##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  x
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
  Commission file number 333-131853
 CEREPLAST, INC.
  Nevada
(State or other Jurisdiction of Incorporation or Organization)
    
    91-2154289
(IRS Employer Identification No.)
 
 
 x o
 o x
   o x




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSBALANCE SHEETSTATEMENTS OF OPERATIONSTATEMENTS OF CASH FLOWSNOTES TO THE 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 SECURITIES:ITEM 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
    
    $
    328,410Accounts Receivable, Net
    
    
    125,460Inventory
    
    
    709,170Employee Advances
    
    
    6,312Prepaid Expenses
    
    
    Total Current Assets
    
    
    1,169,352Property and EquipmentProperty and Equipment
    
    
    867,623Accumulated Depreciation and Amortization
    
    
    (146,080
    )Net Property and Equipment
    
    
    721,543Other AssetsIntangibles, Net
    
    
    25,903Deposits
    
    
    25,044Total Other Assets
    
    
    50,947Total Assets
    
    $
    1,941,842LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts Payable
    
    $
    261,693Other Payable
    
    
    2,279Accrued Expenses
    
    
    23,863Credit Lines
    
    
    47,283Shareholders Loan
    
    
    155,563Capital Leases, Current Portion
    
    
    21,427Loan Payable, Current Portion
    
    
    4,950Total Current Liabilities
    
    
    517,058Long-Term LiabilitiesCaptial Leases
    
    
    125,284Loan Payable
    
    
    25,429Total Long-Term Liabilities
    
    
    150,713Total Liabilities
    
    
    667,771Shareholders EquityPreferred Stock, $0.001 par value;
5,000,0000 authorized preferred shares
    
    
    Common Stock, $0.001 par value;
495,000,000 authorized shares;
200,109,656 shares issued and outstanding
    
    
    200,110Additional Paid in Capital
    
    
    6,933,929Deferred Equity Offering Cost
    
    
    (3,308,125
    )Retained Earnings/(Deficit)
    
    
    (2,551,843
    )Total Shareholders Equity
    
    
    1,274,071Total Liabilities and Shareholders Equity
    
    $
    1,941,842




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##### Table of Contents



Three Months Ended
    
    
    Six Months Ended6/30/2006
    
    
    6/30/2005
    
    
    6/30/2006
    
    
    6/30/2005REVENUES
    
    $
    159,957
    
    
    $
    175,352
    
    
    $
    279,849
    
    
    $
    291,117COST OF SALES
    
    
    108,963
    
    
    
    157,634
    
    
    
    183,356
    
    
    
    239,741GROSS PROFIT
    
    
    50,994
    
    
    
    17,718
    
    
    
    96,493
    
    
    
    51,376OPERATING EXPENSESDepreciation and Amortization
    
    
    56,290
    
    
    
    6,130
    
    
    
    64,544
    
    
    
    6,130Marketing Expense
    
    
    105,278
    
    
    
    
    
    
    
    127,476
    
    
    
    Professional Fees
    
    
    79,323
    
    
    
    15,135
    
    
    
    218,985
    
    
    
    15,135Rent Expense
    
    
    50,329
    
    
    
    5,216
    
    
    
    89,661
    
    
    
    5,216Salaries & Wages
    
    
    122,784
    
    
    
    3,918
    
    
    
    226,446
    
    
    
    3,918Other Operating Expenses
    
    
    195,407
    
    
    
    344,471
    
    
    
    339,649
    
    
    
    408,232TOTAL OPERATING EXPENSES
    
    
    609,411
    
    
    
    374,870
    
    
    
    1,066,761
    
    
    
    438,631LOSS FROM OPERATIONS BEFORE OTHER
INCOME(EXPENSES)
    
    
    (558,417
    )
    
    
    (357,152
    )
    
    
    (970,268
    )
    
    
    (387,255
    )OTHER INCOME (EXPENSES)Interest Income
    
    
    2,744
    
    
    
    
    
    
    
    5,903
    
    
    
    Interest Expense
    
    
    (12,676
    )
    
    
    (10,746
    )
    
    
    (26,147
    )
    
    
    (18,398
    )(9,932
    )
    
    
    (10,746
    )
    
    
    (20,244
    )
    
    
    (18,398
    )LOSS BEFORE PROVISIONS FOR TAXES
    
    
    (568,349
    )
    
    
    (367,898
    )
    
    
    (990,512
    )
    
    
    (405,653
    )Provision for Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (568,349
    )
    
    $
    (367,898
    )
    
    $
    (990,512
    )
    
    $
    (405,653
    )BASIC AND DILUTED LOSS PER SHARE
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    (0.00
    )WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED
    
    
    200,050,486
    
    
    
    159,593,832
    
    
    
    196,842,143
    
    
    
    146,140,443




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Six Months Ended6/30/2006
    
    
    6/30/2005CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (990,512
    )
    
    $
    (405,653
    )Adjustment to reconcile net loss to net cash
used in operating activitiesDepreciation and amortization
    
    
    64,544
    
    
    
    16,805Financing Discount Costs
    
    
    13,889Common stock issued for services
    
    
    16,000
    
    
    
    28,200(Increase) Decrease in:Accounts Receivable
    
    
    (78,497
    )
    
    
    (92,670
    )Inventory
    
    
    (419,065
    )
    
    
    3,511Employee advances
    
    
    (5,012
    )
    
    
    Deposits
    
    
    (2,608
    )
    
    
    Prepaid Expenses
    
    
    172,686
    
    
    
    (40,850
    )Increase (Decrease) in:Accounts Payable
    
    
    32,291
    
    
    
    (90,462
    )Other Payables
    
    
    (4,540
    )
    
    
    1,827Accrued Expenses
    
    
    (83,777
    )
    
    
    7,467NET CASH USED IN OPERATING ACTIVITIES
    
    
    (1,284,601
    )
    
    
    (571,825
    )NET CASH USED IN INVESTING ACTIVITIES:Purchase of property and equipment, and intangibles
    
    
    (436,586
    )
    
    
    (12,613
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (436,586
    )
    
    
    (12,613
    )CASH FLOWS FROM FINANCING ACTIVITIES:Bank Overdraft
    
    
    
    
    
    
    Advances from shareholders
    
    
    36,235
    
    
    
    29,643Payments on advances from shareholders
    
    
    (6,797
    )
    
    
    (35,097
    )Advances on Credit Lines
    
    
    
    
    
    
    13,553Payments on Credit Line
    
    
    (20,346
    )
    
    
    (1,347
    )Payments on Capital Leases
    
    
    (19,699
    )
    
    
    (7,620
    )Payments on Term Loan Payable
    
    
    (54,783
    )
    
    
    (4,475
    )Proceeds from issuance of common stock and subscription receivable
    
    
    1,608,500
    
    
    
    645,423NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    1,543,110
    
    
    
    640,080NET INCREASE (DECREASE) IN CASH
    
    
    (178,077
    )
    
    
    55,642CASH, BEGINNING OF PERIOD
    
    
    506,487
    
    
    
    4,705CASH, END OF PERIOD
    
    $
    328,410
    
    
    $
    60,347




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1.
    
    ORGANIZATION AND LINE OF BUSINESSOrganization
Cereplast, 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 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 six
month period ended June 30, 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 Business
The 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 Recognition
The 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 six months ended June 30, 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.In April 2006, the Company cancelled 678,106 shares relating to services rendered.On April 2, 2006, the Customer exercised the option to convert the $50,000 outstanding principal
balance and accrued interest on the Customer Loan into 1,045,000 restricted shares of common
stock.On April 20, 2006, the Company issued 20,000 shares valued at $16,000 for services.On May, 26, 2006, The Company received funds of $125,000 under its Equity Line of Credit
Financing.4.
    
    EQUITY LINE OF FINANCINGOn February 13, 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. The Company paid a deferred equity offering cost of 5,000,000 shares
to Cumorah Capital, Inc. to be amortized over the life of the equity
line of financing. As of the six months ended June 30,
2006, the Company received $125,000 in exchange for 98,500 shares on the equity line and has
$9,875,000 in availability.5.
    
    RELATED PARTYAt June 30, 2006, the loan in the amount of $155,563, is from the shareholders, and bear
interest payable at the rate of 6% per annum.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 and Six Months Ended June 30, 2006 compared to the Three
and Six Months Ended June 30, 2005.
  Cost of Sales
  Gross Profit
  Operating Expenses
  Research and Development
  Net Loss




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Liquidity and Capital Resources
       
 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
  
    
    The Company sold 1,050,000 restricted shares of common stock at $0.10 per share to
accredited investors for aggregate consideration of $105,000 during the first quarter.
    
    The Company sold 10,710,000 restricted shares of common stock at $0.1238 per share to
accredited investors for aggregate consideration of $1,326,250 during the first quarter.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 31.1
    
    Certification by the Chief Executive Officer and Principal Accounting/Financing Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification by the Chief Executive Officer and Principal Accounting/Financing Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.




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SIGNATURES
  CEREPLAST, INC.By:
    /s/ Frederic ScheerFrederic ScheerPresident, Chief Executive Officer, Principal Financial/Accounting Officer
and Chairman  
Dated: August 10, 2006