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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended
March 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number 333-131853
 CEREPLAST, INC.
  Nevada
    
    91-2154289(State or other Jurisdiction of Incorporation or Organization)
    
    (IRS Employer Identification No.)
 
 
 þ o
 o þ
  c
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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONITEM 3. CONTROLS AND PROCEDURESPART 2  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 2. ISSUANCE OF UNREGISTERED SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 5.OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESExhibit 31.1Exhibit 32.1    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 
 ASSETSCurrent AssetsCash
    
    $
    1,000,340Accounts Receivable, Net
    
    
    79,379Inventory
    
    
    572,162Employee Advances
    
    
    3,846Prepaid Expenses
    
    
    12,277Total Current Assets
    
    
    1,668,004Property and EquipmentProperty and Equipment
    
    
    616,220Accumulated Depreciation and Amortization
    
    
    (91,291
    )Net Property and Equipment
    
    
    524,929Other AssetsIntangibles, Net
    
    
    1,905Deposits
    
    
    24,732Total Other Assets
    
    
    26,637Total Assets
    
    $
    2,219,570LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts Payable
    
    $
    115,520Other Payable
    
    
    8,215Accrued Expenses
    
    
    50,940Credit Lines
    
    
    47,283Note Payable, Customer
    
    
    50,000Shareholders Loan
    
    
    122,919Capital Leases, Current Portion
    
    
    31,335Loan Payable, Current Portion
    
    
    7,366Total Current Liabilities
    
    
    433,578Long-Term LiabilitiesCaptial Leases
    
    
    125,283Loan Payable
    
    
    25,426Total Long-Term Liabilities
    
    
    150,709Total Liabilities
    
    
    584,287Shareholders EquityPreferred Stock, $0.001 par value;
5,000,0000 authorized preferred shares
Common Stock, $0.001 par value;
495,000,000 authorized shares;
194,623,262 shares issued and outstanding
    
    
    194,624Additional Paid in Capital
    
    
    3,424,151Accumulated Deficit S-Corporation
    
    
    (442,425
    )Accumulated Deficit
    
    
    (1,541,067
    )Total Shareholders Equity
    
    
    1,635,283Total Liabilities and Shareholders Equity
    
    $
    2,219,570
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Three Months Ended03/31/2006
    
    
    03/31/2005REVENUES
    
    $
    119,892
    
    
    $
    115,765COST OF SALES
    
    
    74,393
    
    
    
    82,107GROSS PROFIT
    
    
    45,499
    
    
    
    33,658OPERATING EXPENSESAdvertising
    
    
    6,409
    
    
    
    2,350Auto Expense
    
    
    1,197
    
    
    
    1,323Bank Charges
    
    
    814
    
    
    
    677Commissions
    
    
    27,102
    
    
    
    4,500Computer Expense
    
    
    1,591
    
    
    
    4,423Credit Card Fees
    
    
    829
    
    
    
    175Depreciation and Amortization
    
    
    8,253
    
    
    
    6,130Donations
    
    
    660
    
    
    
    260Dues & Subscription
    
    
    4,416
    
    
    
    859Entertainment Expenses
    
    
    1,878
    
    
    
    729Equipment Rental
    
    
    151
    
    
    
    205Insurance Expense
    
    
    8,286
    
    
    
    5,385Marketing Expense
    
    
    22,198
    
    
    
    Office Supplies & Expenses
    
    
    8,029
    
    
    
    2,860Outside Services
    
    
    7,000
    
    
    
    1,916Payroll Tax Expense
    
    
    9,705
    
    
    
    106Professional Fees
    
    
    139,662
    
    
    
    108Rent Expense
    
    
    39,332
    
    
    
    5,216Repairs & Maintenance
    
    
    22,922
    
    
    
    1,000Research & Development
    
    
    9,732
    
    
    
    16,620Salaries & Wages
    
    
    103,661
    
    
    
    3,918Seminars
    
    
    3,615
    
    
    
    Shop Supplies
    
    
    11,040
    
    
    
    1,275Taxes & Licenses
    
    
    5,633
    
    
    
    595Telephone Expense
    
    
    1,805
    
    
    
    1,778Travel Expense
    
    
    6,893
    
    
    
    952Utilities
    
    
    2,735
    
    
    
    401TOTAL OPERATING EXPENSES
    
    
    455,548
    
    
    
    63,761LOSS FROM OPERATIONS BEFORE OTHER EXPENSES
    
    
    (410,049
    )
    
    
    (30,103
    )OTHER INCOME (EXPENSES)Interest Income
    
    
    3,159
    
    
    
    Interest Expense
    
    
    (13,471
    )
    
    
    (7,652
    )(10,312
    )
    
    
    (7,652
    )LOSS BEFORE PROVISIONS FOR TAXES
    
    
    (420,361
    )
    
    
    (37,755
    )Provision for Taxes
    
    
    1,800
    
    
    
    NET LOSS
    
    $
    (422,161
    )
    
    $
    (37,755
    )BASIC AND DILUTED LOSS PER SHARE
    
    $
    (0.00
    )
    
    $
    (0.00
    )WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED
    
    
    162,330,262
    
    
    
    132,567,128
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Three Months Ended03/31/2006
    
    
    03/31/2005CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (422,161
    )
    
    $
    (37,755
    )Adjustment to reconcile net loss to net cash
used in operating activitiesDepreciation and amortization (Increase) Decrease in:
    
    
    8,253
    
    
    
    6,130Accounts Receivable
    
    
    (32,416
    )
    
    
    (31,460
    )Inventory
    
    
    (282,057
    )
    
    
    13,381Employee advances
    
    
    (2,546
    )
    
    
    Deposits
    
    
    (2,295
    )
    
    
    (6,459
    )Prepaid Expenses
    
    
    160,409
    
    
    
    Increase (Decrease) in:Accounts Payable
    
    
    (113,882
    )
    
    
    (13,915
    )Other Payables
    
    
    1,396
    
    
    
    Accrued Expenses
    
    
    (56,700
    )
    
    
    (12,591
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (741,999
    )
    
    
    (82,669
    )NET CASH USED IN INVESTING ACTIVITIES:Purchase of property and equipment, and intangibles
    
    
    (159,683
    )
    
    
    (4,382
    )CASH FLOWS FROM FINANCING ACTIVITIES:Bank Overdraft
    
    
    
    
    
    
    8,640Advances from shareholders
    
    
    
    
    
    
    29,628Payments on advances from shareholders
    
    
    (3,206
    )
    
    
    (23,825
    )Advances on Credit Lines
    
    
    
    
    
    
    12,736Payments on Credit Line
    
    
    (20,346
    )
    
    
    Payments on Capital Leases
    
    
    (9,793
    )
    
    
    (3,838
    )Payments on Term Loan Payable
    
    
    (2,370
    )
    
    
    (2,218
    )Proceeds from issuance of common stock and subscription receivable
    
    
    1,431,250
    
    
    
    61,223NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    1,395,535
    
    
    
    82,346NET INCREASE (DECREASE) IN CASH
    
    
    493,853
    
    
    
    (4,705
    )CASH, BEGINNING OF PERIOD
    
    
    506,487
    
    
    
    4,705CASH, END OF PERIOD
    
    $
    1,000,340
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONInterest paid
    
    $
    10,476
    
    
    $
    5,215Taxes paid
    
    $
    1,800
    
    
    $
    SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONSDuring the three months ended March 31, 2005, the Company converted
75,000 preferred shares to 2,475,000 common stock with a value of $75,000;
the Company had a stock split of 33 for 1.
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1.
    
    ORGANIZATION AND LINE OF BUSINESSOrganizationCereplast, Inc. (the Company) was incorporated in the state of Nevada on September 29, 2001.
The Company, based in Hawthorne, California, began commercial operations January 1, 2002 to
provide products and services for biodegradable packaging and organic waste systems in the food
service and beverage industries. In 2005, the Company started to redirect its operations toward
resin manufacturing and expanded its operations in renting industrial facility with additional
warehouse space. The Company also rents warehouse space in Mexico.The accompanying interim unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim
financial information and pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating results for the three
month period ended March 31, 2006 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2006. For further information, refer to the financial
statements for the year ended December 31, 2005 and the notes thereto included in the Companys
Annual Report.Line of BusinessThe Company had developed a breakthrough technology to produce proprietary bio-based resins,
which are used as substitutes for conventional petroleum-based plastics in a variety of
applications, including the manufacture of food service items such as utensils, plates, cups,
and straws. The Company was validating its technology in selling finished products, but since
mid-2005, the Company started its transition to become only a resin manufacturer.2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThis summary of significant accounting policies of Cereplast is presented to assist in
understanding the Companys financial statements. The financial statements and notes are
representations of the Companys management, which is responsible for their integrity and
objectivity. These accounting policies conform to accounting principles generally accepted in
the United States of America and have been consistently applied in the preparation of the
financial statements.Revenue RecognitionThe Company recognizes revenue when services are performed, and at the time of shipment of
products, provided that evidence of an arrangement exists, title and risk of loss have passed to
the customer, fees are fixed or determinable, and collection of the related receivable is
reasonably assured.3.
    
    CAPITAL STOCKDuring the three months ended March 31, 2006 the Company received funds of $105,000 for
restricted common stock subscribed. Through a private placement, 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, 10,710,000 restricted shares of common stock were issued for cash of
$1,326,250.
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4.
    
    EQUITY LINE OF FINANCINGIn February 2006, the Company entered into a $10,000,000 private equity line of financing
agreement with Cumorah Capital, Inc. (the investor), with a commitment period of twenty-four
months. Based on the amount of the advance, the Investor can purchase shares of common stock at
an exchange rate equal to 90% of the market price during the pricing period. A 5,000,000 shares
commitment fee was paid by the Company at time of closing. As of the three months ended March
31, 2006, no funds have been advanced on the equity line.5.
    
    RELATED PARTYAt March 31, 2006, the loan in the amount of $122,919, is from the shareholders, and bear
interest payable at the rate of 6% per annum. The principal is due in June 2006.On or about January 4, 2006, the majority shareholder transferred 2,130,000 shares of common
stock to various Transferees and reissued certificates with restrictive transfer legend to the
Transferees pursuant to Section 4(1) of the Act.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 Cautionary Statements
  
    
    statements concerning the potential benefits that Cereplast, Inc. (the Company, we,
or Cereplast) may experience from its business activities and certain transactions it
contemplates or has completed; and
    
    statements of Cereplasts 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-QSB. 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-QSB. These forward-looking statements are subject
to numerous assumptions, risks and uncertainties that may cause Cereplasts actual results
to be materially different from any future results expressed or implied by Cereplast in
those statements. The most important facts that could prevent Cereplast from achieving its
stated goals include, but are not limited to, the following:
 (a)
    
    volatility or decline of Cereplasts stock price;(b)
    
    potential fluctuation in quarterly results;(c)
    
    failure of Cereplast to earn revenues or profits;(d)
    
    inadequate capital to continue or expand its business, inability to
raise additional capital or financing to implement its business plans;(e)
    
    failure to commercialize Cereplasts technology or to make sales;(f)
    
    changes in demand for Cereplasts products and services;(g)
    
    rapid and significant changes in markets;(h)
    
    litigation with or legal claims and allegations by outside parties;(i)
    
    insufficient revenues to cover operating costs.
   Current Overview




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Critical Accounting Policies
   Revenue Recognition
 Results of Operations for the Three Months Ended March 31, 2006 compared to the Three Months Ended
March 31, 2005.
  Cost of Sales
  Gross Profit
  General and Administrative Expenses
  Research and Development
  Net Loss
  Liquidity and Capital Resources




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ITEM 3. CONTROLS AND PROCEDURES




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PART 2  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. ISSUANCE OF UNREGISTERED SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
   
 SIGNATURES
  CEREPLAST, INC.
 By:
    
    /s/Frederic ScheerFrederic ScheerPresident, Chief Executive Officer, Principal Financial/Accounting Officerand ChairmanDated: May 15, 2006