##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
 1934 for the fiscal year ended December 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
 Commission File Number: 333-126378
 CEREPLAST, INC.
  Nevada
    
    91-2154289State or other jurisdiction 
of incorporation or organization
    
    I.R.S. Employer Identification Number
 
    Yes þ No o
 Form 10-KSB o
 Yes o No þ




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##### 



FORM 10-KSB
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
  PagePART I
    
    
    4ITEM 1. DESCRIPTION OF BUSINESS
    
    
    4ITEM 2. DESCRIPTION OF PROPERTY
    
    
    9ITEM 3. LEGAL PROCEEDINGS
    
    
    9ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
    
    
    9PART II
    
    
    10ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
    
    
    10ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
    
    
    12ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    15ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    15ITEM 8A. CONTROLS AND PROCEDURES
    
    
    15ITEM 8A(T). CONTROLS AND PROCEDURESITEM 8B. OTHER INFORMATION
    
    
    15PART III
    
    
    16ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
    
    
    16ITEM 10. EXECUTIVE COMPENSATION
    
    
    18ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    19ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    19ITEM 13. EXHIBITS
    
    
    20ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   3




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PART I
 
 ITEM 1. DESCRIPTION OF BUSINESS
 GENERAL
 History
  Overview
     
    
    Cereplast Compostables Resins are renewable, ecologically-sound substitutes for
petroleum-based plastics targeting primarily single-use disposables and packaging
applications. We have commercialized more than 30 grades of Compostable Resins in this
product line. These resins are compatible with existing manufacturing processes and
equipment making them a substitute for traditional petroleum-based resins. We commercially
introduced our Compostables line in November 2006.
 
    
    Cereplast Hybrid Resins replace 50% or more of the petroleum content in conventional
plastics with bio-based materials such as starches from plants. The Hybrid Resin line is
able to offer similar properties to traditional polyolefin such as impact strength and heat
deflection temperature. Hybrid Resins provide a viable alternative for brand owners and
converters looking to replace petroleum-based resins in durable goods application. Hybrid
Resins can be used in a wide range of markets, including automotive, consumer goods,
consumer electronics, medical, packaging, and construction. We commercially introduced our
first grade of Hybrid Resin, Biopropylene, in October 2007.
 Business Strengths
  Technology Leadership and Engineering Expertise.
 Competitive Pricing with Traditional Plastic.
 Scalable and Low-Cost Manufacturing Platform.
  4




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Close Consultative Relationship with Customers.
 Highly Experienced Management and Technical Team.
 Business Strategy
 Target High-Growth Segments with Commercial Products.
 Support converter partners and work with brand owners in the adoption of bio-based plastics to
expand our customer base.
  Expand manufacturing capabilities.
 Strengthen our product leadership by developing new formulations in conjunction with customer
demands.
 Pursue Strategic Alliances.
 Industry Overview and Outlook
    5




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Market Opportunity
 Rising and Increasingly Volatile Oil Prices Encourage Bioplastics Adoption.
 Greater Environmental Concerns.
 National Security Concerns.
 Our Resin Products
 TM TM
 
    
    Injection molding
 
    
    Thermoforming
 
    
    Blow film
 
    
    Blow molding
 
    
    Extrusion
  Cereplast Compostable Resins
     6




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Cereplast Hybrid Resins
  Sales and Marketing
   
    
    Develop resins for use in products which deliver comparable or greater performance, are
competitively priced and offer environmental advantages as compared to traditional
petroleum-based alternatives
 
    
    Prove manufacturability and economics of foodservice packaging and other finished goods
produced utilizing our resins
 
    
    Assist our converter customers with end-user customer demand as well as product
performance and positioning
 
    
    License our resin technology to strategic manufacturing partners to manufacture, market,
distribute and sell plastics manufactured with our resin technology
   Manufacturing
    7




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Annual Compostable Resin Production Rate
    
    
    Annual Hybrid Resin Production RateProduction Line 1
    
    
    9,600,000
    
    
    
    3,200,000Production Line 2
    
    
    11,200,000
    
    
    
    2,800,000Production Line 3
    
    
    17,600,000
    
    
    
    3,200,000Total
    
    
    38,400,000
    
    
    
    9,200,000
  Competition
    Government Regulation
  Research and Development
  
    
    Improve the properties and processing of our portfolio of resins
 
    
    Broaden the processing and market applications of our resin
 
    
    Reduce the cost of our resin to ensure that their remain competitive with fossil fuel
alternatives
 
    
    Continue to introduce and patent new resins to satisfy the demand of our converter
customers
 
    
    Explore new alternatives and source new natural raw material
  8




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Patents, Licenses and Trade Secrets
 ® ®
  Employees
  
 ITEM 2. DESCRIPTION OF PROPERTY
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
   9




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.
 Market Information
  High
    
    
    LowFirst Quarter ended March 31, 2007
    
    $
    0.40
    
    
    $
    0.36Second Quarter ended June 30, 2007
    
    $
    0.59
    
    
    $
    0.37Third Quarter ended September 30, 2007
    
    $
    0.91
    
    
    $
    0.58Fourth Quarter ended December 31, 2007
    
    $
    0.71
    
    
    $
    0.52
 Holders
  Dividend Policy
  Recent Sale of Unregistered Securities
  
    
    Through an initial private placement completed on March 10, 2007, which was made in
reliance upon an exemption from registration under rule 506 of Regulation D promulgated
under Section 4(2) of the Securities Act of 1933, the Company issued 7,484,999 restricted
 shares of common stock for gross cash proceeds of $2,245,500.
 
    
    Through an initial private placement completed on July 2, 2007, which was made in
reliance upon an exemption from registration under rule 506 of Regulation D promulgated
under Section 4(2) of the Securities Act of 1933, the Company issued 38,341,053 restricted
 shares of common stock for gross cash proceeds of $14,569,600. The subscribers to the
private placement were primarily comprised of institutions focused on the renewable and
clean technology sectors, including UBS, Fortis Investments, Clariden Leu, Credit Suisse
and Swisscanto. The shares acquired through this private placement were subsequently
registered with the SEC through an SB-2 filing, which was declared effective on July 11,
2007.
 Equity Compensation Plan Information
 As of December 31, 2007:
 Number of shares to
    
    
    
    
    
    
    Number of sharesbe issued upon
    
    
    Weighted-average
    
    
    remaining availableexercise of
    
    
    exercise price of
    
    
    for future issuanceoutstanding options
    
    
    outstanding options
    
    
    under equityPlan Category
    
    and warrants
    
    
    and warrants
    
    
    compensation planApproved by security holders
    
    
    
    
    
    
    
    
    
    
    Not approved by security holders
    
    
    11,625,000
    
    
    $
    0.56
    
    
    
    13,375,000Total
    
    
    11,625,000
    
    
    
    
    
    
    
    13,375,000
  10




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STOCK OPTION PLAN
 GENERAL
   PURPOSE
  ADMINISTRATION
    ELIGIBILITY
  TERMS OF OPTIONS
      11




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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 CAUTIONARY STATEMENTS
  
    
    statements concerning the potential benefits that we may experience from its business
activities and certain transactions it contemplates or has completed; and
 
    
    statements of our expectations, beliefs, future plans and strategies, anticipated
developments and other matters that are not historical facts. These statements may be made
expressly in this Form 10-K. You can find many of these statements by looking for words
such as believes, expects, anticipates, estimates, opines, or similar expressions
used in this Form 10-KSB. These forward-looking statements are subject to numerous
assumptions, risks and uncertainties that may cause our actual results to be materially
different from any future results expressed or implied by us in those statements. The most
important facts that could prevent our company from achieving its stated goals include, but
are not limited to, the following:
 
    
    volatility or decline of our stock price;
 
    
    potential fluctuation in quarterly results;
 
    
    our failure to earn profits;
 
    
    inadequate capital to expand its business, inability to raise additional capital or
financing to implement its business plans;
 
    
    changes in demand for our products and services;
 
    
    rapid and significant changes in markets;
 
    
    litigation with or legal claims and allegations by outside parties;
 
    
    insufficient revenues to cover operating costs.
   12




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CURRENT OVERVIEW
 TM TM
   CRITICAL ACCOUNTING POLICIES
  RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR ENDED DECEMBER 31,
2006.
 Sales
  Gross Profit
  Operating Expenses
   13




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Net Loss
  Liquidity and Capital Resources
       14




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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 8. CONTROLS AND PROCEDURES
  
 ITEM 8A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
  Managements Annual Report on Internal Control over Financial Reporting
   
 ITEM 8B. OTHER INFORMATION
   15




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PART III
 
 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT.
  Name
    
    Age
    
    PositionFrederic Scheer
    
    53
    
    President, CEO and FounderStephan Garden
    
    34
    
    Senior Executive Vice President - Finance & Business Dev.William Kelly
    
    62
    
    Senior Vice President TechnologyCharles Hoop
    
    35
    
    Senior Vice President, Operations ControlShriram Bagrodia
    
    55
    
    Senior Vice President R&D Blends & ChemistryMichael Muchin
    
    38
    
    Vice President SalesThomas Bash
    
    46
    
    Vice President Process & EngineeringMargaret McMurray
    
    60
    
    Chief Administrative OfficerPetros Kitsos (1)
    
    
    
    DirectorJacques Vincent (1)
    
    
    
    Director
  FREDERIC SCHEER
 STEPHAN GARDEN
 WILLIAM KELLY
 CHARLES HOOP
  16




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SHRIRAM BAGRODIA
 MICHAEL MUCHIN
 THOMAS BASH
 MARGARET McMURRAY
 INDEPENDENT DIRECTORS
 PETROS KITSOS
 JACQUES VINCENT
 BOARD COMMITTEES
 AUDIT COMMITTEE
   17




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##### Table of Contents



COMPENSATION COMMITTEE
  
    
    Reviews and recommends to the board the compensation and benefits of our executive
officers;
 
    
    Administers our stock option plans and employee stock purchase plan; and
 
    
    Establishes and reviews general policies relating to compensation and employee benefits.
  DIRECTOR COMPENSATION
  CODE OF ETHICS
  
 ITEM 10. EXECUTIVE COMPENSATION
  SUMMARY COMPENSATION TABLE
 Change in PensionValue andNon-QualifiedNon-Equity
    
    
    DeferredIncentive Plan
    
    
    Compensation
    
    
    All OtherName & Principal Position
    
    Year
    
    
    Salary ($)
    
    
    Bonus ($)
    
    
    Stock Awards($)
    
    
    Option Awards ($)
    
    
    Compensation ($)
    
    
    Earnings ($)
    
    
    Compensation ($)
    
    
    Total ($)Frederic Scheer, CEO
    
    
    2007
    
    
    $
    223,278
    
    
    
    
    
    
    $
    198,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    421,6052006
    
    
    $
    163,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    163,0002005
    
    
    $
    66,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    66,250Stephan Garden, SVP Finance & Bus. Dev.
    
    
    2007
    
    
    $
    157,732
    
    
    
    
    
    
    $
    327,133
    
    
    $
    1,022,912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,507,7772006
    
    
    $
    54,000
    
    
    
    
    
    
    $
    341,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    395,750William Kelly, SVP Technology (1)
    
    
    2007
    
    
    $
    113,028
    
    
    
    
    
    
    $
    34,488
    
    
    $
    192,226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    288,7522006
    
    
    $
    78,250
    
    
    
    
    
    
    $
    56,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    134,500Michael Muchin, VP Sales
    
    
    2007
    
    
    $
    119,063
    
    
    
    
    
    
    $
    76,279
    
    
    $
    147,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    342,6572006
    
    
    $
    25,386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,386Shriram Bagrodia, SVP R&D Blend & Chemistry (2)
    
    
    2007
    
    
    $
    54,778
    
    
    
    
    
    
    $
    18,394
    
    
    $
    147,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    220,487Thomas Bash , VP Process & Engineering(3)
    
    
    2007
    
    
    $
    83,480
    
    
    
    
    
    
    $
    9,197
    
    
    $
    102,418
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    177,273Charles Hoop, SVP Operations Control (4)
    
    
    2007
    
    
    $
    29,555
    
    
    
    
    
    
    $
    167,583
    
    
    $
    147,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    344,453Margaret McMurray, Chief Administrative Officer
    
    
    2007
    
    
    $
    54,486
    
    
    
    
    
    
    $
    2,670
    
    
    $
    22,754
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    79,9102006
    
    
    $
    22,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    22,148
 (1)
    
    William Kelly became a full time employee on July 1, 2007; as such his compensation also
reflects consulting fees paid by Cereplast in 2007 and 2006. His 2007 annual base salary is
$140,000.(2)
    
    Shriram Bagrodia became a full time employee on July 23, 2007. His annual base salary is
$140,000.(3)
    
    Charles Hoop became full time employee on September 27, 2007. His annual base salary is
$140,000.(4)
    
    Tom Bash became full time employee on July 1, 2007; as such his compensation also reflects
consulting fees paid by Cereplast in 2007. His annual base salary is $105,000.  18




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DIRECTOR COMPENSATION
  Change in PensionFees Earned
    
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    
    Value and Nonqualifiedor Paid in
    
    
    
    
    
    
    Option
    
    
    Incentive Plan
    
    
    Deferred Compensation
    
    
    All OtherName
    
    Cash
    
    
    Stock Awards
    
    
    Awards
    
    
    Compensation
    
    
    Earnings
    
    
    Compensation
    
    
    TotalBrian Altounian (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reylen Jensen (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    Mr. Altounian resigned from the Board of Directors on January 23, 2008 and was replaced by
Jacques Vincent. Mr. Jensen. Resigned from the Board of Directors on August 8, 2007 and was
replaced by Mr. Kitsos  EMPLOYMENT AND OTHER AGREEMENTS
  
    
    In November 2006, we entered into an Employment Agreement effective January
1st, 2007 with our Chief Executive Officer by which he has agreed to serve as
CEO for a period of five (5) years. He is entitled to a yearly cash compensation of
$400,000 but has agreed to substitute part of his cash compensation in restricted stock
until the cash flow of the company will permit.
 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
    
    each person known by us to be the beneficial owner of more than 5% of our Common Stock;
 
    
    each of our directors;
 
    
    each of our executive officers; and
 
    
    our executive officers and directors as a group.
  Name
    
    Number of Shares Beneficially Owned
    
    
    Percent of ClassFrederic Scheer
    
    
    113,959,336
    
    
    
    43.0
    %Stephan Garden
    
    
    4,613,599
    
    
    
    1.7
    %William Kelly
    
    
    1,717,620
    
    
    
    *Charles Hoop
    
    
    794,006
    
    
    
    *Shriram Bagrodia
    
    
    529,842
    
    
    
    *Michael Muchin
    
    
    677,461
    
    
    
    *Thomas Bash
    
    
    348,254
    
    
    
    *Margaret McMurray
    
    
    72,667
    
    
    
    *Petros Kitsos (1)
    
    
    
    
    
    
    *Jacques Vincent (1)
    
    
    
    
    
    
    *All officers and directors as
a group (10 people)
    
    
    122,712,785
    
    
    
    46.3
    %
 *
    
    Less than one percent(1)
    
    Officer and/or director of our Company.(2)
    
    Mr. Scheer beneficially owns such shares jointly with his wife, Jocelyne Scheer. 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   19




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ITEM 13. EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    
    Articles of Incorporation. (1)3.2
    
    
    Certificate of Amendment to the Articles of Incorporation dated February 26, 2003 (1)3.3
    
    
    Certificate of Amendment to the Articles of Incorporation dated July 19, 1004 (1)3.4
    
    
    Certificate of Amendment to the Articles of Incorporation dated March 18, 2005 (1)3.5
    
    
    Bylaws (1)4.1
    
    
    Form of Subscription Agreement used in connection with private offering dated April 2005 (2)4.2
    
    
    Stock Option Plan(2)4.3
    
    
    Form of Subscription Agreement used in connection with private offering of 872,000 shares of common stock(2)4.4
    
    
    Periodic Equity Investment Agreement dated February 13, 2006 between the Company and Cumorah Capital, Inc. (4)4.5
    
    
    Registration Rights Agreement dated February 13, 2006 between the Company and Cumorah Capital, Inc. (4)4.6
    
    
    Letter Agreement dated March 31, 2006 by and between the Company and Cumorah Capital, Inc. (5)10.1
    
    
    Sale and Purchase Agreement entered between the Company and Cargill Dow LLC(2)10.5
    
    
    Lease entered with El Segundo/Yukon Partners LLC (3)10.6
    
    
    Promissory Note in the amount of $100,000 in the name of Wings Fund Inc. (3)10.7
    
    
    Promissory Note in the amount of $50,000 in the name of Yanosan Group (3)10.8
    
    
    Form of Subscription Agreement used in connection with private offering of 38,341,053 shares of common stock (6)14.1
    
    
    Code of Ethics(1)31.1
    
    
    Certification of the Chief Executive Officer and the Principal Accounting/Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the SVP Finance and Business Development pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer and the Principal Accounting/Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of the SVP Finance and Business Development pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities
and Exchange Commission dated July 5, 2005(2)
    
    Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and
Exchange Commission dated August 26, 2005(3)
    
    Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and
Exchange Commission dated September 21, 2005(4)
    
    Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and
Exchange Commission dated February 14, 2006(5)
    
    Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange
Commission dated December 21, 2006(6)
    
    Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and
Exchange Commission dated July 6, 2007  20




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
     21




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SIGNATURES
  CEREPLAST, INC.By:
    /s/  Frederic ScheerFrederic ScheerChief Executive Officer, Principal
Financial/Accounting Officer and Director  By:
    /s/Frederic ScheerFrederic  Scheer,President,  Chief Executive Officer,
Principal Financial/Accounting Officer
and DirectorBy:
    /s/Jacques VincentJacques Vicent, DirectorBy:
    /s/Petros KitsosPetros Kitsos, Director  22




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     By: /s/ HJ Associates & Consultants, LLP
  23




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CEREPLAST, INC.
BALANCE SHEETS
 ASSETS
    
    12/31/2007
    
    
    12/31/2006Current AssetsCash
    
    $
    8,593,714
    
    
    $
    205,023Accounts Receivable, Net
    
    
    431,020
    
    
    
    132,470Inventory
    
    
    1,827,667
    
    
    
    976,079Prepaid Expenses and Other Current Assets
    
    
    67,590
    
    
    
    48,059Total Current Assets
    
    
    10,919,991
    
    
    
    1,361,631Property and EquipmentProperty and Equipment
    
    
    2,847,956
    
    
    
    1,429,276Accumulated Depreciation
    
    
    (596,361
    )
    
    
    (227,794
    )Net Property and Equipment
    
    
    2,251,595
    
    
    
    1,201,482Other AssetsRestricted Cash
    
    
    72,892
    
    
    
    Investments
    
    
    500
    
    
    
    500Intangibles, Net
    
    
    18,721
    
    
    
    23,841Deposits
    
    
    30,478
    
    
    
    26,344Total Other Assets
    
    
    122,591
    
    
    
    50,685Total Assets
    
    $
    13,294,177
    
    
    $
    2,613,798LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts Payable
    
    $
    600,289
    
    
    $
    766,950Other Payable
    
    
    146
    
    
    
    901Accrued Expenses
    
    
    152,947
    
    
    
    52,318Credit Line
    
    
    
    
    
    
    47,468Other Notes Payable
    
    
    
    
    
    
    617,666Capital Leases, Current Portion
    
    
    71,812
    
    
    
    56,640Loan Payable, Current Portion
    
    
    11,139
    
    
    
    10,413Total Current Liabilities
    
    
    836,333
    
    
    
    1,552,356Long-Term LiabilitiesCaptial Leases
    
    
    87,440
    
    
    
    110,212Loan Payable
    
    
    3,874
    
    
    
    15,016Total Long-Term Liabilities
    
    
    91,314
    
    
    
    125,228Total Liabilities
    
    
    927,647
    
    
    
    1,677,584Shareholders EquityPreferred Stock, $0.001 par value 5,000,000 authorized preferred shares,
none issued and outstanding
    
    
    
    
    
    
    Common Stock, $0.001 par value; 495,000,000 authorized
shares; 259,302,409 shares
& 203,265,601 shares issued and outstanding respectively
    
    
    259,302
    
    
    
    203,267Additional Paid in Capital
    
    
    28,730,547
    
    
    
    8,718,157Deferred Equity Offering Cost
    
    
    
    
    
    
    (3,040,125
    )Retained Earnings/(Deficit)
    
    
    (16,623,319
    )
    
    
    (4,945,085
    )Total Shareholders Equity
    
    
    12,366,530
    
    
    
    936,214Total Liabilities and Shareholders Equity
    
    $
    13,294,177
    
    
    $
    2,613,798
   24




---



##### Table of Contents



CEREPLAST, INC.
STATEMENTS OF OPERATIONS
 For the Years Ended12/31/2007
    
    
    12/31/2006GROSS SALES
    
    $
    2,348,068
    
    
    $
    836,729Sales Discounts, Returns & Allowances
    
    
    (168,070
    )
    
    
    (110,278
    )NET SALES
    
    
    2,179,998
    
    
    
    726,451COST OF SALES
    
    
    2,090,730
    
    
    
    641,602GROSS PROFIT
    
    
    89,268
    
    
    
    84,849OPERATING EXPENSESDepreciation and Amortization
    
    
    373,687
    
    
    
    147,820Financing Discount Costs
    
    
    3,243,460
    
    
    
    412,653Marketing Expense
    
    
    252,275
    
    
    
    358,242Professional Fees
    
    
    856,705
    
    
    
    413,115Rent Expense
    
    
    367,276
    
    
    
    168,359Research & Development
    
    
    321,450
    
    
    
    155,409Salaries & Wages
    
    
    2,027,539
    
    
    
    683,617Salaries & Wages - Stock Based Compensation
    
    
    3,142,477
    
    
    
    444,512Other Operating Expenses
    
    
    1,429,672
    
    
    
    633,405TOTAL OPERATING EXPENSES
    
    
    12,014,541
    
    
    
    3,417,132LOSS FROM OPERATIONS BEFORE OTHERINCOME (EXPENSES)
    
    
    (11,925,273
    )
    
    
    (3,332,283
    )OTHER INCOME (EXPENSES)Interest Income
    
    
    285,083
    
    
    
    6,203Interest Expense
    
    
    (38,045
    )
    
    
    (57,673
    )247,038
    
    
    
    (51,470
    )LOSS BEFORE PROVISIONS FOR TAXES
    
    
    (11,678,235
    )
    
    
    (3,383,753
    )Provision for Taxes
    
    
    
    
    
    
    NET LOSS
    
    $
    (11,678,235
    )
    
    $
    (3,383,753
    )BASIC AND DILUTED LOSS PER SHARE
    
    $
    (0.05
    )
    
    $
    (0.02
    )WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED
    
    
    238,393,888
    
    
    
    199,013,795
   25




---



##### Table of Contents



CEREPLAST, INC.
STATEMENT OF SHAREHOLDERS EQUITY


Common Stock
    
    
    Preferred Stock
    
    
    Additional
    
    
    Def. Equity
    
    
    Accumulated
    
    
    SubscribedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Offering Cost
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance, December 31, 2005
    
    
    183,913,262
    
    
    $
    183,914
    
    
    
    
    
    
    $
    
    
    
    $
    2,108,611
    
    
    $
    
    
    
    $
    (1,561,331
    )
    
    $
    (105,000
    )
    
    $
    626,194Issuance of common stock for cash. Stock price
ranging from $.05 per share to $1.27 per share
    
    
    12,994,513
    
    
    
    12,995
    
    
    
    
    
    
    
    
    
    
    
    2,535,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,548,750Amortization of financing discount cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,778Amortization of deferred equity offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    309,875
    
    
    
    
    
    
    
    
    
    
    
    309,875Issuance of common stock as compensation.
Stock price ranging from $0.43 per share to
$0.80 per share
    
    
    766,075
    
    
    
    766
    
    
    
    
    
    
    
    
    
    
    
    454,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    455,121Issuance of common stock for 3rd party
services. Stock price ranging from $0.43 per
share to $0.80 per share
    
    
    225,357
    
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    119,775
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000Issuance of common stock to Cumorah for
commitment on equity line of financing
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    3,345,000
    
    
    
    (3,350,000
    )
    
    
    
    
    
    
    
    
    
    
    Subscrition of subscribed stock received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,000
    
    
    
    105,000Cancellation of shares previously issued for
services
    
    
    (678,106
    )
    
    
    (678
    )
    
    
    
    
    
    
    
    
    
    
    678
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock for conversion of note
payable to Yanosan
    
    
    1,045,000
    
    
    
    1,045
    
    
    
    
    
    
    
    
    
    
    
    51,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,250Net loss for the year ended December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,383,753
    )
    
    
    
    
    
    
    (3,383,753
    )Balance, December 31, 2006
    
    
    203,266,102
    
    
    
    203,267
    
    
    
    
    
    
    
    
    
    
    
    8,718,157
    
    
    
    (3,040,125
    )
    
    
    (4,945,084
    )
    
    
    
    
    
    
    936,215Issuance of common stock for cash. Stock
price ranging from $0.30 per share to $0.41
per share
    
    
    50,994,697
    
    
    
    50,995
    
    
    
    
    
    
    
    
    
    
    
    18,594,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,645,100Amortization of financing discount cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203,335
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203,335Amortization of deferred equity offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,040,125
    
    
    
    
    
    
    
    
    
    
    
    3,040,125Issuance of common stock as compensation.
Stock price ranging from $0.40 per share to
$0.70 per share
    
    
    2,309,617
    
    
    
    2,309
    
    
    
    
    
    
    
    
    
    
    
    1,203,685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,205,994Issuance of stock options under employee stock
option plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,887,515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,887,515Issuance of common stock for 3rd party
services. Stock price ranging from $0.36 per
share to $0.91 per share
    
    
    2,731,993
    
    
    
    2,731
    
    
    
    
    
    
    
    
    
    
    
    1,455,635
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,458,366Stock Offering Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,331,885
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,331,885
    )Net loss for the year ended December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,678,235
    )
    
    
    
    
    
    
    (11,678,235
    )Balance, December 31, 2007
    
    
    259,302,409
    
    
    $
    259,302
    
    
    
    
    
    
    $
    
    
    
    $
    28,730,547
    
    
    $
    
    
    
    $
    (16,623,319
    )
    
    $
    
    
    
    $
    12,366,530
  26




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##### Table of Contents



CEREPLAST, INC.
STATEMENT OF CASH FLOWS
 For the Years Ended12/31/2007
    
    
    12/31/2006CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (11,678,235
    )
    
    $
    (3,383,753
    )Adjustment to reconcile net loss to net cash
used in operating activitiesDepreciation and Amortization
    
    
    373,687
    
    
    
    147,820Financing Discount Costs
    
    
    3,243,460
    
    
    
    412,653Common Stock Issued for Services
    
    
    4,551,875
    
    
    
    575,121(Increase) Decrease in:Accounts Receivable
    
    
    (298,549
    )
    
    
    (85,508
    )Inventory
    
    
    (851,587
    )
    
    
    (685,975
    )Employee Advances
    
    
    
    
    
    
    1,300Deposits
    
    
    (4,134
    )
    
    
    (3,907
    )Prepaid Expenses
    
    
    (19,531
    )
    
    
    124,627Increase (Decrease) in:Accounts Payable
    
    
    (166,661
    )
    
    
    537,548Other Payables
    
    
    (755
    )
    
    
    (5,918
    )Accrued Expenses
    
    
    95,591
    
    
    
    (12,848
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (4,754,839
    )
    
    
    (2,378,840
    )NET CASH USED IN INVESTING ACTIVITIES:Purchase of Property and Equipment, and Intangibles
    
    
    (1,418,680
    )
    
    
    (965,334
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (1,418,680
    )
    
    
    (965,334
    )CASH FLOWS FROM FINANCING ACTIVITIES:Advances/(Payments) on Shareholder Loans
    
    
    (362,628
    )
    
    
    Advances/(Payments) on Credit Lines
    
    
    (47,468
    )
    
    
    (20,161
    )(Payments) on Capital Leases
    
    
    (71,252
    )
    
    
    (42,196
    )Proceeds from Capital Leases
    
    
    63,651
    
    
    
    Advances/(Payments) on Notes Payable
    
    
    (250,000
    )
    
    
    451,317Advances/(Payments) on Term Loan Payable
    
    
    (10,416
    )
    
    
    Proceeds from Issuance of Common Stock
    
    
    15,313,215
    
    
    
    2,653,750NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    14,635,102
    
    
    
    3,042,710NET INCREASE IN CASH
    
    
    8,461,583
    
    
    
    (301,464
    )CASH, BEGINNING OF PERIOD
    
    
    205,023
    
    
    
    506,487CASH, END OF PERIOD
    
    $
    8,666,606
    
    
    $
    205,023
       27




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##### Table of Contents



CEREPLAST, INC.
 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 1. ORGANIZATION AND LINE OF BUSINESS
 Organization
  Line of Business
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Cash and Cash Equivalent
  Concentration of Credit Risk
  Other Concentration
  Restricted Cash
  Fair Value of Financial Instruments
   28




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Accounts Receivable
  Inventories
  2007
    
    
    2006Raw Materials
    
    $
    1,214,519
    
    
    $
    566,445Bioplastic Resins
    
    
    472,195
    
    
    
    235,921Finished Goods
    
    
    126,039
    
    
    
    149,604Packaging Materials
    
    
    14,264
    
    
    
    21,134Promo & Misc.
    
    
    650
    
    
    
    2,975Work in Progress
    
    
    
    
    
    
    $
    1,827,667
    
    
    $
    976,079
 Property and Equipment
  2007
    
    
    2006Equipment
    
    $
    2,371,194
    
    
    $
    1,393,048Furniture & Fixtures
    
    
    284,613
    
    
    
    18,928Leasehold Improvements
    
    
    192,149
    
    
    
    17,3002,847,956
    
    
    
    1,429,276Less Accumulated Depreciation
    
    
    (596,361
    )
    
    
    (227,794
    )Net Property and Equipment
    
    $
    2,251,595
    
    
    $
    1,201,482
 Intangibles
  2007
    
    
    2006Intangibles
    
    $
    27,805
    
    
    $
    27,805Less Accumulated Amortization
    
    
    (9,084
    )
    
    
    (3,964
    )Net Intangibles
    
    $
    18,721
    
    
    $
    23,841
 Deferred Income Taxes
   29




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
   Revenue Recognition
  Marketing and Advertising
  Research and Development Costs
  Stock-Based Compensation
   Loss per Share Calculations
  Equity Line of Financing
   30




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 Legal Proceedings
  Use of Estimates
  Recently Issued Accounting Pronouncements
   3. CAPITAL STOCK
  
    
    Through an initial private placement completed on March 10, 2007, which was made in
reliance upon an exemption from registration under rule 506 of Regulation D promulgated
under Section 4(2) of the Securities Act of 1933, the Company issued 7,484,999 restricted
 shares of common stock for gross cash proceeds of $2,245,500.
 
    
    Through an initial private placement completed on July 2, 2007, which was made in
reliance upon an exemption from registration under rule 506 of Regulation D promulgated
under Section 4(2) of the Securities Act of 1933, the Company issued 38,341,053 restricted
 shares of common stock for gross cash proceeds of $14,569,600. The subscribers to the
private placement were primarily comprised of institutions focused on the renewable and
clean technology sectors, including UBS, Fortis Investments, Clariden Leu, Credit Suisse
and Swisscanto. The shares acquired through this private placement were subsequently
registered with the SEC through an SB-2 filing, which was declared effective on July 11,
2007.
 
    
    The Company received funds of $1,830,000 under its Equity Line of Financing for
5,168,645 common stock shares issued.
 
    
    The Company issued 5,041,610 shares of common stock valued at $2,664,360 to various
employees and consultants for services rendered.
  
    
    12,994,513 shares of common stock for cash of $2,548,750.
 
    
    991,432 shares of common stock for services with a fair value
of $575,121 and cancelled 678,106 of shares previously issued for
services.
 
    
    5,000,000 shares of common stock valued at $3,350,000 as a
commitment fee related to the Companys equity line of financing.
 
    
    1,045,000 shares of common stock valued at $52,250 in
conversion of a note payable.
  31




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 VALUATION ASSUMPTIONS FOR STOCK OPTIONS
   Year endedDecember 31,2007Average risk-free interest rate.
    
    
    3.84
    %Average expected life (in years)
    
    
    5.1Volatility
    
    
    102.2
    %
 
    
    Expected Volatility:The fair value of stock based payments were valued using a
volatility factor based on the Companys historical stock prices.
 
    
    Expected Term:The Company elected to use the simplified method as discussed in SAB
No. 107 to develop the estimate of the expected term.
 
    
    Expected Dividend:The Company has not paid any dividends and does not anticipate paying
dividends in the foreseeable future.
 
    
    Risk-Free Interest Rate:The Company bases the risk-free interest rate used on the
implied yield currently available on U.S. Treasury zero-coupon issues with remaining term
equivalent to the expected term of the options.
 STOCK OPTION ACTIVITY
  2007
    
    
    2006Weighted Average
    
    
    
    
    
    
    Weighted AverageShares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise PriceOutstandingbeginning of year.
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Granted at fair value
    
    
    11,625
    
    
    
    0.56
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled/forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstandingend of year
    
    
    11,625
    
    
    
    0.56
    
    
    
    
    
    
    
    Options exercisable at year-end
    
    
    3,000
    
    
    $
    0.56
    
    
    
    
    
    
    $
    
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedWeighted
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contract
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    Contract
    
    
    IntrinsicRange of Exercise Prices
    
    Shares
    
    
    Price
    
    
    Life
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    Life
    
    
    Value$0.0-$0.56
    
    
    11,625
    
    
    $
    0.56
    
    
    
    6.03
    
    
    
    
    
    
    
    3,000
    
    
    $
    0.56
    
    
    
    4.35
    
    
    
    
   32




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
   4. REVOLVING LINES OF CREDIT
  5. RENTAL LEASE
      6. LOAN PAYABLE
  Year ending December 31,2008
    
    $
    11,1392009
    
    
    3,87415,013Less Current Portion of Loan Payable
    
    
    (11,139
    )Long Term Portion of Loan Payable
    
    $
    3,874
 7. INCOME TAX
   Balance at January 1, 2007
    
    $
    Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    Settlements
    
    
    Balance at December 31, 2007
    
    $
    
  33




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
   8. DEFERRED TAX BENEFIT
    2007
    
    
    2006Income tax benefit computed at U.S. Federal
statutory rate (34%)
    
    $
    (3,960,272
    )
    
    $
    (1,150,351
    )State income taxes, net of benefit federal taxes
    
    
    (582,887
    )
    
    
    (169,313
    )Meals & Entertainment
    
    
    3,085
    
    
    
    1,525Stock for services
    
    
    483,390
    
    
    
    R&D
    
    
    29,468
    
    
    
    1,818Amortization of Equity Offering Costs
    
    
    1,185,649
    
    
    
    Depreciation
    
    
    (75,170
    )
    
    
    Related Party Accruals
    
    
    (4,395
    )
    
    
    Accrued Interest
    
    
    
    
    
    
    4,395Less Valuation Allowance
    
    
    2,921,132
    
    
    
    1,311,926Income tax expense
    
    $
    
    
    
    $
    
  2007
    
    
    2006Deferred Tax Assets:NOL Carryover
    
    $
    4,710,600
    
    
    $
    1,797,900R&D Carryover
    
    
    75,560
    
    
    
    Allowance for Doubtful Accounts
    
    
    4,400
    
    
    
    Deferred tax Liabilities:Depreciation
    
    
    (155,400
    )
    
    
    (78,900
    )Less Valuation Allowance
    
    
    (4,635,160
    )
    
    
    (1,719,000
    )Income Tax Expense
    
    $
    
    
    
    $
    
  34




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 9. CAPITAL LEASE OBLIGATIONS
  Capital lease at 20% interest, with monthly principal and
interest payments of $674 due December 2008, secured by mold
equipment. The purchase option at the end of the lease is
$1.00.
    
    $
    7,263Capital lease at 15% interest, with monthly principal and
interest payments of $513 due January 2010, secured by mold
equipment. The purchase option at the end of the lease is
$1.00.
    
    
    10,970Capital lease at 9.99% interest, with monthly principal and
interest payments of $2,054 due May 2010, secured by MAS
Computer Software. The purchase option at the end of the lease
is $1.00.
    
    
    50,662Capital lease at 13% interest, with monthly principal and
interest payments of $1,128 due April 2009, secured by
equipment. The purchase option at the end of the lease is
$1.00.
    
    
    16,452Capital lease at 29% interest, with monthly principal and
interest payments of $1,369 due June 2010, secured by equipment.
The purchase option at the end of the lease is $1.00.
    
    
    28,893Capital lease at 21% interest, with monthly principal and
interest payments of $1,028 due November 2008, secured by
equipment. The purchase option at the end of the lease is
$1.00.
    
    
    10,165Capital lease at 8% interest, with monthly principal and
interest payments of $505 due November 2011, secured by
equipment. The purchase option at the end of the lease is
$1.00.
    
    
    20,493Capital lease at 13% interest, with monthly principal and
interest payments of $385 due November 2011, secured by
equipment. The purchase option at the end of the lease is $1.00.
    
    
    14,354159,252Less Current Portion
    
    
    (71,812
    )$
    87,440
  Years ending December 31,2008
    
    $
    91,4552009
    
    
    62,5982010
    
    
    27,2582011
    
    
    9,2802012
    
    
    Total Payments
    
    
    190,591Less Interest Portion
    
    
    (31,339
    )Present Value of Future Payments
    
    $
    159,252
  Assets Under Capital Leases
    
    $
    318,122Less Accumulated Amortization
    
    
    (123,710
    )$
    194,412
   35




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 10. RELATED PARTY
  
    
    A loan from a shareholder in the amount of $162,705, which bore PIK interest at the rate
of 6% per year. The principal was due in June 2007. On April 4, 2007 the Company repaid
all fully outstanding principal and interest under this loan.
 
    
    A loan from an affiliate in the amount of $200,000, which bore PIK interest at the rate
of 7.00% per annum, and matures in October 2008. On June 27, 2007 the Company repaid all
fully outstanding principal and interest under this loan.
 
    
    A loan from an affiliate in the amount of $250,000, which bore PIK interest at the rate
of 6.00% per annum, and matures in 2007. As of March 31, 2007 the Company had repaid all
fully outstanding principal and interest under this loan.
 11. SUBSEQUENT EVENTS
    36




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    
    Certification of the Chief Executive Officer and the Principal Accounting/Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the SVP Finance and Business Development pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer and the Principal Accounting/Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of the SVP Finance and Business Development pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.