CEREPLAST INC.

Hawthorne - Profiled July 2007


Talk about bad timing.

Back in July 2007 when the company was profiled, Cereplast Inc., a maker of biodegradable plastic resins used mostly in the food service industry, was ready to transition from a research and development entity with modest sales to a full-scale manufacturing company.

The Hawthorne company had just gone through years of testing of its corn-based resin and had entered pilot projects with major food-packaging companies. Hopes were high as it prepared to build its first large-scale manufacturing facility.

But the transition was launched just as the credit crunch began to choke off capital; now a deepening recession threatens to reduce demand for resins just as the new plant is ready to open.

For the first nine months of 2008, the transition to manufacturing has resulted in a $10 million loss for Cereplast. About $5 million of that has gone to build a manufacturing plant that when operational within six months will be able to churn out thousands of pounds per day of resins extracted from biodegradable sources.

But to Chief Executive Frederic Scheer, this latest downturn is nothing new. "I've been an entrepreneur for 30 years and I've seen several cycles of good times and bad times. In the bad times, you have to cut costs and be more creative to survive," Scheer said.

At Cereplast, cutting costs meant an abrupt change in plans. Rather than build the manufacturing plant in Southern California, it was located in the southern Indiana town of Seymour, where Scheer said costs are almost 50 percent less.

Also, Scheer has had to be more aggressive in seeking financing. Cereplast received $14 million in financing from several sources last year, including private placements. Just this month, Cereplast reached an agreement with Cumorah Capital, a previous investor, which agreed to buy up to to $20 million worth of its stock over the next two years. Scheer is also casting a wider net. "With the traditional sources of financing now cut off, we're seeking financing from our suppliers and customers," Scheer said.

Among Cereplast's customers are Highland Park-based Solo Cup Co. and Glenn Falls, N.Y.-based Genpak LLC.

In the meantime, the recession could scale back demand for biodegradable products as food service companies might be reluctant to switch or might reduce order quantities.

However, Scheer is counting on the opposite happening because increasing numbers of cities are outlawing nondegradable plastics.

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