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Cereplast, Inc. (OTCBB: CERP)
Untitled Document
Cereplast, Inc. (OTCBB: CERP) develops, manufactures and markets bio-based resins designed to supplement or even replace conventional petroleum-based plastics in a wide range of converting applications. CERP's resins are made from renewable resources such as corn, wheat, tapioca and potato starches. The Company markets two lines of biodegradable, compostable resins: Cereplast Compostables™ and Cereplast Hybrid Resins™. Cereplast Compostables™
resins are renewable, ecologically-sound substitutes for petroleum-based plastics. Cereplast Hybrid Resins™ are also bio-based and can be used to replace 50% or more of the petroleum content in traditional plastic products.
Sold at prices competitive with conventional plastics, CERP's resins offer comparable or superior performance and environmental benefits resulting from reduced petroleum consumption.
During the first nine months of 2007, CERP introduced a new product line and increased revenues 258% year-over-year to $1.6 million. The Company plans to establish a new bio-plastic production facility in Seymour, Indiana which will be the world's largest bio-plastic production plant and capable of producing up to half a billion pounds of bio-plastics per year when it reaches full capacity in 2010. CERP is headquartered in Hawthorne, California and commenced operations in 2001. It markets its bio-based resins to customers in the US, Europe and Asia.
A business model capitalizing on environmental and cost benefits
Cereplast is developing and commercializing bio-based resins which can be substituted for petroleum- based plastics in a variety of converting applications such as thermoforming, blow molding, injection molding, extrusion coating, blown film and profile extrusion. The Company's
resins are made from renewable resources such as corn, wheat, tapioca and potato starches.
Because its bio-resins are both biodegradable and compostable, they present a more environmentally-friendly alternative to petroleum-based resins. In addition, its bio-based resins are less impacted by rising oil prices.
Favorable industry outlook
The global plastics industry is estimated at 250 million tons and is growing 5% annually. According to BCC Research, the global market for bio-plastics was 541 million pounds in 2007 (0.25 million tons) and is expected to expand 17.3% annually and exceed 1.2 billion pounds (0.55 million tons) by 2012.
Bio-plastics technology is evolving rapidly; this progress, combined with rising bio-plastics demand and volume is creating production and cost efficiencies which are helping to reduce bio-plastics prices to levels comparable to petroleum-based plastics. In addition, rising oil prices are helping to position bio-plastics as an increasingly affordable alternative. Substituting bio-plastics for conventional plastics could reduce the US consumption of petroleum used in plastics production by 7%. In addition, the environmental benefits resulting from lower oil consumption are encouraging government incentives that will speed the adoption of biodegradable plastics.
Two product lines tap a full range of market applications
ERP is developing and commercializing two lines of resins: Cereplast Compostables™ and Cereplast Hybrid Resins™, commercially available since the fourth quarter of 2006 and the third quarter of 2007, respectively.
Cereplast Compostables™ resins are renewable, ecologically-sound substitutes for petroleum-based plastics. They replace nearly 100% of the petroleum-based additives used in traditional plastics with plant starches. CERP has 15 grades of compostable resins in its product portfolio. These products address the needs of
plastic converters serving the foodservice disposable packaging market. In February 2007, CERP received the 2007 Environmental Award for New Technology in Materials from the Society of Plastics Engineers for its Cereplast Compostables™ resins.
Cereplast Hybrid Resins™ are bio-based and replace 50% or more of the petroleum content in conventional plastics with plant starches. This new hybrid line significantly expands the number of potential market applications for CERP resins. Cereplast Hybrid ResinsTM can replace traditional petroleum-based plastics in automotive, consumer electronics, toys, medical, entertainment packaging, furniture, cosmetic packaging, consumer goods and construction applications. CERP was awarded the inaugural AUTOPLAST SPEICON Award for the greatest contribution in plastic material development for the auto industry for new Biopropylene™ resin.
Advantages suggest rapid market acceptance for CERP's resins
The Company's bio-resins offer the following advantages:
- Bio-plastics are made from plant starches, a renewable resource. Petroleum-based plastics are made from a depleting resource;
- The use of bio-plastics results in lower carbon emissions and bio-plastic disposal is carbon-neutral;
- The process by which bio-plastics are made requires less energy than conventional plastics, resulting in cost and environmental benefits;
- Bio-resins are available at prices competitive with petroleum-based resins and are not affected by rising oil prices;
- Bio-plastic disposal has less impact on the environment
than oil-based plastics since this material is recyclable, 100% compostable and biodegradable. Bio-plastics quickly break down and return to nature; petroleum-based plastics can take anywhere from 200,000 years to one million years to degrade.
Robust revenue growth
During the fourth quarter of 2006, the Company shifted its focus from selling finished products made from bio-based resins to manufacturing and selling bio-based resins. As of September 30, 2007, CERP and its converting partner has successfully introduced a total of 57 bio-based products. Gross sales reached a record $1.6 million in the first nine months of 2007, a 258% increase over the comparable 2006 period.
Going forward, CERP's established relationships with leading converters such as Alcoa, Genpak, Innoware and SoloCup; its pipeline of 65 new customer prospects; the commercial launch of its Cereplast Hybrid ResinsTM line, expansion of its manufacturing capacity to half a billion pounds per year and growing market acceptance of bio-based plastics support our expectation of triple-digit annual sales growth for this Company over the next three to five years.
Seasoned management team
Cereplast has attracted the industry's top talent, including several prominent scientists and process engineers. The Company's management team has extensive managerial, operational and research experience earned with leading polymer companies such as Novamont, Chronopol and Eastman Chemical Company.
President/CEO Frederic Scheer entered the bio-plastic market in 1994 when he organized the buyout of Novamont, SpA. Subsequently, Mr. Scheer secured exclusive North American distribution rights for Novamont's 100% biodegradable resin Mater-Bi™.
Senior Vice-President of Technology William Kelly led technical efforts to develop a fiber-forming polylactide material with unique performance characteristics for Chronopol. He planned and directed activities leading to the commercialization of over 50 new polymer systems.
Dr. Shriram Bagrodia, the Company's Senior Vice-President for R&D Blends and Chemistry, served as a Research Associate at Eastman Chemical Company where he was responsible for developing new products, processes, and applications. At Eastman, he received 50+ US Patents. He was the recipient of the SPE 2005 Engineering/Technology award.
Solid balance sheet
Cereplast has a strong balance sheet and cash of nearly $11 million at September 30, 2007. In addition, the Company has working capital of $12.2 million and minimal debt of only $0.2 million. Because of its strong balance sheet, CERP can begin expanding its manufacturing capacity in 2008 and also leverage its assets and technology to attract external financing.

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