For the ~~quarterly~~transition period ~~ended September 30, 2013~~from __________to __________

Indicate by check mark whether the ~~registrant:~~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. Yesx ☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted~~ on its corporate Web site, if any, every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 orof Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☐ No¨ ☒

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ ☒ No x☐

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The number of shares outstanding of the registrant’s common stock ~~outstanding~~ as of ~~November 11, 2013 is 994,949,093~~August 4, 2021 was 74,640,766.

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

~~Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “Cereplast” or the “Company” shall refer to Cereplast, Inc.~~

The accompanying notes ~~to unaudited consolidated~~are an integral part of these financial statements.

This summary of significant accounting policies of Hong Yuan Holding Group (a development stage company) (“the Company”) is presented to assist in ~~thousands, except shares data)~~

~~During~~understanding the ~~nine months ended September 30, 2013,~~Company’s financial statements. These accounting policies conform to accounting principles generally accepted in the ~~Company issued 63,548,299 shares valued at $342 for a settlement agreement.~~United States of America and have been consistently applied in the preparation of the accompanying financial statements. The Company ~~also issued 3,200,000 shares valued at $86 for services rendered~~has realized minimal revenues from its planned principal business purpose and, ~~$60 of expense related~~accordingly, is considered to vesting of employee stock options for the same period. During the nine months ended September 30, 2012, the Company issued 84,478 shares valued at $88 to employees for service rendered during the period, 50,000 shares valued at $11 to a vendor for services rendered during the period and 9,587 shares valued at $10 for a settlement agreement.be in its development stage in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 915 (SFAS No. 7). The Company ~~also recognized $51~~has elected a fiscal year end of ~~expense related to vesting of employee stock options for the same period.~~December 31.

We were incorporated on September 29, 2001 in the State of Nevada under the name of Biocorp North America Inc. On March 18, 2005, we filed an amendment to our certificate of incorporation to change our name to Cereplast, Inc.

We have developed and isare commercializing proprietary bio-based resins through ~~two~~2 complementary product families: Cereplast Compostables^®resins which are compostable, renewable, ecologically sound substitutes for petroleum-based plastics, and Cereplast Sustainables™ resins (including the Cereplast Hybrid Resins product line), which replaces up to 90% of the petroleum-based content of traditional plastics with materials from renewable resources.

On February 10, 2014, the Company, filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Indiana (the “ Bankruptcy Court “). On February 14, 2014, the Company filed a motion in the Bankruptcy Court seeking to convert the Company’s Chapter 11 Case to a Chapter 7 bankruptcy case. On March 27, 2014, the court granted the Company’s motion and on that date the Company’s Chapter 11 Case was converted to a Chapter 7 case. As a result, the Company adopted liquidation basis of accounting on the discontinued operations according to ASC 205-30 “Presentation of Financial Statements – Liquidation Basis of Accounting”, accordingly the accumulated deficit generated prior to bankruptcy proceedings remained unadjusted.

On January 31, 2014 the Board of Directors of Cereplast, Inc. (the “Company”) approved a 1-for-50 reverse split (the “Reverse Split) which was previously approved by the shareholders on April 5, 2013 and previously disclosed on Current Report Form 8-K filed on April 5, 2013.

On February 3, 2014, Cereplast, Inc. (the “Company”) filed a Certificate of Amendment to its Articles of Incorporation to effect the reverse split (the “Reverse Split”), effective as of February 21, 2014.

On March 22, 2019, the eight judicial District Court of Nevada appointed Custodian Ventures, LLC as custodian for Cereplast, Inc., proper notice having been given to the officers and directors of Cereplast, Inc. There was no opposition.

On June 04, 2019, the Company filed a certificate of revival with the state of Nevada, appointing David Lazar as, President, Secretary, Treasurer and Director.

On October 4, 2019, the Company issued 50,000,000 shares of common stock to Custodian Ventures, LLC at par for shares valued at $50,000 in exchange for settlement of a portion of a related party loan for amounts advanced to the Company in the amount of $20,100, and a note receivable due to the Company in the amount of $29,900. The note bears an interest of 3% and matures in 180 days following written demand by the holder.

On April 14, 2020, Custodian Ventures elected to convert the total amount of the 510 shares of Series A preferred stock into 510 shares of common stock.

On April 15, 2020, the Board of directors of the Company approved the withdrawal of the certificate of designation of 5,000,000 shares of Series A Preferred stock filed with the Nevada Secretary of State on August 24, 2012, as amended by the Amendment to Certificate of Designation after issuance of Class or Series filed with the Nevada Secretary of State on April 13, 2020.

On May 1, 2020, the Company created 5,000,000 shares of series A-1 preferred stock with par value $0.001. On May 4, 2020, the Company issued 5,000,00 shares of the Series A-1 Preferred stock valued at $5,000 to Custodian Ventures LLC as repayment funds loaned to the Company.

A change of control of the Company was completed on November 3, 2020, control was obtained by the sale of 50,000,000 common shares and $5,000,000 Series A-1 Preferred Shares from Custodian Ventures, LLC to Xudong Li. After November 3, 2020, the Company’s operations are determined and structured by the new major shareholder.

On November 18, 2020, the Company filed an amendment to its certificate of incorporation to change its name to Hong Yuan Holding Group

The accompanying financial statements are prepared on the basis of accounting principles generally accepted in the United States of America (“GAAP”). The Company is a development stage enterprise devoting substantial efforts to establishing a new business, financial planning, raising capital, and research into products which may become part of the Company’s product portfolio. The Company has not realized significant sales since inception. A development stage company is defined as one in which all efforts are devoted substantially to establishing a new business and, even if planned principal operations have commenced, revenues are insignificant.

The accompanying financial statements have been prepared assuming the continuation of the Company as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and is dependent on debt and equity financing to fund its operations. Management of the Company is making efforts to raise additional funding until a registration statement relating to an equity funding facility is in effect. While management of the Company believes that it will be successful in its capital formation and planned operating activities, there can be no assurance that the Company will be able to raise additional equity capital, or be successful in the development and commercialization of the products it develops or initiates collaboration agreements thereon. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

These unaudited interim financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2021.

The balance sheets and certain comparative information as of December 31, 2020 are derived from the audited financial statements and related notes for the year ended December 31, 2020, included in the Company’s Form 10. These unaudited interim financial statements should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Form 10.

For purposes of reporting within the statements of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.

The Company accounts for stock-based compensation in accordance with ASC 718 Compensation - Stock Compensation (“ASC 718”). ASC 718 addresses all forms of share-based payment (“SBP”) awards including shares issued under employee stock purchase plans and stock incentive shares. Under ASC 718 awards result in a cost that is measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest and will result in a charge to operations.

Basic earnings (loss) per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the three months ended September 30, 2018 and 2017, as there are no potential shares outstanding that would have a dilutive effect.

Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. The Company recorded a valuation allowance against its deferred tax assets as of June 30, 2021 and December 31, 2020.

The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

The accompanying financial statements have been prepared assuming the continuation of the Company as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and is dependent on debt and equity financing to fund its operations. Management of the Company is making efforts to raise additional funding until a registration statement relating to an equity funding facility is in effect. While management of the Company believes that it will be successful in its capital formation and planned operating activities, there can be no assurance that the Company will be able to raise additional equity capital or be successful in the development and commercialization of the products it develops or initiates collaboration agreements thereon. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

On October 04, 2019, the Company issued 50,000,000 shares of common stock to Custodian Ventures, LLC at par for shares valued at $50,000 in exchange for settlement of a portion of a related party loan for amounts advanced to the Company in the amount of $20,100, and a note receivable due to the Company in the amount of $29,900. The note bears an interest of 3% and matures in 180 days following written demand by the holder. At December 31, 2020, the note receivable with a balance of $31,383 was written off because the collectability of the note is unlikely after the change of control, the written off balance of the note consisted of the principal in the amount of $29,900 and interest receivable of $1,483.

On May 4, 2020, the Company issued 5,000,00 shares of the Series A-1 Preferred stock valued at $5,000 to Custodian Ventures LLC as repayment of funds loaned to the Company.

During the six months ended June 30, 2021, the Company’s current majority shareholder advanced $28,602 to the Company as working capital. As of June 30, 2021 and December 31, 2020, the Company owed its current majority shareholders of $34,902, and $6,300, respectively. The advances are non-interest bearing and are due on demand.

On April 14, 2020, Custodian Ventures elected to convert the total amount of the 510 shares of Series A preferred stock into 510 shares of common stock.

On May 27, 2021, the 510 shares of common stock issued to Custodian Ventures were cancelled.

As of June 30, 2021, a total of 74,640,766 shares of common stock with par value $0.001 remain outstanding.

On October 4, 2019, the Company issued 510 shares of Series A Preferred stock to Custodian Ventures, LLC at par for shares valued at $510 in exchange for settlement of a portion of a related party loan for amounts advanced to the Company in the amount of $510.

On April 14, 2020, Custodian Ventures elected to convert the total amount of the 510 shares of Series A preferred stock into 510 shares of common stock.

On May 1, 2020, the Company created 5,000,000 shares of series A-1 preferred stock with par value $0.001. On May 4, 2020, the Company issued 5,000,000 shares of the Series A-1 Preferred stock valued at $5,000 to Custodian Ventures LLC as repayment funds loaned to the Company.

As of June 30, 2021, a total of 5,000,000 shares of Series A-1 preferred stock with par value $0.001 remain outstanding.

Deferred taxes represent the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Temporary differences result primarily from the recording of tax benefits of net operating loss carry forwards.

As of June 30, 2021, the Company has an insufficient history to support the likelihood of ultimate realization of the benefit associated with the deferred tax asset. Accordingly, a valuation allowance has been established for the full amount of the net deferred tax asset.

Interest associated with unrecognized tax benefits are classified as income tax, and penalties are classified in selling, general and administrative expenses in the statements of operations. For June 30, 2021 and 2020, the Company had no unrecognized tax benefits and related interest and penalties expenses. Currently, the Company is not subject to examination by major tax jurisdictions.

In accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial statements were available to be issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.

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

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Crown Marketing, (“we”, “us”, “our” or the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

The Company was incorporated in the state of Nevada on September 14, 2001 under the name Biocorp North America, Inc. On July 19, 2004 the Company changed its name to Nat-UR, Inc. and on March 18, 2005 it changed its name again to Cereplast, Inc.

We had developed and were commercializing proprietary bio-based resins through two complementary product families: Cereplast Compostables resins which are compostable, renewable, ecologically sound substitutes for petroleum-based plastics, and Cereplast Sustainables resins (including the Cereplast Hybrid Resins product line), which replaces up to 90% of the petroleum-based content of traditional plastics with materials from renewable resources. Our resins ~~can~~could be converted into finished products using conventional manufacturing equipment without significant additional capital investment by downstream converters. In the summer of 2014, the Company ceased all operations and since that time has been inactive.

On March 22, 2019, the eight judicial District Court of Nevada appointed Custodian Ventures, LLC as custodian for ~~non-petroleum based, clean~~Cereplast, Inc., proper notice having been given to the officers and ~~renewable sources for materials, such~~directors of Cereplast, Inc. There was no opposition.

On June 04, 2019, the Company filed a certificate of revival with the state of Nevada, appointing David Lazar as, ~~bioplastics,~~President, Secretary, Treasurer and ~~the demand for compostable/biodegradable products are being driven globally by a variety~~Director.

A change of factors, including fossil fuel price volatility, energy security and environmental concerns. These factors have led to increased spending on clean and renewable products by corporations and individuals as well as legislative initiatives at national, state and local level.

We are a full-service resin solution provider uniquely positioned to capitalize on the rapidly increasing demand for sustainable and environmentally friendly alternatives to traditional plastic products.

Our patent portfolio is currently comprised of six patents in the United States (“U.S.”), one Mexican patent, and eight pending patent applications in the U.S. and abroad. Our trademark portfolio is currently comprised of approximately 45 registered marks and 21 pending applications in the U.S. and abroad.

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The unaudited consolidated financial statements include the financial condition and results of operations of our wholly-owned subsidiary, Cereplast International, S.A., a Luxembourg company organized during the year ended December 31, 2008, for the purpose of conducting sales operations in Europe. Intercompany balances and transactions have been eliminated in consolidation. The results of operations for interim periods are not necessarily indicativecontrol of the ~~results that may be expected for a full year. These financial statements should be read in conjunction with~~Company was completed on November 3, 2020, control was obtained by the ~~consolidated financial statements~~sale of 50,000,000 common shares and ~~the notes thereto included in~~$5,000,000 Series A-1 Preferred Shares from Custodian Ventures, LLC to Xudong Li. After November 3, 2020, the Company’s ~~Annual Report on Form 10-K for~~operations are determined and structured by the ~~year ended December 31, 2012.~~new major shareholder.

On November 18, 2020, the Company filed an amendment to its certificate of ~~Estimates~~incorporation to change its name to Hong Yuan Holding Group

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment, the deferred tax valuation allowance and the fair value of stock options. Actual results could differ from those estimates.

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. At various times throughout the year, we may have exceeded federally insured limits. At September 30, 2013 and December 31, 2012, balances in our cash accounts did not exceed federally insured limits of $0.25 million. We have not ~~experienced any losses in such accounts and~~yet generated sustained profits from our prior operations. Our independent accountants have expressed a “going concern” opinion. As of June 30, 2021, we ~~do not believe we are exposed to any significant credit risk on cash and cash equivalents.~~

We had no unrestricted cash at September 30, 2013. We had unrestricted cash totaling $0.2 million at December 31, 2012. The unrestricted cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Some of the securities in which we invest, however, may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, debt securities and certificates of deposit. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. We actively monitor changes in interest rates.

~~We have incurred a net loss of $34.0 million for the nine months ended September 30, 2013, and $30.2 million for the year ended December 31, 2012, and have~~ an accumulated deficit of ~~$121.1 million as of September 30, 2013. Based on our operating plan, our existing~~$97,303,234 and a net working capital deficit of $37,557.

While our current burn rate is nominal, it is expected that our costs of operations will ~~not~~continue to exceed revenues, primarily due to the costs associated with being a public reporting company. Based upon our current business plan, we may continue to incur losses in the foreseeable future and there can be ~~sufficient to meet the cash requirements to fund our planned operating expenses, capital expenditures~~no assurances that we will ever establish profitable operations. These and ~~working capital requirements through December 31, 2013 without additional sources of cash. This raises~~other factors raise substantial doubt about our ability to continue as a going concern.

~~Our plan to address the shortfall of working capital is to generate additional cash through a combination of refinancing existing credit facilities, incremental product sales~~

Critical Accounting Policies, Judgments and raising additional capital through debt and equity financings. We are confident that we will be able to deliver on our plans, however, there are no assurances that we will be able to obtain any sources of financing on acceptable terms, or at all.Estimates

If we cannot obtain sufficient additional financing in the short-term, we may be forced to curtail or cease operations or file for bankruptcy. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be forced to take such actions.

The carrying amounts of our financial instruments as of September 30, 2013 and December 31, 2012, which include cash, accounts receivable, unbilled receivable, accounts payable, accrued expenses, loans payable and convertible subordinated notes approximate their fair values due to the short-term nature of these instruments.

We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. Management performs a quantitative and qualitative review of the receivables past due from customers on a monthly basis. Quantitative factors include customer’s past due balance, prior payment history, recent sales activity and days sales outstanding. Qualitative factors include macroeconomic environment, current product demand, estimated inventory levels and customer’s financial position. For our accounts receivable balances that have been fully reserved, we may have access to repossess unsold products held at customer locations as recourse for payment defaults. The fair market value of these products are considered as potential recovery in estimating net losses from uncollectible accounts. We record an allowance against uncollectible items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote. The allowance for doubtful accounts was approximately $0 and $15.0 million as of September 30, 2013 and December 31, 2012, respectively.

Inventories are stated at the lower of cost (first-in, first-out basis) or market, and consist primarily of raw materials used in the manufacturing of bioplastic resins, finished bioplastic resins and finished goods. Inventories are reviewed for excess and obsolescence and a reserve is established accordingly. As of September 30, 2013 and December 31, 2012, inventories consisted of the following (~~in thousands~~):

Property and equipment are stated at cost, and depreciation is computed on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are between five and seven years. Repairs and maintenance expenditures are charged to expense as incurred. During the three months ended September 30, 2013, we recorded in an impairment of $0.5 million on our Building in Italy to adjust its net book value to equal the carrying value of its related mortgage to reflect our current dispute with the seller, as disclosed in Note 4. Property and Equipment consist of the following (~~in thousands~~):

Intangible assets are stated at cost and consist primarily of patents and trademarks. Amortization is computed on the straight-line method over the estimated life of these assets, estimated to be between five and fifteen years. Intangible assets consist of the following~~(in thousands):~~

Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

~~Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income.~~

We recognize revenue at the time of shipment of products, when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the price to the customer is fixed or determinable; and (iv) collection of the sales price is probable.

Certain of our product sales are made to distributors under agreements with generally the same terms of sale and credit as all other customer agreements. Revenue from product sales to our customers, including our customers who are distributors, is recognized upon shipment provided the above noted fundamental criteria of revenue recognition are met. The sale of products to our customers who are distributors is not contingent upon the distributor selling the product to the end-user, and our current agreements with distributors do not have any rights of return.

~~We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors we consider include:~~

~~Significant changes in the operational performance or manner of use of acquired assets or the strategy for our overall business,~~

~~Significant negative market conditions or economic trends, and~~

~~Significant technological changes or legal factors which may render the asset obsolete.~~

We evaluate long-lived assets based upon an estimate of future undiscounted cash flows. Recoverability of these assets is measured by comparing the carrying value to the future net undiscounted cash flows expected to be generated by the asset. An impairment loss is recognized when the carrying value exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset. Future net undiscounted cash flows include estimates of future revenues and expenses which are based on projected growth rates. We continually use judgment when applying these impairment rules to determine the timing of the impairment tests, the undiscounted cash flows used to assess impairments and the fair value of a potentially impaired asset. The reasonableness of our judgment could significantly affect the carrying value of our long-lived assets.

During fiscal year 2012, and continuing through the third quarter of fiscal 2013, we experienced a significant decline in sales volume due to liquidity and sales resource constraints, which we believe to be temporary. Our reduced production volume has not changed the manner in which we use our equipment, nor its physical condition. Our current estimate of future net undiscounted cash flows indicates that the carrying value of our long-lived assets is recoverable and therefore no impairment is recorded for equipment.

During the third quarter of 2013, Cereplast Italia is in default with its mortgage payable related to our building in Italy. We have recorded an impairment of $0.5 million to adjust the carrying value of our building to equal the outstanding value of its related mortgage to reflect our potential loss exposure based on this default.

Our derivative financial instruments consist of embedded and free-standing derivatives related primarily to the convertibles notes. The embedded derivatives include the conversion features, and liquidated damages clauses in the registration rights agreement. The accounting treatment of derivative financial instruments requires that we record the derivatives and related warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. The recorded value of all derivatives at September 30, 2013 totaled approximately $15.1 million. Any change in fair value of these instruments will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income. At September 30, 2013, derivatives were valued primarily using the Black-Scholes Option Pricing Model.

~~Certain of the prior year figures have been reclassified to conform to the presentation adopted in the current year.~~

~~During the nine months ended September 30, 2013, we issued shares of common stock as follows:~~

~~We issued 317,251,420 shares of common stock valued at $8.7 million, pursuant to exchange agreements.~~

~~We issued 361,294,293 shares of common stock valued at $12.5 million, in connection with the conversion of 141 shares of Series A Preferred Stock.~~

~~We issued 63,548,299 shares of common stock valued at approximately $342,000 pursuant to settlement agreements.~~

~~We issued 2,000,000 shares of common stock valued at approximately $60,000 in stock-based compensation.~~

~~We issued 3,000,000 shares of common stock valued at approximately $83,700 for consultant fees.~~

~~We issued 200,000 shares of common stock valued at approximately $2,000 for lender fees.~~

~~We have issued 184.2 million shares of common stock since September 30, 2013, as follows:~~

~~176.7 million shares of common stock pursuant to conversion of our Series A Preferred Stock.~~

~~7.5 million shares of common stock valued at approximately $97,500 for consultant fees.~~

During the year ended December 31, 2011, we granted options to our employees to purchase an aggregate of 300,000 shares of our common stock, with estimated total grant-date fair values of $0.7 million. We estimate that stock-based compensation for awards not expected to be exercised is $0.2 million. During the nine months ended September 30, 2013 and September 30, 2012, we recorded stock-based compensation related to stock options of $60,000 and $51,000, respectively. The grant date fair value was estimated at the date of grant using the Black-Scholes option pricing model, assuming no dividends and the following assumptions:

Under the 2004 Employee Stock Option Plan adopted by our board of directors (the “Plan”), our board of directors may issue incentive and non-qualified stock options to our employees. Options granted under the Plan generally expire at the end of five or ten years and vest in accordance with a vesting schedule determined by our board of directors, usually over three years from the grant date. As of September 30, 2013, we have 34,375 shares available for future grants under the Plan. We settle stock option exercises with newly issued shares of our common stock (~~in thousands except, per share data):~~

~~The following table summarizes information about stock options as of September 30, 2013, (~~~~in thousands, except per share data):~~

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing stock price of $0.01 at September 30, 2013 which would have been received by the option holders had all option holders exercised their options as of that date.

On August 24, 2012, we entered into a Stock Purchase Agreement (“SPA”) with Ironridge Technology Co., a division of Ironridge Global IV, Ltd, for the sale of up to $5 million in shares of convertible redeemable Series A Preferred Stock (“Series A Preferred Stock”). The closing of the transactions contemplates the fulfillment of certain closing conditions. The initial closing with respect to the sale of 30 shares of Series A Preferred Stock occurred on August 24, 2012.

On August 24, 2012, we filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock (“Certificate of Designation”) with the Secretary of State of Nevada. The Certificate of Designation provides that the Series A Preferred Stock ranks senior with respect to dividend and rights upon liquidation to the Company’s common stock and junior to all existing and future indebtedness. Except as otherwise required by law, the Series A Preferred Stock shall have no voting rights. The Certificate of Designation provides for the payment of cumulative dividends at a rate of 2.5% per annum when and if declared by the Board of Directors in its sole discretion. Dividends and any Embedded Derivative Liability (as defined in the Certificate of Designation) may be paid in cash or free trading shares of the Company as provided in the Certificate of Designation.

Unless we have received the approval of the holders of a majority of the Series A Preferred Stock then outstanding, we shall not (i) alter or change adversely the powers, preferences or rights of the holders of the Series A Preferred Stock or alter or amend the Certificate of Designation; (ii) authorize or create any class of stock ranking senior as to distribution of dividends senior to the Series A Preferred Stock; (iii) amend its certificate of incorporation in breach of any provisions of the Certificate of Designation; increase the authorized number of Series A Preferred Stock; (iv) liquidate, or wind-up the business and affaires of the Corporation or effect any Deemed Liquidation Event, as defined in the Certificate of Designation.

Upon any liquidation, dissolution or winding up of the Company, after payment or provision for payment of debts and other liabilities of the Company, the holders of Series A Preferred Stock shall be entitled to receive, pari passu with any distribution to the holders of Common Stock of the Company, an amount equal to $10,000 per share of Series A Preferred Stock plus any accrued and unpaid dividends.

Upon or after 18 years after the Issuance Date, the Corporation will have the right to redeem 100% of the Series A Preferred Stock at a price of $10,000 per share plus any accrued and unpaid dividends (the “Corporation Redemption Price”). We are also permitted to redeem the Series A Preferred Stock at any time after issuance as provided in the Certificate of Designation. The Certificate of Designation also provides for mandatory redemption if the Company determines to liquidate, dissolve or wind-up its business and affects or effect any Deemed Liquidation Event as such term is defined in the Certificate of Designation.

The Series A Preferred Stock may be converted into shares of common stock of the Company at the option of the Company or the holder. In the event of a conversion by the holder at a price per share equal to the sum of (a) the Corporation Redemption Price plus the Embedded Derivative Liability (as defined in the Certificate of Designation) less any dividends paid, multiplied by (b) the number of shares being converted, divided by (c) the conversion price of $0.25. On February 27, 2013, the holder elected to convert 50 shares of Series A Preferred Stock into shares of common stock. In accordance with the formula discussed above, 50 shares of Series A Preferred Stock converted into 190,888,889 shares of common stock. On June 17, 2013, the holder elected to convert 42 shares of Series A Preferred Stock into shares of common stock. In accordance with the formula discussed above, 42 shares of Series A Preferred Stock converted into 115,631,700 shares of common stock. On September 4, 2013, the holder elected to convert 49 shares of Series A Preferred Stock into shares of common stock. In accordance with the formula discussed above, 49 shares of Series A Preferred Stock converted into 134,821,492 shares of common stock. As of September 30, 2013, we issued 54,000,000 shares of common stock, while the remaining 80,821,492 shares were subscribed to the holder. In connection with the conversion, the Derivative Liability related to the 141 shares of Series A Preferred Stock, with a total value at the conversion date of $12.3 million, was reclassified into equity as a component of the common stock issued and subscribed. We estimated the fair value of the Series A Preferred Stock Embedded Derivative Liability and Series A Preferred Stock conversion option was $6.7 million and $30,000, respectively, at September 30, 2013. We estimated the fair value of the Embedded Derivative Liability using the Black-Scholes option pricing model using the following assumptions:

~~We estimated the fair value of the conversion option using the Black-Scholes option pricing model using the following assumptions:~~

On December 21, 2010, we entered into a Venture Loan and Security Agreement (the “Loan Agreement”) with Compass Horizon Funding Company, LLC (the “Lender” or “Horizon”). The Loan Agreement provides for a total loan commitment of $5.0 million (“the Loan”) comprising of Loan A and Loan B, each in the amount of $2.5 million. Loan A was funded at closing on December 21, 2010 and matures 39 months after the date of advance. Loan B was funded on February 17, 2011 and also matures 39 months after the date of advance. We are obligated to pay interest per annum equal to the greater of (a) 12% or (b) 12% plus the difference between (i) the one month LIBOR Rate in effect on the date preceding the funding of such loan by five business days and (ii) .30%. We are required to make interest only payments for the first nine months of each loan and equal payments of principal over the final thirty months of each loan. We granted a security interest in all of our assets to the Lender.

In connection with Loan Agreements, we issued a seven year warrant to the Lender to purchase 140,000 shares of our common stock at an exercise price of $4.40. The relative fair value of the warrants was $0.2 million and is being recorded as interest expense over the term of the Loan. We estimated the fair value of the warrants using the Black-Scholes option pricing model using the following assumptions:

~~Also in connection with the Loan Agreement, we incurred $0.4 million of debt issue costs which were deferred and are being amortized to interest expense over the term of the loan.~~

On June 29, 2012, we amended the Loan Agreement (the “Amendment”) to change the Maturity Date to the earlier to occur of (i) August 1, 2014, or (ii) the date of acceleration of a Loan following an event of default or the date of prepayment of the Loan. In addition, the definition of Scheduled Payments was amended. The definition of Events of Default was expanded to include the failure to pay certain late fees and amendment fees, which were agreed upon among the parties.

In connection with the Amendment, we issued a warrant to Horizon representing the right to purchase 225,000 shares of our common stock at an exercise price of $0.01 per share (the “New Warrant”). In addition, we issued a restated and amended warrant to purchase 140,000 shares of the Company’s common stock at an exercise price of $0.26 (the “Amended Warrant”). The relative fair value of the New Warrant was $117,000. The difference between the fair value of the Amended Warrant immediately before and after the modification was $32,000. These amounts were recorded as a debt discount and are being recorded as interest expense over the remaining term of the loan. We estimated the fair value of the New and Amended Warrants using the Black-Scholes option pricing model using the following assumptions:

On May 24, 2011, we issued $12.5 million in aggregate principal amount of 7% Senior Subordinated Convertible Notes due June 1, 2016 (the “Notes”). The Notes were issued pursuant to an indenture (the “Indenture”), entered into between us and Wells Fargo Bank, National Association, as trustee, on May 24, 2011. In connection with the issuance of the Notes, we entered into a Waiver to our Venture Loan and Security Agreement with Horizon, dated May 18, 2011 pursuant to which Horizon provided its consent to the offering of the Notes and waived any restrictions in the Loan Agreement.

The Notes are senior subordinated unsecured obligations which will rank subordinate in right to payment to all of our existing and future senior secured indebtedness and bear interest at a rate of 7% per annum payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2011. The Notes mature on June 1, 2016, with an early repurchase date of June 15, 2014 at the option of the purchaser. The Notes are convertible into shares of our common stock in accordance with the terms of the Notes and the Indenture, at the initial conversion rate of 172.4138 shares of our common stock per $1,000 principal amount of Notes, equivalent to a conversion price of approximately $5.80 per share, subject to adjustment. If the Notes are converted into shares of our common stock prior to June 2, 2014, an interest make-whole payment will be due based on the conversion date up until June 2, 2014. Upon a non-stock change in control, additional shares of our common stock may need to be issued upon conversion, with a maximum additional shares of 25.606 per $1,000 in principal amount of Notes being issuable thereunder, for a total maximum of 198.0198 shares per $1,000 Note. Certain customary anti-dilution provisions included in the Indenture and/or the Notes could adjust the conversion rate.

The conversion feature within the Notes is not considered to be a beneficial conversion feature within the meaning of Accounting Standards Codification (“ASC”) 470, Debt, and therefore all of the gross proceeds from the Notes have been classified as long term debt. In connection with the issue of the Notes, we incurred approximately $1.3 million of debt issue costs which were deferred and are being amortized to interest expense over the term to the early repurchase date of June 15, 2014.

Also in connection with the issuance of the Notes, we entered into a Securities Purchase Agreement dated May 18, 2011 pursuant to which we agreed to prepare and file a registration statement with the Securities and Exchange Commission (the “SEC”) registering the resale of the Notes and the shares of common stock underlying the Notes. The registration statement was declared effective on August 10, 2011.

On June 1, 2012, we entered into an Exchange Agreement and a Forbearance Agreement with certain of the holders of our Notes. Pursuant to the terms of the Exchange Agreement, certain of the holders agreed to exchange the Notes for shares at an exchange rate of one share of our common stock for each $1.00 amount of the Notes exchanged.

Pursuant to the terms of the Forbearance Agreement, certain of the holders agreed to forbear from exercising their rights to require us to pay accrued interest on June 1, 2012 until the earlier of December 1, 2012 or our failure to meet certain milestones. In addition, pursuant to the terms of the Forbearance Agreement, we agreed to amend the conversion rate of the Notes as set forth in the Indenture to provide for an effective conversion rate of $1.00.

On January 25, 2013, we entered into an Exchange Agreement with IBC Funds, LLC (“IBC Funds”) in connection with Purchase Agreements between IBC Funds and certain Noteholders, to purchase up to $2.0 million of Notes through November 2013. Total purchases by IBC Funds in the nine months ended September 30, 2013 were $2.5 million.

~~At September 30, 2013 the Notes were convertible into 7,500,000 shares of our common stock.~~

The total amount of Short-Term Convertible Notes Payable as of September 30, 2013 was $2.1 million, offset by discounts totalling $977,000. The total amount of Short-Term Convertible Notes Payable as of December 31, 2012 was $1.3 million, offset by discounts totalling $451,000. These Notes are comprised of the following:

From June 1, 2012 through January 17, 2013, we issued Convertible Promissory Notes to Asher Enterprises, Inc. (the “Asher Notes”) with a remaining principal amount of $213,000 and bearing 8% annual interest. The Asher Notes have maturity dates between September 13, 2013 and October 17, 2013 with repayment options from 100% to 135% of the principal amount beginning 90 days from each issuance date. The holder has the option to convert the principal and accrued interest into shares of our Company stock at a conversion price calculated as 70% of the average of the five lowest trading prices for our common stock during the 90 days prior to the conversion date. Proceeds from the Asher Notes were used to fund Company operations.

On June 26, 2012, we issued a Promissory Note to JMJ Financial (the “JMJ Note”) of up to $1.1 million, which bears 0% interest if repaid at maturity. The JMJ Note has a maturity date of 180 days from the effective date of each funding. The principal amount due to JMJ Financial (“JMJ”) was prorated based on the consideration actually paid by JMJ, plus an approximate 10% Original Issue Discount (“OID”) that is prorated based on the consideration actually paid by JMJ as well as any other interest or fees. In addition, we will issue 100% warrant coverage for each amount funded under the JMJ Note. In addition, JMJ has the right, at any time at its election, to convert all or part of the outstanding and unpaid principal and any other fees, into shares of fully paid and non-assessable shares of our common stock. The conversion price is a variable calculation of 80% of the average of the three lowest closing prices for our common stock during the 20 days prior to the conversion date. We are only required to repay the amount funded and we are not required to repay any unfunded portion of the JMJ Note.

The consideration received as through September 30, 2013 is $400,000, in exchange for a principal amount of $440,000 and issuance of 1,886,792 warrants (“the JMJ Warrants”) with an exercise price of $0.21, which may be reset if securities are issued for less than $0.21. For financial accounting purposes, the JMJ Warrants and conversion feature embedded in the JMJ Note were considered derivatives. The fair values of the JMJ Warrants and JMJ Note conversion features were estimated at inception and recorded as a debt discount and is being recorded to interest expense over the life of the JMJ Note. The derivatives will be valued at each reporting date and the change in estimated fair value will result in a gain or loss recorded in the statement of operations. The estimated grant date fair value of the JMJ Warrants and JMJ Note conversion were $198,113 and $187,195, respectively. We estimated the fair value of the JMJ Warrants and JMJ Note conversion features using the Black-Scholes option pricing model using the following assumptions:

The estimated fair value of the JMJ Warrants and JMJ Note conversion features was $1.2 million and $153,393, respectively, at September 30, 2013. We estimated the fair value of the JMJ Warrants and JMJ Note conversion feature at September 30, 2013 using the Black-Scholes option pricing model using the following assumptions:

On October 15, 2012, we entered into an Exchange Agreement (the “Exchange Agreement”) with Magna Group LLC (“Magna”), pursuant to which we agreed to issue to Magna convertible notes (the “Magna Notes”), in the aggregate principal amount of up to $4.6 million, in exchange for an equal amount of participation interests in certain secured promissory notes (the “Secured Notes”) issued by us to Horizon to be acquired by Magna. Pursuant to a participation purchase agreement dated as of October 15, 2012 (the “Magna Purchase Agreement”), Magna agreed to acquire, in tranches through on or around February 15, 2013, participation interests in the Secured Notes from Horizon up to the maximum amount of the principal outstanding, together with accrued interest and fees. The total issuances in 2012 were $1.0 million under the Exchange Agreement, pursuant to which we issued a Magna Note in exchange for a participation interest in a Secured Note. The Magna Notes bear interest at the rate of 6% per annum and mature 12 months after the date of issuance. The Magna Notes are convertible at the option of the holder at a conversion price equal to 75% of the average of the three lowest volume weighted average prices during the ten consecutive trading day period immediately prior to the date of conversion. The Magna Notes contain standard default provisions and provisions for adjustment of the conversion price in the event of subsequent equity sales. For financial accounting purposes, the conversion feature embedded in the Magna Notes were considered derivatives. The fair values of the Magna Notes conversion features were estimated at inception and recorded as a debt discount and is being recorded to interest expense over the life of the Magna Notes. The derivatives will be valued at each reporting date and the change in estimated fair value will result in a gain or loss recorded in the statement of operations. The estimated fair value of the Magna Notes conversion were $198,113. We estimated the fair value of the Magna Notes conversion feature using the Black-Scholes option pricing model using the following assumptions:

The estimated fair value of the Magna Notes conversion features was $35,000 at September 30, 2013. We estimated the fair value of the Magna Notes conversion feature at September 30, 2013 using the Black-Scholes option pricing model using the following assumptions:

On October 15, 2012, we entered into a Note Purchase Agreement (the “Hanover Purchase Agreement”) with Hanover Holding I, LLC (“Hanover”), pursuant to which Hanover agreed to purchase from us, and we agreed to sell to Hanover (subject to the terms and conditions set forth therein), an aggregate of $0.8 million of convertible promissory notes (the “Hanover Notes”). Subject to the terms and conditions set forth in the Hanover Purchase Agreement, the Hanover Notes will be sold in tranches of $100,000 through on or around February 15, 2013. The total issuances in 2012 were $0.3 million under the Hanover Purchase Agreement. The Hanover Notes bear interest at the rate of 12% per annum and mature eight months after issuance. The Hanover Notes are convertible at the option of the holder at a price equal to 75% of the average of the three lowest volume weighted average prices during the ten consecutive trading day period immediately prior to the date of conversion. The Hanover Notes contain standard default provisions and provisions for adjustment for the conversion price in the event of subsequent equity sales. For financial accounting purposes, the conversion feature embedded in the Hanover Notes were considered derivatives. The fair values of the Hanover Notes conversion features were estimated at inception and recorded as a debt discount and is being recorded to interest expense over the life of the Hanover Notes. The derivatives will be valued at each reporting date and the change in estimated fair value will result in a gain or loss recorded in the statement of operations. The estimated fair value of the Hanover Notes conversion were $204,498. We estimated the fair value of the Hanover Notes conversion feature using the Black-Scholes option pricing model using the following assumptions:

The estimated fair value of the Hanover Notes conversion features was $152,000 at September 30, 2013. We estimated the fair value of the Hanover Notes conversion feature at September 30, 2013 using the Black-Scholes option pricing model using the following assumptions:

On January 28, 2013, we entered into an Exchange Agreement (the “Exchange Agreement”) with IBC Funds LLC (“IBC”), pursuant to which we agreed to issue to IBC convertible notes (the “IBC Notes”), in the aggregate principal amount of up to $2.0 million, in exchange for an equal amount of participation interests in certain subordinated convertible debentures (the “Subordinated Notes”). Pursuant to various note purchase agreements dated as of January 25, 2013 (the “IBC Purchase Agreement”), IBC agreed to acquire, in tranches through on or around November 28, 2013, participation interests in the Subordinated Notes up to $2.0 million. The total issuances in 2013 were $2.0 million under the Exchange Agreement, pursuant to which we issued an IBC Note in exchange for a participation interest in a Subordinated Notes. The IBC Notes bear interest at the rate of 8% per annum and mature 9 months after the date of issuance. The IBC Notes are convertible at the option of the holder at a conversion price equal to 65% of the three lowest bid price during the ten consecutive trading day period immediately prior to the date of conversion. The IBC Notes contain standard default provisions and provisions for adjustment of the conversion price in the event of subsequent equity sales. We are in default under the Exchange Agreement on the conversion of our outstanding promissory note with IBC on April 23, 2013 as there are no available shares to complete IBC’s request to convert the debt into non restricted stock. For financial accounting purposes, the conversion features embedded in the IBC Notes were considered derivatives. The fair values of the IBC Notes conversion features were estimated at inception and recorded as a debt discount and is being recorded to interest expense over the life of the IBC Notes. The derivatives will be valued at each reporting date and the change in estimated fair value will result in a gain or loss recorded in the statement of operations. The estimated fair value of the IBC Notes conversion feature were $2.8 million. We estimated the fair value of the IBC Notes conversion feature using the Black-Scholes option pricing model using the following assumptions:

The estimated fair value of the IBC Notes conversion features was $182,000 at September 30, 2013. We estimated the fair value of the IBC Notes conversion feature at September 30, 2013 using the Black-Scholes option pricing model using the following assumptions:

On March 8, 2013, we entered into an Exchange Agreement (the “Exchange Agreement”) with Ironridge Global IV, Ltd. (“Ironridge”), pursuant to which we agreed to issue to Ironridge convertible notes (the “Ironridge Notes”), in the aggregate principal amount of up to $4.0 million, in exchange for an equal amount of participation interests in certain secured promissory notes (the “Secured Notes”) issued by us to Horizon to be acquired by Ironridge. Pursuant to a participation purchase agreement dated as of March 8, 2013 (the “Ironridge Purchase Agreement”), Ironridge agreed to acquire, in tranches through on or around June 1, 2014, participation interests in the Secured Notes from Horizon up to the maximum amount of the principal outstanding, together with accrued interest and fees. The total issuances in 2013 were $250,000 under the Exchange Agreement, pursuant to which we issued an Ironridge Note in exchange for a participation interest in a Secured Note. The Ironridge Notes do not bear interest and mature 12 months after the date of issuance. The Ironridge Notes are convertible at the option of the holder at a conversion price equal to 70% of the closing bid price on the trading day prior to the date of conversion, subject to certain conversion price limitations. For financial accounting purposes, the conversion feature embedded in the Ironridge Note was considered a derivative. The fair values of the Ironridge Notes conversion features were estimated at inception and recorded as a debt discount and is being recorded to interest expense over the life of the Ironridge Notes. The derivatives will be valued at each reporting date and the change in estimated fair value will result in a gain or loss recorded in the statement of operations. The estimated fair value of the Ironridge Notes conversion feature was $588,095. We estimated the fair value of the Ironridge Notes conversion feature using the Black-Scholes option pricing model using the following assumptions:

The estimated fair value of the Ironridge Notes conversion features was $1.8 million at September 30, 2013. We estimated the fair value of the Ironridge Notes conversion feature at September 30, 2013 using the Black-Scholes option pricing model using the following assumptions:

Effective October 24, 2011, Cereplast Italia S.p.A (“Cereplast Italia”), our wholly owned subsidiary, completed its acquisition of an industrial plant and the real estate on which the industrial plant is located in Cannara, Italy. The Deed of Sale between Cereplast Italia and Societa Regionale Per Lo Sviluppo Economico Dell’Umbria — Sviluppumbria S.p.A, provided for an aggregate purchase price of approximately $6.5 million. The acquisition had previously been secured by a mortgage loan with Banca Monte Dei Paschi Di Sienna S.p.A for the principal of $4.5 million.

Effective October 25, 2012, Cereplast Italia renegotiated the terms of the acquisition of the industrial plant located in Cannara, Italy with Societa Regionale Per Lo Sviluppo Economico Dell’Umbria — Sviluppumbria S.p.A In connection with our renegotiation, the sale of the land was rescinded and Cereplast Italia retained the existing building, reducing the value of the purchase price to approximately $4.2 million. In exchange, Cereplast Italia rescinded the Mortgage loan with Banca Monte Dei Paschi Di Sienna S.p.A for the principal of $4.5 million in paying a limited rescission fee and cancelled all credit facility. Sviluppumbria S.p.A accepted to carry over a Note secured by the building, in amount of $3.2 million with an annual interest rate of 5.5%, until a new lender is secured. During that period of time Cereplast Italia agreed to negotiate the refurbishment of the building by a third party at no cost. Svilluppumprbia requested Cereplast Italia to represent a plan of development to occur within a longer period of time.

In July 2013, Cereplast Italia was unable to secure a new lender to repay the Note owed to Sviluppumbria S.p.A and is in default. However, during the refurbishment due diligence process, Cereplast Italia identified significant undisclosed environmental issues and requested additional time to clarify the situation. We are continuing an ongoing discussion to explore mutually acceptable alternatives with Sviluppumbria S.p.A. Potential resolutions include, but are not limited to, a revised payment plan with significant financial concessions. If we are unable to reach an agreement with Sviluppumbria S.p.A,,Cereplast Italia may abandon the property and pursue recovery of its full investment.

We have certain financial instruments that are measured at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy has been established which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

~~Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;~~

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

~~We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2013 (in thousands):~~

The table below presents our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at September 30, 2013. We classify financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model.

~~We currently operate out of our manufacturing facility in Seymour, IN. The lease underlying this facility is summarized below:~~

~~The following customers accounted for 10% or more of net revenue in the periods presented:~~

~~Our net sales were made up of sales to customers in the following geographic regions (~~~~in thousands~~):

   Nine Months Ended September 30,
   2013 2012
North America
   $ 203       9.5 % $ 338       44.0 %
International

Italy
   1,887       88.5 % 389       50.6 %
Germany
   21       1.0 % 14       1.8 %
India
   21       1.0 % —         —
Other
   —      —      29       3.6 %






Net sales
   $ 2,132       100.0 % $ 770       100.0 %

We are subject to U.S. and California income tax. Subject to limited statutory exceptions, we are no longer subject to federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2006. We are not presently liable for any income taxes nor are we undergoing any tax examinations by the Internal Revenue Service. No Deferred Tax Assets or Deferred Tax Liabilities are included in our balance sheets at September 30, 2013 or December 31, 2012.

~~Our policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.~~

In connection with the registered direct offering of 3,125,000 Units effective November 2011, we issued warrants to purchase 2,343,750 of our common stock. The per share exercise price of the warrants is $2.20. The warrants are exercisable at any time on or after the date that is 180 days after the initial issuance on the date of closing and will expire on a date that is five years from the date of closing.

In connection with the issue of 2,596,500 shares of common stock to accredited investors pursuant to the Securities Purchase Agreement entered into on January 26, 2011, we issued warrants to purchase 649,128 shares of the Company’s common stock. The warrants have an exercise price of $6.35 per share and are exercisable for a period of five years commencing August 1, 2011.

In connection with the issue of 1,000,000 shares of common stock pursuant to a Subscription Agreement entered into on April 30, 2012, we issued a warrant to purchase 100,000 shares of our common stock for offering costs. The warrants have an exercise price of $0.50 per share and are exercisable for a period of seven years.

In connection with the Amendment with Compass Horizon Funding Company, LLC, we issued a warrant representing the right to purchase 225,000 shares of our common stock at an exercise price of $0.01 per share. In addition, we issued a restated and amended warrant to purchase 140,000 shares of the Company’s common stock at an exercise price of $0.26.

In connection with our JMJ Note, we issued a warrant to purchase 1,886,792 shares of our common stock. The warrants had an initial exercise price of $0.21 per share and are exercisable for a period of four years. The warrants also contained a reset provision that was triggered upon conversion of debts during the fourth quarter of 2012 and again during the first quarter of 2013. As a result, the number of warrants issued increased to 30,769,231 and the exercise price decreased to $0.013 in connection with the JMJ Note as of December 31, 2012 and 64,102,564 warrants with an exercise price of $0.0062 as of September 30, 2013.

~~A summary of warrant activity for the period ending September 30, is as follows~~~~(in thousands except per share data):~~

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

This Form 10-Q may contain forward-looking statements, as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others, statements concerning the potential benefits that we may experience from our business activities and certain transactions we contemplate or have completed; and statements of our 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-Q. 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-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. The most important facts that could prevent us from achieving our stated goals include, but are not limited to, the following:

~~inability to raise sufficient additional capital to finance operations;~~

~~potential fluctuation in quarterly results;~~

~~worsening economic conditions affecting the economic health of our clients;~~

~~uncertain global economic conditions~~

~~failure to earn profits;~~

~~inadequate capital to expand our business, inability to raise additional capital or financing to implement our business plans;~~

~~decline in demand for our products and services;~~

~~inability to source raw materials in sufficient quantities to support growth in customer demand;~~

~~rapid and significant changes in markets and other factors, including national, state and local legislation, that encourage use of bioplastics;~~

~~failure to commercialize new grades of resin being pursued in our technical / market development “pipeline;”~~

~~competitor actions that curtail our market share, negatively affect pricing or limit sales growth;~~

~~litigation with or legal claims and allegations by outside parties;~~

~~insufficient revenues to cover operating costs;~~

There can be no assurance that we will be profitable. We may not be able to successfully manage or market our products, attract or retain qualified executives and technology personnel or obtain additional customers for our products. Our products may become obsolete, government regulation may hinder our business, additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of outstanding warrants and stock options, and other risks inherent in our business.

Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on these statements, which speak only as of the date of this Form 10-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that our company or persons acting on our behalf may issue. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q, or to reflect the occurrence of unanticipated events.

~~We have developed and are commercializing proprietary bio-based resins through two complementary product families: (1) Cereplast Compostables~~^® resins, which are compostable and bio-based, ecologically sound substitutes for traditional petroleum-based non-compostable plastics, and (2) Cereplast Sustainables™ resins, which replace up to 90% of the petroleum-based content of traditional plastics with materials from renewable resources. Our resins aim to be competitively priced compared to fully petroleum-based plastic resins and can be converted into finished products using conventional manufacturing equipment without significant additional capital investment by downstream converters.

The demand for non-petroleum based, clean and renewable sources for materials, such as bioplastics, and the demand for compostable/biodegradable products, is each being driven globally by a variety of factors, including environmental concerns, new stringent regulations on compostable material, fossil fuel price volatility and energy security. These factors have led to increased spending on clean and sustainable products by corporations and individuals as well as legislative initiatives at the local and state level.

~~Global Market and Economic Conditions.~~Recent global market and economic conditions have been unprecedented and challenging with tighter credit conditions and slower growth. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment have contributed to continued volatility of unprecedented levels.

As a result of these market conditions, the cost and availability of credit has been, and may continue to be, adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally, and the strength of counterparties specifically, has led many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers and to developing companies, such as ours. Continued turbulence in the U.S. and international markets and economies may adversely affect our liquidity and financial condition and the liquidity and financial condition of our customers. If these market conditions continue, they may limit our ability, and the ability of our customers, to timely replace maturing liabilities and access the capital markets to meet liquidity needs, resulting in an adverse effect on our financial condition and results of operations.

~~Sales~~. We record sales at the time that we ship our 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. We record sales net of sales discounts and allowances. Beginning in 2011, we provided price incentives to several customers that entered into significant supply contract for their initial purchase commitments to assist in commercial launch activities. In the future, we may offer these incentives on a selective basis as we continue to grow our customer base. The amount of these incentives in future periods will be a function of the growth of our customer base and the particular commercialization.

~~Operating Expenses.~~ Operating expenses consist principally of salaries (both cash and non-cash equity-based compensation), professional fees (including legal, accounting, patent-related, government compliance), marketing, sales commissions, rent and research and development. Salaries include all cash and non-cash compensation and related costs for all principal selling, general and administrative functions. During recent periods we have made grants of equity awards, including shares of restricted stock and stock options, to attract directors and members of senior management, which have resulted in non-cash compensation expense for the periods reported. We expect that non-cash compensation expense attributed to equity-based awards may increase in future periods as the result of future equity-based incentive compensation awards granted to attract and retain talented employees as we continue to grow our business. In addition, we expect to experience increases in our research and development expenses as we continue to develop new products and formulations, as well as increases in marketing and promotional expenses as we seek to increase our customer base.

Our discussion and analysis of our financial condition and results of operations ~~are~~is based upon our ~~unaudited~~consolidated financial statements, which have been prepared in accordance with ~~accounting principles generally accepted in the United States of America.~~U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates, judgments and ~~judgments~~assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and on various other assumptions that we believe ~~to be~~are reasonable under the ~~circumstances.~~circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from ~~our estimates if past experience or other assumptions do not turn out~~these estimates.

~~We recognize revenue~~critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time ~~of shipment of products, when~~the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following ~~fundamental criteria are met:~~critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as there were no revenues during the period.

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) ~~persuasive evidence of an arrangement exists;~~identify contract(s) with a customer; (ii) ~~delivery has occurred;~~identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the ~~customer is fixed or determinable;~~performance obligations in the contract; and ~~(iv) collection of~~(v) recognize revenues when (or as) we satisfy the ~~sales price is probable.~~performance obligation.

~~Certain of our product sales are made to distributors under agreements with generally the same terms of sale~~

The Company reviews accounts receivable periodically for collectability and credit as all other customer agreements. Revenue from product sales to our customers, including our customers who are distributors, is recognized upon shipment provided the above noted fundamental criteria of revenue recognition are met. The sale of products to our customers who are distributors is not contingent upon the distributor selling the product to the end-user, and our current agreements with distributors do not have any rights of return.

Compensation cost for all stock-based awards is measured at fair value on the date of grant and recognized over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model. Such value is recognized as expense over the service period, net of estimated forfeitures, using the straight-line method. Adjustments to this expense are made periodically to recognize actual rates of forfeiture, which vary significantly from estimates.

~~We maintain~~establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary. Our allowance for ~~estimated~~doubtful accounts is maintained to provide for losses ~~that may arise if any of our customers are unable~~arising from customers’ inability to make required payments. ~~Management performs a quantitative and qualitative review~~If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the receivables are past due ~~from customers on a monthly basis. Quantitative factors include customer’s past due balance, prior payment history, recent sales activity~~greater than the historical assumptions used, additional allowances may be required. The Company has no accounts receivables and ~~days sales outstanding. Qualitative factors include macroeconomic environment, current product demand, estimated inventory levels~~therefore as of June 30, 2021, and ~~customer’s financial position. For our~~2020 no allowance for doubtful accounts ~~receivable balance which have been fully reserved, we may have access to repossess unsold products held at customer locations as recourse for payment defaults.~~ is necessary.

The fair market value of these products are considered as potential recovery in estimating net losses from uncollectible accounts. On July 27, 2012, we entered into a Settlement Agreement with Colortec S.r.l. (“Colortec”) to resolve a dispute regarding unfair competition within the Italian market and our claims on outstanding accounts receivable balances. In exchange for renouncing our claim on outstanding accounts receivable from Colortec, we were granted access to recover unused containers of our products held by Colortec, valued at approximately $1.5 million. We have eliminated the outstanding accounts receivable balance due from Colortec in exchange for the value of inventory we recovered. We record an allowance against uncollectible items for each customer after all reasonable means of collection have been exhausted, and the potential for recovery is considered remote.

Inventories are stated at the lower of cost (first-in, first-out basis) or market, and consist primarily of raw materials used in the manufacturing of bioplastic resins, finished bioplastic resins and finished goods. Inventories are assessed for recoverability through an ongoing review of inventory levels in relation to foreseeable demand, which is typically six to twelve months. We consider any quantities in excess of three years of inventory to be excessive due to the shelf life of our products. A significant qualitative factor used in our evaluation is the fact that polypropylene is a core ingredient to our bioplastic resin products. Polypropylene is a multi-billion dollar commodity market within the plastics industry, which provides us an active marketplace to monetize potential excess or obsolete inventory. Our foreseeable demand, which is based upon all available information, including sales forecasts, new product marketing plans and product life cycles, indicates that our current inventory on hand represents approximately 12-18 months of inventory. When the inventory on hand exceeds the foreseeable demand, we write down the value of those inventories which, at the time of our review, we expect to be unable to sell or return to the vendor. The amount of the inventory write down is the excess of historical cost over estimated realizable value. Once established, these write downs are considered permanent adjustments to the cost basis of the excess inventory.

Intangibles are stated at cost and consist primarily of patents and trademarks. Amortization is computed on the straight-line method over the estimated life of these assets, estimated to be between five and fifteen years.

~~We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors we consider include:~~

~~Significant changes in the operational performance or manner of use of acquired assets or the strategy for our overall business,~~

~~Significant negative market conditions or economic trends, and~~

~~Significant technological changes or legal factors which may render~~Company follows the asset ~~obsolete.~~

~~We evaluate long-lived~~and liability method of accounting for future income taxes. Under this method, future income tax assets based upon an estimate of future undiscounted cash flows. Recoverability of these assets is measured by comparing the carrying value to the future net undiscounted cash flows expected to be generated by the asset. An impairment loss is recognized when the carrying value exceeds the undiscounted future cash flows estimated to result from the use and ~~eventual disposition of the asset. Future net undiscounted cash flows include estimates of future revenues and expenses which~~liabilities are recorded based on projected growth rates. We continually use judgment when applying these impairment rules to determine the timing of the impairment tests, the undiscounted cash flows used to assess impairments and the fair value of a potentially impaired asset. The reasonableness of our judgment could significantly affect the carrying value of our long-lived assets.

During fiscal year 2012, and continuing through the second quarter of fiscal 2013, we experienced a significant decline in sales volume due to liquidity and sales resource constraints, which we believe to be temporary. Our reduced production volume has not changed the manner in which we use our equipment, nor its physical condition. Our current estimate of future net undiscounted cash flows indicates that the carrying value of our long-lived assets is recoverable and therefore no impairment is recorded for equipment.

~~Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible~~ temporary ~~differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the~~ differences between the ~~reported amounts~~carrying amount of assets and liabilities and their corresponding tax ~~bases.~~

~~The benefit~~basis. In addition, the future benefits of income tax assets including unused tax losses, are recognized, subject to a ~~tax position is recognized in~~valuation allowance to the ~~financial statements in the period during which, based on all available evidence, management believes~~extent that it is more likely than not that ~~the position~~such future benefits will ultimately be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition thresholdrealized. Future income tax assets and liabilities are measured asusing enacted tax rates and laws expected to apply when the ~~largest amount~~tax liabilities or assets are to be either settled or realized. The Company’s effective tax rate approximates the Federal statutory rates.

Results of ~~tax benefit that is more than 50 percent likely of being realized upon settlement with~~Operations for the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interestThree and ~~penalties that would be payable~~Six Months Ended June 30, 2021 compared to the ~~taxing authorities upon examination.~~

~~Our derivative financial instruments consist~~In the summer of embedded and free-standing derivatives related primarily to the convertibles notes. The embedded derivatives include the conversion features, and liquidated damages clauses in the registration rights agreement. The accounting treatment of derivative financial instruments requires that we record the derivatives and related warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. The recorded value of all derivatives at September 30, 2013 totaled approximately $15.1 million. Any change in fair value of these instruments will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date,2014, the Company ~~will record a non-operating, non-cash charge. If~~decided to discontinue all operations. After the ~~fair value~~change of control on November 3, 2020, the ~~derivatives is lower at~~Company’s operations are determined and structured by the ~~subsequent balance sheet date,~~new major shareholder.

During the ~~Company will record non-operating, non-cash income. At September~~three and six months ended June 30, ~~2013, derivatives were valued primarily using the Black-Scholes Option Pricing Model.~~2021 and 2020, we generated no revenues.

~~RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2012~~

~~Net sales for~~Operating expenses, during the three months ended ~~September~~June 30, ~~2013 were approximately $0.4 million,~~2021, was $9,897 compared to $0.5 million in the same period in 2012. Sales are essentially flat when comparing the third quarter of 2013 to the third quarter of 2012, with both periods impacted by summer seasonality in our European markets.

~~Cost of sales is comprised of variable costs associated with our product revenues. Cost of sales for~~$1,287 during the three months ended ~~September~~June 30, ~~2013~~2020, an increase of $8,610 or 669%. Operating expenses during the six months ended June 30, 2021, was ~~approximately $0.4 million,~~$30,657 compared to ~~$0.5 million for~~$6,353 during the ~~same period in 2012.~~six months ended June 30, 2020, an increase of $24,304 or 383%. The increase was mainly due to the higher professional fees related to the change of control and the filing of form 10 to become a SEC reporting company.

~~Gross profit (loss) for~~During the three months ended ~~September~~June 30, ~~2013 was approximately $0.1 million,~~2021, the Company incurred a net loss of $9,897, compared to ~~$4,000 for the same period in 2012. The increase in gross profit was attributable to~~ a ~~slight decrease in the cost~~net loss of ~~our products.~~

~~Research and development expenses for~~$982 during the three months ended ~~September~~June 30, ~~2013 were $0.1 million, compared to approximately $0.1 million for~~2020, an increase of 8,915. During the ~~same period in 2012. Research and development expenses decreased slightly due to our cost containment effort to preserve working capital.~~

~~Selling, General and Administrative Expenses and Impairment of Long-Lived Assets~~

~~Selling, general and administrative expenses and impairment of long-lived assets for the three~~six months ended ~~September~~June 30, ~~2013 were $1.7 million, compared to $6.8 million for~~2021, the same period in 2012. Our decrease in sales, general and administrative expenses was primarily due to bad debt expense of $5.1 million recorded in the third quarter of 2012. In addition, our sales, general and administrative expenses decreased due to reduced headcount and a reduction in fixed production overhead costs classified as selling, general and administrative expense due to an extended period of abnormally low production volume. Impairment of long-lived assets reflect an adjustment to the carrying value of our facility in Italy.

~~Other income and expense, net for the three months ended September 30, 2013 was~~Company incurred a net ~~expense~~loss of ~~$5.6 million, as~~$30,657, compared to a net ~~expense~~loss of ~~$3.0 million in~~$5,824 during the same period in 2012. The increase in expense was due to a loss on debt extinguishment in addition to expense recorded as a result of the change in our derivative liability related to our warrants, short term convertible debt and preferred stock agreements partially offset by a decrease in interest expense.

~~Net loss for the three~~six months ended ~~September~~June 30, 2013 was $7.3 million, as compared to $10.0 million in the same period in 2012. The decrease in net loss was primarily driven by a decrease in selling, general and administrative expense related to bad debt expense recorded in the third quarter of 2012 partially offset by2020, an increase ~~in Other Expense related to our financing transactions. As discussed above, Other Income and Expense, net was unfavorably impacted by losses on derivative liabilities and losses on extinguishment~~ of ~~debt.~~

~~RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2012~~

Net sales for the nine months ended September 30, 2013 were approximately $2.1 million, compared to $0.8 million in the same period in 2012. Sales increased from the prior year due to growing demand in our European markets primarily due to anticipated legislation in Italy banning traditional plastic bags.

Cost of sales is comprised of variable costs associated with our product revenues. Cost of sales for the nine months ended September 30, 2013 was approximately $1.9 million, compared to $0.9 million for the same period in 2012. The increase in cost of sales is due to an increase in our sales.

Gross profit (loss) for the nine months ended September 30, 2013 was approximately $0.3 million, compared to ($91,000) for the same period in 2012. The increase in gross profit was attributable to our increase in sales, as stated above.

Research and development expenses for the nine months ended September 30, 2013 were $0.3 million, compared to approximately $0.4 million for the same period in 2012. Research and development expenses have slightly decreased due to our cost containment effort to preserve working capital.

~~Selling, General and Administrative Expenses and Impairment of Long-Lived Assets~~

Selling, general and administrative expenses and impairment of long-lived assets for the nine months ended September 30, 2013 were $4.3 million, compared to $10.5 million for the same period in 2012. Our decrease in sales, general and administrative expenses was primarily due to bad debt expense of $5.1 million recorded in the third quarter of 2012. In addition, our sales, general and administrative expenses decreased due to reduced headcount and a reduction in fixed production overhead costs classified as selling, general and administrative expense due to an extended period of abnormally low production volume. Impairment of long-lived assets reflect an adjustment to the carrying value of our facility in Italy.

Other income and expense, net for the nine months ended September 30, 2013 was a net expense of $29.7 million, as compared to a net expense of $5.3 million in the same period in 2012. The increase in expense was primarily a result of the change in our derivative liability related to our warrants, short term convertible debt and preferred stock agreements. In addition, we recorded $2.8 million in debt extinguishment costs related to the exchange of certain of our term loan and convertible notes.

~~Net loss for the nine months ended September 30, 2013 was $34.0 million, as compared to $16.3 million in the same period in 2012.~~$24,833. The increase in net loss in the three and six months ended in June 30, 2021 was primarily ~~driven by an~~due to the increase in ~~Other Expense related~~operating expenses.

As of June 30, 2021, and 2020, we had a cash balance of $0. Due to ~~our~~the lack of revenue, the company’s operations are primarily funded by the Company’s CEO and major shareholder.

To the extent that the Company’s capital resources are insufficient to meet current or planned operating requirements, the Company will seek additional funds through equity or debt financing, ~~transactions. As discussed above, Other Income~~collaborative or other arrangements with corporate partners, licensees or others, and ~~Expense, net was unfavorably impacted~~from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has no current arrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders will provide any portion of the Company’s future financing requirements. Ms. Xudong, the CEO and principal shareholder of the Company, would favorably entertain funding, through loans, corporate expenses for approximately 24 months. Any loans by ~~losses~~Ms. Xudong would be on ~~derivative liabilities totaling $21.6 million. The increase in net loss was partially offset~~an interest-free basis, documented by a ~~decrease in bad debt~~promissory note and payable only upon consummation of a business combination transaction. Upon consummation of a business combination, we or the target may reimburse Ms. Xudong for any such loans from funds furnished by the target. We have no written agreement with Ms. Xudong to advance any further funds for future operating expense, ~~recorded in the first nine months of 2013 compared~~therefore there is no assurance that such funds from Ms. Xudong will be forth coming, if required.

No assurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable to the ~~first nine months~~Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of ~~2012.~~its programs that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

We require working capital to fund our operations, including payments to finance our research and development and expand sales and marketing, to purchase equipment, service indebtedness, satisfy lease obligations and execute on our business plan and growth strategy.Operating Activities

Net cash ~~of $0.2 million at both September 30, 2013 and at December 31, 2012.~~

~~Cash~~ used in operating activities was $0 during the ~~nine~~six months ended ~~September~~June 30, ~~2013 was $2.3 million, compared to $4.3 million during the same period in the 2012. The decrease in~~2021 and 2020.

We neither generated nor used cash ~~used in operations was primarily a result of lower operating expense and cash proceeds from increased resin sales.~~

~~Cash used~~ in investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2013 was $3,000 compared to~~2021 and 2020.

We neither generated nor used cash ~~used~~ in ~~investing activities of approximately $0.2 million during the same period in 2012.~~

~~Cash provided by~~ financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2013 was $2.7 million compared to cash provided by~~2021 and 2020.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in ~~financing activities of $0.7 million during~~ the ~~same period in 2012. The increase was primarily attributed to proceeds received from issuance of preferred stock.~~

Weaccompanying financial statements, we have incurred a net ~~loss~~losses of ~~$34.0 million~~$30,657 and $5,824 for the ~~nine~~six months ended ~~September~~June 30, ~~2013,~~2021 and ~~$30.2 million~~2020, respectively, and have a working capital deficit of $37,557 as of June 30, 2021, in addition to a stockholder deficit of $37,557, which raise substantial doubt about the Company’s ability to continue as a going concern.

Management believes the Company will continue to incur losses and negative cash flows from operating activities for the ~~year ended December 31, 2012,~~foreseeable future and ~~have an accumulated deficit of $121.1 million~~will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company but cannot assure that such financing will be available on acceptable terms.

The Company’s continuation as ~~of September 30, 2013. Based on our operating plan, our existing working capital will not be~~a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet ~~the cash requirements to fund~~its obligations, and obtain additional financing as may be required. Our auditors have included a “going concern” qualification in their Report of Independent Certified Public Accountants accompanying our ~~planned operating expenses, capital expenditures and working capital requirements through December 31, 2013 without additional sources of cash. This raises~~audited financial statements appearing elsewhere herein which cites substantial doubt about our ability to continue as a going concern. Such a “going concern” qualification may make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot be assured.

Our plan to address the shortfall of working capital is to generate additional cash through a combination of refinancing existing credit facilities, incremental product sales and raising additional capital through debt and equity financings. We are confident that we will be able to deliver on our plans, however, there are no assurances that we will be able to obtain any sources of financing on acceptable terms, or at all.

~~If we cannot obtain sufficient additional financing in the short-term, we may be forced to curtail or cease operations or file for bankruptcy.~~ The ~~consolidated~~accompanying financial statements do not include any adjustments ~~relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities~~ that might result from the outcome of this uncertainty. There can be ~~necessary should we~~no assurance that management will be ~~forced to take~~successful in implementing its business plan or that the successful implementation of such ~~actions.~~business plan will actually improve our operating results.

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a ~~Venture Loan and Security Agreement (the “Loan Agreement”) with Compass Horizon Funding Company, LLC (the “Lender”~~current or “Horizon”). The Loan Agreement provides for a total loan commitment of $5.0 million comprising of Loan A and Loan B, each in the amount of $2.5 million. Loan A was funded at closing on December 21, 2010 and matures 39 months after the date of advance. Loan B was funded on February 17, 2011 and also matures 39 months after the date of advance. We are obligated to pay interest per annum equal to the greater of (a) 12% or (b) 12% plus the difference between (i) the one month LIBOR Rate infuture effect on ~~the date preceding the funding~~our financial condition, changes in financial condition, revenues or expenses, results of ~~such loan by five business days~~operations, liquidity, capital expenditures or capital resources and ~~(ii) .30%. We are required~~would be considered material to make interest only payments for the first nine months of each loan and equal payments of principal over the final thirty months of each loan. In connection with the loan, we issued a seven year warrant to the Lender to purchase 140,000 shares of our common stock at an exercise price of $4.40. We granted a security interest in all of our assets to the Lender.investors

Effective November 27, 2012, we entered into a Second Amendment (the “Amendment”) to the Loan Agreement. Pursuant to the Amendment, Horizon agreed to extend additional loans to us in the form of Loan C in the amount of $150,000 and Loan D in the amount of $250,000. The Amendment provides for a maturity date of April 4, 2013 and an annual rate of interest of 15% for Loans C and D.

The Amendment also amends other portions of the Loan Agreement to include Loans C and D and sets forth the terms governing repayment, interest rate and use of proceeds and conditions to funding such loans.Inflation

On January 3, 2013, we received a Notice of Event of Default from Wells Fargo Bank, National Association, the Trustee under the Indenture. The Notice was triggered by our failure to pay on December 1, 2012 pursuant to the terms of the Forbearance Agreements dated as of May 31, 2012 entered into with the holders of the Notes, interest in the amount of $332,500 that was due on June 1, 2012 (the “June 2012 Interest Payment”) and interest in the amount of $332,500 due on December 1, 2012 (the “December 2012 Interest Payment”). On January 25, 2013, the Holders of the Notes entered into a payment agreement with IBC Funds, LLC (“IBC”) pursuant to which IBC agreed to purchase up to $2,000,000 of the principal amount of the Notes in tranches. In connection with the execution of the payment agreement, the Holders agreed to waive the Event of Default and forebear from exercising any of their rights and remedies under the Indenture in connection with our failure to make the June 2012 and December 2012 Interest Payments until the earlier of December 31, 2013 or the date IBC has failed to make payments as set forth in the Payment Agreement.

On January 25, 2013, we entered into an Exchange Agreement with IBC in connection with Purchase Agreements between IBC and certain Noteholders, to purchase up to $2.0 million of Notes through November 2013. Total purchases by IBC in the nine months ended September 30, 2013 were $1.8 million.

~~At September 30, 2013 the Notes were convertible into 7,500,000 shares of our common stock.~~

The Series A Preferred Stock may be converted into share of common stock of the Company at the option of the Company or the holder. In the event of a conversion by the holder at a price per share equal to the sum of (a) the Corporation Redemption Price plus the Embedded Derivative Liability (as defined in the Certificate of Designation) less any dividends paid, multiplied by (b) the number of shares being converted, divided by (c) the conversion price of $0.25. On February 27, 2013, the holder elected to convert 50 shares of Series A Preferred Stock into shares of common stock. In accordance with the formula discussed above, 50 shares of Series A Preferred Stock converted into 190,888,889 shares of common stock. On June 17, 2013, the holder elected to convert 42 shares of Series A Preferred Stock into shares of common stock. In accordance with the formula discussed above, 42 shares of Series A Preferred Stock converted into 115,631,700 shares of common stock. On September 4, 2013, the holder elected to convert 49 shares of Series A Preferred Stock into shares of common stock. In accordance with the formula discussed above, 49 shares of Series A Preferred Stock converted into 134,821,492 shares of common stock. As of September 30, 2013, we issued 54,000,000 shares of common stock, while the remaining 80,821,492 shares were subscribed to the holder. In connection with the conversion, the Derivative Liability related to the 141 shares of Series A Preferred Stock, with a total value at the conversion date of $12.3 million, was reclassified into equity as a component of the common stock issued and subscribed.

We do not believe that inflation has had in the past or will have in the future any relationships with unconsolidated entities or financial partnerships such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance-sheet arrangements or for other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.significant negative impact on our operations.

~~ITEM~~Item 3. ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to a number of market risks in the ordinary course of business. These risks, which include interest rate risk, foreign currency exchange risk and commodity price risk, arise in the normal course of business rather than from trading. We have examined our exposures to these risks and concluded that none of our exposures in these areas is material to fair values, cash flows or earnings. We regularly review these risks to determine if we should enter into active strategies, such as hedging, to help manage the risks. At the present time, we do not have any hedging programs in place and we are not trading in any financial or derivative instruments.provide information required by this Item.

Evaluation of Disclosure Controls and ~~participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted~~Procedures

Based upon an evaluation of the effectiveness of our disclosure controls and procedures ~~as such term is defined under Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).~~

~~Based upon this evaluation,~~performed by our Chief Executive Officer ~~and~~as of the end of the period covered by this report, our Chief ~~Financial~~Executive Officer ~~have~~ concluded that ~~as of September 30, 2013, due to material weaknesses existing in our internal controls as of December 31, 2012 (described below), which have not been fully remediated as of September 30, 2013,~~ our disclosure controls and procedures were ~~ineffective~~not effective as a result of a weakness in the design of internal control over financial reporting identified below.

As used herein, “disclosure controls and procedures” mean controls and other procedures of our company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act ~~is: (i)~~is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and ~~forms,~~forms. Disclosure controls and ~~(ii) accumulated~~procedures include, without limitation, controls and ~~communicated~~procedures designed to ~~our management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.~~

~~A material weakness is a deficiency or a combination of deficiencies in ICFR such~~ensure that ~~there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses would permit~~ information required to be disclosed by us in the reports that we file or submit ~~to not be recorded, processed, summarized and reported, within the time period specified in~~under the Securities Exchange ~~Commission’s rules~~Act is accumulated and ~~forms.~~

As a result of our assessment and based on the criteria in the COSO framework, management has concluded that, as of December 31, 2012, our ICFR was not effective due to the existence of the following material weakness:

~~Inadequate Reviews to Ensure Complex Accounting Transactions and Foreign Subsidiary Balances are Accurately Recorded in Accordance with U.S. Generally Accepted Accounting Principles (“GAAP”):~~ ~~Due~~communicated to our ~~liquidity situation, we did not have adequate staffing of adequately trained accounting personnel with~~management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate ~~expertise in U.S. GAAP~~ to ensure that certain complex material and non-routine transactions are properly reflected in our financial statements. Consequently, we may not anticipate and identify accounting issues, or other risks critical to financial reporting, that could materially impact the consolidated financial statements.allow timely decisions regarding required disclosure.

~~Remediation Activities.~~ ~~We will begin to implement remediation steps outlined below to eliminate the material weakness identified.~~

~~Inadequate Reviews to Ensure Complex Accounting Transactions and Foreign Subsidiary Balances are Accurately Recorded in Accordance with U.S. GAAP:~~ We have engaged a consulting firm to provide review and analysis for complex transactions and technical accounting research to ensure transactions are properly recorded in compliance with U.S. GAAP. In addition, we are seeking to hire additional staff with greater knowledge of U.S. GAAP both in the U.S. and our foreign operations as well as engaging selected third parties to improve the accuracy of our financial reporting.

There have been no changes in our internal controls over financial reporting during the ~~quarter~~period ended ~~September~~June 30, ~~2013, management continued~~2021 that have materially affected or are reasonably likely to ~~implement the steps outlined above under “Remediation Activities” to improve the quality of its ICFR.~~

We are ~~subject~~not a party to ~~various claims and contingencies~~or otherwise involved in any legal proceedings.

In the ordinary course of business, ~~including those related to litigation, business transactions and others. When~~ we are ~~aware of a claim~~from time to time involved in various pending or ~~potential claim, we assess the likelihood of any loss or exposure. If~~threatened legal actions. The litigation process is inherently uncertain and it is ~~probable~~possible that ~~a loss will result and~~ the ~~amount~~resolution of the loss can be reasonably estimated, we will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. There is no assurance that such matters ~~will~~might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not ~~materially and adversely affect~~expected to have a material adverse effect on our ~~business,~~ financial position ~~and~~or results of ~~operations or cash flows.~~operations.

On May 6, 2013, Continental Grand LP, a Delaware company filed a lawsuit in the Superior Court of California against the Company for unlawful detainer of a property located in El Segundo, California. The action seeks termination of our lease. A Settlement is currently being negotiated out-of-court by the parties.

On May 8, 2013, the Company filed in the United States of New York, Southern District of New York a lawsuit against Magna Group LLC and Hanover Holdings LLC for breach of contract, breach of the covenant of good faith and fair dealing. The action is seeking compensatory damages in an unspecified amount, plaintiff’s costs and attorneys’ fees, and unspecified equitable or injunctive relief.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the ~~risk factors previously disclosed in the Registrant’s Form 10-K filed on April 14, 2013.~~Company is not required to provide information required by this Item.

~~ITEM~~Item 2. ~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~Unregistered Sales of Equity Securities and Use of Proceeds.

~~ITEM~~Item 3. ~~DEFAULTS UPON SENIOR SECURITIES~~Defaults Upon Senior Securities.

*XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.

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

Nevada
~~Nevada~~		91-2154289
(State or ~~Other Jurisdiction of~~other jurisdiction ~~Incorporation~~of incorporation or ~~Organization)~~organization)		(I.R.S. Employer Identification No.)

~~2213 Killion Avenue~~Room 2707, Global Mansion, Zhengbian Road, Jinhui District, Zhengzhou City, Henan Province ~~Seymour, Indiana~~		~~47274~~ 450000, China
(Address of ~~Principal Executive Office)~~principal executive offices)		(Zip Code)

	June 30,			December 31,
	2021			2020
	Unaudited
ASSETS
Current Assets
Notes receivable	$	-		$	-
Total Current Assets		-			-

TOTAL ASSETS	$	-		$	-

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable and accrued liabilities	$	2,655		$	600
Due to related parties		34,902			6,300
Total Current Liabilities		37,557			6,900

TOTAL LIABILITIES		37,557			6,900

Stockholders’ Deficit
Preferred Stock: 5,000,000 shares authorized; $0.001 par value 5,000,000 issued and outstanding at June 30, 2021 and December 31, 2020		5,000			5,000
Common stock: 250,000,000 shares authorized; $0.001 par value 74,640,766 shares issued and outstanding at June, 2021 and December 31, 2020		74,641			74,641
Capital deficiency		97,186,036			97,186,036
Accumulated deficit during development stage		(97,303,234	)		(97,272,577	)
Total Stockholders’ Deficit		(37,557	)		(6,900	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	-		$	-


~~Item 1. FINANCIAL STATEMENTS~~			3

C~~ONSOLIDATED~~ B~~ALANCE~~ S~~HEETS~~AT S~~EPTEMBER~~ ~~30, 2013AND~~ D~~ECEMBER~~ ~~31, 2012~~			3

C~~ONSOLIDATED~~ S~~TATEMENTS~~OF O~~PERATIONSAND~~ O~~THER~~ C~~OMPREHENSIVE~~ I~~NCOMEFORTHE~~ T~~HREEAND~~ N~~INEMONTHSENDED~~ S~~EPTEMBER~~ ~~30, 2013AND~~ ~~2012~~			4

C~~ONSOLIDATED~~ S~~TATEMENTS~~OF C~~ASH~~ F~~LOWSFORTHE~~ N~~INEMONTHSENDED~~ S~~EPTEMBER~~ ~~30, 2013AND~~ ~~2012~~			5

N~~OTES~~TO~~THE~~ C~~ONSOLIDATED~~ F~~INANCIAL~~ S~~TATEMENTS~~			6

~~Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~			20

~~Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~			28

~~Item 4. CONTROLS AND PROCEDURES~~			28

~~PART II—OTHER INFORMATION~~

~~Item 1. LEGAL PROCEEDINGS~~			30

~~Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~			30

~~Item 3. DEFAULTS UPON SENIOR SECURITIES~~			30

~~Item 4. MINE SAFETY DISCLOSURES~~			30

~~Item 5. OTHER INFORMATION~~			30

~~Item 6. EXHIBITS~~			31

~~SIGNATURES~~			32
~~Exhibit 31.1~~
~~Exhibit 31.2~~
~~Exhibit 32.1~~
~~Exhibit 32.2~~
~~EX-101 INSTANCE DOCUMENT~~
~~EX-101 SCHEMA DOCUMENT~~
~~EX-101 CALCULATION LINKBASE DOCUMENT~~
~~EX-101 LABELS LINKBASE DOCUMENT~~
~~EX-101 PRESENTATION LINKBASE DOCUMENT~~
~~EX-101 DEFINITION LINKBASE DOCUMENT~~


	September 30, 2013			December 31, 2012
	(Unaudited)
ASSETS
Current Assets
Cash	$	233		$	183
Accounts Receivable, Net		1,021			149
Inventory, Net		5,722			6,941
Prepaid Expenses and Other Current Assets		199			227

Total Current Assets		7,175			7,500

Property and Equipment
Property and Equipment		11,152			11,601
Accumulated Depreciation and Amortization		(4,660	)		(4,004	)

Property and Equipment, Net		6,492			7,597

Other Assets
Restricted Cash		—			43
Deferred Loan Costs		350			750
Intangible Assets, Net		239			245
Deposits		48			47

Total Other Assets		637			1,085

Total Assets	$	14,304		$	16,182

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts Payable	$	920		$	803
Accrued Expenses		3,386			3,663
Capital Leases, Current Portion		97			85
Loan Payable, Current Portion		6,224			5,978
Convertible Subordinated Notes, Current Portion		1,122			891
Derivative Liability		15,142			3,189
Preferred Stock, $0.001 par value; 5,000,000 shares authorized, 490 and 92 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		2,213			500

Total Current Liabilities		29,104			15,109

Long-Term Liabilities
Loan Payable		—			923
Convertible Subordinated Notes		7,500			10,000
Capital Leases, Long-Term		120			173

Total Long-Term Liabilities		7,620			11,096

Total Liabilities		36,724			26,205

Shareholders’ Deficit
Common Stock, $0.001 par value; 2,000,000,000 shares authorized; 810,757,671 and 63,463,659 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		811			63
Common Stock Subscribed, not issued		1,358			—
Additional Paid in Capital		96,416			76,919
Accumulated Deficit		(121,136	)		(87,097	)
Accumulated Other Comprehensive Income		127			88

Total Shareholders’ Deficit		(22,424	)		(10,027	)
Noncontrolling Interests		4			4

Total Shareholders’ Deficit		(22,420	)		(10,023	)

Total Liabilities and Shareholders’ Deficit	$	14,304		$	16,182

PART I – FINANCIAL INFORMATION			3
		~~Page~~
ITEM 1	Condensed Consolidated Financial Statements (Unaudited)	4

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	14

ITEM 4	Controls and Procedures	14

PART II – OTHER INFORMATION		15

ITEM 1	Legal Proceedings	16

ITEM 1A	Risk Factors	16

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	16

ITEM 3	Defaults Upon Senior Securities	16

ITEM 4	Mine Safety Disclosures	16

ITEM 5	Other Information	16

ITEM 6	Exhibits	16


	Three Months Ended						Nine Months Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
GROSS SALES	$	438		$	481		$	2,135		$	786
Sales Discounts, Returns and Allowances		(2	)		(4	)		(3	)		(16	)

NET SALES		436			477			2,132			770
COST OF GOOD SOLD		382			473			1,880			861

GROSS PROFIT (LOSS)		54			4			252			(91	)
OPERATING EXPENSES:
Research and Development		75			115			295			371
Selling, General and Administrative		1,134			6,847			3,796			10,518
Impairment of Long-Lived Assets		547			—			547			—

Total Operating Expenses		1,756			6,962			4,638			10,889

OPERATING LOSS		(1,702	)		(6,958	)		(4,386	)		(10,980	)
Debt Extinguishment		(1,065	)		—			(2,821	)		(427	)
Change in Derivative Liabilities		(2,392	)		47			(21,629	)		(52	)
Interest and Other Income		—			—			—			18
Interest Expense		(2,112	)		(3,057	)		(5,203	)		(4,834	)

LOSS BEFORE PROVISION FOR INCOME TAXES		(7,271	)		(9,968	)		(34,039	)		(16,275	)
Provision for Income Taxes		—			—			—			—

NET LOSS		(7,271	)		(9,968	)		(34,039	)		(16,275	)
Gain (Loss) on Foreign Currency Translation		89			(95	)		39			26

Total Comprehensive Loss	$	(7,182	)	$	(10,063	)	$	(34,000	)	$	(16,249	)

NET LOSS PER SHARE - BASIC AND DILUTED	$	(0.01	)	$	(0.40	)	$	(0.07	)	$	(0.77	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED		731,817,081			24,739,449			482,042,209			21,242,115

	Common Stock: Shares			Common Stock: Amount		Preferred Stock: (A-1) Shares		Preferred Stock: Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income		Totals

Balance – December 31. 2020		74,641,276		$	74,641		5,000,000	$	5,000	$	97,186,036	$	(97,272,577	)	$	-	$	(6,900	)

Cancellation of common stock
Cancellation of common stock, shares
Conversion of preferred stock
Conversion of preferred stock, shares
Issuance of preferred stock
Issuance of preferred stock, shares
Net loss		-			-		-		-		-		(20,760	))		-		(20,760	))

Balance – March 31, 2021		74,641,276		$	74,641		5,000,000	$	5,000	$	97,186,036	$	(97,293,337	)	$	-	$	(27,660	)

Cancellation of common stock		(510	)		-		-		-		-		-			-		-
Net loss		-			-		-		-		-		(9,897	))		-		(9,897	))
	��
Balance – June 30, 2021		74,640,766		$	74,641		5,000,000	$	5,000	$	97,186,036	$	(97,303,234	)	$	-	$	(37,557	)

	Common Stock: Shares		Common Stock: Amount		Preferred Stock: (A) Shares			Preferred Stock: Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income		Totals

Balance – December 31. 2019		74,640,766	$	74,641		510		$	-	$	97,206,117	$	(97,254,935	)	$	-	$	25,823

Net loss		-		-		-			-		-		(4,842	)		-		(4,842	)

Balance – March 31, 2020		74,640,766	$	74,641		510		$	-	$	97,206,117	$	(97,259,777	)	$	-	$	20,981
Beginning balance		74,640,766	$	74,641		510		$	-	$	97,206,117	$	(97,259,777	)	$	-		20,981

Conversion of preferred stock		510		-		(510	)		-		-		-			-		-
Issuance of preferred stock						5,000,000			5,000		-		-			-		5,000
Net loss		-		-		-			-		-		(982	)		-		(982	)

Balance – June 30, 2020		74,641,276	$	74,641		5,000,000		$	5,000	$	97,206,117	$	(97,260,759	)	$	-	$	24,999
Ending balance		74,641,276	$	74,641		5,000,000		$	5,000	$	97,206,117	$	(97,260,759	)	$	-		24,999

	2021			2020
	Six Months Ended
	June 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(30,657	)	$	(5,824	)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities		2,055			529
Loan payable - related party		28,602			5,295
Net Cash Used in Operating Activities		-			-

CASH FLOWS FROM INVESTING ACTIVITIES		-			-

CASH FLOWS FROM FINANCING ACTIVITIES		-			-

Net change in cash and cash equivalents for the year		-			-
Cash and cash equivalents at beginning of the year		-			-
Cash and cash equivalents at end of the year	$	-		$	-

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes	$	-		$	-
Cash paid for interest	$	-		$	-


	~~January 14, 2011~~
~~Average risk-free interest rate~~		~~2.29~~	%
~~Average expected life (in years)~~		~~6.0~~
~~Volatility~~		~~41.9~~	%


	2013					2012
	Shares			Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding—January 1		204		$	5.62		373	$	8.65
Granted at fair value		—			—		—		—
Exercised		—			—		—		—
Cancelled/forfeited		(200	)		—		—		—

Outstanding—September 30		4			22.40		373		8.65

Options exercisable at September 30		4		$	22.40		193	$	11.77


	Options Outstanding								Options Exercisable
Range of Exercise Prices	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contract Life		Aggregate Intrinsic Value		Shares		Weighted Average Exercise Price		Weighted Average Remaining Contract Life		Aggregate Intrinsic Value
$5.32—$22.40		4	$	22.40		1.42	$	—		4	$	22.40		1.42	$	—


~~Assumptions:~~	~~September 30, 2013~~
~~Expected life~~		~~0.6 years~~
~~Expected volatility~~		~~270.2~~	%
~~Dividends~~		~~None~~
~~Risk-free interest rate~~		~~0.04~~	%


	~~December 22, 2010~~
~~Assumptions:~~
~~Expected Life~~		~~7 years~~
~~Expected volatility~~		~~39.9~~	%
~~Dividends~~		~~None~~
~~Risk-free interest rate~~		~~2.74~~	%


	September 30, 2013			December 31, 2012
	(Unaudited)
Raw Materials	$	1,961		$	1,950
Bioplastic Resins		3,853			5,082
Finished Goods		41			42
Packaging Materials		66			66
WIP		—			—
Obsolescence Reserve		(199	)		(199	)

Inventory, net	$	5,722		$	6,941


~~Assumptions:~~	~~May 1, 2012~~
~~Expected life~~		~~7 years~~
~~Expected volatility~~		~~88.2~~	%
~~Dividends~~		~~None~~
~~Risk-free interest rate~~		~~1.35~~	%


Assumptions:	June 26, 2012			August 9, 2012
Expected life		4 years			4 years
Expected volatility		95.4	%		97.7	%
Dividends		None			None
Risk-free interest rate		0.59	%		0.66	%


Assumptions:	October 15, 2012			November 8, 2012
Expected life		1 year			1 year
Expected volatility		155.6	%		125.9	%
Dividends		None			None
Risk-free interest rate		0.19	%		0.20	%


Assumptions:	January 28, 2013			February 8, 2013
Expected life		1 year			1 year
Expected volatility		226.5	%		247.4	%
Dividends		None			None
Risk-free interest rate		0.16	%		0.14	%


~~Assumptions:~~	~~March 8, 2013~~
~~Expected life~~		~~1 year~~
~~Expected volatility~~		~~249.0~~	%
~~Dividends~~		~~None~~
~~Risk-free interest rate~~		~~0.15~~	%


	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets
None	$	—	$	—	$	—	$	—

Total assets measured at fair value	$	—	$	—	$	—	$	—
Liabilities
Derivative liability (1)	$	15,142	$	—	$	—	$	15,142

Total liabilities measured at fair value	$	15,142	$	—	$	—	$	15,142


(in thousands)	Derivative Liability
Balance at December 31, 2012	$	3,189
Total gains or losses (realized and unrealized)
Included in net loss		21,629
Valuation adjustment		(9,676	)
Purchases, issuances, and settlements, net		—
Transfers to Level 3		—

Balance at September 30, 2013	$	15,142


	Three Months Ended Sept 30,						Nine Months Ended Sept 30,
	2013			2012			2013			2012
Customer A		—			80.3	%		—			49.8	%
Customer B		—			14.5	%		—			18.0	%
Customer C		—			—			—			10.5	%
Customer D		22.6	%		—			31.0	%		—
Customer E		18.7	%		—			19.8	%		—
Customer F		15.9	%		—			—			—


	Three Months Ended September 30,
	2013				2012
North America	$	139	31.9	%	$	94	19.7	%
International
Italy		297	68.1	%		383	80.3	%

Net sales	$	436	100.0	%	$	477	100.0	%


	Nine Months Ended September 30,
	2013				2012
North America	$	203	9.5	%	$	338	44.0	%
International
Italy		1,887	88.5	%		389	50.6	%
Germany		21	1.0	%		14	1.8	%
India		21	1.0	%		—	—
Other		—	—			29	3.6	%

Net sales	$	2,132	100.0	%	$	770	100.0	%


	2013				2012
	Number of Warrants		Weighted Average Exercise Price		Number of Warrants		Weighted Average Exercise Price
Outstanding—January 1,		35,313	$	0.41		4,219	$	5.09
Issued		33,333		0.006		—		—
Exercised		—		—		—		—

Outstanding—September 30,		68,646		0.22		4,219		5.09

Warrants exercisable at end of period		68,646	$	0.22		4,219	$	5.09

31.1		Certification of CEO and CFO. Filed herewith.
~~Exhibit~~ ~~Number~~ 32.1		~~Description~~ Certification pursuant to 18 U.S.C. Section 1350 of CEO and CFO. Filed herewith.
101.INS*	XBRL Instance Document
~~31.1~~101.SCH*		~~Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
~~31.2~~101.DEF*		~~Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~XBRL Taxonomy Extension Definition Linkbase Definition
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
~~32.1~~101.LAB*		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ***

~~32.2~~		Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***

~~101~~		XBRL (Extensible Business Reporting Language) The following materials from Cereplast Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in Extensive Business Reporting Language (XBRL), (i) consolidated balance sheets, (ii) consolidated statements of operations and other comprehensive loss, (iii) consolidated statement of cash flows, and (iv) the notes to the consolidated financial statements.Taxonomy Extension Label Linkbase Document

	HONG YUAN HOLDING GROUP

Dated: August 10, 2021	By:	/s/ Li Xudong
		Li Xudong
		CEO and Chief Financial Officer (chief financial and accounting officer and duly authorized officer)


		~~CEREPLAST, INC.~~

~~By:~~		~~/s/ Frederic Scheer~~
		~~Frederic Scheer~~ ~~Chairman and Chief Executive Officer~~ ~~(Principal Executive Officer)~~ 17

Large accelerated filer ☐

Accelerated filer

Non-accelerated filer ☐

Smaller reporting company☒

Emerging growth company ☐