Cereplast, Inc.: Second Quarter 2008 Financial Results

HAWTHORNE, Calif.----Cereplast, Inc., manufacturer of proprietary bio-based sustainable plastics, today reported financial results for the six months ended June 30, 2008.

For the first six months of 2008, Cereplast reported gross sales of $1,973,109, a 108% increase over the comparable 2007 period. Gross sales increased by $502,441 or 90% to $1,059,957 for the three months ended June 30, 2008 compared to the first quarter of 2007. The increase in sales for each of the respective periods is the result of volume growth in the Company’s bioplastic resins from existing customers and new customers launching commercial products.

Operating expenses were $7,168,407 for the six months ended June 30, 2008, an increase of $3,874,219 or 118%, versus the comparable 2007 period. For the second quarter of 2008 operating expenses increased by $1,165,903, or 59%, to $3,131,752 compared to the quarter ended June 30, 2007. The increase for each of the respective periods is attributable to increased spending, both cash and non-cash related, to support the commercial development of the Company’s two resin families, introduction of new products and business growth. Non-cash compensation to employees and directors included the issuance of restricted stock and expensing of stock options as part of long-term compensation.

The Company reported a net loss of $7,026,316, or $0.03 per share, for the first half of 2008 as compared with a net loss of $3,302,562, or $0.02 per share, for the comparable period in 2007. For the second quarter of 2008 the net loss was $3,181,907, or $.01 per share, versus a net loss of $2,019,435, or $.01 per share, for the comparable quarter in 2007. The increase in net loss for each of the respective periods was the 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 260.6 million for first half of 2008 compared to 218.6 million for the first half of 2007; for the second quarter of 2008 the weighted average number of shares was 261.7 million versus 222.1 million for the same period in 2007. The increase in the weighted average number of shares primarily reflects the shares issued by the Company as part of long-term compensation.

During the six months ended June 30, 2008, the Company used $5,802,682 of cash for operating activities, compared to net cash used in operating activities of $2,662,102 for the first six months of 2007. The increase in the use of cash for operating activities was a result of increased manufacturing and operational upgrading expenses, inventory builds to support business growth, and higher research, development and marketing expenses to support the introduction of new products. Cash and short-term investments at June 30, 2008 totaled $667,985.

“The triple-digit demand growth trend for our bioplastics continued in the first half of this year,” said Frederic Scheer, Cereplast’s Chairman and CEO. “Supported by both continually mounting environmental awareness and high fossil fuel prices, we see tremendous interest in our products from the marketplace. Expectations for the second half continue in line with our own robust 2008 plan and industry analyst projections.”

“Cereplast made great progress during the second quarter towards our goal of becoming a mainstream bioplastics supplier,” said Randy Woelfel, President and Chief Operating Officer. “Cereplast’s sales growth is starting to accelerate and several key development grades of resin are in commercialization. Our Seymour facility is nearing start-up, bringing step changes in our capacity and cost efficiency, and our strengthened management, sales and development teams are driving improvements in all aspects of our operations. The outlook for our business is very strong.”

Operating Highlights

Financing – Cereplast commenced a $10.0 million unregistered private placement during the second quarter. When completed, the net proceeds will be used for: the completion and start-up of the new Seymour manufacturing facilities; a major project to upgrade the productivity and cost competitiveness of the Compostables® manufacturing lines; the completion of the Company’s first application development and testing laboratory; and funding the growth in working capital needed to support the significant business expansion in the upcoming quarters. The Company expects to close the first portion of the placement before the end of August, 2008.

Product Development and Intellectual Property – Cereplast has developed and is commercializing proprietary bio-based resins through two complementary product families: Cereplast Compostables Resins®, a renewable, ecologically sound substitute for single-use petroleum-based plastics, and Cereplast Hybrid Resins®, which replace 50% or more of the petroleum-based content of durable traditional plastics with materials from renewable resources.

In the second quarter of 2008, as a key investment in its product commercialization capability, Cereplast began implementation of its first application development and resin testing laboratory in Hawthorne, California. When completed by the end of the third quarter of 2008, this facility will enable Cereplast to conduct all standard product development and qualification testing in-house, greatly speeding up the development cycle for new resin development and enhancing technical support to customers.

Also during the second quarter 2008, Cereplast secured patent protection for its Cereplast Compostables® resin family of products from the United States Patent and Trademark Office (USPTO). The U.S. patent (#7,393,590) was issued on July 1, 2008 and adds to the Company’s intellectual capital. This formulation patent strengthens the existing patent portfolio of Cereplast and protects the composition of Cereplast’s Compostable resin grades designed primarily for extrusion coating resin on paper and other substrates. Currently Cereplast holds five patents with an additional 22 patents pending both in the U.S. and abroad covering both resin families.

In early August 2008, the Company received confirmation from Keller and Heckman LLP that Biopropylene® resin is FDA compliant for food contact, adding to the field of commercial applications for its Biopropylene® resin family. All of Cereplast’s current commercial grades of resins in both the Compostable and Hybrid family are now FDA compliant for food contact.

Customer Development and Joint Development Agreements – As of June 30, 2008, more than 120 companies have requested and been provided with samples of Cereplast bioplastic resin for use in more than 112 different product applications. Most importantly, the number of commercialized products using Cereplast resin has grown to more than 85, a 27% increase from the first quarter 2008, and 340% more than the first quarter of 2007 when only 25 products were commercialized.

The Company saw substantial sales growth in the quarter from such well-established customers as: Pace Industries, Inc., makers of high quality extruded sheet for the print signage, gift and loyalty card, and horticultural tag markets; Genpak, whose Harvest Collection® was the first Cereplast Compostables® resin-based food service ware line to go to market; and Cell–O–Core, makers of Cello-Green® biodegradable beverage straws. The business projections for the remainder of 2008 from these and other Cereplast established customers continue to reflect strong growth in purchases from the Company.

Several major customer development projects are expected to come to fruition before the end of 2008, representing significant potential market opportunities for Cereplast. Highlighted opportunities, all of which are based upon purchased Cereplast resins, include:

    * Canguru Embalagens, a leading Brazilian producer of packaging materials, is launching the first line of compostable food service products in Brazil under the brand “Bio-Zanatta,” representing a several million pound sales opportunity based upon Cereplast Compostable® resin.
    * Two leading U.S.-based manufacturers of high quality, single-use food service products for consumer and commercial markets will launch new lines of compostable products before year end based upon Cereplast Compostable® resin. Annualized Cereplast sales volumes for these new lines are forecast to be in the range of $3 million to more than $5 million within a year of launch.
    * Kelmar Creations is launching Ecotainable® compostable containers and packs for the horticulture market. Kelmar’s Ecotainable® bioresin plastic containers, packs and trays provide a new ecologically sound substitute for petroleum-based plastic products. The new line is fully sustainable and renewable and provides growers with a new and planet-friendly solution based upon Cereplast Compostable® resin.
    * Dentek is commercializing a line of dental hygiene products based on Biopropylene®, the first commercial grade in the Cereplast Hybrid Resins® family.
    * Cereplast’s Nat-Ur® division signed sourcing agreements with several major quick service restaurant chains in the second quarter, including Jack in the Box and Chipotle, representing multi-million pound sales opportunities.

Also, cutlery, cups and straws made from Cereplast Compostables® resin were used at the ESPY awards in Los Angeles on July 16th. Sports events, festivals, and venues such as PNC Park in Pittsburgh, which implemented compostable foodservice products in April, represent a significant sales opportunity for the Nat-Ur® division. Nat-Ur® is featured now in Sysco Corporation’s “Green” Catalogue as well as college campus lunchrooms such as the University of Washington.

Additionally, the Company has joint development agreements with major market and brand leaders, including Group Danone, for the development of bio-based food packaging, and PSA Peugeot-Citroen Group for the introduction of sustainable automotive bioplastics. In total, the portfolio of joint development projects represents additional growth opportunities of several hundred million pounds for Cereplast resins within the next three years.

Production – The Company continues to focus on improving its production process and expanding capacity. Cereplast’s Hawthorne, California facility currently has about 50 million pounds of name-plate production capacity, with a proprietary state-of-the-art process designed by the Company specifically for processing bioplastics at commercial scale. Currently a major project is underway to enhance the operability and cost efficiency of the Compostables® manufacturing lines by the beginning of 2009.

In July, Cereplast completed the mechanical installation of the first production line at the company’s Seymour, Indiana facility. System testing and commissioning over the coming weeks will ready the site for commercial bioresin production before the end of September 2008. The installed production line has a nameplate production capacity of 50 million pounds of bioresin annually. It is located on a 63-acre site that is sized for rapid expansion of up to 500 million pounds per year as early as 2010.

Separately, the Indiana Economic Development Corporation (IEDC) confirmed the formal approval of up to $665,000 in tax credits from the Hoosier Business Investment and the Economic Development for a Growing Economy programs. These are in addition to a grant of up to $60,000 from Indiana’s Skills Enhancement Fund to support training of new employees and a combined investment of $400,000 by State and local authorities for the extension of a nearby rail spur to serve Cereplast’s operations.

Federal “Biopreferred” Procurement – During the second quarter of 2008 Cereplast announced that products made from its Compostables® resins meet new federal procurement guidelines for bio-based content enacted recently by the U. S. Department of Agriculture. Under the new guidelines, “BioPreferred” products are given preference by the U.S. General Services Administration (GSA), the purchasing agent responsible for billions of dollars in products supplied to various federal agencies.

Cereplast Compostables®-made products far exceed these new procurement guidelines, while still remaining cost-competitive with traditional plastic products, making them an ideal solution for converters supplying federal and state agencies. This should result in additional demand for Compostables® resin from Cereplast’s converter customers.

All companies using Cereplast Compostables® resins can be listed on the USDA “BioPreferred” web site. Products from Cereplast’s consumer products division, Nat-Ur, are already categorized as “BioPreferred” on the USDA web site (www.biopreferred.gov). Additional products made from Cereplast Compostables® plastic resin by existing Cereplast converters such as Genpak, Innoware and Alcoa are expected to be added in the near future.

International Expansion – In the second quarter, Cereplast made significant progress in Europe, including its first commercial sales, and currently over 45 testing and development projects are underway with European customers. Brazil was another international highlight, as demonstrated by the major progress in launching Cereplast resin based products for use in food packaging and food service applications by major brand owners as well as converters.

Corporate Management and Infrastructure – Cereplast now has 67 full time employees and continues to attract and retain the necessary talent to manage its growth. In the second quarter of 2008, the Company strengthened its operations team by appointing industry veteran Mark Barton as Senior Vice President Manufacturing and General Manager of its Seymour, Indiana facility. Barton manages the Indiana operations and manufacturing overall for the company. He has been recognized as one of North America’s most experienced and accomplished plastic resin production managers over the course of his 25-year career at Himont, Nippisun and Toray Resins, and has demonstrated success building and managing plastic resin production operations with multi-hundred million pounds of output.

About Cereplast

Cereplast, Inc. (OTCBB: CERP - News) designs and manufactures proprietary bio-based, sustainable plastics which 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 is 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.


For Cereplast, Inc.
For Media Inquiries:
Kevin Oates, 310-584-8331
For Investor Inquiries:
Athan Demakos, 312-375-1957

Source: Cereplast, Inc.

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