roundtable, Air Products and Chemicals, Inc., Deloitte, Medtronic, Dow Corning, Pfizer and Southern California
Gas Company. In 2002, Judith joined the Board of Directors of State Farm Mutual Automobile Insurance Company and served on the
Legal Issues, Risk Management, and Corporate Governance and Nominating committees. In 2005, she was the senior vice president of
communications for Sprint Nextel for six months, overseeing the merger communications of these two companies and leading a team
of some 200 communicators. Throughout her career, Judith built a broad and deep background in two major global industries: aerospace
and automotive. She was senior vice president of communications and a member of the company’s Executive Council at
Boeing. Judith led a 250-strong communications team and, among many successes, directed a strategic global transformation
of Boeing’s brand and reputation – from that of a commercial airplane manufacturer to a broad-based aerospace company
with 150,000 employees. This transformation was initiated by the merger of McDonnell Douglas and Boeing, in which Judith played
a pivotal role in an extensive culture change effort driven by enhanced leadership communications. She is a Member of the Arthur
W. Page Society. In May 2012, Judith was named A&S Outstanding Alumna by the University of Wyoming. Education: Michigan
State University, Juris Doctor; University of Wyoming, B.S., Communications; University of Stockholm (Sweden), studied International
Economics.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our
directors or executive officers has, during the past ten years:
● |
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
|
|
● |
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
|
|
● |
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
● |
been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
|
|
● |
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
|
|
● |
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Except as set forth in our discussion below
in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved
in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the Commission.
Term of Office
Our directors are appointed for a one-year
term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our
bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
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.
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, 2015 were filed.
Board of Director Meetings and Committees
Up
until April 6, 2015, the Board of Directors consisted of a sole director and held no meetings. However, on
April 6, 2015, the Board
of Directors of Eco Building Products, Inc. (the “Company”) appointed Judith Muhlberg, Gerald M. Czarnecki, Mark Zorko
and Tom Comery (together, the “Appointees”) as members of the Board of Directors (the “Board”). It
has been determined by the Company that Ms. Muhlberg, Mr.
Czarnecki, Mr. Zorko and Mr. Comery are independent members of the Board pursuant to the required standards set forth in Rule 10A-3(b)
of the Securities Exchange Act of 1934, as amended. Then, on June
15, 2015, Mr. Steve Conboy submitted a letter to the Board resigning from the positions of Chief Executive Officer and President
and Chairman of the Board, effective immediately. And, most recently, Mark Zorko submitted
his resignation from the Board. The current Board includes Tom Comery, Gerald M. Czarnecki and Judith Muhlberg.
Since the appointment of our independent
Board on April 6, 2015, the Board has convened regularly scheduled meetings and has overseen the operations of the business and
has regularly asked for updates on sales, marketing and other business operations.
On July 2, 2015, our Board formed three
standing committees: (i) audit, (ii) nominating and corporate governance; and (iii) compensation. Actions taken by our committees
are reported to the full Board. The Board has determined that all members of each of the three committees are independent under
the current listing standards of NASDAQ. Each of our committees has a charter and each charter is posted on our website and attached
hereto as an exhibit.
Audit Committee+ |
|
Compensation Committee |
|
Corporate Governance and
Nominating Committee |
Judith Muhlberg |
|
Judith Muhlberg* |
|
Gerald M. Czarnecki* |
Gerald M. Czarnecki |
|
Gerald M. Czarnecki |
|
Judith Muhlberg |
* Indicates committee chair
+ Mark Zorko was the Audit Committee Chair
but has resigned. Gerry Czarnecki is acting as the committee chair until we are able to replace Mr. Zorko.
Audit Committee
Our audit committee, which currently consists
of two directors, provides assistance to our Board in fulfilling its legal and fiduciary obligations with respect to matters involving
the accounting, financial reporting, internal control and compliance functions of the company. Our audit committee employs an independent
registered public accounting firm to audit the financial statements of the company and perform other assigned duties. Further,
our audit committee provides general oversight with respect to the accounting principles employed in financial reporting and the
adequacy of our internal controls. In discharging its responsibilities, our audit committee may rely on the reports, findings and
representations of the company’s auditors, legal counsel, and responsible officers. Our Board has determined that all members
of the audit committee are financially literate within the meaning of SEC rules and under the current listing standards of NASDAQ.
Compensation Committee
Our compensation committee, which currently
consists of two directors, establishes executive compensation policies consistent with the company’s objectives and stockholder
interests. Our compensation committee also reviews the performance of our executive officers and establishes, adjusts and awards
compensation, including incentive-based compensation, as more fully discussed below. In addition, our compensation committee generally
is responsible for:
| ● | establishing
and periodically reviewing our compensation philosophy and the adequacy of compensation plans and programs for our directors,
executive officers and other employees; |
| ● | overseeing
our compensation plans, including the establishment of performance goals under the company’s incentive compensation arrangements
and the review of performance against those goals in determining incentive award payouts; |
| ● | overseeing
our executive employment contracts, special retirement benefits, severance, change in control arrangements and/or similar plans; |
| ● | acting
as administrator of any company stock option plans; and |
| ● | overseeing
the outside consultant, if any, engaged by the compensation committee. |
Our compensation committee periodically
reviews the compensation paid to our non-employee Directors and the principles upon which their compensation is determined. The
compensation committee also periodically reports to the Board on how our non-employee Director compensation practices compare with
those of other similarly situated public corporations and, if the compensation committee deems it appropriate, recommends changes
to our director compensation practices to our Board for approval.
Corporate Governance and Nominating
Committee
Our corporate governance and nominating
committee, which currently consists of two directors, monitors our corporate governance system, assesses Board membership needs,
makes recommendations to the Board regarding potential director candidates for election at the annual meetings of stockholders
or in the event of any director vacancy, and performs any other functions or duties deemed appropriate by the Board.
Director candidates must have experience
in positions with a high degree of responsibility and leadership experience in the companies or institutions with which they are
or have been affiliated. Directors are selected based upon contributions that they can make to the company. The company does not
maintain a separate policy regarding the diversity of its Board members. However, consistent with its charter, the corporate governance
and nominating committee, and ultimately the Board, seeks directors (including nominees for director) with diverse personal and
professional backgrounds, experience and perspectives that, when combined, provide a diverse portfolio of experience and knowledge
that will well serve the company’s governance and strategic needs.
Family Relationships
No family relationships exist among any
directors, executive officers, or persons nominated or chosen to become directors or executive officers.
| Item 11. | 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, 2015
and fiscal year ended June 30, 2014, 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 ($) | |
| |
| |
| | |
| | |
| | |
| | |
| |
Tom Comery, | |
2015 | |
$ | 9,615 | | |
$ | | | |
$ | 0 | | |
$ | | | |
$ | 9,615 | |
Chief Executive Officer and Director (1) | |
2014 | |
$ | 0 | | |
$ | | | |
$ | 0 | | |
$ | | | |
$ | 0 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Steve Conboy, President, | |
2015 | |
$ | 288,461 | (3) | |
$ | | | |
$ | 10,994 | | |
$ | | | |
$ | 288,461 | |
CEO, CFO Director (2) | |
2014 | |
$ | 300,000 | (4) | |
$ | | | |
$ | 6,984 | | |
$ | | | |
$ | 306,987 | |
Principal Executive & Financial Officer | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Mark Vuozzo (5) | |
2015 | |
$ | 250,000 | (7) | |
$ | | | |
$ | 0 | | |
$ | | | |
$ | 250,000 | |
Chief Technical Officer | |
2014 | |
$ | 250,000 | (6) | |
$ | | | |
$ | 4.656 | | |
$ | | | |
$ | 254,656 | |
| (1) | Tom Comery was appointed as the Company’s Chief Executive Officer on June 15, 2015. |
| - | 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.
On June 15, 2015, Steve Conboy resigned from all his positions with the Company and as a member of the Board and entered into an
Executive Severance Agreement and General Release of All Claims Agreement (the “Separation Agreement”) on June 15,
2015. The Separation Agreement provides, as consideration for non-solicitation obligations, a general release of any claims of
accrued but unpaid salary and the non-revocation of a full release of all claims related to Mr. Conboy’s employment
with the Company and cancellation of all of his Series A shares, as follows: (i) a cash payment of $37,500 which will be made
in three equal installments of $12,500 on the 30th, 60th and 90th day following the date of the
Agreement; and (ii) an option to purchase 5,772,857 shares which equals one percent (1%) of the total number of shares outstanding
on the date of the Separation Agreement with an exercise price of $0.0038 (which is the closing price on the date of the grant).
This option grants vests as follows: (i) 50% vested immediately; and (ii) 50% vests on December 18, 2015. |
| (2) | Steve Conboy’s compensation for year ended June 30, 2015 amounted to $288,461, of which $93,179
was accrued and subsequently forgiven in connection with the Separation Agreement. In addition, pursuant to the Separation Agreement,
all accrued but unpaid compensation due Steve Conboy has been forgiven in full.
|
| (3) | Steve Conboy’s compensation for year ended June 30, 2014 amounted to $300,000, of which
$207,372 was accrued and not paid. Total accrued compensation due Steve Conboy at June 30, 2013 totaled $782,882. Compensation
charged to operations during the year ended June 30, 2014 on the option granted totaled $6,984. |
| (4) | 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. |
| (5) | Mark Vuozzo’s compensation for year ended June 30, 2015 amounted to $250,000, of which $23,858 was
accrued and not paid. Total accrued compensation due Mark Vuozzo at June 30, 2015 totaled $634,011.
|
| (6) | Mark Vuozzo’s compensation for year ended June 30, 2014 amounted to $250,000, of which $186,203
was accrued and not paid. |
| (7) | Mark Vuozzo’s compensation for year ended June 30, 2015 amounted to $250,000, of which $78,089 was
accrued and not paid. Total accrued compensation due Mark Vuozzo at June 30, 2015 totaled $634,011. Compensation charged to
operations during the year ended June 30, 2015 on the option granted totaled $0
|
Employment Agreements
Tom Comery
Mr. Comery was appointed as our Chief Executive Officer as of
June 15, 2015. We do not have a formal Employment Agreement finalized with Mr. Comery at this point but we are working towards
finalizing it. The Compensation Committee has, however, met and approved the major points of his compensation. Mr. Comery is earning
an annual salary of $250,000, provided that the Compensation Committee has agreed to determine whether this should be increased
to $275,000 beginning when the quarterly net income is positive. The Company will also pay compensating him $1,700 per month for
medical benefits and a $500 per month car allowance. In addition, the Compensation Committee agreed to a $15,000 one-time reimbursement
for relocation expenses. Lastly, Mr. Comery will be eligible to participate in the Employee Incentive Compensation Plan upon the
Board’s discretion.
Steve Conboy
On June 15, 2015, Mr. Steve Conboy submitted a letter to
the Board resigning from the positions of Chief Executive Officer and President and Chairman of the Board, effective immediately
on such date.
| - | In connection with Mr. Conboy’s resignation, the Company and Mr. Conboy entered
into an Executive Severance Agreement and General Release of All Claims Agreement (the “Separation Agreement”) on June
15, 2015. The Separation Agreement provides, as consideration for non-solicitation obligations, a general release of any claims
of accrued but unpaid salary and the non-revocation of a full release of all claims related to Mr. Conboy’s employment
with the Company and cancellation of all of his Series A shares, as follows: (i) a cash payment of $37,500 which will be made
in three equal installments of $12,500 on the 30th, 60th and 90th day following the date of the
Agreement; and (ii) an option to purchase 5,772,857 shares which equals one percent (1%) of the total number of shares outstanding
on the date of the Separation Agreement with an exercise price of $0.0038 (which is the closing price on the date of the grant).
This option grants vests as follows: (i) 50% vested immediately; and (ii) 50% vests on December 18, 2015. A copy of the Separation
Agreement is filed as Exhibit 10.7. |
Mr. Conboy’s employment agreement has therefore been terminated
and the Company is no longer bound by the terms of that agreement.
Mark Vuozzo – Chief Technical Officer
Effective November 1, 2013, the Company
entered into an employment agreement with its Chief Technical Officer for a term of five (5) years and shall be renewed automatically
for succeeding terms of one (1) year each (“Renewal Terms”) unless either party gives notice to the other at least
30 days prior to the expiration of any term of said party’s intention not to renew this Agreement. 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, 2014 exceed $25,000,000, subject to certain limitations. If the company achieves 80% of the bonus target then the employee is entitled to 50% of the defined bonus for the defined period. |
|
(c) |
Additional cash bonus of $250,000 in the event that gross sales for the fiscal year ending June 30, 2015 exceed $50,000,000, subject to certain limitations. In addition when the aforementioned gross sales targets are obtained the employee will be eligible for a 20% increase in salary year over year. |
|
(d) |
Option grants to purchase 800,000 shares of the company’s common stock at an exercise price of $0.10 per share, expiring November 1, 2018 (five-year life). Such options will vest over a two-year period. These options were valued at $4,656, as determined using the Black-Scholes option-pricing model using a risk free rate of 1.37%, volatility of 148.81% 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.
—
Outstanding Equity Awards at Fiscal Year-End
Steve Conboy:
| - | Option grants to purchase 1,200,000 shares of the company’s common stock at an exercise price
of $0.10 per share, expiring April 1, 2018 (five-year life). Such options will vest over a two-year period. These options were
valued at $6,984, as determined using the Black-Scholes option-pricing model using a risk free rate of 1.37%, volatility of 149%
and a trading price of the underlying shares of $0.001. |
| - | Pursuant to the terms of Conboy’s Separation Agreement, we issued Mr. Conboy an option to
purchase 5,772,857 shares which equals one percent (1%) of the total number of shares outstanding on the date of the Separation
Agreement with an exercise price of $0.0038 (which is the closing price on the date of the grant). This option grants vests as
follows: (i) 50% vested immediately; and (ii) 50% vests on December 18, 2015. |
Mark Vuozzo:
| - | 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, 2018 (five-year life). Such options will vest over a two-year period. These options were
valued at $4,656, as determined using the Black-Scholes option-pricing model using a risk free rate of 1.37%, volatility of 149%
and a trading price of the underlying shares of $0.001. |
Director Compensation
Prior to the appointment of our independent
directors on April 6, 2015, we did not have a formal plan for director compensation and our sole director did not receive any type
of compensation for serving as a director for the years ended June 30, 2015 or June 30, 2014.
However, in connection
with the appointments to the new independent members of the Board, the Company entered into a Director Agreements with each individual
whereby the Company agreed to compensate each individual as follows: (1) a cash retainer of fifteen thousand dollars ($15,000)
per calendar year during the period of service, paid in quarterly installments and (2) an additional fifteen thousand dollars ($15,000)
per calendar year for each Committee Chairman position that the Director holds; and (3) an equity incentive award as may be determined
at the discretion of the Board.
To
date, however, the Directors have not received any payment of their Director Compensation that has been earned.
| Item 12. | Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The following table sets forth certain
information regarding our shares of common stock beneficially owned as of October 12, 2015, for (i) each stockholder known to be
the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and
(iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such
person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right
to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated,
voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely
by the beneficial owner or shared by the owner and the owner’s spouse or children.
For purposes of this table, a person or
group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right
to acquire within 60 days of October 12, 2015. For purposes of computing the percentage of outstanding shares of our common stock
held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60
days of October 12, 2015 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission
of beneficial ownership. Unless otherwise specified, the address of each of the persons set forth below is care of the company
at the address of: 909 West Vista Way, CA 92083.
Name of Beneficial Owner and Address | |
Amount and Nature of Beneficial Ownership of Common Stock | | |
Percent of Common Stock (1) | | |
Amount and Nature of Beneficial Ownership of Preferred Stock | | |
Percent of Preferred Stock (2) | |
5% Shareholders | |
| | | |
| | | |
| | | |
| | |
Sidney J. Lorio (3) | |
| | | |
| | | |
| | | |
| | |
2116 Parkwood Drive | |
| | | |
| | | |
| | | |
| | |
Bedford, TX 76021 | |
| 61,083,300 | (5) | |
| 2.9
| % | |
| 0 | | |
| 0 | % |
| |
| | | |
| | | |
| | | |
| | |
Directors and | |
| | | |
| | | |
| | | |
| | |
Executive Officers | |
| | | |
| | | |
| | | |
| | |
Tom Comery | |
| 0 | | |
| * | % | |
| 0 | | |
| * | % |
| |
| | | |
| | | |
| | | |
| | |
Gerald M. Czarnecki | |
| 0 | | |
| * | % | |
| 0 | | |
| * | % |
| |
| | | |
| | | |
| | | |
| | |
Judith Muhlberg | |
| 0 | | |
| * | % | |
| 0 | | |
| * | % |
| |
| | | |
| | | |
| | | |
| | |
Steven Conboy (4) | |
| 2,424,396 | | |
| * | % | |
| 30,000 | (2) | |
| 100 | % |
| |
| | | |
| | | |
| | | |
| | |
Mark Vuozzo | |
| 1,337,500 | | |
| * | % | |
| 0 | | |
| 0 | % |
| |
| | | |
| | | |
| | | |
| | |
All directors and officers as a group (3 people) | |
| 0 | | |
| * | % | |
| 30,000 | (2) | |
| 100 | % |
* Less than 1%. | |
| | | |
| | | |
| | | |
| | |
1) |
Based on 2,077,190,961 shares of common
stock issued and outstanding as of November 6, 2015. Shares of common stock subject to options or warrants currently exercisable
or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such
options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person. |
|
|
2) |
Based on 30,000 shares of Series A Preferred Stock issued and outstanding as of October 2, 2014. Each share of Series A Preferred Stock has voting rights of 100,000 votes per share. The total aggregate number of votes for the Series A Preferred Stock is 3 billion. Pursuant to the Separation Agreement entered into between the Company and Steve Conboy, Mr. Conboy has agreed to cancel and return all 30,000 shares of Series A Preferred Shares. Accordingly, there are 0 shares of Series A Preferred Shares outstanding. |
|
|
3) |
With respect to the beneficial ownership reporting by Mr. Lorio, 148,000,000 shares of Common Stock are jointly held by Sidney Jr. Lorio, Jr. and Gloria Lorio JTWROS. Gloria Lorio is Mr. Lorio’s wife. |
|
|
4) |
Steve Conboy resigned on June 15, 2015. In connection with his resignation, he agreed to cancel
all 30,000 shares of Series A Preferred Stock. In addition, in connection with his Separation Agreement, he was granted an option
to purchase 5,772,857 shares which equals one percent (1%) of the total number of shares outstanding on the date of the Separation
Agreement with an exercise price of $0.0038 (which is the closing price on the date of the grant). This option grants vests as
follows: (i) 50% vested immediately; and (ii) 50% vests on December 18, 2015. |
|
|
5) |
Mr. Lorio owns an anti-dilution protection in his financing documents and is entitled to an additional issuance of 45,000,000 shares that have not yet been issued but are owed to him. |
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.
| Item 13. | Certain Relationships and Related Transactions, and
Director Independence |
Transactions with Related Persons
Loans Payable
– Related Party
At June 30, 2013,
the Company had a non-interest bearing note payable due to its Chief Executive Officer who is also a Director and significant shareholder
with a balance of $509,151. During 2014, the Company paid $128,824, leaving a balance
of $380,327 at June 30, 2014. Effective June 15, 2015, this debt was forgiven in connection with the termination of the Chief Executive
Officer’s Employment Agreement described in note 6.
At June 30, 2013, the Company had interest
bearing notes payable due to its Chief Technical Officer with a balance of $95,000. During the year ended June 30, 2014, the Company
paid $10,000, leaving a balance of $85,000 at June 30, 2014. During the year ended June 30 2015, the Company paid $40,000, leaving
a balance of $45,000 at June 30, 2015.
On February 14,
2014 the Company entered into a Note agreement with a shareholder greater than 10% for $500,000 for the purpose of purchasing inventory.
The note is secured by the Company’s inventory and is to be repaid out of the proceeds of the subsequent inventory sales.
The note was due May 14, 2014 and was extended until March 31, 2015. The Note carries minimum interest of $45,000 for the initial
term and an additional $45,000 of interest for the extension of the due date. During the year ended June 30, 2014 a total of $193,651
was repaid leaving a balance due of $306,349 as of June 30, 2014. During the year ended June
30, 2015, $220,438 was repaid, leaving a balance due of $85,911 as of June 30, 2015. No payments have been made after June 30,
2015.
On April 11, 2014,
the Company entered into a Note agreement with a shareholder greater than 10% for $250,000 for the purpose of funding operations
and for general working capital. The Note carries minimum interest of $22,500 and the note
was due July 1, 2014 and was extended until March 31, 2015. The Company made a partial draw-down of the Note for $150,000
during the year ended June 30, 2014. During the year ended June 30, 2015, no additional draw-downs
were made. No payments have been made after June 30, 2015.
On November 19,
2014, the Company entered into, with a greater-than 10% investor who is considered a related party, a Promissory Note for $100,000
with annual interest of 6% for the purpose of funding operations and for general working capital. In addition the Company
issued 12,500,000 (250,000,000 pre-split) restricted common shares. The note was due on February 19, 2015. As of May 18, 2015 the
Company has extended the note to August 21, 2015 with the agreement to issue, prior to the new maturity date, an additional 25,000,000
common shares post-split adjusted. No payments have been made after June 30, 2015.
On
January 16, 2015 the Company entered into an additional promissory note with greater-than 10% investor noted above for
$20,000 with annual interest of 6%. This note was due on July 16, 2015. In addition the Company issued 30,000,000 restricted
common shares. No payments have been made after June 30, 2015.
On March 25, 2015,
the Company entered into, with a shareholder greater than 10%, a Promissory Note for $20,000 with annual interest of 6% for the
purpose of funding operations and for general working capital. The note was due on April 24, 2015. Default interest
of an additional 10% per annum on the original loan amount will accrue if the repayment term goes beyond 30 days. No
payments have been made after June 30, 2015. Additionally, the Company borrowed an additional $3,000 from this same party
at 0% and no terms of repayment.
On April 2, 2015,
a shareholder greater than 10% loaned the company $60,000 on a secured promissory note with a 6% per annum interest rate and a
30 day maturity date. Default interest of an additional 10% per annum is incurred on this note if repayment is not made
by July 2, 2015. No payments have been made after June 30, 2015.
Employment Agreement – President
and Chief Executive Officer
Effective November 1, 2013, the Company
entered into an employment agreement with its President and Chief Executive Officer for a term of five (5) years and shall be renewed
automatically for succeeding terms of one (1) year each (“Renewal Terms”) unless either party gives notice to the other
at least 30 days prior to the expiration of any term of said party’s intention not to renew this Agreement. Key
provisions of the agreement include:
|
(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, 2014 exceed $25,000,000, subject to certain limitations. If the company achieves 80% of the bonus target then the employee is entitled to 50% of the defined bonus for the defined period. |
|
(c) |
Additional cash bonus of $300,000 in the event that gross sales for the fiscal year ending June 30, 2015 exceed $50,000,000, subject to certain limitations. In addition when the aforementioned gross sales targets are obtained the employee will be eligible for a 20% increase in salary year over year. |
|
(d) |
Option grants to purchase 60,000 (1,200,000 pre-split) shares of the company’s common stock at an exercise price of $2.00 per share ($0.10 pre-split), expiring April 1, 2016 (five-year life). Such options will vest over a two-year period. These options were valued at $6,984, as determined using the Black-Scholes option-pricing model using a risk free rate of 1.37%, volatility of 149% and a trading price of the underlying shares of $0.16 ($0.008 pre-split). |
|
(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. |
Effective June 15, 2015, this agreement
and the loan payable described in note 5 was terminated in exchange for the following:
|
(a) |
Severance payments totaling $37,500, to be paid in 3 monthly installments of $12,500 each, payments made 30, 60, 90 days after the effective date of the agreement. |
|
(b) |
An option to purchase shares of Common Stock equal to one percent (1%) of the total number of shares outstanding on the date of grant with an exercise price equal to the closing bid price on the date of grant ($0.0038 per share), and expiration date of ten (10) years from the date of issuance. A total of 5,786,227 options were granted under these terms. The options vest fifty percent (50%) on the effective date of the agreement, with the remaining fifty percent (50%) vesting six (6) months after the effective date of the agreement. The options were valued at $21,987, as determined using the Black-Scholes option-pricing model using a risk free rate of 2.35%, volatility of 257% and a trading price of the underlying shares of $0.038. Effective with the President’s termination a total of 30,000 Series A preferred shares were cancelled. See note 8. |
The termination and exchange transaction
was accounted for as an extinguishment of debt. As a result, Additional Paid-in Capital was increased by $1,089,505. No gain was
recognized on the transaction since it was with a related party.
Accrued compensation
due the president at June 30, 2014 totaled $782,882. Compensation charged to operations
during the year ended June 30, 2014 on the option granted totaled $4,365. The CEO also had 800,000 options granted from the previous
employment agreement (see note 8).
Employment Agreement – Chief
Technical Officer
Effective November 1, 2013, the Company
entered into an employment agreement with its Chief Technical Officer or “CTO” for a term of five (5) years and shall
be renewed automatically for succeeding terms of one (1) year each (“Renewal Terms”) unless either party gives notice
to the other at least 30 days prior to the expiration of any term of said party’s intention not to renew this Agreement. Key
provisions of the agreement include:
|
(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, 2014 exceed $25,000,000, subject to certain limitations. If the company achieves 80% of the bonus target then the employee is entitled to 50% of the defined bonus for the defined period. |
|
(c) |
Additional cash bonus of $250,000 in the event that gross sales for the fiscal year ending June 30, 2015 exceed $50,000,000, subject to certain limitations. In addition when the aforementioned gross sales targets are obtained the employee will be eligible for a 20% increase in salary year over year. |
|
(d) |
Option grants to purchase 40,000 (800,000 pre-split) shares of the company’s common stock at an exercise price of $2.00 per share ($0.10 pre-split), expiring April 1, 2016 (five-year life). Such options will vest over a two-year period. These options were valued at $4,656, as determined using the Black-Scholes option-pricing model using a risk free rate of 1.37%, volatility of 149% and a trading price of the underlying shares of $0.16 ($0.008 pre-split). |
|
(e) |
Severance pay is due the CTO 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 Chief Technical Officer at June 30, 2015 totaled $634,011. Compensation charged
to operations during the year ended June 30, 2015 on option grants totaled $554.
Accrued compensation
due the Chief Technical Officer at June 30, 2014 totaled $610,153. Compensation charged
to operations during the year ended June 30, 2014 on the option grants totaled $2,910. The CTO also had 20,000 (400,000 pre-split)
options granted from a previous employment agreement.
During the year
ended June 30, 2015, Sid Lorio was issued 42,500,000 shares of common stock pursuant to his note payables in the aggregate amount
of $120,000. Subsequent to the year end, we issued Mr. Lorio an additional 15,000,000 shares of common stock under the same notes
payable.
Director Independence
NASDAQ Listing Rule 5605(a)(2) provides
that an “independent director” is a person other than an officer or employee of the Company or any other individual
having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered
independent if:
● |
the director is, or at any time during the past three years was, an employee of the company; |
● |
the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); |
● |
a family member of the director is, or at any time during the past three years was, an executive officer of the company; |
● |
the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
● |
the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit. |
As of November 6, 2015, our Board is composed
of three members, of which two directors are independent directors. The two independent directors are Gerald M. Czarnecki and
Judith Muhlberg. In addition, as indicated above, each of our audit committee, nominating and corporate governance committee and
compensation committee, described above in “Committees of the Board of Directors,” is composed entirely of independent
directors, including the chairperson of the audit committee. We believe that the number of independent directors that make up
our Board benefits the company, as well as our stockholders.
Item 14. Principal
Accounting Fees and Services
Principal Accountant Fees and Services
The aggregate fees billed for the fiscal
year ended June 30, 2015 for professional services rendered by Sadler Gibb & 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, 2015 were $84,962.
The aggregate fees billed for the fiscal
year ended June 30, 2014 for professional services rendered by Sadler Gibb & 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, 2014 were $45,000.
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, 2015 and 2014.
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, 2015 and 2014.
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, 2015
and 2014.
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, 2015. 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.
PART IV
| Item 15. | Exhibits, Financial Statement Schedules |
Exhibits
3.1 |
Amended and Restated By-Laws of Eco Building Products, Inc. (referred to and incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the Commission on July 20, 2015). |
3.2 |
Certificate of Designation, Rights and Preferences for the Series D 12% Convertible Preferred Stock filed with the State of Nevada on March 31, 2015 |
3.3 |
Amendment Number 1 to the Certificate of Designations, Rights and Preferences of the Series D Convertible Preferred Stock (referred to and incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K filed with the Commission on July 20, 2015). |
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 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 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 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 with the Securities and Exchange Commission on February 22, 2011). |
10.5 |
Employment Agreement – between Eco Building Products, Inc. and Steve Conboy, Effective November 1, 2013 (filed as exhibit 10.5 with the registrant’s Current Report on Form 10-K with the Securities and Exchange Commission on October 14, 2014). |
10.6 |
Employment Agreement – between Eco Building Products, Inc. and Mark Vuozzo, Effective November 1, 2013 (filed as exhibit 10.6 with the registrant’s Current Report on Form 10-K with the Securities and Exchange Commission on October 14, 2014). |
10.7 |
Executive Severance Agreement and General Release of All Claims Agreement Dated June 15, 2015 |
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31.1 |
Certification of Principal Executive Officer (Rule 13a-14(a)/15(d)-14(a)) |
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31.2 |
Certification of Principal Financial Officer (Rule 13a-14(a)/15(d)-14(a)) |
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32.1 |
Certification of Principal Executive Officer (18 U.S.C. 1350) |
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32.2 |
Certification of Principal Financial Officer (18 U.S.C. 1350) |
101.INS* |
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XBRL Instance Document |
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101.SCH* |
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XBRL Taxonomy Schema |
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101.CAL* |
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XBRL Taxonomy Calculation Linkbase |
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101.DEF* |
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XBRL Taxonomy Definition Linkbase |
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101.LAB* |
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XBRL Taxonomy Label Linkbase |
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101.PRE* |
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XBRL Taxonomy Presentation Linkbase |
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In
accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
* to be filed by
amendment.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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ECO Building Products, Inc. |
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Registrant |
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Date: November 9, 2015 |
By: |
/s/ Tom Comery |
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Tom Comery, President and Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ Randall Smith, |
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Randall Smith, Chief Financial Officer |
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(Principal Accounting Officer) |
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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.
Signature |
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Title |
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Date |
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/s/ Gerald M.
Czarnecki |
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Chairman of the Board of Directors |
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November 9, 2015 |
Gerald M. Czarnecki |
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/s/ Tom Comery |
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Chief Executive Officer and Director |
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November 9, 2015 |
Tom Comery |
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(principal executive officer) |
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/s/ Judith Muhlberg |
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Director |
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November 9, 2015 |
Judith Muhlberg |
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Exhibit 3.2
Exhibit 10.7
CONFIDENTIAL EXECUTIVE SEVERANCE AGREEMENT
AND GENERAL RELEASE OF ALL CLAIMS
This Confidential Severance Agreement and
General Release of Claims (“Agreement”) is made by and between Eco Building Products, Inc., a Colorado Corporation
(the “Company”) and Steve Conboy (“Employee”), collectively (the “Parties”), with respect to
the following facts:
Employee is employed by the Company as its
President and Chief Executive Officer and as Chairman of the Company’s Board of Directors. Employee’s employment with
the Company will terminate and he will resign as a member of the Board of Directors effective June 15, 2015.
The Company wishes to assist Employee’s
transition. To facilitate this transition, the Company is offering Employee the benefits described below if Employee executes this
Agreement within 21 days after receipt.
This Agreement is presented to Employee
on June 15, 2015.
THEREFORE, in consideration of the promises
and mutual agreements set forth in this Agreement, it is agreed by and between the undersigned as follows:
1. Severance
Payment and Benefits.
1.1 The Company agrees to pay Employee
a Severance Payment of Thirty Seven Thousand and Five Hundred Dollars ($37,500) (the “Payment”) to which the Employee
is not otherwise entitled, less all appropriate federal and state tax withholdings. The Payment will be made in three (3) equal
installments of Twelve Thousand Five Hundred Dollars ($12,500) each, payments made 30, 60 and 90 days after the Effective Date
of this Agreement.
1.2 The Company will issue Employee an
option to purchase shares of Common Stock equal to one percent (1%) of the total number of shares of common stock outstanding on
the date of the grant (the “Conboy Options”). The Conboy Options shall have an exercise price equal to the closing
bid price on the date of grant, expiration date of 10 years from the date of issuance and shall vest as follows: (i) fifty percent
(50%) of the option award will vest upon the Effective Date of this Agreement, and (ii) the remaining fifty percent (50%) of the
option award will vest six (6) months after the Effective Date of this Agreement, provided that the Employee has not breached any
provision of this Agreement.
1.3 The Company will enter into the Consulting
Agreement with the Employee, in such form and substance as attached as Attachment A hereto. Pursuant to the Consulting Agreement,
the Company shall agree to pay Employee the amount of Three Hundred Fifty Dollars ($350) per day for any consulting services agreed
to after June 15, 2015 as requested in writing by the Company.
1.4 Employee acknowledges and agrees that
these payments and benefits are adequate consideration for the promises and representations made in this Agreement, and that Employee
has been paid all other compensation due, including wages, commissions or bonuses, and any other owed compensation of any kind,
and any accrued but unpaid wages, commissions, bonuses or owed compensation of any kind is hereby deemed paid and satisfied in
full by the consideration provided in this Section 1.
2. Conditions.
This Agreement is expressly conditioned upon:
2.1 Employee’s: (a) prompt and orderly
transition of all responsibilities to a Board of Directors’ designee; (b) resignation from his positions as President, Chief
Executive Officer and Chairman of the Company’s Board of Directors; and (c) tender of his Series A shares for cancellation
effective immediately.
2.2 Employee’s return of all Company
property, including laptops, cell phones, storage devices, calendars, credit cards, files and any other items issued to or created
by Employee, or purchased by Company during the Employee’s employment. This includes the immediate return of all Company
vehicles being used by Employee and/or Employee’s family members. In addition, the Employee shall provide the Company with
access to any materials, websites, domain names and other marketing and sales material (the “Promotional Materials”)
that the Employee controls and shall transfer full title and ownership in those Promotional Materials and shall not alter, change,
post any information on the Promotional Materials. All Promotional Materials shall hereinafter be property of the Company whether
title is actually transferred or not.
2.3 Employee’s reaffirmation of his
obligations under paragraphs 7-10 of his November 1, 2013 Employment Agreement.
2.4 Employee’s agreement to not solicit
for employment, or encourage the departure of, any of Company’s employees for a period of one (1) year.
2.5 Employee’s agreement that, except
for his reaffirmation of paragraphs 7-10 in section 2.3 above, this Agreement supersedes and replaces his November 1, 2013 Employment
Agreement in all other respects.
3. Representations.
Employee hereby affirmatively represents that he has suffered no workplace injury or illness during his employment.
4. Employee
Release.
4.1 Employee unconditionally, irrevocably
and absolutely releases and discharges the Company, and any parent and subsidiary corporations, divisions and other affiliated
entities of the Company, past and present, as well as the Company’s employees, officers, directors, agents, attorneys, successors
and assigns (collectively, “Company Released Parties”), from all claims related in any way to the transactions or occurrences
between them to date to the fullest extent permitted by law including, but not limited to, Employee’s employment with the
Company, the termination of Employee’s employment, and all other losses, liabilities, claims, demands and causes of action,
known or unknown, suspected or unsuspected, arising directly or indirectly out of or in any way connected with Employee’s
employment with the Company. This release is intended to have the broadest possible application and includes, but is not limited
to, any tort, contract, common law, constitutional or other statutory claims, any claim for unpaid wages, commissions, bonuses
or other employment benefits, as well as alleged violations of the federal Fair Labor Standards Act, Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, as amended, and all claims
for attorneys’ fees, costs and expenses. However, this release will not apply to claims for workers’ compensation benefits,
unemployment insurance benefits, or any other claims that cannot lawfully be waived, nor is this release intended to restrict Employee’s
ability to communicate with any regulatory or law enforcement agency.
4.2 Employee acknowledges that Employee
may discover facts or law different from, or in addition to, the facts or law that Employee knows or believes to be
true with respect to the claims released in this Agreement and agrees, nonetheless, that this Agreement and the release contained
in it shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery of them.
4.3 Employee declares and represents that
Employee intends this Agreement to be final, complete, and not subject to any claim of mistake. Employee executes this release
with the full knowledge that this release covers all possible claims against the Released Parties, to the fullest extent permitted
by law.
4.4 Employee expressly waives Employee’s
right to recover any type of personal relief from the Company, including monetary damages or reinstatement, in any administrative
action or proceeding, whether state or federal, and whether brought by Employee or on Employee’s behalf by an administrative
agency, related in any way to the matters released herein.
5. California
Civil Code Section 1542 Waiver. Employee agrees that all rights under Section 1542 of the California Civil Code are
expressly waived. That section provides:
A GENERAL RELEASE DOES NOT
EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
Employee understands that he is a “creditor”
within the meaning of Section 1542.
6. Representation
Concerning Filing of Legal Actions. Employee represents that, as of the date of this Agreement, Employee has not filed
any lawsuits, complaints, petitions, claims or other accusatory pleadings against the Company or any of the other Company Released
Parties in any court of law. Employee further agrees that, to the fullest extent permitted by law, Employee will not prosecute
in any court, whether state or federal, any claim or demand of any type related to the matters released above, it being the intention
of the parties that with the execution of this release, the Company Released Parties will be absolutely, unconditionally and forever
discharged of and from all obligations to or on behalf of Employee related in any way to the matters discharged herein. Employee
also agrees that Employee will not voluntarily participate in, be a witness in, be a party to, or otherwise voluntarily become
involved in any claims, potential claim or litigation against Employer or Company Released Parties. Employee further agrees that
Employee will not voluntarily assist or encourage in any manner whatsoever any person, party, or litigant, in any claim, potential
claim or action, against Employer or Company Released Parties to the fullest extent permitted by law. This provision is not intended
to prevent or restrict Employee from responding to a legally-issued subpoena from a court of competent jurisdiction.
7. No
Admissions. By entering into this Agreement, the Company Released Parties make no admission that they have engaged, or are
now engaging, in any unlawful conduct.
8. Older
Workers’ Benefit Protection Act. This Agreement is intended to satisfy the requirements of the Older Workers’ Benefit
Protection Act, 29 U.S.C. sec. 626(f). The following general provisions, along with the other provisions of this Agreement, are
agreed to for this purpose:
i. Employee acknowledges and agrees that
Employee has read and understands the terms of this Agreement.
ii. Employee is advised that Employee should
consult with an attorney before executing this Agreement, and Employee acknowledges that Employee has obtained and considered any
legal advice Employee deems necessary, such that Employee is entering into this Agreement freely, knowingly, and voluntarily.
iii. Employee acknowledges that Employee
has been given at least 21 days in which to consider whether or not to enter into this Agreement. Employee understands that, at
Employee’s option, Employee may elect not to use the full 21-day period.
iv. If Employee accepts the Agreement,
Employee shall deliver a signed copy to Tom Comery as a member of the Board of Directors as soon as practical but no later than
21 days after receipt of the Agreement. This Agreement shall not become effective or enforceable until the eighth day after Employee
signs this Agreement, or as soon thereafter as Employee satisfies the conditions expressed in paragraph 2 above. In other words,
Employee may revoke Employee’s acceptance of this Agreement within seven days after the date Employee signs it. Employee’s
revocation must be in writing and received by Tom Comery as member of the Board of Directors by 5:00 p.m. on the seventh day in
order to be effective. If Employee does not revoke acceptance within the seven day period, Employee’s acceptance of
this Agreement becomes binding and enforceable on the eighth day (the “Effective Date”). The Severance Payment will
become due and payable in accordance with paragraph 1 above after the Effective Date, provided Employee does not revoke.
v. This Agreement does not waive or release
any rights or claims that Employee may have under the Age Discrimination in Employment Act that arise after the execution of this
Agreement.
9. Severability.
If any provision of this Agreement is deemed unenforceable by a court of competent jurisdiction, that provision shall be deemed
modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the Released Parties
will receive the benefits contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory
in the judgment of such court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the
remaining provisions shall not be affected thereby.
10. Confidentiality.
In further consideration of the agreements and covenants contained in this Agreement, Employee agrees that the terms and conditions
of this Agreement, as well as the discussions which led to the terms and conditions of this Agreement (collectively referred to
as the “Confidential Information”) shall remain confidential. Employee shall not disclose this Confidential Information
to any other person, with the exception of Employee’s tax advisors and attorneys who have need to know of the settlement.
If released to any such persons or entities, Employee shall advise the person or entity that the information is confidential and
is to remain confidential to the fullest extent possible under the law. Employee acknowledges that this confidentiality requirement
is a material term of this Agreement and that the Company would not have entered into this Agreement without Employee’s agreement
to comply with these confidentiality obligations. Accordingly, any breach of this confidentiality clause by Employee is a material
breach of this entire agreement.
11. Non-Disparagement.
Employee further agrees that Employee will not, orally or in writing, publicly or privately: (a) make or express any comment, view
or opinion critical or disparaging of the Company, its parent or subsidiaries, or any of their employees; or (b) authorize any
agent or representative to make or express such a comment, view or opinion, except as may be compelled by law. The statements prohibited
by this Agreement include, but are not limited to, those made on social media sites such as Facebook, Twitter and LinkedIn, blogs,
and message boards, even if posted by pseudonym or anonymously. Employee acknowledges that this non-disparagement requirement is
a material term of this Agreement and that the Company would not have entered into this Agreement without Employee’s agreement
to comply with these non-disparagement obligations. Accordingly, any breach of this non-disparagement clause by Employee is a material
breach of this entire agreement.
12. Full
Defense. This Agreement may be pled as a full and complete defense to, and may be used as a basis for an injunction against,
any action, suit or other proceeding that may be prosecuted, instituted or attempted by Employee in breach hereof. Employee agrees
that in the event an action or proceeding is instituted by the Company Released Parties in order to enforce the terms or provisions
of this Agreement, the Company Released Parties shall be entitled to an award of reasonable costs and attorneys’ fees incurred
in connection with enforcing this Agreement.
13. Integration.
This Agreement contains the entire agreement between the Company and Employee on the subjects addressed in this Agreement and replaces
any other prior agreements or representations, whether oral or written, between them.
14. Binding
on Successors. The Parties agree that this Agreement shall be binding on, and inure to the benefit of, Employee’s or
the Company’s successors, heirs and/or assigns.
15. No
Assignment. The parties warrant and represent that they have not assigned or transferred to any person not a party to this
Agreement any released matter or any right to any of the consideration provided by either party pursuant to this Agreement.
16. Modification.
This Agreement may be amended only by a written instrument executed by all Parties hereto.
17. Counterparts.
This Agreement may be executed in counterparts and shall be binding on all Parties when each has signed an original or copy of
this Agreement.
THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT
AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES
SHOWN BELOW.
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Dated: |
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Steve Conboy |
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ECO BUILDING PRODUCTS, INC. |
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By: |
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Dated: |
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Tom Comery |
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Board of Directors, Board Member |
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ATTACHMENT A
CONSULTING AGREEMENT
This Consulting Agreement (“Agreement”)
is entered into by and between ECO BUILDING PRODUCTS, INC. (the “Company”) with a business address of 909 West Vista
Way, Vista, CA 92083 and STEVE CONBOY (“Consultant”), (collectively “the Parties”), as of the date both
Parties have signed it below.
1. Retention
of Services. The Company hereby engages Consultant to provide consulting services on an as-needed basis. All such services
shall be performed in a professional and responsible manner, consistent with the Company’s best interests.
2. Term.
The term of this Agreement shall be from the date of execution through December 31, 2015, unless sooner terminated in accordance
with Paragraph 8 below. This Agreement shall not automatically renew at the end of the term.
3. Compensation.
3.1 Fees. As compensation for the
satisfactory performance of all duties to be performed by Consultant hereunder, the Company will pay Consultant fees for services
rendered in the gross amount of Three Hundred Fifty Dollars ($350.00) per day for consulting services requested by and rendered
to the Company. Consultant will monitor and keep records of the hours spent on this engagement and such records shall be provided
to Company on a semi-monthly basis. Adjustment of fees must be approved in writing by both Parties.
3.2 Expenses. Company shall reimburse
Consultant for necessary expenses incurred in connection with Consultant’s performance of services under this Agreement.
During the term of this Agreement, Consultant shall bill all approved expenses to the Company on a monthly basis and shall provide
documentation satisfactory to the Company to support each expense item billed.
4. Independent
Contractor Relationship. Consultant’s relationship with Company will be that of an independent contractor and nothing
in this Agreement is intended to, or should be construed to, create a partnership, agency, joint venture or employment relationship.
Consultant will not be entitled to any of the benefits that Company may make available to its employees, including, but not limited
to, group health, life insurance, profit-sharing or retirement benefits, stock option plans, paid personal leave, or holidays.
Consultant shall be entitled to all benefits or privileges provided to Company consultants under any existing Company policy or
practice, including but not limited to the right to continue vesting in any stock options granted to the Consultant while previously
employed by the Company.
4.1 Authority. Consultant will not
be authorized to make any representation, contract or commitment on behalf of the Company unless specifically requested or authorized
in writing to do so by the Chief Executive Officer of Company or the Board of Directors.
4.2 Licenses and Insurance. Consultant
will be solely responsible for obtaining any business or similar licenses required by any federal, state or local authority. Consultant
assumes all risk connected with work to be performed. Consultant further assumes responsibility for Workers’ Compensation
for himself and any employees of Consultant.
4.3 Taxes. Consultant will be solely
responsible for, and will file on a timely basis, all tax returns and payments required to be filed with, or made to, any federal,
state or local tax authority with respect to the performance of services and receipt of fees under this Agreement. Consultant’s
compensation under this Agreement will not be subject to withholding by Company for the payment of any social security, federal,
state or any other employee payroll taxes. Company will regularly report amounts paid to Consultant by filing a Form 1099-MISC
with the Internal Revenue Service as required by law.
4.4 Method of Performing Services; Results.
In accordance with Company’s objectives, Consultant will determine the method, details and means of performing the services
required by this Agreement. Unless specifically directed by the Company, the Company shall not control the manner or determine
the method of performing Consultant’s services. Consultant shall provide the services for which Consultant is engaged to
the reasonable satisfaction of Company.
4.5 Warranties. Consultant warrants
that the services to be performed under this Agreement shall be performed in a diligent manner in accordance with applicable industry
and professional standards, and that the work product will be free from defects and conform to applicable specifications. Consultant
will, at no expense to Company, provide error corrections and make such additions, modifications or adjustments as may be necessary
to correct nonconforming work product.
4.6 Workplace, Hours and Instrumentalities.
Consultant may perform the services required by this Agreement at any place or location and at such times as Consultant shall determine.
Consultant agrees to provide all tools and instrumentalities, if any, required to perform the services under this Agreement.
5. Ownership
Rights; Inventions; Assignment. Company shall own all right, title and interest (including patent rights, copyrights, trade
secret rights, mask work rights, trademark rights, and all other intellectual and industrial property rights of any sort throughout
the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designations, designs,
know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by Consultant during the term of
this Agreement that relate to the subject matter of, or arise out of, the consulting services provided under this Agreement (collectively,
“Inventions”) and Consultant will promptly disclose and provide all Inventions to Company. Consultant hereby makes
all assignments necessary to accomplish the foregoing ownership subject to the Exclusion Notice below. Consultant shall further
assist Company, at Company’s expense, to further evidence, record and perfect such assignments, and to perfect, obtain, maintain,
enforce, and defend any rights assigned. Consultant hereby irrevocably designates and appoints Company as its agents and attorneys-in-fact
to act for and in Consultant’s behalf to execute and file any document and to do all other lawfully permitted acts to further
the foregoing with the same legal force and effect as if executed by Consultant.
5.1 Exclusion Notice. Pursuant to
California Labor Code section 2870, the assignment by Consultant of Inventions under this Agreement does not apply to any Inventions
to which all of the following are applicable: (a) no equipment, supplies, facility, or trade secret information of Company were
used; (b) the invention or idea does not relate to the business of Company; (c) the invention or idea does not relate to Company’s
actual or demonstrably anticipated research or development; (d) the invention or idea does not result from any work performed by
Consultant for Company; and (e) no part of the Invention was developed during times Consultant was performing work for the Company.
The Parties acknowledge that Inclusion of this provision shall not alter Consultant’s Independent Contractor status.
5.2 Prior Inventions. This Agreement
shall not embrace or include any inventions owned or controlled by Consultant, either alone or in conjunction with others, prior
to the time of engagement of Consultant by the Company, other than any inventions which were owned by or created for or on behalf
of the Company, which Consultant acknowledges are owned by Company. Consultant has set forth on Exhibit ”1”
attached hereto a complete list of all inventions, if any, patented or unpatented, copyrighted or not copyrighted, including numbers
of all patents and patent applications filed thereon, and applications for copyright protection and registration filed thereon,
and a brief description of all unpatented inventions which Consultant made prior to this Agreement and which are to be excluded
from the scope of this Agreement. Any patentable improvements made on such listed inventions after the commencement of the engagement
of Consultant by the Company shall be deemed Inventions within the scope of this Agreement. In the event Consultant does not list
any such inventions on Exhibit ”B,” there shall conclusively be deemed to be no inventions to be excluded from
the scope of this Agreement.
5.3 Time of Invention. For the
purposes of this Agreement, an Invention is deemed to have been made during the term of Consultant’s engagement by the Company
if the Invention was conceived or first actually reduced to practice during the term of such engagement.
5.4 Grant of License. If any part
of the services provided under this Agreement or Inventions are based on, incorporate, or are an improvement or derivative of,
or cannot be reasonably and fully made, used, reproduced, distributed and otherwise exploited without using or violating technology
or intellectual property rights owned or licensed by Consultant and not assigned hereunder, Consultant hereby grants Company and
its successors a perpetual, irrevocable, worldwide royalty-free, non-exclusive, sublicensable right and license to exploit and
exercise all such technology and intellectual property rights in support of Company’s exercise or exploitation of the services
performed under this Agreement, or any assigned rights (including any modifications, improvements and derivatives of any of them).
6. Confidential
Information. Consultant acknowledges and agrees that in relation to the services being provided under this Agreement, Consultant
may be given access to confidential or proprietary documents, materials or information regarding the Company’s products,
research, business affairs, and personnel matters, which Consultant acknowledges and agrees are of a highly sensitive and confidential
nature and considered trade secrets and/or proprietary to the Company. Such information, documents and materials may include, without
limitation, trade secrets, inventions, research, plans, proposals, marketing and sales programs, financial projections, cost summaries,
pricing formulas and all concepts or ideas, materials or information related to the products, research, business or sales of the
Company or the Company’s customers or business partners, as well as the Company’s personnel matters, which has not
previously been released to the public at large by an authorized representative of the Company. Consultant represents that she
will hold all such information confidential and that she will not use such confidential or proprietary information and/or documents
for any purpose other than to perform services under this Agreement for the benefit of the Company. Consultant understands that
this obligation of confidentiality continues even after the expiration or termination of this Agreement.
6.1 Third Party Confidential Information.
Consultant warrants that Consultant’s performance of all the terms of this Agreement does not and will not breach any agreement
to keep in confidence proprietary information, knowledge or data acquired by Consultant prior to Consultant’s rendering services
to Company. Consultant agrees not to disclose to Company, or induce Company to use, any confidential or proprietary information
or material belonging to any of Consultant’s customers or previous employers. Consultant warrants that Consultant is not
a party to any other written or oral agreement that will interfere with Consultant’s full compliance with this Agreement.
Consultant further agrees not to enter into any written or oral agreement in conflict with the provisions of this Agreement.
6.2 Ownership and Return of Company
Property. All materials (including, without limitation, documents, drawings, models, apparatus, sketches, designs, lists, all
other tangible media of expression), equipment, documents, data, software and other property furnished to Consultant by Company,
whether delivered to Consultant by Company or made by Consultant in the performance of services under this Agreement (collectively,
the “Company Property”) are the sole and exclusive property of Company or Company’s suppliers or customers, and
Consultant hereby does and will assign to Company all rights, title and interest Consultant may have or acquire in Company Property.
At the expiration or termination of this Agreement, or at Company’s request, and no later than five (5) days thereafter,
or upon Company’s request at any time, Consultant shall destroy or deliver to Company, at Company’s option: (a) all
Company Property; (b) all tangible media of expression in Consultant’s possession or control which incorporate or in
which are fixed any Confidential Information; and (c) written certification of Consultant’s compliance with Consultant’s
obligations under this subparagraph.
6.3 Observance of Company Rules.
At all times while on Company’s premises, Consultant will observe Company’s rules and regulations with respect to conduct,
health and safety and protection of persons and property.
7. No
Conflict of Interest. During the term of this Agreement, Consultant will not undertake any obligation inconsistent with the
terms under this Agreement. Consultant warrants that, to the best of Consultant’s knowledge, there is no other contract or
duty on the part of Consultant that conflicts with or is inconsistent with this Agreement. This paragraph does not prevent Consultant
from performing the same or similar services for clients other than Company so long as such services do not directly or indirectly
conflict with Consultant’s obligations under this Agreement.
8. Termination.
Company or Consultant may terminate this Agreement at any time by providing written notice of same.
9. General
Provisions.
9.1 Successors and Assigns. The
rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and
assigns of Company. Consultant may not assign his rights, subcontract or otherwise delegate his obligations under this Agreement
without Company’s prior written consent. This shall not, however, prevent Consultant from employing employees to assist in
Consultant’s rendering of services to Company under Consultant’s supervision, as deemed necessary by Consultant.
9.2 Consultant Indemnification.
Consultant shall be liable for, and agrees to pay, any and all debts, claims, demands, liabilities, expenses, losses, injuries,
damages and reasonable attorneys’ fees arising out of Consultant’s services rendered hereunder. Further, Consultant
shall indemnify and hold Company harmless from and against any and all debts, claims, demands, liabilities, expenses, losses, injuries,
damages for injury to or death of persons, including, but not limited to, Consultant’s employees, if any, Consultant’s
customers and previous employers, Company’s customers and employees, and damages or destruction to property, including, but
not limited to, property of Company, resulting, in any manner, from Consultant’s performance of services hereunder.
9.3 Notices. Any notice required
or permitted by this Agreement shall be in writing and shall be delivered as follows, with notice deemed given as indicated: (a) by
personal delivery, when delivered personally; (b) by overnight courier, upon written verification of receipt; (c) by
telecopy or facsimile transmission, upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered
mail, return receipt requested, upon verification of receipt. Notice shall be sent to the addresses set forth above or to such
other address as either party may specify in writing.
9.4 Governing Law. This Agreement
shall be governed in all respects by the laws of the United States of America and by the laws of the State of California, as such
laws are applied to agreements entered into and to be performed entirely within California between California residents.
9.5 Severability. If any provision
of this Agreement is held by a court of law to be illegal, invalid or unenforceable, (a) that provision shall be deemed amended
to achieve as nearly as possible the same economic effect as the original provision, and (b) the legality, validity and enforceability
of the remaining provisions of this Agreement shall not be affected or impaired thereby.
9.6 Waiver; Amendment; Modification.
No term or provision hereof will be considered waived by Company, and no breach excused by Company, unless such waiver or consent
is in writing signed by Company. The waiver by Company of, or consent by Company to, a breach of any provision of this Agreement
by Consultant, shall not operate or be construed as a waiver of, consent to, or excuse of any other or subsequent breach by Consultant.
This Agreement may be amended or modified only by mutual agreement of authorized representatives of the Parties in writing.
9.7 Injunctive Relief for Breach.
Consultant’s obligations under this Agreement are of a unique character that gives them particular value. Consultant’s
breach of any of such obligations will result in irreparable and continuing damage to Company for which there will be no adequate
remedy at law. Accordingly, in the event of such breach, the Parties agree that Company will be entitled to injunctive relief and/or
a decree for specific performance, and such other and further relief as may be proper (including monetary damages if appropriate).
9.8 Entire Agreement. This Agreement
constitutes the entire agreement between the Parties relating to this subject matter and supersedes all prior or contemporaneous
oral or written agreements concerning such subject matter. The terms of this Agreement will govern all services undertaken by Consultant
for Company.
9.9 Counterparts. This Agreement
may be executed in counterparts and shall be binding on all Parties when each has signed either an original or copy of this Agreement.
THE PARTIES HAVE READ THE FOREGOING AGREEMENT
AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE DATES
INDICATED BELOW.
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Dated: |
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Steve Conboy |
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ECO BUILDING PRODUCTS, INC. |
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By: |
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Dated: |
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Tom Comery |
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Board of Directors, Board Member |
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EXHIBIT 1
Excluded Innovations
Title |
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Date |
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Identifying Number
Or Brief Description |
1. |
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1. |
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1. |
2. |
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2. |
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2. |
3. |
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4. |
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5. |
Exhibit 31.1
CERTIFICATION
OF PRINCIPAL
EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT
TO SECTION 302 OF
THE SARBANES-OXLEY
ACT OF 2002
I, Tom Comery, certify that:
1. |
I have reviewed this Form 10-K of Eco Building Products, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 9, 2015 |
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/s/ Tom Comery |
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Tom Comery
(Principal Executive Officer) |
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Exhibit 31.2
CERTIFICATION
OF PRINCIPAL
FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT
TO SECTION 302 OF
THE SARBANES-OXLEY
ACT OF 2002
I, Randall Smith, certify that:
1. |
I have reviewed this Form 10-K of Eco Building Products, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 9, 2015 |
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/s/ Randall Smith |
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Randall Smith
(Principal Financial Officer) |
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Exhibit 32.1
CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with this Annual Report of Eco Building Products,
Inc. (the “Company”) on Form 10-K for the fiscal year ended June 30, 2015, as filed with the Securities and
Exchange Commission on the date hereof, I, Tom Comery, Chief Executive Officer of the Company, certifies to the best of his knowledge,
pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
1. Such Annual Report on Form 10-K for the fiscal year
ended June 30, 2015, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in such Annual Report on Form 10-K
for the fiscal year ended June 30, 2015, fairly presents, in all material respects, the financial condition and results
of operations of Eco Building Products, Inc.
Date: November 9, 2015
/s/ Tom Comery |
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Tom Comery |
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(Principal Executive Officer) |
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Exhibit 32.2
CERTIFICATION OF
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with this Annual Report of Eco Building Products,
Inc. (the “Company”) on Form 10-K for the fiscal year ended June 30, 2015, as filed with the Securities and
Exchange Commission on the date hereof, I, Randall Smith, Chief Financial Officer of the Company, certifies to the best of his
knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
1. Such Annual Report on Form 10-K for the fiscal year
ended June 30, 2015, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in such Annual Report on Form 10-K
for the fiscal year ended June 30, 2015, fairly presents, in all material respects, the financial condition and results
of operations of Eco Building Products, Inc.
Date: November 9, 2015
/s/ Randall Smith |
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Randall Smith |
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(Principal Financial Officer) |
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