##### 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, 2006
 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
 o
 Yes o No þ




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HOW CEREPLASTS RESINS ARE MADE.
 
  2




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##### 



FORM 10-KSB
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
  PagePART IITEM 1.
    
    DESCRIPTION OF BUSINESS
    
    
    5ITEM 2.
    
    DESCRIPTION OF PROPERTY
    
    
    8ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    8ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
    
    
    8PART II
    
    
    
    
    9ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
    
    
    9ITEM 6.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
    
    
    11ITEM 7.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    14ITEM 8.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    14ITEM 8A.
    
    CONTROLS AND PROCEDURES
    
    
    14ITEM 8A(T).
    
    CONTROLS AND PROCEDURES
    
    
    14ITEM 8B.
    
    OTHER INFORMATION
    
    
    14PART III
    
    
    
    
    15ITEM 9.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE  WITH SECTION 16(a) OF THE EXCHANGE ACT.
    
    
    15ITEM 10.
    
    EXECUTIVE COMPENSATION
    
    
    16ITEM 11.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    17ITEM 12.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    18ITEM 13.
    
    EXHIBITS
    
    
    18ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    19Exhibit 31.1Exhibit 32.1
   3




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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   4




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PART I
 
 ITEM 1.
    
    DESCRIPTION OF BUSINESS
 GENERAL
 History
  Overview
 th
   www.cereplast.com
 Resins
    
    
    Injection molding to manufacture utensils, plates and cups.
    
    Thermoforming to manufacture cups and hard plates.
    
    Blow film to manufacture film for compostable bags.
    
    Blow molding to manufacture bottles and other containers
    
    Extrusion for paper lamination or for straws.
  5




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Finished Products
  Industry Overview
     Strategy
  
    
    patent the formulation of our existing portfolio of bio-based resins
    
    manufacture our bio-based resins at our facility using traditional plastic manufacturing
equipment but a proprietary Cereplast process;
    
    partner with key converting customers to ensure broad application and market reach of our resin
    
    continue to drive customer and end-user acceptance and demand for our bio-based resins and
respective finished products through key market leaders and environmental groups; and
    
    use feedback from our converting customers and end-users to refine, develop and patent additional
resins.
 th
 Marketing and Sales
  
    
    develop resins for use in products which deliver comparable or greater performance, are
competitively priced and offer environmental advantages as compared to traditional packaging
alternatives
  6




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
    
    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
   th
 Intellectual Property
 ®
  Competition
   7




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Government Regulation
  
    
    are approved by the FDA as indirect food additives for their intended uses and comply with the
applicable FDA indirect food additive regulations; or
    
    are generally recognized as safe for their intended uses and are of suitable purity for those
intended uses.
  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
 Employees
  
 ITEM 2.
    
    DESCRIPTION OF PROPERTY
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
   8




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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
  Year Ended December 31, 2006
    
    High
    
    
    LowFirst Quarter ended March 31, 2006
    
    $
    0.78
    
    
    $
    0.30Second Quarter ended June 30, 2006
    
    $
    1.48
    
    
    $
    0.77Third Quarter ended September 30, 2006
    
    $
    1.16
    
    
    $
    0.70Fourth Quarter ended December 31, 2006
    
    $
    0.78
    
    
    $
    0.37
 Year Ended December 31, 2005
    
    High
    
    
    LowFourth Quarter ended December 31, 2005*
    
    $
    0.93
    
    
    $
    0.30
  Holders
  Dividend Policy
   Recent Sale of Unregistered Securities
   Equity Compensation Plan Information
 As of December 31, 2006:
 Plan Category
    
    Number of shares to be
    
    
    
    
    
    
    Number of shares remainingissued upon exercise of
    
    
    Weighted-average exercise
    
    
    available for futureoutstanding options and
    
    
    price of outstanding
    
    
    issuance under equitywarrants
    
    
    options and warrants
    
    
    compensation plansApproved by security holders
    
    
    -0-
    
    
    
    
    
    
    
    -0-Not approved by security holders
    
    
    -0-
    
    
    
    
    
    
    
    25,000,000Total
    
    
    -0-
    
    
    
    
    
    
    
    25,000,000
  9




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2004 STOCK OPTION PLAN
 GENERAL
     PURPOSE
  ADMINISTRATION
    ELIGIBILITY
  TERMS OF OPTIONS
      10




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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-KSB. 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.
    11




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CURRENT OVERVIEW
 th th
 th
     CRITICAL ACCOUNTING POLICIES
    12




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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE THREE AND YEAR ENDED
DECEMBER 31, 2005.
 Sales
 th
 Cost of Sales
  Gross Profit
 th
 Operating Expenses
  Net Loss
  Liquidity and Capital Resources
      13




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ITEM 7.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 8.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
 ITEM 8A.
    
    CONTROLS AND PROCEDURES
  
 ITEM 8A(T).
    
    CONTROLS AND PROCEDURES
  
 ITEM 8B.
    
    OTHER INFORMATION
   14




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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 AND ADDRESS
    
    AGE
    
    POSITIONFrederic Scheer
    
    
    51
    
    
    President, CEO and a DirectorStephan Garden
    
    
    33
    
    
    Senior Vice President  Finance and Business DevelopmentWilliam Kelly
    
    
    58
    
    
    Senior Vice President  TechnologyMichael Muchin
    
    
    37
    
    
    Vice President  Head of Global SalesRobert L. Dobbs
    
    
    38
    
    
    Vice President  QSR SalesRaylan Jensen
    
    
    65
    
    
    DirectorBrian Altounian
    
    
    42
    
    
    Director
          15




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BOARD COMMITTEES
 AUDIT COMMITTEE
  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
President
    
    
    2006
    
    
    $
    163,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    160,0002005
    
    
    $
    66,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    66,250Stephan Garden
SVP Finance & Business Development
    
    
    2006
    
    
    $
    54,000
    
    
    
    
    
    
    $
    341,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    396,7502005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    William Kelly
SVP Technology
    
    
    2006
    
    
    $
    78,250
    
    
    
    N/A
    
    
    $
    56,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    134,5002005
    
    
    $
    71,000
    
    
    
    N/A
    
    
    $
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    171,000


OUTSTANDING EQUITY AWARDS
   16




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DIRECTOR COMPENSATION
  Change in PensionValue andNon-Equity
    
    
    NonqualifiedFees Earned or
    
    
    
    
    
    
    Option
    
    
    Incentive Plan
    
    
    Deferred
    
    
    All OtherPaid in Cash
    
    
    Stock Awards
    
    
    Awards
    
    
    Compensation
    
    
    Compensation
    
    
    Compensation
    
    
    TotalName
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    Earnings
    
    
    ($)
    
    
    ($)Raylan Jensen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brian Altounian
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  EMPLOYMENT AND OTHER AGREEMENTS
  st
  
 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.
  NUMBER OF SHARESNAME AND ADDRESS
    
    BENEFICIALLY OWNED
    
    
    PERCENT OF CLASSFrederic Scheer(1)(2)
    
    
    113,585,000
    
    
    
    55.0
    %Raylan Jensen(1)
    
    
    1,000,000
    
    
    
    *Brian Altounian(1)
    
    
    1,163,500
    
    
    
    *Stephan Garden (1)
    
    
    873,644
    
    
    
    *William Kelly(1)
    
    
    1,075,000
    
    
    
    *Michael Muchin (1)
    
    
    33,482
    
    
    
    *Robert L. Dobbs(1)
    
    
    517,321
    
    
    
    *All officers and directors as a
Group (7 people)
    
    
    118,247,947
    
    
    
    57.21
    %
   (1)
    
    Officer and/or director of our company.(2)
    
    Mr. Scheer beneficially owns such shares jointly with his wife, Jocelyne Scheer.
  17




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ITEM 12.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
 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 by and
between the Company and Cumorah Capital, Inc. (5)4.5
    
    Registration Rights Agreement dated February 13, 2006 by and between
the Company and Cumorah Capital, Inc. (5)4.6
    
    Letter Agreement dated March 31, 2006 by and between
the Company and Cumorah Capital, Inc. (7)10.1
    
    Sale and Purchase  Agreement entered between the Company and Cargill
Dow LLC (2)10.2
    
    Memorandum of Understanding Entered with William Kelly (2)
  18




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##### Table of Contents



ExhibitNumber
    
    Description10.3
    
    Agency Agreement entered with Russell Wegner (2)10.4
    
    Agency Agreement entered with Robert Dobbs (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
    
    Agreement for the Purchase and Sale of Biodegradable Resins entered by
and between Alcoa Kama, Inc. and Cereplast, Inc. (7)14.1
    
    Code of Ethics (1)16.1
    
    Letter from Rose, Snyder & Jacobs, a corporation of certified public
accountants, dated January 5, 2006. (4)31.1
    
    Certification  of the  Chief  Executive  Officer  and the  Principal
Accounting/Financial   Officer   pursuant  to  Section  302  of  the
Sarbanes-Oxley Act of 200.32.1
    
    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.
 
 (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 8-K/A Current Report filed with the Securities and
Exchange Commission dated January 6, 2006(5)
    
    Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and
Exchange Commission dated February 14, 2006(6)
    
    Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and
Exchange Commission dated April 3, 2006(7)
    
    Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange
Commission dated December 21, 2006
 
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
     19




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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/Raylan JensenRaylen Jensen, DirectorBy:
    /s/Brian AltounianBrian Altounian, Director  20




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

HJ Associates & Consultants, LLPSalt Lake City, UtahMarch 15, 2007
  21




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CEREPLAST, INC.
BALANCE SHEETS
 DECEMBER 31, 2006
    
    
    DECEMBER 31, 2005ASSETSCurrent AssetsCash
    
    $
    205,023
    
    
    $
    506,487Accounts Receivable, Net
    
    
    132,470
    
    
    
    46,963Inventory
    
    
    976,079
    
    
    
    290,105Employee Advances
    
    
    
    
    
    
    1,300Prepaid Expenses
    
    
    48,059
    
    
    
    172,686Total Current Assets
    
    
    1,361,631
    
    
    
    1,017,541Property and EquipmentProperty and Equipment
    
    
    1,429,276
    
    
    
    456,537Accumulated Depreciation and Amortization
    
    
    (227,794
    )
    
    
    (83,098
    )Net Property and Equipment
    
    
    1,201,482
    
    
    
    373,439Other AssetsInvestments
    
    
    500
    
    
    
    Intangibles, Net
    
    
    23,841
    
    
    
    1,965Deposits
    
    
    26,344
    
    
    
    22,437Total Other Assets
    
    
    50,685
    
    
    
    24,402Total Assets
    
    $
    2,613,798
    
    
    $
    1,415,382LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts Payable
    
    $
    766,950
    
    
    $
    229,402Other Payable
    
    
    901
    
    
    
    6,819Accrued Expenses
    
    
    52,318
    
    
    
    107,640Credit Lines
    
    
    47,468
    
    
    
    67,629Note Payable
    
    
    255,038
    
    
    
    50,000Shareholders Loan
    
    
    160,288
    
    
    
    126,125Affiliate Loan
    
    
    202,340
    
    
    
    Capital Leases, Current Portion
    
    
    56,640
    
    
    
    41,128Loan Payable, Current Portion
    
    
    10,413
    
    
    
    9,736Total Current Liabilities
    
    
    1,552,356
    
    
    
    638,479Long-Term LiabilitiesCaptial Leases
    
    
    110,212
    
    
    
    125,283Loan Payable
    
    
    15,016
    
    
    
    25,426Total Long-Term Liabilities
    
    
    125,228
    
    
    
    150,709Total Liabilities
    
    
    1,677,584
    
    
    
    789,188Commitments and Contingencies (Note 5)Shareholders EquityPreferred Stock, $0.001 par value;
5,000,0000 authorized preferred shares
    
    
    
    
    
    
    Common Stock, $0.001 par value;
495,000,000 authorized shares;
203,267,102 and 183,913,262 shares issued and outstanding, respectively
    
    
    203,267
    
    
    
    183,914Subscribed Shares
    
    
    
    
    
    
    (105,000
    )Additional Paid in Capital
    
    
    8,718,157
    
    
    
    2,108,611Deferred Equity Offering Cost
    
    
    (3,040,125
    )
    
    
    Retained Earnings/(Deficit)
    
    
    (4,945,085
    )
    
    
    (1,561,331
    )Total Shareholders Equity
    
    
    936,214
    
    
    
    626,194Total Liabilities and Shareholders Equity
    
    $
    2,613,798
    
    
    $
    1,415,382
   22




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CEREPLAST, INC.
STATEMENTS OF OPERATIONS
 For the Year Ended12/31/2006
    
    
    12/31/2005GROSS SALES
    
    $
    836,729
    
    
    $
    545,770Sales Discounts, Returns & Allowances
    
    
    (110,278
    )
    
    
    (3,099
    )NET SALES
    
    
    726,451
    
    
    
    542,699COST OF SALES
    
    
    641,602
    
    
    
    495,654GROSS PROFIT
    
    
    84,849
    
    
    
    47,045OPERATING EXPENSESDepreciation and Amortization
    
    
    147,820
    
    
    
    48,731Financing Costs
    
    
    412,653
    
    
    
    Marketing Expense
    
    
    358,242
    
    
    
    38,311Professional Fees
    
    
    413,115
    
    
    
    322,949Rent Expense
    
    
    168,359
    
    
    
    76,865Research and Development
    
    
    155,409
    
    
    
    108,069Salaries & Wages
    
    
    1,128,129
    
    
    
    184,616Other Operating Expenses
    
    
    633,405
    
    
    
    338,588TOTAL OPERATING EXPENSES
    
    
    3,417,132
    
    
    
    1,118,130LOSS FROM OPERATIONS BEFORE OTHER INCOME(EXPENSES)
    
    
    (3,332,283
    )
    
    
    (1,071,085
    )OTHER INCOME (EXPENSES)Interest Income
    
    
    6,203
    
    
    
    Interest Expense
    
    
    (57,673
    )
    
    
    (47,821
    )(51,470
    )
    
    
    (47,821
    )LOSS BEFORE PROVISIONS FOR TAXES
    
    
    (3,383,753
    )
    
    
    (1,118,906
    )Provision for Taxes
    
    
    
    
    
    
    NET LOSS
    
    $
    (3,383,753
    )
    
    $
    (1,118,906
    )BASIC AND DILUTED LOSS PER SHARE
    
    $
    (0.02
    )
    
    $
    (0.01
    )WEIGHTED-AVERAGE COMMON SHARES OUTSTANDINGBASIC AND DILUTED
    
    
    199,013,795
    
    
    
    154,259,837
   23




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##### Table of Contents



CEREPLAST, INC.
STATEMENT OF SHAREHOLDERS EQUITY


AdditionalCommon stock
    
    
    Preferred stock
    
    
    Paid-in
    
    
    Def. Equity
    
    
    Accumulated
    
    
    SubscribedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Offering Cost
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance, December 31, 2004
    
    
    129,826,125
    
    
    $
    129,827
    
    
    
    75,000.00
    
    
    $
    75
    
    
    $
    137,300
    
    
    $
    
    
    
    $
    (442,425
    )
    
    $
    
    
    
    $
    (175,223
    )Issuance of common stock in March 2005 for cash
(2,000,031 common shares issued at $0.02 per share )
    
    
    2,000,031
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    37,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,975Issuance of common stock in March 2005 for cash
(660,000 common shares issued at $0.03 per share )
    
    
    660,000
    
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    20,588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,248Converted preferred shares to common shares
    
    
    2,475,000
    
    
    
    2,475
    
    
    
    -75,000.00
    
    
    
    (75
    )
    
    
    (2,400
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock in April 2005 for cash
(25,000,000 common shares issued at $0.02 per share)
    
    
    25,000,000
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    475,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000Issuance of common stock in April 2005 for services
(660,000 common shares issued at $0.02 per share)
    
    
    660,000
    
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    12,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,200Issuance of common stock in April 2005 for services
(678,106 common shares issued at fair value)
    
    
    678,106
    
    
    
    678
    
    
    
    
    
    
    
    
    
    
    
    14,322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000Issuance of common stock in April 2005 for cash
(415,000 common shares issued at $0.10 per share)
    
    
    415,000
    
    
    
    415
    
    
    
    
    
    
    
    
    
    
    
    41,085
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,500Issuance of common stock in May 2005 for cash
(212,000 common shares issued at $0.10 per share)
    
    
    212,000
    
    
    
    212
    
    
    
    
    
    
    
    
    
    
    
    20,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,200Issuance of common stock in June 2005 for cash
(215,000 common shares issued at $0.10 per share)
    
    
    215,000
    
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    21,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,500Issuance of common stock in July 2005 for cash
(30,000 common shares issued at $0.10 per share)
    
    
    30,000
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    2,970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Issuance of common stock in October 2005 for cash
(3,010,000 common stock issued at $0.05 per share)
    
    
    3,010,000
    
    
    
    3,010
    
    
    
    
    
    
    
    
    
    
    
    147,490
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,500Issuance of common stock in November 2005 for cash
(7,85,000 common stock issued at $0.10 per share)
    
    
    7,850,000
    
    
    
    7,850
    
    
    
    
    
    
    
    
    
    
    
    777,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    785,000Issuance of common stock in December 2005 for services
(673,000 common stock issued at fair value)
    
    
    673,000
    
    
    
    673
    
    
    
    
    
    
    
    
    
    
    
    66,627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,300Issurance of common stock in December 2005 for services
(159,000 common stock issued at fair value)
    
    
    159,000
    
    
    
    159
    
    
    
    
    
    
    
    
    
    
    
    15,741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,900Issuance of common stock in December 2005 for debt
(8,000,000 common stock issued for conversion of debt)
    
    
    8,000,000
    
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    192,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000Issuance of common stock in December 2005 for director
services
(1,000,0000 common stock issued for services)
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000Common stock subscribed
    
    
    1,050,000
    
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    103,950
    
    
    
    
    
    
    
    
    
    
    
    (105,000
    )
    
    
    Net Loss for the Year Ended December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,118,906
    )
    
    
    
    
    
    
    (1,118,906
    )Balance, December 31, 2005
    
    
    183,913,262
    
    
    $
    183,914
    
    
    
    
    
    
    $
    
    
    
    $
    2,108,611
    
    
    
    
    
    
    $
    (1,561,331
    )
    
    $
    (105,000
    )
    
    $
    626,194


24




---



##### Table of Contents



CEREPLAST, INC.
STATEMENT OF SHAREHOLDERS EQUITY (Continued)


AdditionalCommon stock
    
    
    Preferred stock
    
    
    Paid-in
    
    
    Def. Equity
    
    
    Accumulated
    
    
    SubscribedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Offering Cost
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance, December 31, 2005
    
    
    183,913,262
    
    
    $
    183,914
    
    
    
    
    
    
    $
    
    
    
    $
    2,108,611
    
    
    
    
    
    
    $
    (1,561,331
    )
    
    $
    (105,000
    )
    
    $
    626,194Common stock receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,000
    
    
    
    105,000Issuance of common stock in January 2006 for cash
(10,710,000 common stock issued at $.12)
    
    
    10,710,000
    
    
    
    10,710
    
    
    
    
    
    
    
    
    
    
    
    1,303,040
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,313,750Issuance of common stock in May 2006 for cash
(98,500 common stock issued at $1.27)
    
    
    98,503
    
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    124,902
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Financing Discount Cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889Issuance of common stock in June 2006 for cash
(1,045,000 common stock issued at $0.05)
    
    
    1,045,000
    
    
    
    1,045
    
    
    
    
    
    
    
    
    
    
    
    51,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,250Issuance of common stock in June 2006 for cash
(6,050,000 common stock issued at $0.61)
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    3,345,000
    
    
    
    (3,350,000
    )
    
    
    
    
    
    
    
    
    
    
    Cancelled common stock in June 2006 for services
(-678,110 common stock retired)
    
    
    -678,106
    
    
    
    (678
    )
    
    
    
    
    
    
    
    
    
    
    678
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock in June 2006 for services
(20,000 common stock issued at $.80)
    
    
    20,000
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    15,980
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,000Issuance of common stock in July 2006 for cash
(136,170 common stock issued at $.92)
    
    
    136,165
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    124,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Financing Discount Cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889Issuance of common stock in July 2006 for cash
(134,840 common stock issued at $.93)
    
    
    134,844
    
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    124,865
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Financing Discount Cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889Issuance of common stock in August 2006 for cash
(13,750 common stock issued at $.91)
    
    
    137,514
    
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    124,862
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Financing Discount Cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889Issuance of common stock in September 2006 for cash
(21,3680 common stock issued at $.58)
    
    
    213,675
    
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    124,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Financing Discount Cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,889Issuance of common stock in September 2006 for services
(392, 840 common stock issued at $.75)
    
    
    392,840
    
    
    
    393
    
    
    
    
    
    
    
    
    
    
    
    294,237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294,630Issuance of common stock in October 2006 for cash
(500,000 common stock issued at $.40)
    
    
    500,000
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    199,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000Issuance of common stock in November 2006 for cash
(217,870 common stock issued at $.46)
    
    
    217,865
    
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    99,782
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Financing Discount Cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,111Issuance of common stock in November 2006 for cash
(226,760 common stock issued at $.44)
    
    
    226,757
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    99,773
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Financing Discount Cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,111Issuance of common stock in November 2006 for cash
(252,530 common stock issued at $.40)
    
    
    252,525
    
    
    
    253
    
    
    
    
    
    
    
    
    
    
    
    99,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Financing Discount Cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,111Issuance of common stock in November 2006 for services
(150,000 common stock issued at $.53)
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    79,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,500Issuance of common stock in November 2006 for services
(5,357 common stock issued at $.56)
    
    
    5,357
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    2,995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Issuance of common stock in November 2006 for services
50,000 common stock issued at $.43)
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    21,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,500Issuance of common stock in December 2006 for cash
(366,650 common stock issued at $.30)
    
    
    366,666
    
    
    
    367
    
    
    
    
    
    
    
    
    
    
    
    109,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,000Issuance of common stock in December 2006 for services
(373,230 common stock issued at $.43)
    
    
    373,235
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    160,118
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,491Amortization of Def. Equity Offering Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    309,875
    
    
    
    
    
    
    
    
    
    
    
    309,875Net 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
    )
    
    
    
    
    
    $
    936,215


25




---



##### Table of Contents



CEREPLAST, INC.
STATEMENT OF CASH FLOWS
 For the Year Ended12/31/2006
    
    
    12/31/2005CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (3,383,753
    )
    
    $
    (1,118,906
    )Adjustment to reconcile net loss to net cash
used in operating activitiesDepreciation and amortization
    
    
    147,820
    
    
    
    48,731Financing Discount Costs
    
    
    412,653
    
    
    
    Common stock issued for services
    
    
    575,121
    
    
    
    136,400(Increase) Decrease in:Accounts Receivable
    
    
    (85,508
    )
    
    
    (11,381
    )Inventory
    
    
    (685,975
    )
    
    
    (95,932
    )Employee advances
    
    
    1,300
    
    
    
    (1,300
    )Deposits
    
    
    (3,907
    )
    
    
    (20,753
    )Prepaid Expenses
    
    
    124,627
    
    
    
    (172,686
    )Increase (Decrease) in:Accounts Payable
    
    
    537,548
    
    
    
    8,960Other Payables
    
    
    (5,918
    )
    
    
    6,819Accrued Expenses
    
    
    (12,848
    )
    
    
    48,050NET CASH USED IN OPERATING ACTIVITIES
    
    
    (2,378,840
    )
    
    
    (1,171,998
    )NET CASH USED IN INVESTING ACTIVITIES:Purchase of property and equipment, and intangibles
    
    
    (965,334
    )
    
    
    (113,627
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (965,334
    )
    
    
    (113,627
    )CASH FLOWS FROM FINANCING ACTIVITIES:Advances from shareholders
    
    
    
    
    
    
    37,860Payments on advances from shareholders
    
    
    
    
    
    
    (69,904
    )Advances/(Payments) on Credit Lines
    
    
    (20,161
    )
    
    
    35,417Payments on Capital Leases
    
    
    (42,196
    )
    
    
    (40,787
    )Proceeds from Notes Payable
    
    
    451,317
    
    
    
    250,000Advances/(Payments) on Term Loan Payable
    
    
    
    
    
    
    (9,102
    )Proceeds from issuance of common stock and subscription receivable
    
    
    2,653,750
    
    
    
    1,583,923NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    3,042,710
    
    
    
    1,787,407NET INCREASE (DECREASE) IN CASH
    
    
    (301,464
    )
    
    
    501,782CASH, BEGINNING OF PERIOD
    
    
    506,487
    
    
    
    4,705CASH, END OF PERIOD
    
    $
    205,023
    
    
    $
    506,487
       26




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##### Table of Contents



CEREPLAST, INC.
 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
  Organization
 th
 Line of Business
 th
   Revenue Recognition
  Use of Estimates
  Cash and Cash Equivalent
  Accounts Receivable
   27




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
  Inventories
  2006
    
    
    2005Raw Materials
    
    $
    566,445
    
    
    
    97,626Resins
    
    
    235,921
    
    
    
    Finished Goods
    
    
    149,604
    
    
    
    162,799Packaging Materials
    
    
    21,134
    
    
    
    Promo & Misc.
    
    
    2,975
    
    
    
    Work in Progress
    
    
    
    
    
    
    29,680$
    976,079
    
    
    $
    290,105
 Property and Equipment
  2006
    
    
    2005Equipment
    
    $
    1,393,048
    
    
    $
    451,081Furniture & Fixtures
    
    
    18,928
    
    
    
    5,456Leasehold Improvements
    
    
    17,300
    
    
    
    1,429,276
    
    
    
    456,537Less Accumulated Depreciation
    
    
    227,794
    
    
    
    83,098Net Property and Equipment
    
    $
    1,201,482
    
    
    $
    373,439
 Fair Value of Financial Instruments
  Marketing and Advertising
  Research and Development Costs
  Income Taxes
   28




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
  Common Shares
  Loss per Share Calculations
  Recently Issued Accounting Pronouncements
      29




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 Recently Issued Accounting Pronouncements (continued)
    Determining the Variability to be
Considered in Applying FASB Interpretation No. 46(R)
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 Fair Value Measurements
 Employers Accounting for Defined
Benefit Pension and other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
132- R
  30




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements
       31




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
        Years endingDecember 31,2007
    
    
    10,4162008
    
    
    11,1392009
    
    
    3,87425,429Less Current Portion of Loan Payable
    
    
    10,413Long Term Portion of Loan Payable
    
    $
    15,016
  32




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
     2006
    
    
    2005Income tax benefit computed at U.S. Federal
statutory rate (34%)
    
    $
    (1,150,351
    )
    
    $
    (380,428
    )State income taxes, net of benefit federal taxes
    
    
    (169,313
    )
    
    
    (67,134
    )Meals & Entertainment
    
    
    1,525
    
    
    
    2,929Accrued Compensation
    
    
    
    
    
    
    7,000R&D
    
    
    1,818
    
    
    
    Accrued Interest
    
    
    4,395
    
    
    
    Less Valuation Allowance
    
    
    1,311,926
    
    
    
    437,633Income tax expense
    
    $
    
    
    
    $
    
  2006
    
    
    2005Deferred tax assets:NOL Carryover
    
    $
    1,797,900
    
    
    $
    437,633Deferred tax liabilities:
    
    
    
    
    
    
    Depreciation
    
    
    (78,900
    )
    
    
    Less valuation allowance
    
    
    (1,719,000
    )
    
    
    (437,633
    )Deferred income tax asset
    
    $
    
    
    
    $
    
  33




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
   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.
    
    $
    13,191Capital lease at 32% interest, with monthly principal and interest
payments of $47 due February 2008, secured by a computer. The
purchase option at the end of the lease is $1.00.
    
    
    538Capital lease at 32% interest, with monthly principal and interest payments of
$18 due February 2008, secured by computer equipment.
The purchase option at the end of the lease is $1.00.
    
    
    202Capital lease at 22% interest, with monthly principal and interest payments of
$150 due February 2008, secured by computer equipment.
The purchase option at the end of the lease is $1.00.
    
    
    1,835Capital 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
    
    
    15,151Capital lease at 22% interest, with monthly principal and interest payments of
$820 due February 2008, secured by mold equipment.
The purchase option at the end of the lease is $1.00
    
    
    10,019Capital lease at 12% interest, with monthly principal and interest payments of
$214 due January 2007, secured by equipment.
The purchase option at the end of the lease is $1.00
    
    
    2,412Capital 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
    
    
    27,016Capital 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
    
    
    35,736Capital 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
    
    
    19,183Capital 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
    
    
    24,603Capital 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
    
    
    16,965166,852Less current portion
    
    
    56,640$
    110,212
  34




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##### Table of Contents



CEREPLAST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
   Years endingDecember 31,2007
    
    
    80,2492008
    
    
    67,0652009
    
    
    36,9372010
    
    
    18,9312011
    
    
    12,977Total Payments
    
    
    216,159Less Interest portion
    
    
    49,307Present value of future payments
    
    $
    166,852
  Assets under capitalized leases
    
    $
    254,471Accumulated amortization
    
    
    62,747$
    191,724
            35




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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 2002.32.1
    
    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.
  36