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                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

          For the quarterly period ended December 25, 1999

                                       OR

[ ]  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: 1-8456

                             THE CERPLEX GROUP, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter.)

           Delaware                                             75-1539534
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization.)                              Identification No.)


            111 PACIFICA AVENUE, SUITE 300, IRVINE, CALIFORNIA 92618
--------------------------------------------------------------------------------
               (Address of principal executive office.) (Zip Code)


                                 (949) 754-5474

--------------------------------------------------------------------------------
               Registrant's telephone number, including area code.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicated  below  is the  number  of  shares  outstanding  of each  class of the
registrant's Common Stock, as of February 2, 2000:

TITLE OF EACH CLASS OF COMMON STOCK                        NUMBER OUTSTANDING
-----------------------------------                        ------------------
  Common Stock, $0.03 par value                             7,375,913 shares


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<PAGE>



                             THE CERPLEX GROUP, INC.

                                TABLE OF CONTENTS

                                                                            PAGE

PART I.  FINANCIAL INFORMATION

Item 1.     Financial Statements

            Condensed Consolidated Balance Sheets as of  December 25, 1999
            and September 25, 1999                                             4

            Condensed Consolidated Statements of Operations for the Three
            Months Ended  December 25, 1999 and December  31, 1998             5

            Condensed Consolidated Statements of Cash Flows for the Three
            Months Ended December 25, 1999 and December 31, 1998               6

            Notes to Unaudited Condensed Consolidated Financial Statements     7

Item 2.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations                                             11


Item 3.     Quantitative and Qualitative Disclosures About Market Risk        20

PART II.  OTHER INFORMATION                                                   21

Signatures                                                                    24

Index to Exhibits                                                             25



                                       2

<PAGE>



                            THE CERPLEX GROUP, INC.


                                     PART I

                              FINANCIAL INFORMATION




                                       3

<PAGE>



                             THE CERPLEX GROUP, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                            (Unaudited)
                                                                            DECEMBER 25,       SEPTEMBER 25,
                                                                               1999                1999
                                                                            -----------        -------------
                                     ASSETS
<S>                                                                           <C>                  <C>
Current assets:
    Cash and cash equivalents                                                 $      81            $     382
    Accounts receivable, less allowance for doubtful accounts
      of $748 and $912                                                            7,237                9,234
    Inventories                                                                   5,487                5,375
    Other current assets                                                          1,696                1,191
                                                                              ---------            ---------
Total current assets                                                             14,501               16,182

Goodwill                                                                          9,398                9,406
Property, plant and equipment, net                                                8,934                9,560
Intangible and other assets                                                         459                  483
                                                                              ---------            ---------
                                                                              $  33,292            $  35,631
                                                                              =========            =========


                LIABILITIES AND STOCKHOLDERS' DEFICIT


Current liabilities:
    Current portion of long-term debt                                         $  10,839            $  39,406
    Accounts payable                                                              5,983                6,674
    Accrued expenses                                                              4,330                4,802
    Accrued interest expense                                                        379                  458
    Other current liabilities                                                     1,488                1,338
                                                                              ---------            ---------
Total current liabilities                                                        23,029               52,678

Long-term debt                                                                   31,743                   --
Commitments and contingencies
Redeemable convertible preferred stock, 1000 shares
    authorized and 216 shares issued                                             30,869               30,492

Stockholders' deficit:
    Series B senior cumulative preferred stock, 59 shares
            authorized and issued                                                60,695               59,669
    Common stock 75,000 shares authorized, 7,850 shares issued
            and outstanding                                                       2,270                2,270
    Additional paid-in capital                                                  121,601              121,601
    Treasury  stock, at cost, 474 shares                                        (16,675)             (16,675)
    Accumulated deficit                                                        (220,254)            (214,415)
    Accumulated other comprehensive income                                           14                   11
                                                                              ---------            ---------
Total stockholders' deficit                                                     (52,349)             (47,539)
                                                                              ---------            ---------

                                                                              $  33,292            $  35,631
                                                                              =========            =========
</TABLE>


              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       4

<PAGE>



                             THE CERPLEX GROUP, INC

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                                                 -------------------------------
                                                 DECEMBER 25,       DECEMBER 31,
                                                    1999               1998
                                                 ------------       ------------
<S>                                                <C>                 <C>
Net revenues                                       $ 14,145            $ 29,489
Cost of sales                                        13,918              27,816
                                                   --------            --------
Gross profit                                            227               1,673

Selling, general and administrative
  expenses                                            3,672               5,288
Amortization of intangible assets                       162               2,150
                                                   --------            --------
Operating loss                                       (3,607)             (5,765)

Interest expense                                       (855)             (2,119)
Other income (expense), net                              --                 480
                                                   --------            --------
Loss before provision for income taxes               (4,462)             (7,404)

Provision for income taxes                              (26)               (134)
                                                   --------            --------
Net loss                                             (4,436)             (7,270)

Accrued dividends on preferred stock                 (1,403)               (419)
                                                   --------            --------
Net loss applicable to common stockholders         $ (5,839)           $ (7,689)
                                                   ========            ========

Basic and dilutive loss per common share           $  (0.79)           $  (1.06)
                                                   ========            ========

Weighted average number of common
  shares outstanding                                  7,376               7,232
                                                   ========            ========
</TABLE>


              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       5

<PAGE>



                             THE CERPLEX GROUP, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                                                     -------------------------------------
                                                                     DECEMBER 25, 1999    DECEMBER 31,1998
                                                                     -----------------    ----------------
<S>                                                                     <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                $ (4,436)              $ (7,270)
   Adjustments to reconcile net loss to net cash used in
     continuing operations:
        Depreciation and amortization                                        674                  3,125
        Non-cash interest expense                                            314                    371
        Foreign currency translation                                           3                      3
        Changes in assets and liabilities:
           Current assets                                                  1,404                 (1,291)
           Current liabilities                                            (1,083)                (3,894)
                                                                        --------               --------
    Net cash used in continuing operations                                (3,124)                (8,956)
    Net cash used in discontinued operations                                  --                   (106)
                                                                        --------               --------
Net cash used in operating activities                                     (3,124)                (9,062)
                                                                        --------               --------

CASH FLOWS FROM INVESTING ACTIVITIES:

    Acquisition of property, plant and equipment                            (227)                  (227)
                                                                        --------               --------
    Net cash used in investing activities                                   (227)                  (227)
                                                                        --------               --------

CASH FLOWS FROM FINANCING ACTIVITIES:

    Proceeds from promissory note                                             --                  2,500
    Payments on revolving line of credit                                  (3,590)                    --
    Payment on debt                                                       (2,991)                    --
    Proceeds from revolving line of credit                                 6,392                     --
    Proceeds from debt                                                     3,239                     --
    Other                                                                     --                      7
                                                                        --------               --------
Net cash provided by financing activities                                  3,050                  1,588
                                                                        --------               --------
Net change in cash and cash equivalents                                     (301)                (7,701)
                                                                        --------               --------
Cash and cash equivalents at beginning of period                             382                 14,196
                                                                        --------               --------
Cash and cash equivalents at end of period                              $     81               $  6,495
                                                                        ========               ========
</TABLE>


              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       6

<PAGE>



                             THE CERPLEX GROUP, INC.
                                AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  CURRENT FINANCIAL CONDITION

During the quarter  ended  December  25, 1999 and the year ended  September  25,
1999, the Company  experienced  recurring operating losses. As a result of these
losses,  at  December  25,  1999  the  Company  had  a  deficit  of  $52,349  in
stockholders' equity and negative working capital of $8,528. In addition,  since
a recapitalization of the Company in March 1996, the Company has relied upon the

financial support of an investment fund managed by the investment firm of Welsh,
Carson,  Anderson  &  Stowe  ("WCAS"),its  largest  stockholder, for  additional
capital.  At December 25, 1999, the Company had  approximately  $25.7 million in
principal  amount  outstanding  under its senior  secured term debt owed to WCAS
which  matures on April 1, 2001,  and $2.8 million and $3.2 million  outstanding
related to a senior secured line of credit with Congress  Financial  Corporation
(Western)  ("Congress") and Burdale Financial Limited ("Burdale"), respectively.
The Congress Line of Credit is due in February  2001. In April 2000, the Company
will be required to make a sinking fund payment of approximately $1.8 million on
the 7 3/4%  convertible  subordinated  debentures.  The  liquidation  of Cerplex
S.A.S.  in October,  1999, as described  more fully in the 1999 Annual Report on
Form  10-K  for The  Cerplex  Group,  Inc.,  may  cause  either a  default  or a
cross-default  under all the material debt  instruments  of the Company.  Unless
appropriate  waivers are obtained by the  Company,  the holders of such debt may
have the right to accelerate payment of principal  thereunder.  The acceleration
of such debt  would  have a  material  adverse  effect on the  Company.  In this
regard, the Company has obtained a default waiver from its senior lenders and is
currently  in  the  process  of  seeking  a  default  waiver  from  its  various
subordinated  debt  holders.  Though  the  Company  intends  to make  efforts to
increase  revenues to improve  operations,  the Company's losses are expected to
continue for the  foreseeable  future and the Company  will  require  additional
funding and financial support from a third party. There can be no assurance that
such  additional  funding and financial  support will be available on acceptable
terms,  or that such funds,  if available,  would enable the Company to continue
operating, or that the Company will be successful in increasing revenues.  These
matters raise  substantial  doubt about the  Company's  ability to continue as a
going concern.

NOTE B.  BASIS OF PRESENTATION

The accounting policies followed by the Company are set forth in Note B "Summary
of  Significant   Accounting  Policies"  of  Notes  to  Consolidated   Financial
Statements  included  in the 1999  Annual  Report on Form  10-K for The  Cerplex
Group, Inc.

In the opinion of management,  the accompanying  condensed  consolidated balance
sheets and related interim condensed  consolidated  statements of operations and
cash flows include all adjustments  (consisting  only of normal recurring items)
necessary for their fair presentation.  The preparation of financial  statements
in conformity with generally accepted accounting  principles requires management
to make estimates and  assumptions  that affect the reported  amounts of assets,
liabilities,  revenues,  and  expenses.  Actual  results could differ from those
estimates.  Interim results are not necessarily indicative of results for a full
year.


                                       7

<PAGE>



Certain  information  in footnote  disclosures  normally  included in  financial
statements  has been  condensed  or  omitted  in  accordance  with the rules and
regulations of the Securities and Exchange Commission.  The information included
in this Form 10-Q should be read in conjunction with Management's Discussion and
Analysis and financial  statements and notes thereto included in the 1999 Annual
Report on Form 10-K for The Cerplex Group, Inc.

NOTE C.  EARNINGS PER SHARE OF COMMON STOCK

Basic earnings (loss) per common share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding after adding to loss
from  operations  cumulative  dividends to holders of the  Company's  redeemable
convertible preferred stock.

Diluted  earnings per share is computed by dividing net income (loss)  available
to  common  stockholders  by the sum of the  weighted  average  number of common
shares outstanding and dilutive stock options. For all periods presented, common
stock  equivalents  (stock options) were excluded from calculations as they were
considered to be antidilutive.

The Company's 7% Senior Cumulative  Convertible Preferred Stock and 10% Series B
Senior  Subordinated  Debentures  (which mature in three equal  installments  on
December 31, 2002, 2003 and 2004), were not common stock equivalents at the time
of  issuance  and are  therefore  not  included  in the  calculation  of diluted
earnings per share.

NOTE D.  INVENTORIES

Inventories consisted of the following:

                                           DECEMBER 25,    SEPTEMBER 25,
                                              1999             1999
                                           ------------    -------------
                                                  (IN THOUSANDS)

Spare and repair parts                        $5,205          $4,687
Work in process                                   97             493
Finished goods and purchased product             185             195
                                              ------          ------
        Total inventories                     $5,487          $5,375
                                              ======          ======

NOTE E.  CAPITALIZATION

On October 5, 1998, a majority of the  outstanding  capital stock of the Company
entitled  to vote,  voted at a  Special  Meeting  of  Stockholders  to  effect a
one-for-ten reverse stock split (the "One-for-Ten Reverse Split"), in which each
ten shares of the Company's  Common Stock were  converted  into one share of the
Company's Common Stock.  Stockholders who would have received  fractional shares
of Common Stock as a result of the One-for-Ten Reverse Split, were paid, in lieu
of  receiving  fractional  shares,  cash in an amount equal to $0.104 per share.
Unless  otherwise  stated,  figures  as to the  number  of  shares  outstanding,
earnings per share, exercise price to convert the 7% Convertible


                                       8

<PAGE>



Preferred  Stock and  other  per share  figures  included  herein,  reflect  the
One-for-Ten Reverse Split.  Immediately following the One-for-Ten Reverse Split,
the outstanding  capital stock of the Company  consisted of 215,500 shares of 7%
Convertible  Preferred  Stock,  44,000 shares of Series A Convertible  Preferred
Stock and  7,118,285  shares  of Common  Stock.  Subsequent  to the  One-for-Ten
Reverse  Split,  on November 19, 1998,  249,233  shares of the Company's  Common
Stock were issued as a result of the  conversion  of 44,000  shares of Preferred
Stock  of the  Company  that  had  been  previously  issued  to WCAS  and  other
stockholders. A majority of such Preferred Stock was held by WCAS. As a majority
holder of such Preferred Stock,  WCAS elected to cause all of the shares of such
Preferred  Stock to be  converted  to the  Common  Stock of the  Company.  As of
February 2, 2000,  there were  7,375,913  shares of the  Company's  Common Stock
outstanding.

NOTE F.  DEBT

On November  24, 1999 the Company  and its  subsidiary  entered  into a Loan and
Security  Agreement  ("Congress  Line of Credit") with Congress  providing for a
$13.0 million senior secured  revolving  credit  facility.  Concurrent with this
financing,  WCAS agreed to  subordinate  its security  interest in the Company's
assets.  The  Congress  Line of Credit,  which  matures in February  2001,  will
provide  additional  working  capital and financing  for the Company's  domestic
operations.  As of January 22, 2000 the Company had $0.8  million  available  to
borrow  under  this  facility.  Loans  under the  Congress  Line of Credit  bear
interest at fluctuating rates of either the Prime Rate, as defined, plus 1/2% or
the Adjusted Eurodollar Rate, as defined,  plus 2 3/4%.  Borrowing  availability
pursuant to the Congress  Line of Credit is limited by the value,  as defined in
the  credit  agreement,  of  assets  pledged  as  collateral,   namely  accounts
receivable  and  inventory.  The  agreement  also contains  customary  financial
covenants and events of default for financings of this type. The  liquidation of
Cerplex S.A.S. caused a default and a cross-default under the Congress loan. The
Company has received a waiver from  Congress  for an exception  that covers this
default. Cerplex, Inc. is the borrower under the Congress Line of Credit and the
Company guarantees the repayment of its obligations thereunder.

On  December  14,  1999,  Cerplex,  Ltd.  closed a financing  arrangement  ("the
"Burdale  Loans") with Burdale,  an affiliate of Congress.  The credit  facility
provides for advances to Cerplex Ltd. up to $2.9 million  under a line of credit
secured by accounts  receivable  and up to $3.5 million  under a loan secured by
real  estate.  This credit  facility was used to repay  indebtedness  to British
Telecommunications  plc ("BT")  and to  finance  the  working  capital  needs of
Cerplex Ltd. The Burdale Loans bear interest at fluctuating  rates of LIBOR plus
2%. The  Burdale  Loans are  covered by an  agreement  that  provides  customary
financial  covenants  and events of default for financing  arrangements  of this
type. Indebtedness under this agreement is guaranteed by the Company.

As of  December  25, 1999 the Company  had $2.8  million  outstanding  under the
Congress Line of Credit, $3.2 million outstanding under the Burdale Loans, $25.7
million   outstanding  under  the  WCAS  Senior  Secured  Notes,  $10.4  million
outstanding  under  the 7 3/4%  Convertible  Subordinated  Debentures  and  $0.4
million  outstanding  under the 10% Series B Senior  Subordinated  Notes.  As of
January 22, 2000 the Company had $3.3  million  outstanding  under the  Congress
Line of Credit,  $3.4 million outstanding under the Burdale Loans, $26.0 million
outstanding under the WCAS Senior Secured Notes, $10.4 million outstanding under
the 7 3/4%  Convertible  Subordinated  Debentures  and $0.4 million  outstanding
under the 10% Series B Senior Subordinated Notes.

After the quarter  ended,  the Company and  Congress  agreed to an  amendment to
modify the terms of the Line of Credit to reduce the Adjusted Net Worth covenant


                                       9

<PAGE>



restrictions  in amounts  sufficient  to reflect the  write-off of the Company's
investment in Cerplex S.A.S.  as of July 20, 1999.  Additionally,  the Amendment
included a waiver, to waive a notification default related to the liquidation of
Cerplex  S.A.S.  and a  cross-default  relating  to a  default  which  exists in
connection  with the Series B Notes.  All other  terms of the  Congress  Line of
Credit remain the same.

NOTE G.  Loss of Control of Subsidiary

On July 20, 1999, the management of Cerplex S.A.S.  ("SAS") requested assistance
from the  Commercial  Court of Lille,  France to  structure  a social plan for a
portion of the work force.  The  Commercial  Court  declared SAS insolvent as of
July 15, 1999 and opened bankruptcy  proceedings with respect to SAS. A judicial
administrator  was appointed by the Court to assist the management of SAS in all
its  activities   pending  the  Court's  decision  on  the  development  of  the
proceedings.  The terms of  assignment  of the judicial  administrator  included
reviewing SAS's condition and prospects and issuing a recommendation relating to
a plan of  reorganization  developed by SAS management.  While the administrator
was  overseeing  SAS's   operations,   the  Company  believed  that  a  plan  of
reorganization  would be adopted.  In the event that the administrator could not
support a plan of reorganization, it would become necessary to refer the case to
a liquidator pursuant to Commercial Court guidelines.

On October 12, 1999, the Commercial Court, acting upon the recommendation of the
judicial administrator,  ordered the liquidation of SAS. Prior to this decision,
management   believed  it  would  realize  its   investment  in  SAS  through  a
reorganization.  However,  after the liquidation of SAS was ordered, the Company
recognized that its investment in SAS was at significant risk of realization and
should  therefore be written off as of July 20,  1999,  the date  Cerplex,  Inc.
effectively   lost  control  of  SAS.  As  a  consequence  of  this  order,  SAS
discontinued its operations,  and the liquidator has laid off  substantially all
employees. As the Company effectively lost control of its subsidiary on July 20,
1999, the Company  deconsolidated  SAS from its financial  statements as of that
date. Based on Management's understanding and outside legal counsel's assessment
of the  situation  in  France,  the  Company  believes  there  is no  additional
financial  exposure  related  to  the  SAS  liquidation,  but  there  can  be no
assurances that a deficiency judgment will not be entered against Cerplex, Inc.,
the parent company.  This is described in the 1999 Annual Report on Form 10-K of
The Cerplex Group, Inc. under "European Operations".

The liquidator is responsible for selling the assets and paying off the debts of
SAS. As a result of the cost of laying-off all  employees,  the value of the SAS
assets may not exceed its  liabilities.  There can be no assurance that Cerplex,
Inc.,  as  shareholder,  will  receive any  liquidation  proceeds.  Accordingly,
Cerplex,  Inc. has written off its  investment in SAS which totaled $6.2 million
at July 20, 1999. The $6.2 million write-off was comprised of writing off assets
carried at $20.9 million,  liabilities carried at $13.8 million and intercompany
balances for SAS of $0.9  million.  For the first  quarter 1999 SAS had sales of
$9.9  million and a net loss of $.4 million.  These  amounts are included in the
Company's condensed  consolidated  financial  statements reported herein.  There
were no sales or  operations  from SAS  reported in the first  quarter of fiscal
2000.

NOTE H.  Business Segment and Foreign Operations

The Company  currently  operates in one industry  segment,  the  outsourcing  of
services to the computer and  electronics  industry.  The  Company's  operations
outside  the  United  States  include a  manufacturing  facility  in the  United
Kingdom.

                                       10

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

The Company  provides  repair and  logistics  services,  and parts  sourcing and
service management for manufacturers of computer,  communications and electronic
office equipment.  In the computer  marketplace,  the Company primarily services
display terminals,  printed circuit boards,  laptops,  networking  equipment and
workstations.  In the  telecommunications  marketplace,  the  Company  primarily
services   switching   systems,    payphones,   video   conferencing   products,
multiplexers, mobile communications, transmission equipment, hubs and modems. In
the office automation marketplace,  the Company services printers, scanners, fax
machines and high value  products  such as copiers,  automatic  teller  machines
(ATMs) and other  paper-handling  equipment.  The Company  operates  through its
principal  subsidiary,  Cerplex,  Inc.,  and its  subsidiary.  Based in  Irvine,
California, the Company has locations across the United States and in the United
Kingdom.

The Company  entered the  computer  and  electronics  industry in 1992,  and has
expanded  its  operations  through the  acquisition  of  companies  that supply,
refurbish and recycle electronic parts and equipment.

In April 1998,  the Company  completed  the Merger with Old Cerplex,  in which a
wholly-owned subsidiary of the Company merged into Old Cerplex and each share of
Old Cerplex's  Common Stock was converted into 1.070167  shares of the Company's
Common Stock (or .1070167  shares after giving  effect to the  Company's  recent
One-for-Ten  Reverse  Split).  As a result of the Merger,  Old Cerplex  became a
wholly-owned  subsidiary  of the  Company.  The Company  changed its name to The
Cerplex  Group,  Inc.,  and Old Cerplex  changed its name to Cerplex,  Inc.  The
Company  now  conducts  its  operations  through  its  wholly-owned  subsidiary,
Cerplex, Inc. and its subsidiary, Cerplex, Ltd.

On June 25,  1999 the  Company  consented  to an  assignment  by Greyrock of its
rights and  interests  under the  Greyrock  Line of Credit to WCAS in return for
payment  in  full  of  all  outstanding   balances  of  principal  and  interest
thereunder.  WCAS repaid principal and interest  outstanding  under the Greyrock
Line of Credit  totaling $45.4 million.  Concurrent  with the  assignment,  WCAS
advanced to the Company an additional $4.6 million for working capital purposes,
resulting  in $50.0  million of total  indebtedness  outstanding  under the WCAS
Senior  Secured Notes as of June 25, 1999.  The terms of the WCAS Senior Secured
Notes are the same as those  under the  Greyrock  Line of Credit  except (i) the
interest rate was reduced to LIBOR plus 1 3/4%;  (ii) principal and interest are
due on April 1, 2001; (iii) collateral  consisting of the stock of the Company's
subsidiaries  in the UK and France that had secured the Greyrock  Line of Credit
was released;  (iv) the negative pledge agreements  covering assets owned by the
Company's  subsidiaries  in the UK and  France  were  terminated;  and  (v)  the
Company's  obligations  were no longer subject to minimum  collateral  borrowing
base requirements previously established in the Greyrock Line of Credit. On June
30, 1999 the Company  issued  approximately  58,643 shares of Series B Preferred
Stock at a price of $1,000 per share. The Series B Preferred Stock was issued as
repayment of various  obligations  owed to WCAS which  included $25.0 million of
principal  outstanding  under the WCAS Senior  Secured  Notes,  $16.5 million of
principal of the 10% unsecured  promissory notes ( "WCAS Notes"),  approximately
$15.6 million of principal of the 10% Series A Senior  Subordinated  Debentures,
and  approximately  $1.5  million of accrued  interest  owed to WCAS under these
obligations.   The  Series  B  Preferred   Stock   consist  of  7%   cumulative,
non-convertible  preferred  shares  that are  redeemable  by the  Company at its
option and redeemable by the holders upon a change of control of the Company.

As of April 30, 1998  following  the merger of Cerplex  and Aurora  Electronics,
Inc., the Company  recorded an excess of purchase price over net assets acquired
totaling  approximately  $40.6 million.  Since that time, the Company has closed
and consolidated several of its operations, exited certain lines of business and
has  revised  its  estimates  for  expected  future  cash flows from  continuing
operations.  Based on these  estimates  and the goodwill  ascribed to closed and
discontinued operations, the Company


                                       11

<PAGE>



determined,  in the quarter ended June 30, 1999,  that an  impairment  charge of
approximately $18.4 million was necessary.  The carrying value of goodwill as of
June 30, 1999, after the impairment charge, was approximately $9.7 million.  The
blended average life of the goodwill  attributable to all operations  originally
acquired was five years.  However,  subsequent  to the  write-off of  terminated
operations,  the remaining  operations have a 15 year remaining  useful life.

On July 20, 1999, the management of SAS requested assistance from the Commercial
Court of Lille,  France to  structure  a social  plan for a portion  of the work
force.  Upon review,  the Commercial Court declared SAS insolvent as of July 15,
1999  and  opened  bankruptcy  proceedings  with  respect  to  SAS.  A  judicial
administrator  was appointed by the Court to assist the management of SAS in all
its  activities   pending  the  Court's  decision  on  the  development  of  the
proceedings.  The terms of  assignment  of the judicial  administrator  included
reviewing SAS's condition and prospects and issuing a recommendation relating to
a plan of  reorganization  developed by SAS management.  While the administrator
was  overseeing  SAS's   operations,   the  Company  believed  that  a  plan  of
reorganization  would be adopted.  In the event that the administrator could not
support a plan of reorganization, it would become necessary to refer the case to
a liquidator  pursuant to Commercial Court guidelines.

On October 12, 1999, the Commercial Court, acting upon the recommendation of the
judicial administrator,  ordered the liquidation of SAS. Prior to this decision,
management   believed  it  would  realize  its   investment  in  SAS  through  a
reorganization.  However,  after the liquidation of SAS was ordered, the Company
realized its  investment in SAS was lost and should  therefore be written off as
of July 20, 1999, the date Cerplex,  Inc. lost control of its  subsidiary.  As a
consequence of this order, the Company terminated the operations of SAS, and the
liquidator  has  laid  off  substantially  all  employees.   The  liquidator  is
responsible  for  selling  the assets  and  paying off the debts of SAS.  As the
result of the cost of laying-off all employees,  the value of the SAS assets may
not exceed the value of its liabilities. There can be no assurance that Cerplex,
Inc.,  as  shareholder,  will  receive any  liquidation  proceeds.  Accordingly,
Cerplex,  Inc. has written off its  investment in SAS which totaled $6.2 million
at July 20, 1999.

Since the Company  effectively lost management  control as of July 20, 1999, SAS
has been deconsolidated from the Company's financial statements as of that date.
Based on Management's  understanding  and outside legal counsel's  assessment of
the situation in France,  the Company believes there is no additional  financial
exposure related to the SAS  liquidation,  but there can be no assurances that a
deficiency  judgment  will not be  entered  against  Cerplex,  Inc.,  the parent
company.

The primary factors affecting the Company's repair business include, but are not
limited to, the pricing of the  Company's  services and the  utilization  of the
Company's  resources  that  constitute  fixed  costs.  Pricing in the  Company's
industry is very  competitive and price  discounting  could adversely affect the
Company's  operating  results.  In addition,  the Company has made a significant
investment  in  facilities,   equipment  and  personnel.   While  the  Company's
facilities have the capability of generating  significantly more repair services
volume  than  current  levels,  the  Company  has,  due to a variety of factors,
experienced  decreasing  revenues which have resulted in  significant  operating
losses.  In  particular,  BT and Rank Xerox  constituted  Old  Cerplex's and the
Company's  largest  customers  in the last fiscal  year.  Revenues  from BT have
declined  from  fiscal 1997  through  the first  quarter of fiscal 2000 on a pro
forma basis and, with the  liquidation of SAS in 1999, the Company  generated no
revenues from Rank Xerox during the first quarter of fiscal 2000. As a result of
the  liquidation  of SAS the contract with Rank Xerox has been  terminated,  and
there can be no assurance  that  revenues  from BT or other  customers  will not
decline in the future. The failure of the Company to develop additional business
from new and  existing  customers  could have a material  adverse  effect on the
Company's business.


                                       12

<PAGE>



COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 25, 1999
AND DECEMBER 31, 1998

Net  revenues  for the first  quarter  of fiscal  2000 were  $14.1  million,  as
compared to $29.5 million in net revenues for the  corresponding  quarter in the
prior fiscal year. The Company's decrease in revenues was due principally to the
impact  of  the  deconsolidation  of  the  SAS  operation.   SAS  revenues  were
approximately  $9.9 million in the first  quarter of fiscal 1999.  There were no
revenues  reported  from SAS in the first  quarter of fiscal 2000.  In addition,
revenues  generated by the Company's North American Repairs and Parts operations
declined in the fiscal  quarter ended December 25, 1999 to $6.5 million and $2.0
million, respectively.  Gross profit for the quarter ended December 25, 1999 was
$0.2 million (1.6% of net revenues),  compared to a gross profit of $1.7 million
(5.7% of net  revenues)  for the  corresponding  quarter  of  fiscal  1999.  The
decrease in gross  profit was due  primarily to the  deconsolidation  of the SAS
operation which  contributed  approximately  $0.7 million of gross profit in the
first quarter of fiscal 1999 and to a gross profit  decline of $1.6 million from
the first  fiscal  quarter  of 1999 to the first  fiscal  quarter  of 2000.  The
decline was  primarily  attributable  to the  Company's  North  American  Repair
operations.  These declines were partially offset by a gross profit  improvement
of $0.3 million in the Cerplex,  Ltd.  operations  and slight  reductions in the
costs of the North American Parts operations  during the first fiscal quarter of
2000.  Selling,  general and  administrative  expenses for the first  quarter of
fiscal  2000 were $3.7  million  (26.0% of net  revenues),  as  compared to $5.3
million  (17.9% of net  revenues)  for the  corresponding  quarter  in the prior
fiscal year. SG&A expense  reductions during the quarter ended December 25, 1999
were  partially  attributable  to the  deconsolidation  of SAS  which  generated
approximately  $1.2 million of SG&A expenses  during the first fiscal quarter of
1999  and  the  reduction  of  expenses  within  the  Company's  North  American
operations.  Amortization  expense for the first quarter of fiscal 2000 was $0.2
million  compared  to $2.2  million for the  corresponding  quarter in the prior
fiscal year. The decrease was due to a goodwill  impairment  charge  incurred in
Fiscal 99.

Net interest  expense for the first quarter of fiscal 2000 was $0.9 million,  or
6.0% of revenues,  as compared to $2.1  million,  or 7.2% of  revenues,  for the
corresponding quarter in the prior fiscal year. The decrease in interest expense
is due to the  reduction  of  interest  bearing  debt  that  resulted  from  the
financial  restructuring that occurred on June 25, 1999 as described in the 1999
Annual  report  on Form  10-K of the  Cerplex  Group,  Inc.  As a result of such
restructuring,  approximately  $58.6 million of indebtedness owed by the Company
to WCAS was converted to Series B Preferred  Stock which carries a 7% cumulative
dividend.

Net loss to common  stockholders for the quarter was $5.8 million as compared to
net loss of $7.7 million for the corresponding quarter in the prior fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

The  Company's  primary  requirements  for capital are  directly  related to its
levels of  accounts  receivable,  inventories,  additions  to its  property  and
equipment and required debt principal and interest  payments.  The Company had a
working capital deficit of $8.5 million as of December 25, 1999 as compared to a
working capital deficit of $36.5 million as of September 25, 1999. See Note A of
Notes to  Unaudited  Condensed  Consolidated  Financial  Statements  -- "Current
Financial Condition."


                                       13

<PAGE>



The Company's most  immediate  liquidity  concern is its potential  inability to
make a sinking  fund  payment  pursuant to the 7 3/4%  Convertible  Subordinated
Debentures.  This matter raises substantial doubt as to the Company's ability to
continue as a going concern.  Furthermore, the liquidation of Cerplex S.A.S. may
cause the  acceleration of principal of all the material debt instruments of the
Company,  either  because it  triggers a default or a  cross-default  under such
instruments.  Unless  appropriate  waivers  are  obtained  by the  Company,  the
acceleration  of such debt would have a material  adverse effect on the Company.
In addition, the Company is currently in the process of seeking a default waiver
from its various  subordinated  debt holders and has  obtained a default  waiver
from its senior  lenders.  With the default waiver from its senior  lender,  the
Company was in compliance  with covenants at December 25, 1999,  however,  there
can be no assurance that continued  operating losses will not cause a default in
the future. See Note A of Notes to Unaudited  Condensed  Consolidated  Financial
Statements -- "Current Financial Condition."

In addition to the possible  need for capital to make the sinking fund  payment,
management  believes  that  the  Company  will  likely  continue  to  experience
operating  losses and negative cash flow during part or all of fiscal 2000.

The Company is highly leveraged,  and has significant debt repayment obligations
and preferred stock redemption obligations.  As of January 22, 2000, the Company
had approximately  $44.0 million  principal amount of indebtedness  outstanding,
which consisted of: (i) $26.2 million  indebtedness under the WCAS secured loan;
(ii)  $0.4  million  indebtedness  under  the  Company's  10%  Series  B  Senior
Subordinated Notes; (iii) $10.5 million  indebtedness under the Company's 7 3/4%
Convertible  Subordinated  Debentures;  (iv) $3.4 million indebtedness under the
Burdale Loans; (v) $3.3 million  indebtedness under the Congress Line of Credit;
and (vi) $0.2 million of other  indebtedness  consisting  primarily of equipment
leases. In addition, the Company also had as of December 25, 1999, $21.6 million
outstanding  (par  value  only) of its  mandatorily  redeemable  7%  Convertible
Preferred Stock.

Congress Line of Credit

On November  24, 1999 the Company  and its  subsidiary  entered  into a Loan and
Security Agreement providing for a $13.0 million senior secured revolving credit
facility (the "Congress Line of Credit").  Concurrent  with the financing,  WCAS
agreed with the Company and Congress to subordinate its security interest in the
Company's assets.  The Congress Line of Credit,  which matures in February 2001,
will provide  additional  working capital  financing for the Company's  domestic
operations. Loans under the Congress Line of Credit bear interest at fluctuating
rates of either the Prime Rate, as defined, plus 1/2% or the Adjusted Eurodollar
Rate, as defined, plus 2-3/4%.  Borrowing  availability pursuant to the Congress
Line of Credit is limited by the value as  defined in the credit  agreement,  of
assets  pledged as collateral,  namely  accounts  receivable and inventory.  The
agreement also contains customary  financial covenants and events of default for
lending  arrangements  of this type.  Cerplex,  Inc. is the  borrower  under the
Congress  Line of  Credit  and  the  Company  guarantees  the  repayment  of its
obligations thereunder.

Burdale Line of Credit.

On December 15, 1999,  Cerplex,  Ltd. closed the Burdale Loans with Burdale,  an
affiliate  of  Congress.  The Burdale  Loans  consist of a line of credit  which
matures in February 2001 and


                                       14

<PAGE>



provide for advances to Cerplex  Ltd. up to $2.9 million  under a line of credit
secured by accounts receivable. The Burdale Debenture, which matures in December
2003,  provides of up to $3.5 million  under a loan secured by real estate.  The
Burdale  Debenture was used to repay the BT Notes and the line of credit will be
used to finance the working capital needs of Cerplex Ltd. The Burdale Loans bear
interest at fluctuating rates of LIBOR plus 2%. The Burdale Loans are covered by
an agreement that provides customary  financial  covenants and events of default
for financing  arrangements of this type.  Indebtedness  under this agreement is
guaranteed by the Company.

10% Series B Senior Subordinated Notes.

As of January 22, 2000, there was  approximately  $0.4 million  principal amount
outstanding of the Company's 10% Series B Senior Subordinated Notes. These notes
were sold to certain public  stockholders.  The 10% Series B Senior Subordinated
Notes are  subordinate  in right of  payment  to all bank debt and other  senior
indebtedness  of  Cerplex  but  rank  senior  to  all  outstanding  subordinated
indebtedness.  The 10% Series B Senior Subordinated Notes are general, unsecured
obligations  of the  Company  and  bear  interest  at  10%  per  annum,  payable
semi-annually  in  arrears  in cash on June  30 and  December  31 of each  year,
beginning on June 30, 1998. The 10% Series B Senior Subordinated Notes mature in
three equal annual installments  commencing on December 31, 2002. The 10% Series
B Senior  Subordinated  Notes may be  prepaid  at any time at the  option of the
Company in whole or in part,  upon not less than 20 or more than 60 days  notice
at the unpaid principal amount thereof plus accrued and unpaid interest.

7 3/4% Convertible Subordinated Debentures.

As of January 22, 2000, there was  approximately  $10.4 million principal amount
outstanding of the Company's 7 3/4%  Convertible  Subordinated  Debentures  (the
"Debentures").  The Debentures  mature April 15, 2001 and are  convertible  into
Common  Stock of the Company at a conversion  price,  subject to  adjustment  in
certain instances, of approximately $116.60 per share, and are redeemable at the
option of the Company at face value plus accrued interest  thereon.  The Company
is required to make a sinking  fund  payment of  approximately  $1.8  million in
April, 2000 on the Debentures. The Debentures bear interest at 7 3/4% payable on
April 14 and October 14 of each year through maturity.

Other Debt

As of January 22, 2000,  there was $0.2 million  principal  amount of other debt
outstanding,  consisting  primarily of secured  equipment  financing and capital
lease obligations with interest rates ranging from 8.9% to 12.9%, due in monthly
installments through 2000.

7% Senior Cumulative Convertible Preferred Stock

As of January 22, 2000, there was $21.6 million  outstanding  (excluding accrued
dividends) of the Company's 7% Convertible  Preferred  Stock (215,500  shares at
$100 per share).  Holders of the 7% Convertible  Preferred Stock are entitled to
receive  dividends  of $7.00 per  share  per  annum (or 7% of the face  amount),
payable  when  and as  declared  by the  Company's  Board of  Directors.  Unpaid
dividends are  cumulative and accrue.  Accrued but unpaid  dividends do not bear


                                       15

<PAGE>



interest.  The 7% Convertible Preferred Stock must be redeemed by the Company in
equal  installments  on each of December 31, 2006 and 2007. In addition,  the 7%
Convertible  Preferred  Stock is redeemable at the option of the holders thereof
upon a change of control of the Company,  which includes the sale of 50% or more
of the voting  power of all  outstanding  shares of the Company to a party other
than  WCAS.  In the event of a  liquidation,  dissolution  or  winding up of the
affairs of the Company,  the holders of the 7% Convertible  Preferred  Stock are
entitled to receive a liquidation  preference in the amount of $100 per share of
the 7% Convertible  Preferred Stock, plus accrued and unpaid dividends  thereon,
prior and in preference to any  distribution  to holders of any class of capital
stock of the  Company  junior to such 7%  Convertible  Preferred  Stock.  The 7%
Convertible  Preferred Stock is convertible in whole or in part at the option of
the holders thereof. Each share of 7% Convertible Preferred Stock is convertible
into 40 shares of the  Company's  Common  Stock upon  payment of the  conversion
price of $2.50 (subject to antidilution adjustment under certain circumstances).

YEAR 2000 COMPLIANCE

The  Company  faces  Year  2000  risks  as  the  result  of  computer  programs,
microprocessors  and embedded date reliant  systems using two digits rather than
four to define the applicable year. If such programs or microprocessors  are not
corrected,  date data concerning the Year 2000 could cause many systems to fail,
lock up or generate  erroneous  results.  A computer  system is considered to be
"Year  2000  compliant"  if  the  system's  performance  and  functionality  are
unaffected by the  processing of dates prior to, during and after the Year 2000,
but only if all products (for example hardware, software and firmware) used with
the system properly exchange accurate date data with it.

The Company  implemented  a program  that was  intended to enable the Company to
become Year 2000  compliant.  The Company used  management  information  systems
(MIS)  personnel  knowledgeable  regarding  Year 2000  problems to determine the
extent of work  necessary  for the Company to become Year 2000  compliant and to
remedy such problems.  The Company  purchased and installed certain software and
hardware  intended to upgrade its networked  personal computer system to be Year
2000 compliant. More significantly, the Company obtained the source code for the
Company's main operating  systems  software that the Company modified to be Year
2000  compliant.  In addition,  the Company has discussed  Year 2000 issues with
certain of its  significant  suppliers and customers to evaluate their Year 2000
readiness,  and to  determine  whether  any Year 2000  issues  would  impede the
ability of such  suppliers  to  continue  to provide  goods and  services to the
Company,  and the ability of such  customers to continue to provide  business to
the Company.  The Company's  internal  systems,  equipment and processes are now
substantially  Year 2000  compliant.  The Company has completed the analysis and
remediation of potential Year 2000 problems with its  significant  suppliers and
customers. Despite the Company's efforts to become Year 2000 compliant, there is
no assurance that the Year 2000 issue will not pose significant problems.  There
may be a failure to identify all Year 2000 problems in the systems, equipment or
processes  of  the  Company  or  its  vendors  or  customers,  or  unanticipated
remediation  expenses,  all of which could have material adverse consequences on
the  Company's  financial  position  and results of  operations.

The Company  believes  that the most likely worst case  scenario with respect to
Year 2000 problems  would be that the Company or the third parties with whom


                                       16

<PAGE>



the Company does business  would fail to  successfully  complete their Year 2000
remediation  efforts,  in which case the Company would encounter  disruptions to
its business that could have a material adverse effect on its financial position
and results of operations. In addition to specific problems that the Company may
encounter  with its own  systems  and those of the third  parties  with whom the
Company does  business,  the Company may be  materially  impacted by  widespread
economic or  financial  market  disruptions  caused by Year 2000  problems.  The
Company has established Year 2000 contingency plans in the event that there is a
failure  of the  Company's  Year  2000  remediation  efforts  or the  Year  2000
remediation  efforts  of third  parties  with whom the  Company  does  business.
Subsequent to January 1, 2000, the Company has encountered only minimal problems
related to Year 2000 issues. The cost of remediation has been immaterial and the
cost of future remediation efforts is expected to be immaterial.

OUTLOOK AND UNCERTAINTIES

The  following  is a  "safe  harbor"  statement  under  the  Private  Securities
Litigation Reform Act of 1995: the matters discussed in this Quarterly Report on
Form 10-Q contain statements that constitute  forward-looking  statements within
the meaning of Section 21E of the  Securities  Exchange Act of 1934, as amended.
The words "expect," "estimate,"  "anticipate," "predict," "believe," and similar
expressions  and  variations  thereof are  intended to identify  forward-looking
statements.  Such  statements  appear in a number  of  places in this  Quarterly
Report on Form 10-Q and  include  statements  regarding  the  intent,  belief or
current  expectations of the Company, its directors or its officers with respect
to, among other things: (i) trends affecting the Company's  financial  condition
or results of  operations;  (ii) the Company's  financing  plans;  and (iii) the
Company's  business  growth  strategies.  Readers  are  cautioned  that any such
forward-looking  statements are not guarantees of future performance and involve
risks and  uncertainties,  and that actual  results may differ  materially  from
those  projected  in the  forward-looking  statements  as a  result  of  various
factors.  These  risks and  uncertainties  include,  but are not limited to, the
following:

High Degree of Leverage;  Future Capital  Requirements.  As of January 22, 2000,
the Company has  approximately  $44.0 million  principal  amount of indebtedness
outstanding,  which consisted of: (i) $26.2 million  indebtedness under the WCAS
secured loan; (ii) $10.5 million  indebtedness  under the Company's 10% Series B
Senior  Subordinated  Notes;  (iii) $3.4 million  indebtedness under the Burdale
Loans; (iv) $3.3 million indebtedness under the Congress Line of Credit; (v)$0.4
million indebtedness under the Company's 10% Series B Senior Subordinated Notes;
and (vi) $.2 million of other  indebtedness  consisting  primarily  of equipment
leases. In addition,  the Company also has as of January 22, 2000, $21.6 million
outstanding  (excluding  accrued  dividends of $9.3 million) of its  mandatorily
redeemable 7%  Convertible  Preferred  Stock.  The payment terms of the debt and
preferred  stock are  described  in Item 2 of this report  under,  "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Liquidity and Capital Resources." It is anticipated that the Company's cash from
operations  will not be  sufficient  to enable it to meet all debt  service  and
preferred  stock  redemption  requirements,  and the Company will be required to
obtain  additional  funds  through  equity  or debt  financings  in order not to
default on such  requirements.  In many  cases,  if the  Company  defaults  on a
particular  debt,  the  default  will cause  other debts of the Company to be in
default and come due early.  The  liquidation  of Cerplex  S.A.S.  may cause the
acceleration of all the material debt instruments of the Company, either because
it  triggers  a  default  or a  cross-default  under  such  instruments.  Unless
appropriate  waivers are obtained by the Company,  the acceleration of such debt
would have a material adverse  effect on the  Company.

                                       17

<PAGE>


In this  regard,  the  Company  has  obtained a default  waiver  from its senior
lenders and is  currently  in the  process of seeking a default  waiver from its
various  subordinated debt holders. The degree to which the Company is leveraged
could adversely affect its ability to obtain additional financing and could make
it more vulnerable to economic downturns and competitive pressures. The terms of
any equity  financings have in the past been, and may in the future be, dilutive
to the Company's  stockholders,  and the terms of any debt financings are likely
to contain  restrictive  covenants  which limit the Company's  ability to pursue
certain  courses of action.  There can be no assurance that  additional  funding
will be  available on  acceptable  terms,  if at all. If adequate  funds are not
available,  the Company will experience severe liquidity  problems.  This matter
raises  substantial  doubt  about the  Company's  ability to continue as a going
concern.

Losses and  Accumulated  Deficit.  For the quarter ended  December 25, 1999, the
Company  reported  a net  loss of $5.8  million  and an  operating  loss of $3.6
million.  As of December 25, 1999,  the Company has a  stockholders'  deficit of
$52.3 million. The Company is expecting to experience losses for the foreseeable
future, and will require additional funding. Continued losses and/or the failure
to obtain such  additional  funding could  materially  and adversely  affect the
business and financial condition of the Company and the value of, and the market
for, the Company's equity and debt securities.

Control by WCAS.  WCAS owns  approximately  69% of the Company's  voting capital
stock, which consists of WCAS's ownership of shares of the Company's outstanding
Common Stock, and shares of the Company's 7% Convertible  Preferred Stock (which
give the  holders  thereof the right to vote on all matters on which the holders
of Common Stock are entitled to vote, as if the 7% Convertible  Preferred  Stock
had been  converted to Common Stock).  As a result,  WCAS is able to control all
matters requiring approval by the Company's stockholders, including the election
of  directors.  The  Company's  Board of  Directors  has the  authority to issue
additional  shares of preferred  stock in one or more series and fix the rights,
preferences,  privileges  and  restrictions  granted to or imposed upon any such
shares of preferred  stock.  The issuance of such preferred  stock may adversely
affect voting and dividend  rights,  rights upon liquidation and other rights of
holders  of  the  Company's  Common  Stock  and  may  result  in  immediate  and
substantial  dilution to the holders of the Common  Stock.  The issuance of such
preferred  stock and the control by WCAS of the Company may also have the effect
of delaying, deferring or preventing a change in control of the Company.

Dependence  on Key  Customers.  For the quarter  ended  December  25,  1999,  BT
accounted for approximately 27% of the Company's  revenues.  These revenues were
almost  entirely  attributable  to the business of Old Cerplex.  There can be no
assurance that this customer will not terminate any or all of their arrangements
with the Company,  significantly  change, reduce or delay the amount of services
ordered  from the  Company,  or  significantly  change  the terms upon which the
Company  and  this  customer  do   business.  Any   such  termination,   change,
reduction,  or delay  could  have a  material  adverse  effect on the  Company's
business.  Unit volumes from BT have been declining and are expected to continue
to decline due to, among other things, product evolution.  The future success of
the Company's  European  operations is dependent upon replacing  these declining
volumes with new revenue from either this customer or new  customers.  There can
be no assurance that the Company will be able to replace this  declining  volume
with sales to either this or new customers.

Competition.  The Company  competes with the in-house repair and service


                                       18

<PAGE>



centers  of OEMs and TPMs.  There is no  indication  that these  companies  will
choose to outsource their repair and service needs. In certain instances,  these
companies  compete  directly with the Company to provide services to third party
OEMs  and  TPMs.  Moreover,  the  industry  in which  the  Company  operates  is
fragmented,   and  the  Company  faces  competition  from  a  variety  of  small
independent suppliers. Competition for business from OEM, TPM and MVSO customers
is based on a number of  factors,  including  breadth of services  provided  and
price.  Certain of the  Company's  competitors  have  greater  revenue or larger
capitalization than the Company. There can be no assurance that the Company will
be able to compete effectively in its target markets.

Reliance on  International  Sales.  For the quarter  ended  December  25,  1999,
approximately  40% of the Company's  sales were outside of North America.  There
can be no assurance  that the Company will  continue to be able to  successfully
market,  sell,  and deliver its  products  and  services  in these  markets.  In
addition to the  uncertainty  as to the Company's  ability to maintain or expand
its international  presence,  there are certain risks inherent in doing business
on  an   international   level,   such  as  unexpected   changes  in  regulatory
requirements,   export   restrictions,   tariffs  and  other   trade   barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, severance and
other costs  associated  with work force  reductions,  fluctuations  in currency
exchange rates,  and potentially  adverse tax  consequences,  any of which could
adversely impact the success of the Company's  international  operations.  There
can be no  assurance  that one or more of such  factors will not have a material
adverse effect on the Company's international  operations and, consequently,  on
the Company's business, operating results and financial condition.

Reliance on Short Term  Purchase  Orders and  Contracts.  The Company  generally
distributes  parts to, and  receives  its  recyclable  material  from  customers
pursuant to  non-exclusive  contracts that do not contain  guaranteed or minimum
quantities  and are subject to  cancellation  on short notice at the  customer's
discretion.  Similarly,  the Company's repair contracts are typically subject to
termination on short notice at the customer's  discretion,  and purchase  orders
under such contracts typically only cover services over a 90-day period.

Dependence on the Electronics and Computer  Industry.  The Company's  businesses
are  dependent  upon  the  growth,  viability  and  financial  stability  of its
customers and potential  customers in the electronics and the computer industry.
The  electronics  and  computer  industry  have  been   characterized  by  rapid
technological  change,  compressed  product  life  cycles and pricing and margin
pressures.  The factors  affecting  segments  of the  electronics  and  computer
industry in general,  and the Company's OEM customers in particular,  could have
an adverse  effect on the  Company's  business.  There can be no assurance  that
existing customers or future customers will not experience financial difficulty,
which could have a material adverse effect on the Company's business.

Risks Associated with Intangible Assets. As of December 25, 1999,  approximately
$9.9 million of the Company's total assets consisted of intangible  assets.  The
intangible assets consist  primarily of goodwill  resulting from the Merger with
Old Cerplex.  The goodwill must be amortized over a number of years and deducted
from the Company's earnings,  even though the goodwill may not generate earnings
to  offset  such  deduction.  There  can be no  assurance  that the value of the
Company's  intangible assets will ever be realized by the Company,  particularly
in any sale or liquidation of the Company. Any significant decrease in the value
of such intangible assets or increase in the rate of amortization  thereof would
adversely affect the Company's financial condition and results of operations.


                                       19

<PAGE>



Limited  Trading  Market and Possible  Volatility of Stock Price.  The volume of
trading of the Company's  Common Stock has been very limited and there can be no
assurance of an active  trading  market for the Common  Stock in the future.  In
addition,  the trading price of the Company's  Common Stock has been, and in the
future could be, subject to significant  fluctuations  in response to variations
in quarterly  operating  results of the Company,  the depth and liquidity of the
market for the Company's  Common Stock,  investor  perception of the Company and
the  industry  within  which  it  competes,  the  gain or  loss  of  significant
contracts,  changes in  management  or new  products or services  offered by the
Company or any  competitors,  general trends in the industry and other events or
factors. In addition,  the stock market has experienced extreme price and volume
fluctuations,  which  have  particularly  affected  the  market  price  for many
companies  in similar  industries  and which have  often been  unrelated  to the
operating  performance of these companies.  These broad market  fluctuations may
adversely affect the market price of the Company's Common Stock.

Shares Available for Future Sale. No prediction can be made as to the effect, if
any, that future sales of shares,  or the availability of shares for future sale
by WCAS, will have on the market price of the Company's  Common Stock prevailing
from time to time.  Sales of  substantial  amounts  of Common  Stock  (including
shares issued upon the exercise of stock options and the conversion of preferred
stock),  or the  perception  that such sales could occur,  may adversely  affect
prevailing market prices for the Company's Common Stock.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is subjec to market risks with respect to its variable note
debt and its  cash  flows,  receivables  and  payables  denominated  in  foreign
currencies.

         Of the Company's  $44.0 million  principal  amount of  indebtedness  at
January 22, 2000, $26.2 million  principal amount of such debt (which represents
total principal indebtedness under the WCAS Senior Secured Notes) bears interest
at a rate that fluctuates based on changes in the LIBOR rate. A 1% change in the
underlying  LIBOR  rate  would  result in $262  change in the  annual  amount of
interest payable on such debt.

         The Company's oversees subsidiary  operates in England.  Both the trade
receivables  and the trade  payables for this unit are  denominated in the local
currency. The balance as of December 25, 1999 was $0.9 million. The Company does
not hedge these balances. See Note O to the Consolidated Financial Statements --
"Business Segment and Foreign Operations" in the Company's annual report on Form
10-K.

                                       20

<PAGE>






                             THE CERPLEX GROUP, INC.





                                     PART II

                                OTHER INFORMATION






                                       21

<PAGE>



THE CERPLEX GROUP, INC.

ITEM 1.   LEGAL PROCEEDINGS

          Inapplicable.

ITEM 2.   CHANGES IN SECURITIES

          Inapplicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          During the three  months ended  December 25, 1999,  the Company was in
          default under several of its senior and subordinated  debt obligations
          as a result of the liquidation of its Cerplex S.A.S. subsidiary.  With
          regard to the  Congress  Line of Credit  and the WCAS  Senior  Secured
          Notes  (collectively,  "Senior  Securities"),  waivers of default have
          been obtained by the Company.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          Inapplicable

ITEM 5.   OTHER INFORMATION

          Inapplicable.




                                       22

<PAGE>



ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a) Exhibits

 EXHIBIT
 NUMBER                       DESCRIPTION OF EXHIBITS
 -------                      -----------------------
  3.1.1    The Restated  Certificate of Incorporation of the Company, as amended
           (incorporated   by  reference  from  Exhibit  3.1  to  the  Company's
           Transition  Report  on Form  10-K  for  the  transition  period  from
           December 31, 1991 to September 30, 1992).

  3.1.2    The   Certificate  of  Amendment  to  the  Restated   Certificate  of
           Incorporation of the Company,  filed on April 28, 1998  (incorporated
           by  reference  from  Exhibit  4.1.1 of the  Company's  Post-Effective
           Amendment No. 2 to the Company's  Registration Statement on Form S-3,
           filed on May 13, 1998 (Registration No. 333-47973)).

  3.1.3    The   Certificate  of  Amendment  to  the  Restated   Certificate  of
           Incorporation of the Company,  filed on April 30, 1998  (incorporated
           by  reference  from  Exhibit  4.1.2 of the  Company's  Post-Effective
           Amendment No. 2 to the Company's  Registration Statement on Form S-3,
           filed on May 13, 1998 (Registration No. 333-47973)).

  3.1.4    Certificate  of  Amendment to  Certificate  of  Incorporation  of the
           Company  filed on October 6, 1998  (incorporated  by  reference  from
           Exhibit  3.1.4 of the  Company's  Annual  Report on Form 10-K for the
           fiscal year ended September 30, 1998 and filed on January 12, 1999).

  3.2.1    Bylaws of the Company, as amended (incorporated by reference from
           Exhibit 4.2 of the Company's Registration Statement on Form S-8
           (Registration No. 33-79426)).

  3.2.2    Resolutions  adopted  by the Board of  Directors  on April 30,  1998,
           amending the Bylaws of the Company  (incorporated  by reference  from
           Exhibit 4.2.1 of the Company's  Post-Effective Amendment No. 2 to the
           Company's  Registration  Statement on Form S-3, filed on May 13, 1998
           (Registration No. 333-47973).

  4.1      Certificate of  Designations,  Preferences  and Rights of Convertible
           Preferred Stock filed on November 19, 1998  eliminating the Series B,
           C and D Convertible  Preferred Stock  (incorporated by reference from
           Exhibit  4.18 of the  Company's  Annual  Report  on Form 10-K for the
           fiscal year ended September 30, 1998 and filed on January 12, 1999).

  4.2      Certificate of Elimination  of Convertible  Preferred  Stock filed on
           December 15, 1998 (incorporated by reference from Exhibit 4.19 of the
           Company's  Annual  Report  on Form  10-K for the  fiscal  year  ended
           September 30, 1998 and filed on January 12, 1999).

10.18      Loan and Security Agreement dated November  24,  1999  by  and  among
           Congress Financial Corporation (Western) as lender and Cerplex, Inc.,
           as borrower  and The Cerplex Group,  Inc. as Guarantor  (incorporated
           by reference from Exhibit 10.18 of the Company's  Report on Form 10-K
           for the year ended September 25, 1999 and filed on January 11, 2000).

10.19      Deed of Debenture dated December 15, 1999 between Cerplex  Limited as
           borrower and Burdale  Financial  Limited as lender  (incorporated  by
           reference from Exhibit 10.19 of the Company's Report on Form 10-K for
           the year ended September 25, 1999 and filed on January 11, 2000).

10.20      Guarantee and Indemnity agreement dated December 14, 1999 between The
           Cerplex Group,  Inc. as a guarantor and Burdale  Financial Limited as
           lender (incorporated by reference from Exhibit 10.20 of the Company's
           Report on Form 10-K for the year ended  September  25, 1999 and filed
           on January 11, 2000).

10.21      Facility Agreement dated December 14, 1999 between Cerplex Limited as
           borrower and Burdale  Financial  Limited as lender  (incorporated  by
           reference from Exhibit 10.21 of the Company's Report on Form 10-K for
           the year ended September 25, 1999 and filed on January 11, 2000).

*11        Computation of Per Share Earnings.
*27        Financial Data Schedule - Article 5 of Regulation S-X.

-----------
* Filed herewith.


           (b) Reports on Form 8-K

               None


                                       23

<PAGE>



                             THE CERPLEX GROUP, INC.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly  caused  this  report  to be signed  on its  behalf by the  undersigned
thereunto duly authorized.

Date: February 8, 2000

                                        THE CERPLEX GROUP, INC.

                                        /s/  Richard A. Alston
                                        ----------------------------------------
                                        Richard A. Alston
                                        President and Chief Operating Officer


                                        /s/  Robert M. Nelson
                                        ----------------------------------------
                                        Robert M. Nelson
                                        Corporate Controller
                                         (Controller)




                                       24

<PAGE>



                              THE CERPLEX GROUP, INC.

                                INDEX TO EXHIBITS

 EXHIBIT
 NUMBER                       DESCRIPTION OF EXHIBITS
 -------                      -----------------------

  3.1.1    The Restated  Certificate of Incorporation of the Company, as amended
           (incorporated   by  reference  from  Exhibit  3.1  to  the  Company's
           Transition  Report  on Form  10-K  for  the  transition  period  from
           December 31, 1991 to September 30, 1992).

  3.1.2    The   Certificate  of  Amendment  to  the  Restated   Certificate  of
           Incorporation of the Company,  filed on April 28, 1998  (incorporated
           by  reference  from  Exhibit  4.1.1 of the  Company's  Post-Effective
           Amendment No. 2 to the Company's  Registration Statement on Form S-3,
           filed on May 13, 1998 (Registration No. 333-47973)).

  3.1.3    The   Certificate  of  Amendment  to  the  Restated   Certificate  of
           Incorporation of the Company,  filed on April 30, 1998  (incorporated
           by  reference  from  Exhibit  4.1.2 of the  Company's  Post-Effective
           Amendment No. 2 to the Company's  Registration Statement on Form S-3,
           filed on May 13, 1998 (Registration No. 333-47973)).

  3.1.4    Certificate  of  Amendment to  Certificate  of  Incorporation  of the
           Company  filed on October 6, 1998  (incorporated  by  reference  from
           Exhibit  3.1.4 of the  Company's  Annual  Report on Form 10-K for the
           fiscal year ended September 30, 1998 and filed on January 12, 1999).

  3.2.1    Bylaws of the Company, as amended (incorporated by reference from
           Exhibit 4.2 of the Company's Registration Statement on Form S-8
           (Registration No. 33-79426).

  3.2.2    Resolutions  adopted  by the Board of  Directors  on April 30,  1998,
           amending the Bylaws of the Company  (incorporated  by reference  from
           Exhibit 4.2.1 of the Company's  Post-Effective Amendment No. 2 to the
           Company's  Registration  Statement on Form S-3, filed on May 13, 1998
           (Registration No. 333-47973).

  4.1      Certificate of  Designations,  Preferences  and Rights of Convertible
           Preferred Stock filed on November 19, 1998  eliminating the Series B,
           C and D Convertible  Preferred Stock  (incorporated by reference from
           Exhibit  4.18 of the  Company's  Annual  Report  on Form 10-K for the
           fiscal year ended September 30, 1998 and filed on January 12, 1999).

  4.2      Certificate of Elimination  of Convertible  Preferred  Stock filed on
           December 15, 1998 (incorporated by reference from Exhibit 4.19 of the
           Company's  Annual  Report  on Form  10-K for the  fiscal  year  ended
           September 30, 1998 and filed on January 12, 1999).

 10.1

*11        Computation of Per Share Earnings.
*27        Financial Data Schedule - Article 5 of Regulation S-X.

-----------
* Filed herewith.