##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 Commission File Number 001-34689
 CEREPLAST, INC.
 (Exact name of registrant as specified in its charter)
 Nevada
    
    91-2154289(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)300 N. Continental Boulevard, Suite 100
El Segundo, California
    
    90245(Address of Principal Executive Office)
    
    (Zip Code)
 (310) 615-1900
(Registrants Telephone Number, Including Area Code)
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




---



##### 



CEREPLAST, INC.
FORM 10-Q
TABLE OF CONTENTS
 PagePART IFINANCIAL INFORMATIONItem 1. FINANCIAL STATEMENTS
    
    
    3Consolidated Balance Sheets at September 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations and Other Comprehensive Income for the Three AND Nine
months ended September 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows for the Nine months ended September 30, 2010 and 2009
    
    
    5Notes to the Consolidated Financial Statements
    
    
    6Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    14Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    21Item 4. CONTROLS AND PROCEDURES
    
    
    21PART IIOTHER INFORMATIONItem 1. LEGAL PROCEEDINGS
    
    
    22Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    22Item 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    23Item 4. RESERVED
    
    
    23Item 5. OTHER INFORMATION
    
    
    23Item 6. EXHIBITS
    
    
    23SIGNATURESExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  Unless otherwise indicated or unless the context requires otherwise, all references in this report
to we, us, our, Cereplast or the Company shall refer to Cereplast, Inc.
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 
 
 9/30/2010
    
    
    12/31/2009(Unaudited)
    
    
    (Audited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    3,313,920
    
    
    $
    1,305,771Accounts Receivable, Net
    
    
    1,555,529
    
    
    
    325,270Inventory, Net
    
    
    1,057,344
    
    
    
    847,527Prepaid Expenses
    
    
    123,420
    
    
    
    215,356Total Current Assets
    
    
    6,050,213
    
    
    
    2,693,924Property and EquipmentProperty and Equipment
    
    
    5,565,033
    
    
    
    5,416,436Accumulated Depreciation and Amortization
    
    
    (2,081,144
    )
    
    
    (1,519,714
    )Net Property and Equipment
    
    
    3,483,889
    
    
    
    3,896,722Other AssetsRestricted Cash
    
    
    42,934
    
    
    
    Intangibles, Net
    
    
    177,363
    
    
    
    184,039Deposits
    
    
    33,665
    
    
    
    89,286Total Other Assets
    
    
    253,962
    
    
    
    273,325Total Assets
    
    $
    9,788,064
    
    
    $
    6,863,971LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts Payable
    
    $
    674,924
    
    
    $
    989,927Other Payables
    
    
    810
    
    
    
    1,413Accrued Expenses
    
    
    662,420
    
    
    
    604,015Capital Leases, Current Portion
    
    
    10,072
    
    
    
    25,341Loan Payable, Current Portion
    
    
    8,179
    
    
    
    53,487Total Current Liabilities
    
    
    1,356,405
    
    
    
    1,674,183Long-Term LiabilitiesLoan Payable
    
    
    6,537
    
    
    
    Capital Leases
    
    
    1,262
    
    
    
    8,897Total Long-Term Liabilities
    
    
    7,799
    
    
    
    8,897Total Liabilities
    
    
    1,364,204
    
    
    
    1,683,080Shareholders EquityPreferred Stock, $0.001 par value;
5,000,000 authorized preferred shares, 0 outstanding
    
    
    
    
    
    
    Common Stock, $0.001 par value;
495,000,000 authorized shares; 12,966,015 shares &
9,825,476 shares issued and outstanding, respectively
    
    
    12,966
    
    
    
    9,825Additional Paid in Capital
    
    
    49,415,766
    
    
    
    40,578,981Retained Earnings/(Deficit)
    
    
    (41,093,661
    )
    
    
    (35,444,968
    )Other Comprehensive Income
    
    
    88,789
    
    
    
    37,053Total Shareholders Equity
    
    
    8,423,860
    
    
    
    5,180,891Total Liabilities and Shareholders Equity
    
    $
    9,788,064
    
    
    $
    6,863,971
   3




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##### Table of Contents



Three Months Ended
    
    
    Nine Months Ended9/30/2010
    
    
    9/30/2009
    
    
    9/30/2010
    
    
    9/30/2009GROSS SALES
    
    $
    1,515,296
    
    
    $
    683,974
    
    
    $
    2,518,944
    
    
    $
    2,148,955Sales Discounts, Returns & Allowances
    
    
    (2,517
    )
    
    
    (3,010
    )
    
    
    (69,889
    )
    
    
    (11,147
    )NET SALES
    
    
    1,512,779
    
    
    
    680,964
    
    
    
    2,449,055
    
    
    
    2,137,808COST OF SALES
    
    
    1,132,247
    
    
    
    577,217
    
    
    
    1,777,746
    
    
    
    1,858,870GROSS PROFIT
    
    
    380,532
    
    
    
    103,747
    
    
    
    671,309
    
    
    
    278,938OPERATING EXPENSESDepreciation and Amortization
    
    
    217,998
    
    
    
    136,188
    
    
    
    588,394
    
    
    
    408,277Marketing Expense
    
    
    497,565
    
    
    
    59,434
    
    
    
    1,181,664
    
    
    
    310,350Professional Fees
    
    
    268,207
    
    
    
    195,823
    
    
    
    630,537
    
    
    
    533,707Rent Expense
    
    
    120,276
    
    
    
    51,027
    
    
    
    317,237
    
    
    
    509,969Research and Development
    
    
    108,759
    
    
    
    54,183
    
    
    
    319,926
    
    
    
    257,972Salaries & Wages
    
    
    567,138
    
    
    
    277,949
    
    
    
    1,243,575
    
    
    
    1,413,796Salaries & Wages  Stock Based Compensation
    
    
    147,509
    
    
    
    (199,841
    )
    
    
    372,259
    
    
    
    (17,324
    )Other Operating Expenses
    
    
    411,930
    
    
    
    383,316
    
    
    
    1,080,142
    
    
    
    939,972TOTAL OPERATING EXPENSES
    
    
    2,339,382
    
    
    
    958,079
    
    
    
    5,733,734
    
    
    
    4,356,719LOSS FROM OPERATIONS BEFORE OTHER
INCOME (EXPENSES)
    
    
    (1,958,850
    )
    
    
    (854,332
    )
    
    
    (5,062,425
    )
    
    
    (4,077,781
    )OTHER INCOME (EXPENSES)Restructuring Charges
    
    
    (275,002
    )
    
    
    
    
    
    
    (586,119
    )
    
    
    Loss on Sale of Equipment
    
    
    
    
    
    
    (129,627
    )
    
    
    
    
    
    
    (154,666
    )Interest Income
    
    
    1,170
    
    
    
    621
    
    
    
    1,746
    
    
    
    20,895Interest Expense
    
    
    (158
    )
    
    
    (5,900
    )
    
    
    (1,895
    )
    
    
    (20,478
    )TOTAL OTHER INCOME (EXPENSES)
    
    
    (273,990
    )
    
    
    (134,906
    )
    
    
    (586,268
    )
    
    
    (154,249
    )LOSS BEFORE PROVISIONS FOR TAXES
    
    
    (2,232,840
    )
    
    
    (989,238
    )
    
    
    (5,648,693
    )
    
    
    (4,232,030
    )Provision for Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    
    (2,232,840
    )
    
    
    (989,238
    )
    
    
    (5,648,693
    )
    
    
    (4,232,030
    )OTHER COMPREHENSIVE INCOMEGain (loss) on Foreign Currency Translation
    
    
    52,437
    
    
    
    5,134
    
    
    
    51,736
    
    
    
    13,780TOTAL COMPREHENSIVE LOSS
    
    $
    (2,180,403
    )
    
    $
    (984,104
    )
    
    $
    (5,596,957
    )
    
    $
    (4,218,250
    )BASIC AND DILUTED LOSS PER SHARE
    
    $
    (0.17
    )
    
    $
    (0.12
    )
    
    $
    (0.49
    )
    
    $
    (0.54
    )WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED
    
    
    12,925,482
    
    
    
    8,329,132
    
    
    
    11,400,371
    
    
    
    7,781,758
   4




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##### Table of Contents



9/30/2010
    
    
    9/30/2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (5,648,693
    )
    
    $
    (4,232,030
    )Adjustment to Reconcile Net Loss to Net Cash
Used in Operating ActivitiesDepreciation and Amortization
    
    
    588,394
    
    
    
    408,277Reserve for Inventory Obsolescence
    
    
    
    
    
    
    (96,041
    )Allowance for Doubtful Accounts
    
    
    32,901
    
    
    
    12,727Loss on Sale of Equipment
    
    
    
    
    
    
    154,666Loss on Disposal of Leasehold Improvements Due to Restructuring
    
    
    15,069
    
    
    
    Common Stock Issued for Services, Salaries & Wages
    
    
    1,332,990
    
    
    
    (103,775
    )(Increase) Decrease in:Accounts Receivable
    
    
    (1,263,159
    )
    
    
    (20,093
    )Inventory
    
    
    (209,817
    )
    
    
    876,682Deposits
    
    
    55,621
    
    
    
    3,632Prepaid Expenses
    
    
    91,936
    
    
    
    350,081Restricted Cash
    
    
    (42,934
    )
    
    
    48,628Intangibles
    
    
    331
    
    
    
    (19,445
    )Increase (Decrease) in:Accounts Payable
    
    
    (315,005
    )
    
    
    497,593Accrued Expenses
    
    
    57,802
    
    
    
    200,656Other Payables
    
    
    
    
    
    
    (32,194
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (5,304,564
    )
    
    
    (1,950,636
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of Property and Equipment, and Intangibles
    
    
    (184,285
    )
    
    
    (13,738
    )Proceeds from Sale of Equipment
    
    
    
    
    
    
    3,693NET CASH USED IN INVESTING ACTIVITIES
    
    
    (184,285
    )
    
    
    (10,045
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payments on Capital Leases
    
    
    (22,904
    )
    
    
    (40,336
    )Payments from Notes Payable
    
    
    (59,295
    )
    
    
    (3,874
    )Proceeds on Notes Payable
    
    
    20,524
    
    
    
    Proceeds from Issuance of Common Stock and Subscription Receivable, Net of Offering Costs
    
    
    7,506,937
    
    
    
    1,899,421NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    7,445,262
    
    
    
    1,855,211FOREIGN CURRENCY TRANSLATION
    
    
    51,736
    
    
    
    13,780NET INCREASE (DECREASE) IN CASH
    
    
    2,008,149
    
    
    
    (91,690
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,305,771
    
    
    
    501,699CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    3,313,920
    
    
    $
    410,009
       5




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
(Unaudited)
  Organization
  Line of Business
 ® ®
     
    
    Cereplast Compostables® Resinsare renewable, ecologically-sound
substitutes for petroleum-based plastics targeting primarily single-use disposables and
packaging applications. We offer 17 commercial grades of Compostables Resins in this
product line. These resins are compatible with existing manufacturing processes and
equipment, making them a ready substitute for traditional petroleum-based resins. We
commercially introduced our Compostables line in November 2006.
 
    
    Cereplast Hybrid Resins® replace up to 50% of the petroleum content in
conventional plastics with bio-based materials such as industrial starches sourced from
plants. The Hybrid Resin line is designed to offer similar properties to traditional
polyolefins such as impact strength and heat deflection temperature, and is compatible with
existing converter processes and equipment. Hybrid Resins provide a viable alternative for
brand owners and converters looking to partially replace petroleum-based resins in durable
goods applications. Hybrid Resins address this need 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, Hybrid 150, at the end of 2007.
We currently offer two commercial grades in this product line.
  6




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##### Table of Contents




    
    Cereplast Algae Plastics. In October 2009 we announced that we have been developing a
new technology to transform algae into bioplastics and intend to launch a new family of
algae-based resins that will complement the companys existing line of Compostables & Hybrid resins. Although we do
not expect this new technology to become commercial until the end of 2010, it remains an
important development as we believe that the potential open by algae is quite substantial.
We believe that our algae-based resins could replace, in a first step, 50% or more of the
petroleum content used in traditional plastic resins. Currently, we are using renewable
material such as starches from corn, tapioca, wheat and potatoes and Ingeo® PLA and we are
exploring additional biopolymers as they come to market. We believe that algae is a very
attractive feedstock as it does offer a low carbon footprint alternative and at the same
time could be accessible in very large quantity. We also have a future plan to create algae
plastic made of 100% algae component abandoning any reliance on fossils fuels.
   Basis of Presentation and Consolidation
  Use of Estimates
  Cash and Cash Equivalents
   7




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##### Table of Contents



Concentration of Credit Risk
  Other Concentration
  Restricted Cash
  Fair Value of Financial Instruments
  Accounts Receivable
  Inventories
  September 30,2010
    
    
    December 31, 2009(Unaudited)Raw Materials
    
    $
    497,030
    
    
    $
    344,489Bioplastic Resins
    
    
    458,186
    
    
    
    355,082Finished Goods
    
    
    47,222
    
    
    
    76,458Packaging Materials
    
    
    16,021
    
    
    
    14,978WIP
    
    
    38,885
    
    
    
    56,250Total Inventories
    
    $
    1,057,344
    
    
    $
    847,527
  8




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##### Table of Contents



Property and Equipment
  September 30, 2010
    
    
    December 31, 2009(Unaudited)Equipment
    
    $
    5,152,733
    
    
    $
    2,518,132Construction in Progress
    
    
    108,245
    
    
    
    2,588,904Furniture & Fixtures
    
    
    278,696
    
    
    
    275,055Automobile
    
    
    25,359
    
    
    
    Leasehold Improvements
    
    
    
    
    
    
    34,3455,565,033
    
    
    
    5,416,436Less Accumulated Depreciation
    
    
    (2,081,144
    )
    
    
    (1,519,714
    )Net Property and Equipment
    
    $
    3,483,889
    
    
    $
    3,896,722
 Intangibles
  September 30, 2010
    
    
    December 31, 2009(Unaudited)Intangibles
    
    $
    208,139
    
    
    $
    208,304Less Accumulated Amortization
    
    
    (30,776
    )
    
    
    (24,265
    )Net Intangibles
    
    $
    177,363
    
    
    $
    184,039
 Deferred Income Taxes
    9




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##### Table of Contents



Revenue Recognition
  Marketing and Advertising
  Research and Development Costs
  Stock-Based Compensation
 
 Loss per Share Calculations
  Legal Proceedings
  Comparative Figures
   10




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##### Table of Contents



Reverse Stock Split
   
    
    On July 29, 2010, we issued 32,361 shares common stock valued at $108,409 for employee
services.
 
    
    On September 2, 2010 we issued 20,162 shares of common stock valued at $75,002 pursuant to
a settlement agreement.
 
    
    On September 2, 2010, we issued 23,440 shares of common stock valued at $76,180 for
employee services.
 Valuation Assumptions for Stock Options
  Year endedDecember 31,2009Average risk-free interest rate
    
    
    3.84
    %Average expected life (in years)
    
    
    5.1Volatility
    
    
    102.2
    %
 
    
    Expected Volatility:The fair values of stock based payments were valued using a
volatility factor based on our historical stock prices.
 
    
    Expected Term:We elected to use the simplified method as discussed in SAB No. 107 to
develop the estimate of the expected term.
 
    
    Expected Dividend:We have not paid any dividends and do not anticipate paying dividends
in the foreseeable future.
 
    
    Risk-Free Interest Rate:We base 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
   11




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##### Table of Contents



2010
    
    
    2009Weighted Average
    
    
    
    
    
           
    Weighted AverageShares
    
    
    Exercise Price
    
    
    Shares
    
    

    Exercise PriceOutstandingbeginning of year
    
    
    73
    
    
    $
    22.40
    
    
    
    249
    
    
    $
    22.40Granted at fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled/forfeited
    
    
    
    
    
    
    
    
    
    
    (176
    )
    
    
    22.40Outstandingend of year
    
    
    73
    
    
    
    22.40
    
    
    
    73
    
    
    
    22.40Options exercisable at
year-end
    
    
    73
    
    
    $
    22.40
    
    
    
    73
    
    
    $
    22.40
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedWeighted
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    Remaining
    
    
    AggregateRange of Exercise
    
    
    
    
    
    Exercise
    
    
    Contract
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    Contract
    
    
    IntrinsicPrices
    
    Shares
    
    
    Price
    
    
    Life
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    Life
    
    
    Value$0.0-$22.40
    
    
    73
    
    
    $
    22.40
    
    
    
    4.18
    
    
    
    
    
    
    
    73
    
    
    $
    22.40
    
    
    
    4.18
    
    
    
    
       California Facilities
 Indiana Facility 
  12




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##### Table of Contents



Notes Payable
      Nine months endedSeptember 30,2010
    
    
    September 30,2009(Unaudited)
    
    
    (Unaudited)North America
    
    $
    1,139,162
    
    
    $
    1,984,831International
    
    
    1,379,782
    
    
    
    164,124Gross sales
    
    $
    2,518,944
    
    
    $
    2,148,955
        13




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   
    
    inability to raise sufficient additional capital to finance operations;
    
    potential fluctuation in quarterly results;
    
    our failure to earn profits;
    
    inadequate capital to expand our business, inability to raise additional capital or
financing to implement our business plans;
    
    inability to source raw materials in sufficient quantities to support growth in customer
demand;
    
    decline in demand for our products and services;
    
    rapid and significant changes in markets and other factors that encourage use of
bioplastics;
    
    failure to commercialize new grades of resin being pursued in our technical / market
development pipeline;
    
    competitor actions that curtail our market share, negatively affect pricing or limit
sales growth;
    
    litigation with or legal claims and allegations by outside parties;
    
    insufficient revenues to cover operating costs;
    14




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##### Table of Contents



General
  
    
    Cereplast Compostables Resins®are renewable, ecologically-sound substitutes
for petroleum-based plastics targeting primarily single-use disposables and packaging
applications. We offer 17 commercial grades of Compostables Resins in this product line.
These resins are compatible with existing manufacturing processes and equipment making them
a ready substitute for traditional petroleum-based resins. We commercially introduced our
Compostables line in November 2006.
 
    
    Cereplast Hybrid® Resins replace up to 50% of the petroleum content in
conventional plastics with bio-based materials such as industrial starches sourced from
plants. The Hybrid Resin line is designed to offer similar properties to traditional polyolefins such as impact strength and heat deflection
temperature, and is compatible with existing converter processes and equipment. Hybrid
Resins provide a viable alternative for brand owners and converters looking to partially
replace petroleum-based resins in durable goods applications. Hybrid Resins address this
need 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, Hybrid 150, at the end of 2007. We currently offer two commercial grades in
this product line.
 
    
    Cereplast Algae Plastics. In October 2009 we announced that we have been developing a
new technology to transform algae into bioplastics and intend to launch a new family of
algae-based resins that will complement our existing line of Compostables & Hybrid resins.
Although we do not expect this new technology to become commercial until the end of 2010,
it remains an important development as we believe that the potential open by algae is quite
substantial. We believe our algae-based resins could replace, in a first step, 50% or more
of the petroleum content used in traditional plastic resins. Currently, we are using
renewable material such as starches from corn, tapioca, wheat and potatoes and
Ingeo® PLA and we are exploring additional biopolymers as they come to market.
Recently the algae production business has attracted a lot of attention when Exxon
announced a $600 million investment in Synthetic Genomics and BPs $10 million investment
in Martek Biosciences. We believe that algae is a very attractive feedstock as it does
offer a low carbon footprint alternative and at the same time could be accessible in very
large quantity. We also have a future plan to create algae plastic made of 100% algae
component abandoning any reliance on fossils fuels.
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##### Table of Contents



Trends and Uncertainties that May Impact Future Results of Operations
 Global Market and Economic Conditions.
  Sales & Operating Expenses
 th
 Operating Expenses. th
  16




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##### Table of Contents



ales
  Gross Profit
  Operating Expenses
  
    
    Salaries and wages, excluding stock based compensation, increased by $289,189 or 104%,
to $567,138 for the three months ended September 30, 2010, as compared to the three months
ended September 30, 2009, largely as a result of the significant reductions in our
workforce in 2009 as part of our Strategic Restructuring Program. Non cash compensation,
increased by $347,350 to $147,509 from $(199,841) for the three months ended September 30,
2010 compared to the three months ended September 30, 2009, largely as a result of
reductions in stock based compensation in 2009 related to the reversal of vested employee
stock options for terminated employees.
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##### Table of Contents




    
    Marketing expense increased $438,131, or 737.2%, to $497,565 for the three months ended
September 30, 2010, compared to the three months ended September 30, 2009. The increase in
expense is due primarily to increased sales commissions and sales and marketing staff and
activities designed to increase product and market exposure in the US and international
markets.
 
    
    Research and Development costs increased by $54,576 or 100.7% to $108,759 for the three
months ended September 30, 2010, compared to the three months ended September 30, 2009. The
increase is primarily a result of an increase in research and development activities and
the cost associated with inventory used for testing purposes at the facilities of potential
customers
 
    
    Rent expense increased by $69,249, or 135.7%, to $120,276 for the three months ended
September 30, 2010, compared to the three months ended September 30, 2009. The increase for
the period resulted from normal rent paid for our Indiana facility during the three months
ended September 30., 2010, compared to a negotiated, temporarily discounted rent paid in
the previous year. Professional fees increased by $72,384, or 37%, to $268,207 for the
three months ended September 30, 2010, compared to the three months ended September 30,
2009. The increase for the period is primarily the result of increases in amounts paid to
outside firms for assisting the Company in its financing efforts.
 
    
    Depreciation and Amortization fees increased by $81,810, or 60.1%, to $217,998 for the
three months ended September 30, 2010, compared to the three months ended September 30,
2009. The increase for the period is due to additional depreciation related to the Seymour
manufacturing facility which was placed in service on March 1, 2010.
 Net Loss
   ales
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##### Table of Contents



Gross Profit
  Operating Expenses
  
    
    Salaries and wages, including stock based compensation, increased by $219,362 or 15.7%,
to $1,615,834 for the nine months ended September 30, 2010, as compared to the
nine months ended September 30, 2009, largely as a result of reductions in stock based
compensation in 2009 related to the reversal of vested employee stock options for
terminated employees.
    
    Marketing expense increased $871,314 or 280.8%, to $1,181,664 for the nine months ended
September 30, 2010, compared to the nine months ended September 30, 2009. The increase in
expense is due primarily to increased sales commissions and sales and marketing staff and
activities designed to increase product and market exposure in the US and international
markets.
    
    Research and Development costs increased by $61,954 or 24.0% to $319,926 for the nine
months ended September 30, 2010, compared to the nine months ended September 30, 2009. The
increase is primarily a result of an increase in research and development activities and
the cost associated with inventory used for testing purposes at the facilities of potential
customers.
    
    Rent expense decreased by $192,732, or 37.8%, to $317,237 for the nine months ended
September 30, 2010, compared to the nine months ended September 30, 2009. The decrease for
the period resulted from the termination of two leases for 30,000 sq.
ft. and 25,000 sq. ft.
of office and warehouse space during the prior year and a negotiated temporary discount in
rent of the lease of our Indiana facility.
    
    Professional fees increased by $96,830, or 18.1%, to $630,537 for the nine months ended
September 30, 2010, compared to the nine months ended September 30, 2009. The increase for
the period is primarily the result of increases in amounts paid to outside firms for
assisting the Company in its financing efforts.
    
    Depreciation and Amortization fees increased by $180,117, or 44.1%, to $588,394 for the
nine months ended September 30, 2010, compared to the nine months ended September 30, 2009.
The increase for the period is due to additional depreciation related to the Seymour
manufacturing facility which was placed in service on March 1, 2010.
 Net Loss
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##### Table of Contents



Payments Due by PeriodLess Than
    
    
    2-3
    
    
    4-5
    
    
    More ThanTotal
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    5 yearsCapitalized lease obligations
    
    $
    11,334
    
    
    $
    10,562
    
    
    $
    1,276
    
    
    $
    
    
    
    $
    Purchase obligations
    
    
    8,768
    
    
    
    8,768
    
    
    
    
    
    
    
    
    
    
    
    Rental lease obligations
    
    
    3,024,458
    
    
    
    409,892
    
    
    
    819,784
    
    
    
    819,784
    
    
    
    974,998Term loan obligations
    
    
    16,837
    
    
    
    4,928
    
    
    
    9,856
    
    
    
    2,053
    
    
    
    $
    3,061,397
    
    
    $
    434,150
    
    
    $
    830,916
    
    
    $
    821,837
    
    
    $
    974,998
  20




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
    
    On January 4, 2010, we issued 31,250 shares of common stock valued at $125,000 for fees
associated with the early termination of a lease in California.
    
    On January 6, 2010, we issued 12,500 shares of common stock valued at $50,000 to a board
member for services provided.
    
    On March 31, 2010 we issued 705,000 shares of common stock for gross proceeds of $1,410,000
in a private placement.
    
    On April 7, 2010, we issued 38,750 shares of common stock valued at $201,500 for
professional services.
    
    On April 27, 2010, we issued 91,695 shares of common stock valued at $472,229 for prepaid
professional services and rent
    
    On May 7, 2010, we issued 20,857 shares of common stock valued at $96,359 for prepaid
public relations and other professional services.
    
    On June 30, 2010 we issued 22,804 shares common stock valued at $116,310 for employee
services.
    
    On July 29, 2010, we issued 32,361 shares common stock valued at $108,409 for employee
services.
    
    On September 2, 2010 we issued 20,162 shares of common stock valued at $75,002 pursuant to
a settlement agreement
    
    On September 2, 2010, we issued 23,440 shares of common stock valued at $76,180 for
employee services
    
    On November 4, 2010, 26,181 shares of common stock valued at $73,830 were
issued to employees for services rendered during the three month period ended September, 30,
2010.
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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. RESERVED
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. ***32.2
    
    Certification of the Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002***
 
 ***
    
    In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed
filed for the purposes of Section 18 of the Exchange Act or otherwise subject to the
liability of that section, nor shall it be deemed incorporated by reference in any filing
under the Securities Act of 1933, as amended, or the Exchange Act.  23




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##### Table of Contents



SIGNATURES
  Date: November 12, 2010
    CEREPLAST, INC.By:
    /s/ Frederic ScheerFrederic ScheerChairman, Chief Executive Officer and Director
(Principal Executive Officer)  24