Cereplast: 2008 Financial Results

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Cereplast, Inc., manufacturer of proprietary bio-based sustainable plastics, today reported financial results for the fiscal year ended December 31, 2008.

For the year ended December 31, 2008, Cereplast reported gross sales of $4.6 million, compared with gross sales of $2.3 million in fiscal year 2007, representing a 96% year-over-year increase. The increase in sales is a result of volume growth in the Company’s bioplastic resins from both existing customers and new customers launching commercial applications with its resins.

Operating expenses increased by 10.5% to $13.3 million for the year ended December 31, 2008 compared to $12.0 million for the year ended December 31, 2007. The increase is attributable to higher spending to support the technical development and commercial expansion of the Company’s two resin families; upgrading of business processes and strengthening functional management across all departments; expansion of production, logistics and testing facilities; and support costs related to intellectual property, branding/communications and third party testing/accreditation needs.

The Company reported a net loss of $12.7 million, or $0.05, per share, for the year ended December 31, 2008 compared with a net loss of $11.7 million, or $0.05 per share, for fiscal year 2007. The increase in net loss was a result of higher operating and development expenses associated with the growth of the Company’s resin operations.

The weighted average number of shares used in the calculation of earnings per share was 265.8 million for the year ended December 31, 2008 compared to 238.4 million for fiscal year 2007. The increase in the weighted average number of shares primarily reflects the shares issued by the Company in private placement transactions and as part of employee compensation. Members of the management team continue to take a significant component of their personal compensation in the form of Cereplast stock in lieu of cash. In addition, all senior staff members of Cereplast have agreed to defer an additional portion of their cash compensation as part of the Company’s cash conservation programs.

During the year ended December 31, 2008, the Company used $8.3 million of cash for operating activities, compared to net cash used in operating activities of $4.8 million for the year ended December 31, 2007. The increase in the use of cash for operating activities was a result of increased manufacturing, technical development and operating expenses, additional company staff resources and expansion of finished goods/raw materials stocks to support business growth. Cash totaled $501,699 at December 31, 2008.

“The nearly 100% growth in 2008 sales versus 2007 was very encouraging. But I am more excited by our outlook for 2009,” said Frederic Scheer, Cereplast’s Chairman and CEO. “Despite the challenges of the current business environment, we are confident that our revenues for this year can exceed $10 million – based upon new contracts and the imminent launch of several new products into new markets.

“And looking at the active customer projects in our commercialization pipeline, 2010 could easily more than double our 2009 results,” continued Scheer. “Cereplast, like many early stage growth companies, faces liquidity challenges in the current environment. But our results and projections reaffirm the great potential for Cereplast and our products, and this gives us confidence we will be able to attract additional investment funds. Sustainability and a greener future for plastics can weather the current economic crisis.”

“2008 was a year of positive transformation for Cereplast, with impressive progress across all aspects of the Company’s operations, business processes and performance measures,” said Randy Woelfel, President and COO. “Our success rate in commercialization and speed to market has been enhanced – because we have focused our ‘pipeline process’ and invested in testing and application development capability. Our manufacturing productivity, costs and quality results have reached new levels due to strengthened leadership, enhanced quality systems/tools and improved processes. Sophisticated financial planning and decision support tools are now in place, giving us real-time insight into our business performance and improvement options. And most critically, our sales team is delivering higher sales at better profitability thanks to rigorous market and customer selection, better customer support and product information and a demonstrated model of collaborative development at key growth accounts. Our goal remains clear – to reach cash positive operations as quickly as possible.”

Operating Highlights

Financing – During the third quarter 2008, Cereplast completed a $2.6 million private placement of unregistered common stock with a group of existing investors. The Company also secured a $20 million equity line of credit in December 2008 with an existing shareholder of the Company.

During the first quarter of 2009, the Company commenced a $5.0 million unregistered private placement. The private placement has a rolling closing under which the Company has already received $717,340 in gross proceeds. In addition, the Company is exploring other financing alternatives, including bank debt and convertible debt instruments.

When completed, the proceeds of the various funding efforts will be used for: the start-up of the new Seymour manufacturing facilities; a major project to upgrade the productivity and cost competitiveness of the Compostables® manufacturing lines; and funding the growth in working capital needed to support the significant business expansion in the upcoming quarters.

However, due to the current global financial turmoil, the Company is unable to provide assurance that we will be able to obtain additional financing on commercially reasonable terms when needed.

Product Development and Intellectual Property – Cereplast made significant progress in 2008 in the development, extension and enhancement of both product lines. Two new standard Hybrid resin formulations were developed for injection molding and sheet extrusion applications, and products based upon these formulations are now launching in the marketplace. Development work targeted towards a compostable extrusion coating resin for coated paper applications is now in the final phase of customer trials, and is expected to launch commercially in the second quarter 2009. Technical development of a compostable foam resin is well advanced and pilot scale trials with several customers are underway; commercial product launch is anticipated by year-end. Additional technical projects are focused on: lowering the cost of Cereplast formulations; broadening the Hybrid resin product line with “natural” based fibers and blends in addition to starches; improving processing economics and yields; and improving the economics and performance of compostable products.

Customer Development and Joint Development Agreements – As of December 31, 2008, over 165 companies have requested and been provided with samples of our bioplastic resin and 95 customers have purchased resin for trials and testing. Of these, 65 customers have advanced to prototype testing and qualification of more than 110 different product applications. Twenty customers, including WNA, Alcoa, Genpak, Innoware, Penley, Solo, Cadaco, Jatco, Dentek, CSI-Cosmolab and Pace Industries, have commercialized and introduced over 85 different bioplastic products using our resin. The commercialization “pipeline” today represents over $20 million of annual sales potential realizable within the next twelve months.

Cereplast made several new customer announcements during the fourth quarter of 2008 and in early 2009, representing significant market opportunities. A few highlights included:

    * An agreement with A. Schulman to distribute Cereplast Compostables® and Hybrids Resins® to converters and manufacturers in France, Benelux and Spain. The agreement will enable A. Schulman to launch a new offering of bio-based materials to its customers interested in more environmentally-friendly solutions. A. Schulman is a leading international supplier of high-performance plastic compounds and resins used as raw materials in a variety of markets.
    * A supply agreement with DenTek®, a leading oral care company, whereby Cereplast will provide bioplastic resin for DenTek’s® new Natural Floss Picks, the first biodegradable/compostable floss pick on the market.
    * An agreement to supply Absorbent Specialty Products with bioplastic resin for its new “Bio-Bones” Bone Replacement Prosthetics.

Production – Among the achievements in the operations area were: successful completion of ISO 9001 quality systems surveillance auditing; major progress in manufacturing safety and health performance and systems; implementation of new procedures/equipment/processes/plant layout to improve productivity and costs across all manufacturing and logistics operations; and internal programs to reduce waste and enhance recycling of process materials.

Corporate Management and Infrastructure – Implementation of MAS500 ERP software has been successfully completed, providing a step change in the integration of business applications and information, the quality/level of detail and real time reporting across all functional areas, improved analysis of pricing and costs and enhanced control of all business processes.

About Cereplast, Inc.

Cereplast, Inc. designs and manufactures proprietary bio-based, sustainable plastics that are used as substitutes for petroleum-based plastics in all major converting processes – such as injection molding, thermoforming, blow molding and extrusions – at a pricing structure that aims to be competitive with petroleum-based plastics. On the cutting-edge of bio-based plastic material development, Cereplast now offers resins to meet a variety of customer demands. Cereplast Compostables® resins are ideally suited for single use applications where high bio-based content and compostability are advantageous, especially in the food service industry. Cereplast Hybrid Resins® combine high bio-based content with the durability and endurance of traditional plastic, making them ideal for applications in industries such as automotive, consumer electronics and packaging. Learn more at www.cereplast.com.

Forward Looking Statements

Matters discussed in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this press release, the words “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect” and similar expressions identify such forward-looking statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. These forward-looking statements are based largely on the expectations of the Company and are subject to a number of risks and uncertainties. These include, but are not limited to, risks and uncertainties associated with: the impact of economic, competitive and other factors affecting the Company and its operations, markets, product, and distributor performance, the impact on the national and local economies resulting from terrorist actions, and U.S. actions subsequently; and other factors detailed in reports filed by the Company.

Cereplast, Inc.

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