Stock Alert for Cereplast Inc. (CERP)
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    Cereplast Poised for Recovery – on track to Accomplish Operating Plans

    Cereplast Inc. (NASDAQ: CERP) stock price declined from the August 26 high of $3.99 to October 8 price of $3.11 mainly due to investors’ doubts concerning the company’s ability to report  a revenue growth in the range of 190% growth to run between $8 million-$10 million in 2010. Cereplast’s revenues for the six months ended June 30, 2010, decreased 31.5% to $1.0 million compared to revenues of $1.3 million for the same period last year.

    Cereplast designs and manufactures 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 is competitive with petroleum-based plastics. The company’ resins 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 to food service and packaging industries; Cereplast Hybrid Resins® combine high bio-based content with the durability and endurance of traditional plastic to meet the needs of customers in industries such as automotive, consumer goods, electronics and packaging.

    In March, the company relocated its manufacturing facility from Hawthorne, Calif., to the new facility in Seymour, Ind., which occupies 105,000 square feet on 14 acres of industrial land. The new manufacturing facility would be capable of producing approximately 80 million pounds of bioplastic resin once operating at full capacity, and would allow the company to deliver stronger financial performance from increased operational efficiencies and greater capacity.

    As a result of relocation, Cereplast reported a decline in sales due primarily to the ramp up of the new facility. However, the operating efficiencies achieved at the Seymour facility, as well as lower cost of doing business in Indiana as compared to California allowed the company to report stronger gross margins, which increased from 8.6% in the second quarter of 2009 to 30.8% in the second quarter of 2010.

    Going forward, the company reported significant new client additions during the first half of 2010 and expect a ramp up in orders on older contracts. To date Cereplast reported agreements to ship 16 million pounds of bioplastic resins in 2010, representing up to a 400% increase in shipments over 2009. As a result, the company expect revenues for 2010 to increase more than 190% over last year to between $8 million-$10 million as demand for its products remain strong as a result of contracts and commitments it is securing from around the world.

    Moreover, the company has recently announced two multi-million dollar agreements to bring its bio-plastics to the European marketplace. In August, Cereplast announced a multi-million dollar contract with RI.ME. Masterbatch S.r.l., based in Italy, to supply bioplastic resins for use in its masterbatch process for adding colorant to bulk, uncolored resins. The company will supply its Compostable 3000 film grade for use in RI.ME.’s masterbatching processes for the production of items such as carry out bags and compostable trash bags. Cereplast will begin shipping its bio resins in September 2010 and is currently in discussions to extend the contract on other RI.ME. product lines. The initial contract runs through December 2011.

    The second agreement is a partnership with Sezersan Ambalaj, a subsidiary of Aşcı Group in Turkey, to produce bio twist films made from Cereplast Compostables® resins. The first-of-its-kind, patented product will serve as wrap packaging for a variety of food products distributed throughout Europe. Under the terms of the agreement, Cereplast will begin monthly shipments of 100 to 150 metric tons of bio resin in December 2010.

    Despite current challenges concerning profitability and growth, the bioplastics potential is enormous. Consulting company Freedonia forecasts that demand for degradable plastics in the U.S. could grow by 16.6% a year to $380 million by 2014 thanks to increased capacity, falling prices and improved performance of materials, said a new report. The output of bioplastics in the U.S. could reach 325 million pounds by the end of the period. By 2020 bio-plastics could represent a 30% share of the total U.S. plastics market.

    Cereplast is now well-positioned to resume revenue growth in the third quarter of 2010; to report the first profitable quarter in the fourth quarter of 2010; and benefit from rapidly expanding demand for bioplastics.

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