##### 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, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 Commission File Number 333-126378
 CEREPLAST, INC.
 (Exact name of registrant as specified in its charter)
 Nevada
(State or Other Jurisdiction of Incorporation or Organization)
    
    91-2154289
(I.R.S. Employer Identification No.)3421 West El Segundo Boulevard 
Hawthorne, California
(Address of Principal Executive Office)
    
    90250
(Zip Code)
 (310) 676-5000
(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, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations and Other Comprehensive Income for the Three and Nine
months ended September 30, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows for the Nine months ended September 30, 2009 and 2008
    
    
    5Notes to the Consolidated Financial Statements
    
    
    6Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    15Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    23Item 4T
    
    CONTROLS AND PROCEDURES
    
    
    23PART IIOTHER INFORMATIONItem 1.
    
    LEGAL PROCEEDINGS
    
    
    24Item 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    24Item 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    24Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    24Item 5.
    
    OTHER INFORMATION
    
    
    24Item 6.
    
    EXHIBITS
    
    
    25SIGNATURES
    
    
    26Exhibit 31.1Exhibit 32.1
  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.




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 
 
 9/30/09
    
    
    12/31/08(Unaudited)
    
    
    (Audited)ASSETSCurrent AssetsCash
    
    $
    410,009
    
    
    $
    501,699Accounts Receivable, Net
    
    
    287,468
    
    
    
    280,102Inventory, Net
    
    
    1,058,134
    
    
    
    1,838,775Prepaid Expenses
    
    
    718,650
    
    
    
    160,863Total Current Assets
    
    
    2,474,261
    
    
    
    2,781,439Property and EquipmentProperty and Equipment
    
    
    5,434,489
    
    
    
    5,729,051Accumulated Depreciation and Amortization
    
    
    (1,392,095
    )
    
    
    (1,132,337
    )Net Property and Equipment
    
    
    4,042,394
    
    
    
    4,596,714Other AssetsRestricted Cash
    
    
    
    
    
    
    48,628Intangibles, Net
    
    
    186,281
    
    
    
    173,285Deposits
    
    
    41,311
    
    
    
    44,943Total Other Assets
    
    
    227,592
    
    
    
    266,856Total Assets
    
    $
    6,744,247
    
    
    $
    7,645,009LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts Payable
    
    $
    1,548,635
    
    
    $
    1,114,744Other Payables
    
    
    1,440
    
    
    
    33,634Accrued Expenses
    
    
    1,030,589
    
    
    
    829,933Capital Leases, Current Portion
    
    
    35,815
    
    
    
    47,440Convertible Shareholder Loan
    
    
    
    
    
    
    212,482Loan Payable, Current Portion
    
    
    
    
    
    
    3,874Total Current Liabilities
    
    
    2,616,479
    
    
    
    2,242,107Long-Term LiabilitiesCapital Leases
    
    
    11,334
    
    
    
    40,045Total Long-Term Liabilities
    
    
    11,334
    
    
    
    40,045Total Liabilities
    
    
    2,627,813
    
    
    
    2,282,152Shareholders EquityPreferred Stock, $0.001 par value;
5,000,0000 authorized preferred shares
    
    
    
    
    
    
    Common Stock, $0.001 par value;
495,000,000 authorized shares; 339,435,300 shares &
281,134,359 shares issued and outstanding, respectively
    
    
    339,435
    
    
    
    281,134Common Stock subscribed, not issued
    
    
    50,000
    
    
    
    250,000Additional Paid in Capital
    
    
    37,288,549
    
    
    
    34,175,023Retained Earnings/(Deficit)
    
    
    (33,604,050
    )
    
    
    (29,372,020
    )Other Comprehensive Income
    
    
    42,500
    
    
    
    28,720Total Shareholders Equity
    
    
    4,116,434
    
    
    
    5,362,857Total Liabilities and Shareholders Equity
    
    $
    6,744,247
    
    
    $
    7,645,009
   3




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##### Table of Contents



Three Months Ended
    
    
    Nine Months Ended9/30/2009
    
    
    9/30/2008
    
    
    9/30/2009
    
    
    9/30/2008GROSS SALES
    
    $
    683,974
    
    
    $
    1,427,902
    
    
    $
    2,148,955
    
    
    $
    3,401,011Sales Discounts, Returns & Allowances
    
    
    (3,010
    )
    
    
    (18,035
    )
    
    
    (11,147
    )
    
    
    (45,516
    )NET SALES
    
    
    680,964
    
    
    
    1,409,867
    
    
    
    2,137,808
    
    
    
    3,355,495COST OF SALES
    
    
    577,217
    
    
    
    1,470,045
    
    
    
    1,858,870
    
    
    
    3,376,455GROSS PROFIT (DEFICIT)
    
    
    103,747
    
    
    
    (60,178
    )
    
    
    278,938
    
    
    
    (20,960
    )OPERATING EXPENSESDepreciation and Amortization
    
    
    136,188
    
    
    
    141,879
    
    
    
    408,277
    
    
    
    407,626Marketing Expense
    
    
    59,434
    
    
    
    314,765
    
    
    
    310,350
    
    
    
    995,125Professional Fees
    
    
    195,823
    
    
    
    239,257
    
    
    
    533,707
    
    
    
    795,571Rent Expense
    
    
    51,027
    
    
    
    194,330
    
    
    
    509,969
    
    
    
    722,315Research and Development
    
    
    54,183
    
    
    
    267,589
    
    
    
    257,972
    
    
    
    813,889Salaries & Wages
    
    
    277,949
    
    
    
    926,643
    
    
    
    1,413,796
    
    
    
    2,490,129Salaries & Wages  Stock Based Compensation
    
    
    (199,841
    )
    
    
    352,762
    
    
    
    (17,324
    )
    
    
    2,229,733Other Operating Expenses
    
    
    383,316
    
    
    
    576,528
    
    
    
    931,954
    
    
    
    1,727,772TOTAL OPERATING EXPENSES
    
    
    958,079
    
    
    
    3,013,753
    
    
    
    4,348,701
    
    
    
    10,182,160LOSS FROM OPERATIONS BEFORE OTHER
INCOME (EXPENSES)
    
    
    (854,332
    )
    
    
    (3,073,931
    )
    
    
    (4,069,763
    )
    
    
    (10,203,120
    )OTHER INCOME (EXPENSES)Gain on Settlement of Shareholder Loan
    
    
    
    
    
    
    
    
    
    
    81,982
    
    
    
    Waiver fee on Settlement of Shareholder Loan
    
    
    
    
    
    
    
    
    
    
    (90,000
    )Loss on Sale of Equipment
    
    
    (129,627
    )
    
    
    
    
    
    
    (154,666
    )
    
    
    Interest Income
    
    
    621
    
    
    
    5,885
    
    
    
    20,895
    
    
    
    120,934Interest Expense
    
    
    (5,900
    )
    
    
    (7,182
    )
    
    
    (20,478
    )
    
    
    (18,817
    )TOTAL OTHER INCOME (EXPENSES)
    
    
    (134,906
    )
    
    
    (1,297
    )
    
    
    (162,267
    )
    
    
    102,117LOSS BEFORE PROVISION FOR TAXES
    
    
    (989,238
    )
    
    
    (3,075,228
    )
    
    
    (4,232,030
    )
    
    
    (10,101,003
    )Provision for Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    
    (989,238
    )
    
    
    (3,075,228
    )
    
    
    (4,232,030
    )
    
    
    (10,101,003
    )OTHER COMPREHENSIVE INCOMEGain (loss) on Foreign Currency Translation
    
    
    5,134
    
    
    
    (5,260
    )
    
    
    13,780
    
    
    
    (5,801
    )TOTAL COMPREHENSIVE LOSS
    
    $
    (984,104
    )
    
    $
    (3,080,488
    )
    
    $
    (4,218,250
    )
    
    $
    (10,106,804
    )BASIC AND DILUTED LOSS PER SHARE
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.04
    )WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED
    
    
    333,165,261
    
    
    
    265,144,443
    
    
    
    311,270,323
    
    
    
    262,154,367
   4




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##### Table of Contents



9/30/2009
    
    
    9/30/2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (4,232,030
    )
    
    $
    (10,101,003
    )Adjustment to reconcile net loss to net cash
used in operating activitiesDepreciation and amortization
    
    
    408,277
    
    
    
    407,626Reserve for Inventory Obsolescence
    
    
    (96,041
    )
    
    
    Allowance for Doubtful Accounts
    
    
    12,727
    
    
    
    40,728Loss on sale of equipment
    
    
    154,666
    
    
    
    Common Stock
and Common Stock Equivalent Issued for Services, Salaries & Wages
    
    
    (103,775
    )
    
    
    2,287,525Common Stock Issued for Waiver Fee
    
    
    90,000
    
    
    
    Gain on Settlement of Shareholder Loan
    
    
    (81,982
    )
    
    
    (Increase) Decrease in:Accounts Receivable
    
    
    (20,093
    )
    
    
    (358,928
    )Inventory
    
    
    876,682
    
    
    
    (1,090,217
    )Deposits
    
    
    3,632
    
    
    
    (10,049
    )Prepaid Expenses
    
    
    350,081
    
    
    
    (146,991
    )Restricted Cash
    
    
    48,628
    
    
    
    475Intangibles
    
    
    (19,445
    )
    
    
    (116,090
    )Increase (Decrease) in:Accounts Payable
    
    
    489,575
    
    
    
    1,368,649Accrued Expenses
    
    
    200,656
    
    
    
    420,651Other Payables
    
    
    (32,194
    )
    
    
    38,976NET CASH USED IN OPERATING ACTIVITIES
    
    
    (1,950,636
    )
    
    
    (7,258,648
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment, and intangibles
    
    
    (13,738
    )
    
    
    (2,833,202
    )Proceeds from sale of equipment
    
    
    3,693
    
    
    
    NET CASH USED IN INVESTING ACTIVITIES
    
    
    (10,045
    )
    
    
    (2,833,202
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payments on Capital Leases
    
    
    (40,336
    )
    
    
    (53,524
    )Payments on Term Loan Payable
    
    
    (3,874
    )
    
    
    (8,283
    )Proceeds from issuance of common stock and subscription receivable
    
    
    1,899,421
    
    
    
    2,521,059NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    1,855,211
    
    
    
    2,459,252FOREIGN CURRENCY TRANSLATION
    
    
    13,780
    
    
    
    (5,801
    )NET DECREASE IN CASH
    
    
    (91,690
    )
    
    
    (7,638,399
    )CASH, BEGINNING OF PERIOD
    
    
    501,699
    
    
    
    8,593,714CASH, END OF PERIOD
    
    $
    410,009
    
    
    $
    955,315
       5




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
  Organization
  Line of Business
 ® ®
    
    
    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 the companys existing line of Compostables &
Hybrid resins. Although we do not expect this new technology to become commercial before
the end of 2010 or early 2011, it remains an important
development as we believe that the potential open by algae is quite substantial. Cereplast
algae-based resins could replace in a first step 50% or more of the petroleum content used
in traditional plastic resins.
  6




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##### Table of Contents



Currently, Cereplast is using renewable material such as starches from corn, tapioca, wheat
and potatoes and Ingeo® PLA. 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. The Company retains 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
   7




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##### Table of Contents



Recently Issued Accounting Pronouncements
   Basis of Presentation and Going Concern
     Cash and Cash Equivalents
  Concentration of Credit Risk
   8




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##### Table of Contents



Other Concentration
  Restricted Cash
  Fair Value of Financial Instruments
  Accounts Receivable
  Inventories
  9/30/09
    
    
    12/31/08Raw Materials
    
    $
    370,165
    
    
    $
    608,984Bioplastic Resins
    
    
    647,473
    
    
    
    1,040,255Finished Goods
    
    
    59,133
    
    
    
    291,890Packaging Materials
    
    
    17,322
    
    
    
    29,646Reserve for Obsolescence
    
    
    (35,959
    )
    
    
    (132,000
    )Inventories, Net
    
    $
    1,058,134
    
    
    $
    1,838,775
 Property and Equipment
  9/30/09
    
    
    12/31/08Equipment
    
    $
    2,525,354
    
    
    $
    2,582,204Construction in Progress
    
    
    2,599,735
    
    
    
    2,593,937Furniture & Fixtures
    
    
    275,055
    
    
    
    325,738Leasehold Improvements
    
    
    34,345
    
    
    
    227,1725,434,489
    
    
    
    5,729,051Less Accumulated Depreciation
    
    
    (1,392,095
    )
    
    
    (1,132,337
    )Net Property and Equipment
    
    $
    4,042,394
    
    
    $
    4,596,714
  9




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##### Table of Contents



Intangibles
  9/30/09
    
    
    12/31/08Intangibles
    
    $
    208,372
    
    
    $
    188,927Less Accumulated Amortization
    
    
    (22,091
    )
    
    
    (15,642
    )Net Intangibles
    
    $
    186,281
    
    
    $
    173,285
 Deferred Income Taxes
    Revenue Recognition
  Marketing and Advertising
   10




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##### Table of Contents



Research and Development Costs
  Stock-Based Compensation
 FASB Accounting Standards Codification (ASC) 718, Compensation  Stock Compensation.
 Loss per Share Calculations
 , Earnings per Share
 Legal Proceedings
    
    
    In a private placement transactions, 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, as amended the Securities Act), we issued 33,326,819 restricted shares of common stock for gross cash proceeds of $1,666,341, and 5,000,000 restricted shares of common stock in fulfillment of subscriptions received prior to December 31, 2008
of $250,000.
  11




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##### Table of Contents




    
    Also on February 18, 2009 we also issued 2,450,000 shares of restricted common stock valued
at $220,500 to one of our shareholders, a party related to our Chief Executive Officer, in
repayment of a convertible shareholder loan. The stock issuance includes 1,450,000 shares related
to the original principal amount of $212,500 and 1,000,000 additional shares related to an
agreement to waive default penalties.
    
    We issued 8,581,100 shares of restricted common
stock valued at $907,867 to third
parties for services to be rendered over twelve-month terms beginning
in March 2009, May 2009 and July 2009.
    
    We issued 4,374,739 shares of restricted common
stock valued at $443,773 to various
employees, directors, and third parties for services rendered during the period.
    
    We issued 4,568,283 shares of restricted common stock for net cash proceeds of $300,000
pursuant to the Periodic Equity Investment Agreement with Cumorah Capital, Inc. dated
December 8, 2008.
 Stock Option Activity
  Nine months endedSeptember 30, 2009Weighted AverageShares
    
    
    Exercise PriceOutstandingbeginning of year
    
    
    9,975
    
    
    $
    0.56Granted at fair value
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Canceled/forfeited
    
    
    (7,050
    )
    
    
    (0.56
    )Outstandingend of quarter
    
    
    2,925
    
    
    
    0.56Options exercisable at quarter-end
    
    
    1,950
    
    
    $
    0.56
  12




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedWeighted
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contract
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    Contract
    
    
    IntrinsicRange of Exercise Prices
    
    Shares
    
    
    Price
    
    
    Life
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    Life
    
    
    Value$0.0-$0.56
    
    
    2,925
    
    
    $
    0.56
    
    
    
    4.47
    
    
    
    
    
    
    
    1,950
    
    
    $
    0.56
    
    
    
    4.47
    
    
    
    
     California Facilities
 
    
    a lease for office, industrial and warehouse space with monthly rents of $15,405
expiring in January 2010;
    
    a lease for office and warehouse space with monthly rents of $20,644 expiring in April
2012 has been vacated and terminated prior to expiration; and
  Indiana Facility 
  13




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##### Table of Contents



Term Loan
  Shareholder Loan
      Payment of Salaries & Employment Contracts
     Issuance of Capital Stock
   14




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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;
    
    decline in demand for our products and services;
    
    rapid and significant changes in markets and other factors that encourage use of
bioplastics;
    
    failure to successfully commence operations at our new Seymour facility and relocate
manufacturing activities from California to Indiana;
    
    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;
    
    inability to retain employees as a result of deferral of payment of salaries to preserve
cash;
    
    litigation with or legal claims and allegations by outside parties;
    
    insufficient revenues to cover operating costs;
    
    inability to successfully implement our Strategic Restructuring Program, including the
successful negotiation of a strategic partnership to outsource our manufacturing
activities, consolidation of product lines and the sale of our commercial production
equipment at attractive prices.
  15




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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 the companys existing line of Compostables &
Hybrid resins. Although we do not expect this new technology to become commercial before
the end of 2010 or early 2011, it remains an important development as we believe that the
potential open by algae is quite substantial. Cereplast algae-based resins could replace in
a first step 50% or more of the petroleum content used in traditional plastic resins.
Currently, Cereplast is using renewable material such as starches from corn, tapioca, wheat
and potatoes and Ingeo® PLA. 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. The Company retains 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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Trends and Uncertainties that May Impact Future Results of Operations
 Global Market and Economic Conditions.
  Strategic Restructuring Program
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Sales.
 Operating Expenses. th
    Sales
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Gross Profit
  Operating Expenses
  
    
    Salaries and wages, including stock based compensation,
decreased by $1,201,297 or
93.9%, to $78,108 for the three months ended September 30, 2009, compared to
the three months ended September 30, 2008, largely as a result of the significant
reductions in our workforce in 2009 and associated reductions in compensation expense
related to the vesting of employee stock options to reflect actual stock option forfeiture
rates. Adjustments to reflect actual vs. estimated stock option forfeitures amount to
$461,380 during the three months ended September 30, 2009
    
    Marketing expense decreased by $255,331, or 81.1%, to $59,434 for the three months ended
September 30, 2009 compared to the three months ended September 30, 2008. The decrease for
the period is directly attributable to focusing our pipeline process and implementing more
rigorous market and customer selection processes.
    
    Research and Development costs decreased by $213,406, or 79.8% to $54,183 for the three
months ended September 30, 2009 compared to the three months ended September 30, 2008 also
as a result of an improved focus of our pipeline process for technical development and
expansion of our resin families and other cost cutting measures.
    
    Rent expense decreased by
$143,303, or 73.7%, to $51,027 for the three months ended
September 30, 2009 compared to the three months ended September 30, 2008. The decrease for
the period resulted for the termination of two leases for 30,000 sq. ft & 25,000 sq. ft. of
office and warehouse space during the previous quarter and this quarter and the
renegotiation of the lease of the Indiana facility.
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Net Loss
 ®
  Sales
  Gross Profit
  Operating Expenses
  
    
    Salaries and wages, including non-cash compensation,
decreased by $3,323,390 or 70.4%,
to $1,396,472 for the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008, largely as a result of the restructuring activities and the
significant reductions in our workforce made during the nine months ended September 30,
2009 compared to September 30, 2008 and associated reductions in
compensation expense related to the vesting of employee stock options to reflect actual, vs.
estimated, stock option forfeiture rates. Adjustments to reflect actual vs., estimated stock
option forfeitures amounted to $879,183 during the nine months ended September 30, 2009.
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
    
    Marketing expense decreased by $684,775, or 68.8%, to $310,350 for the nine months
ended September 30, 2009 compared to the nine months ended September 30, 2008. The decrease
for the period is directly attributable to focusing our pipeline process and implementing
more rigorous market and customer selection processes.
    
    Professional fees expense decreased by $261,864, or 32.9% to $533,707 for the nine
months ended September 30, 2009 compared to the nine months ended September 30, 2008. The
decrease for the period is due to the our renewed focus on cost reduction and leveraging
staff resources as well as reductions in recruiting related expenses incurred during the
prior year.
    
    Research and Development costs decreased by $555,917, or 68.3%, to $257,972 for the nine
months ended September 30, 2009 compared to the nine months ended September 30, 2008 also
as a result of an improved focus of our pipeline process for technical development and
expansion of our resin families.
    
    Rent expense decreased by
$212,346 or 29.4%, to $509,969 for the nine months ended
September 30, 2009 compared to the nine months ended September 30, 2008. The decrease for
the period was the result of rental income from the sublease of one of our office and
warehouse premises in Hawthorne offsetting rent expense during the six months ended June
30, 2009 and the subsequent termination of this lease during the three months ended
September 30, 2009. No rental income was earned on any of our leased premises for the six
months ended September 30, 2008.
 Net Loss
 ®
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Payments Due by PeriodLess Than
    
    
    2-3
    
    
    4-5
    
    
    More ThanTotal
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    5 yearsCapitalized lease obligations
    
    $
    47,149
    
    
    $
    35,816
    
    
    $
    11,333
    
    
    $
    
    
    
    $
    Rental lease obligations
    
    
    346,367
    
    
    
    239,759
    
    
    
    106,608
    
    
    
    
    
    
    
    Purchase obligations
    
    
    390,754
    
    
    
    390,754
    
    
    
    
    
    
    
    
    
    
    
    $
    784,270
    
    
    $
    666,329
    
    
    $
    117,941
    
    
    $
    0
    
    
    $
    0
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
    
    3,812,239 shares of our common stock valued at $395,960 to our directors and
employees as part of their compensation.
    
    2,450,000 shares of our common stock valued at $220,500 to a current shareholder, a
party related to our Chief Executive Officer, in repayment of a convertible shareholder
loan.
    
    562,500 shares of our common stock valued at $47,813 to third parties for services
rendered in the period.
    
    8,581,100 shares of our common stock valued at $907,867 to third parties for prepaid
services to be rendered over current and future periods.
    
    33,326,819 shares of our common stock to accredited investors for gross proceeds of
$1,666,341.
    
    5,000,000 shares of our common stock to accredited investors to accredited investors
in fulfillment of subscriptions received prior to December 31, 2008 of $250,000.
    
    4,568,283 shares of our common stock for net cash proceeds of $300,000 pursuant to
the Periodic Equity Investment Agreement with Cumorah Capital, Inc.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
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ITEM 6. 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, 2004(1)3.4
    
    Certificate of Amendment to the Articles of Incorporation dated March 18, 2005(1)3.5
    
    Bylaws(1)31.1
    
    Certification of the Chief Executive Officer and Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer and Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. ***
 
 (1)
    
    Filed as an exhibit to the Form SB-2 Registration Statement declared effective on July 5,
2005 and incorporated herein by reference.***
    
    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.  25




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SIGNATURES
  Date: November 16, 2009
    CEREPLAST, INC.By:
    /S/ Frederic ScheerFrederic ScheerChairman, Chief Executive Officer, Principal
Financial Officer and Director  26