Cereplast, Inc. (CERP-OTC: BB)

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July 3, 2009 Issue

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With Oil Being A Limited Resource With Fluctuating Prices, Cereplast’s Founder, Chairman And CEO, Frederic Scheer, A Pioneer In Bio-Plastic, Has Been Focused On Being The Leader In The Transition From The Traditional Oil-Based Plastic To This New Environmentally Friendly, Sustainable Feedstock

Company Profile:

Cereplast, Inc. (OTCBB: CERP) 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 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.

Frederic Scheer, Chairman, Chief Executive Officer

Mr. Scheer became involved in the biodegradable plastics industry in 1994 through Montedison SpA, a large chemical conglomerate operating Novamont SpA, an Italian resin manufacturer and research company. Foreseeing that the demand for biodegradable products in North America would expand rapidly by the end of the decade, Scheer secured the exclusive distribution rights in North America for Mater-Bi™ resins. Soon thereafter, he began North American distribution of Mater-Bi, a 100% biodegradable resin patented and produced by Novamont.

Scheer created the Biodegradable Products Institute (BPI), and this non-profit organization has quickly become the largest biodegradable association in the world, with more than 40 members, including BASF, DuPont, GeorgiaPacific, NatureWorks, Dow and Eastman. Prior to his involvement in the biodegradable industry, Scheer was a merchant banker in Europe. He holds a Doctor of Laws from the University of Paris, a Masters Degree in Finance and a Masters Degree in Political Sciences from Institut d’Etudes Politiques, Paris, France. Scheer, a US citizen, is fluent in French, Spanish, Italian and English.

Basic Materials

Cereplast, Inc.
3421-3433 West El Segundo Boulevard
Hawthorne, CA 90250
Phone: 310-676-5000


Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – July 3, 2009

Mr. Scheer, what was your vision when you founded the company and where are you today?
Mr. Scheer: “I founded the company in late 2001, and basically what I have been believing for a long time is that one day the world would realize that oil is a limited natural resource and therefore it would make sense in a situation such as plastic to look for a different kind of feedstock. I have been a pioneer in the bio-plastic industry because I started in the early 1990’s and this was well before the oil prices and the wave of environmentalism that we have today, were pushing the topic of sustainable plastic. My vision was that traditional plastic will morph into bio-plastic in the 21st century and I wanted to position Cereplast as being basically the first kid on the block.”


CEOCFO: Has that happened?

Mr. Scheer: “The answer is yes and no. It is yes in the sense that surely Cereplast is a leader in this industry. However, it is no in the sense that it is taking longer than I was expecting. If you compare bioplastic to the rest of the alternative technologies bio-plastic has been the industry, which has been taking the longest to develop. In the early 2000’s a lot of alternative technologies started to grow such as ethanol, bio-diesel, solar, wind but bio-plastic take off was slower. It is starting to happen now. I look at the growth of our company we double our revenue year-to-year, and this trend is the same for other bioplastic companies. As an industry, we estimate that we will have an average growth of about 20% a year for the next five years, but even if it is very significant, we have not been really what I call the “darling of Wall Street”. That should change in the months and years to come. If I look at the amount of investments made in the ethanol business, it is in billions of dollars for the bio-plastic industry it is substantially lower.”


CEOCFO: What is the production process?

Mr. Scheer: “Basically, in laymen’s terms, we do exactly the same thing that traditional plastics companies are doing. To make the plastic products that people are used to, from automotive to consumer products to food service where things are made of plastic, you need to have a building block. This building block is called a plastic resin. Plastic resins present themselves as little pellets called a resin. This is what we create here at Cereplast. We basically create the building blocks that will allow plastic fabricators to create any kind of bio-plastic product to substitute traditional petroleum based products. If I look at the way the bio-plastic industry and all the traditional plastic industry are organized, you have basically three steps.

1.        The first step is drilling of oil, and here instead of drilling, it is basically farming of corn or tapioca or different kind of plants.

2.        The second step consists of transforming the raw materials into a material that can be used to create finished product. This is the creation of “resin”, so this is what we do at Cereplast. We use the agricultural raw materials and transform it into the building block of the plastic industry.

3.        The third and final step, which is the transformation of those resin pellets into consumer product. a telephone, forks, spoons, automotive, etc”


CEOCFO: What is the cost comparison against traditional plastic?
Mr. Scheer: “The cost comparison is basically very similar to traditional plastic. When we look at the cost of raw material, we are basically more or less at parity, which means that we can manufacture bio-plastic resin at more or less the same price as traditional plastic resins. However, that does not mean that the finished product is going to be at the same price. Why? Because clearly you have economies of scale it is quite significant. If you look at the traditional plastic industry, every year they are manufacturing about one trillion pounds of resin; a very large number. The entire bio-plastic industry, manufactured about 500 million pounds. The consequence of that is that clearly the price of product made of bio-plastic are more expensive. How much more expensive? It depends on the application and it depends a on the price of the barrel of oil. Current price of oil per barrel is about$70.00 price of traditional plastic resin is about .70 cents per pound clearly this figure is very generic. The price of our bioplastic resin vary between .85 cents to.$1.3 per pound, it is basically anywhere from 15% and 45% higher in pricing. It is more expensive today compared to a few months ago when the price of a barrel of oil was about $150 a barrel, at that price the price of traditional plastic was at parity or higher than bioplastic, Assuming that the price of oil continue to go up bioplastic may go back to parity.


An important aspect also is that bioplastic are resolving a lot of issues that needs to be quantified such costs of clean up, costs of carbon dioxide emissions, costs of oil foreign policy, etc.”


CEOCFO: Who is using your products?

Mr. Scheer: “We have a wide area of industries using our resins. We offer two families of resins: the Compostables®. Basically, Compostable means that the product when used can be discarded in a commercial compost site instead of a landfill, and the product will go back to nature in a very short period of time, anywhere from three to six months with no chemical residue. The compostable products are primarily used in the packaging industry and the food service industry. Our clients are very large companies like Georgia Pacific, Solo Cup, Genpak, Innoware to all of the large brand owners like Danone, etc. The second family of resins are the Hybrid®Resins, which are basically traditional resins with a high percentage of of renewable resource. It is used primarily in durable application, such as the automotive industry, the consumer product industry, furniture, construction and others which are really targeting durable applications.”


CEOCFO: You recently announced a new strategic plan; what is the plan going forward?

Mr. Scheer: “Cereplast has been successful in two activities:

1.        The first activity is clearly design and development of resin and we have been very good at designing and developing resin. Over the past seven years, basically what we have done is created a very strong portfolio of patents. We have about 48 patents that we have developed in-house or in conjunction with universities that we are working with.

2.        The second activity consists of taking those resins and creating applications for those resins, making sure they are going to run on traditional equipment, with no investments from the plastic fabricators. We signed a lot of very large companies like Georgia Pacific to the Danone.

3.        Then we had a third activity consisting of manufacturing the resins and frankly, in the current environment manufacturing is extremely labor and capital intensive. In addition, there is a lot of excess capacity in terms of manufacturing. So we recently decided to find a partner that will run and manufacture on our behalf under our control. We believe that it will free a lot of our capital and labor resources and will enable for to concentrate our strength on design and development of resin, because this is where our forte is.”

Do you have competition from other bio-based plastic companies?

Mr. Scheer: “We have no real competition, and let me explain to you; in the past seven years the company has never lost any contracts or programs to any bio-plastic competition. There are companies that are in the bio-plastic arena, but their purpose is very complementary to what we do and we really don’t compete against each other. If I look at the companies around in the bio-plastic arena, you have a hand full of companies. Worldwide there are about 5 legitimate companies. There are companies that are making polymers, those raw materials that need to be used to create resin. Among them I will list a company called NatureWorks, which is a venture between of Cargill and Teijin. Basically what they do is make a polymer called Polylactic Acid (PLA). You have another company called Metabolix, which soon will be making a polymer called PHA. Then you have some companies over seas such as Novamont in Italy, primarily targeting the European markets. Then you have Cereplast, which is one of the larger dominant players in the marketplace here. Then you have small divisions of large chemical companies such as Dupont, BASF, Arkema and those companies are starting to explore the possibility of entering the market of bio-plastic. In the next five to ten years those very large chemical groups will start to invest substantial amount of money into that arena, because they do realize that it is going to be the market of the 21st century.”


CEOCFO: Why should potential investors look at Cereplast today?

Mr. Scheer: “For potential investors we are the leader in what we are doing. It is clearly an industry that is in infancy, but it is also clearly an industry that is going to grow substantially in the next five years. The large chemical companies are clearly looking at what we are doing, and with our strong Intellectual property portfolio, they will have to consider Cereplast. When I say consider Cereplast, it means that they will consider doing ventures or partnerships with us, or eventually consider an acquisition, because we have a strong portfolio of patents that are going to be necessary for them to enter that arena. We have clearly created an IP barrier for those companies. Another aspect of it is that the company is a public entity traded on the bulletin board and clearly, we have been at the lowest valuation ever. Right now, our stock is being traded below twenty cents per stock. We have a market capitalization of $40 million. In the long-run why investors should look at us, because if you do your due diligence and look at the quality of the clients that Cereplast has been able to sign, we have signed only Fortune 50 companies.”

CEOCFO: Final thoughts, what should people take away from this interview about Cereplast?

Mr. Scheer: “What they should remember most is two things. First, Cereplast is a leader in the bio-plastic arena. Cereplast is a very strong candidate with a very strong intellectual property and patent portfolio. We have a technology that nobody can accessbecause of this IP protection.”


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“Cereplast has been successful in two activities: The first activity is clearly design and development of resin and we have been very good at designing and developing resin. Over the past seven years, basically what we have done is created a very strong portfolio of patents. We have about 48 patents that we have developed in-house or in conjunction with universities that we are working with. The second activity consists of taking those resins and creating applications for those resins, making sure they are going to run on traditional equipment, with no investments from the plastic fabricators. We signed a lot of very large companies like Georgia Pacific to the Danone.” - Frederic Scheer

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