BEACON EQUITY RESEARCH

Analyst: Victor Sula, PhD

Initial Report
January 7th, 2008

CERP daily 01/05/08

0.75

0.70

0.65

0.60

Cereplast, Inc. 0.55

3411-3421 West El Segundo 0.50

Boulevard
volume
Hawthorne, CA 90250
1.5

Tel: (310) 676-5000 1.0

Millions
Fax: (310) 676-5003
0.5

www.cereplast.com
0.0
investor.relations@cereplast.com Nov Dec Jan

Market Data

Market Data 27-Dec-2007 Operating data 2006 2007E 2008E 2009E

Symbol CERP Revenue, $ Mn. 0.7 2.4 8.8 22.6
Exchange OTC BB
Current Price $0.62 Gross margin 11.7% 12.7% 20.6% 21.2%
Price Target $1.12 Net Margin (459%) (277%) (67%) (15%)
Rating Speculative Buy Diluted EPS, $ (0.020) (0.027) (0.021) (0.012)
Outstanding Shares 258.5 Million
Market Cap. $160.3 Million P/E NM NM NM NM
Average 50-Day Volume 208,684 P/S 220.6 66.2 18.3 7.1

Company Overview
Cereplast, Inc. (OTC BB: CERP) develops, manufactures and markets bio-based
resins designed to supplement or even replace conventional petroleum-based
plastics in a wide range of converting applications. CERP’s resins are made from
renewable resources such as corn, wheat, tapioca and potato starches. The Com-
pany markets two families of bio-based resins: Cereplast Compostables™ and
Cereplast Hybrid Resins™. Cereplast Compostables™ resins are renewable,
ecologically-sound substitutes for petroleum-based plastics targeting primar-
ily single-use disposables. Cereplast Hybrid Resins™ are also bio-based with a
starch content of at least 50% targeting durable applications such as automotive
industry applications.

Sold at prices competitive with conventional plastics, CERP’s resins offer com-
parable or superior performance and environmental benefits resulting from re-
duced petroleum consumption.
 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

During the first nine months of 2007, CERP introduced a new product line and increased revenues 258% year-over-
year to $1.6 million. The Company plans to establish a new bio-plastic production facility in Seymour, Indiana which
will be the world’s largest bio-plastic production plant and capable of producing up to half a billion pounds of bio-
plastics per year when it reaches full capacity in 2010. CERP is headquartered in Hawthorne, California and com-
menced operations in 2001. It markets its bio-based resins to customers in the US, Europe and Asia.

Investment Highlights

A business model capitalizing on environmental and cost benefits

Cereplast is developing and commercializing bio-based resins which can be substituted for petroleum- based plastics
in a variety of converting applications such as thermoforming, blow molding, injection molding, extrusion coating,
blown film and profile extrusion. The Company’s resins are made from renewable resources such as corn, wheat,
tapioca and potato starches.

Because its bio-resins are both biodegradable and compostable, they present a more environmentally-friendly alter-
native to petroleum-based resins. In addition, its bio-based resins are not affected by rising oil prices.

Favorable industry outlook

The global plastics industry is estimated at 250 million tons and is growing 5% annually. According to BCC Research1,
the global market for bio-plastics was 541 million pounds in 2007 (0.25 million tons) and is expected to expand 17.3%
annually and exceed 1.2 billion pounds (0.55 million tons) by 2012.

Bio-plastics technology is evolving rapidly; this progress, combined with rising bio-plastics demand and volume
is creating production and cost efficiencies which are helping to reduce bio-plastics prices to levels comparable to
petroleum-based plastics. In addition, rising oil prices are helping to position bio-plastics as an increasingly afford-
able alternative. Substituting bio-plastics for conventional plastics could reduce the US consumption of petroleum
used in plastics production by 7%. In addition, the environmental benefits resulting from lower oil consumption are
encouraging government incentives that will speed the adoption of biodegradable plastics.

Two product lines tap a full range of market applications

CERP is developing and commercializing two lines of resins: Cereplast Compostables™ and Cereplast Hybrid Res-
ins™, commercially available since the fourth quarter of 2006 and the third quarter of 2007, respectively.

Cereplast Compostables™ resins are renewable, ecologically-sound substitutes for petroleum-based plastics. They
replace nearly 100% of the petroleum-based additives used in traditional plastics with plant starches. CERP has 15
grades of compostable resins in its product portfolio. These products address the needs of plastic converters serving
the foodservice disposable packaging market. In February 2007, CERP received the 2007 Environmental Award for
New Technology in Materials from the Society of Plastics Engineers for its Cereplast Compostables™ resins.

Cereplast Hybrid Resins™ are bio-based and replace 50% or more of the petroleum content in conventional plastics
with plant starches. This new hybrid line significantly expands the number of potential market applications for CERP
resins. Cereplast Hybrid ResinsTM can replace traditional petroleum-based plastics in automotive, consumer elec-

1 www.euroinvestor.co.uk/news/shownewsstory.aspx?storyid=9675502

Cereplast, Inc. (OTCBB: CERP) 2

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

tronics, toys, medical, entertainment packaging, furniture, cosmetic packaging, consumer goods and construction ap-
plications. CERP was awarded the inaugural AUTOPLAST SPEICON Award for the greatest contribution in plastic
material development for the auto industry for its new Biopropylene™ resin.

Advantages suggest rapid market acceptance for CERP’s resins

The Company’s bio-resins offer the following advantages:

• Bio-plastics are made from plant starches, a renewable resource. Petroleum-based plastics are made from a
depleting resource;
• The use of bio-plastics results in lower carbon emissions and bio-plastic disposal is carbon-neutral;
• The process by which bio-plastics are made requires less energy than conventional plastics, resulting in cost
and environmental benefits;
• Bio-resins are available at prices competitive with petroleum-based resins and are not affected by rising oil
prices;
• Bio-plastic disposal has less impact on the environment than oil-based plastics since this material is recycla-
ble, 100% compostable and biodegradable. Bio-plastics quickly break down and return to nature; petroleum-
based plastics can take anywhere from 200,000 years to one million years to degrade.

Robust revenue growth

During the fourth quarter of 2006, the Company shifted its focus from selling finished products made from bio-based
resins to manufacturing and selling bio-based resins. As of September 30, 2007, CERP and its converting partner had
successfully introduced a total of 57 bio-based products. Gross sales reached a record $1.6 million in the first nine
months of 2007, a 258% increase over the comparable 2006 period.

Going forward, CERP’s established relationships with leading converters such as Alcoa, Genpak, Innoware and Solo-
Cup; its pipeline of 65 new customer prospects; the commercial launch of its Cereplast Hybrid ResinsTM line; expan-
sion of its manufacturing capacity to half a billion pounds per year, and growing market acceptance of bio-based plas-
tics support our expectation of triple-digit annual sales growth for this Company over the next three to five years.

Seasoned management team

Cereplast has attracted the industry’s top talent, including several prominent scientists and process engineers. The
Company’s management team has extensive managerial, operational and research experience earned with leading
polymer companies such as Novamont, Chronopol and Eastman Chemical Company.

President/CEO Frederic Scheer entered the bio-plastic market in 1994 when he organized the buyout of Novamont,
SpA. Mr. Scheer is the founder and Chairman Emeritus of the Biodegradable Products Institute (NY), the industry’s
reference association.

Senior Vice-President of Technology William Kelly led technical efforts to develop a fiber-forming polylactide mate-
rial with unique performance characteristics for Chronopol. He planned and directed activities leading to the com-
mercialization of over 50 new polymer systems.

Dr. Shriram Bagrodia, the Company’s Senior Vice-President for R&D Blends and Chemistry, served as a Research
Associate at Eastman Chemical Company where he was responsible for developing new products, processes, and
applications. At Eastman, he received 50+ US patents. He was the recipient of the SPE 2005 Engineering/Technology
award.

Cereplast, Inc. (OTCBB: CERP) 3

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Solid balance sheet

Cereplast has a strong balance sheet and cash of nearly $11 million at September 30, 2007. In addition, the Company
has working capital of $12.2 million and minimal debt of only $0.2 million. Because of its strong balance sheet, CERP
can begin expanding its manufacturing capacity in 2008 and also leverage its assets and technology to attract external
financing.

Business Model
Cereplast, Inc. is focused on developing and commercializing bio-based resins which can be used as substitutes for
petroleum-based plastics in a variety of converting applications, including thermoforming, blow molding, injection
molding, extrusion coating, blown film and profile extrusion. The Company’s resins are made from renewable re-
sources such as corn, wheat, tapioca and potato starches. Moreover, the resins are sold at prices competitive with
petroleum-based plastics and are not impacted by volatile oil prices.

During the fourth quarter of 2006, CERP shifted its focus from selling finished products to manufacturing and mar-
keting bio-based resins. CERP has introduced two lines of resins: Cereplast Compostables™, which has been com-
mercially available since the fourth quarter of 2006 and Cereplast Hybrid Resins™, which was introduced in the
2007 third quarter. The Company’s bio-based resins are used in the foodservice disposable packaging market, which
includes quick-service restaurants, food and facilities management companies, government agencies, colleges and
universities and retail operations. To-date, CERP`s bio-based resins have been used to manufacture utensils, plates,
cups, straws, bags, bottles, paper laminate and other applications. In addition, CERP is targeting applications for its
resins in automotive manufacturing, consumer electronics and a variety of other markets.

Compared to conventional plastics, the Company’s bio-based resins offer numerous advantages:

• Plant starch is a renewable resource. Conventional plastics made from oil deplete a limited resource;

• Bio-plastics result in less carbon emissions and their disposal is carbon-neutral. The resources from which bio-
plastics are made can be quickly replenished and the carbon emitted during disposal is returned to the earth,
neutralizing the emissions effect;

• Less energy is required to produce bio-plastics, resulting in cost benefits; and,

• Bio-plastics are recyclable, 100% compostable and biodegradable. Bio-plastics quickly break down and return
to the earth whereas petroleum-based plastics can take up to one million years to break down.

The Company has several trademarks for its packaging and plastic resins, the most significant of which are Cere-
plast® and Nat-Ur®. CERP obtained clearance from the World International Patent Office on two patent applications
and is pursuing national patents in several European Union countries, Japan, Canada, Mexico, Brazil, the MERCO-
SUR countries and China.

All of the Company’s commercially available resins comply with US standards set by the American Society for Testing
and Materials. These standards identify plastic products that will compost satisfactorily in municipal or commercial
composting facilities and leave no harmful chemical residues. In addition, CERP’s bio-based resins, as well as the fin-
ished products made from bio-resins, are approved by the Biodegradable Products Institute and are GMO-free and
FDA-compliant.

Cereplast, Inc. (OTCBB: CERP) 4

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Corporate strategy
Management’s goal is to establish Cereplast as the leading solutions provider and the preferred bio-based resin sup-
plier to plastics converters around the world, based on its product’s performance, environmental benefits and afford-
ability. In pursuing these objectives, the Company focuses on:
• Patenting its existing portfolio of bio-based resins;
• Manufacturing bio-based resins at the Company’s facility using traditional plastic manufacturing equipment
but a proprietary Cereplast process;
• Partnering with key plastic converters to ensure a broad range of applications and markets for CERP resins;
• Continuing to drive customer and end-user demand by promoting its resins to market leaders and environ-
mental groups;
• Using feedback from its converter customers and end-users to further refine and develop its resins and patent
new resins;
• Establish the world’s largest bio-plastics resin production facility and be operating this facility at half a billion
pounds of annual manufacturing capacity by 2010.

Products
Cereplast Compostables™ line
Cereplast Compostables™ resins are renewable, ecologically sound substitutes for petroleum-based plastics made
from corn, wheat, tapioca and potatoes starches sourced primarily from the Midwest. Cereplast Compostables™
resins break down in less than 180 days when placed in an industrial compost facility and are certified by the BPI
as biodegradable and compostable. Composting is a natural process that allows greenhouse gas emissions –carbon
dioxide – to sequestrate in soil instead of being released into the atmosphere.

The Company introduced its Cereplast Compostables™ line in November 2006.

This product line targets single-use disposable markets such as foodservice sil-
verware and packaging. CERP currently has 15 grades of compostable resins in
its product line, including a new, highly heat-resistant compostable resin intro- Starch
duced in November 2007.

In February 2007, CERP received the 2007 Environmental Award for New Tech-
nology in Materials from the Society of Plastics Engineers, which recognized the PLA Other Bio-Based
technology advances the Company brings to the plastics industry with its Cere- Materials

plast Compostables™ resins.

Cereplast Compostables™ technology

Resin manufacturing begins with the Cereplast production team selecting a bio-
polymer matrix made from renewable, cost-stable resources. These biopolymers Introduction of Nano Composites
to Optimize the Surface
include polylactic acid from NatureWorks LLC, soy proteins, PHA, PHBs, or
starch from corn, wheat or potatoes.

The selected bio-polymer is blended with other biodegradable components to

reinforce its molecular structure through a proprietary process developed by
Cereplast. The blend is then polymerized and treated with nano-composites for Source: Company’s website

Cereplast, Inc. (OTCBB: CERP) 5

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

surface optimization and further reinforcement. The entire composite process is high-speed and low-cost. The final
product is then packaged and shipped to converters, which are able to process the bio-based resin using traditional
equipment.

Cereplast Hybrid Resins™ family

Cereplast Hybrid Resins™ replace 50% or more of the petroleum content in conventional plastics with bio-based
materials such as corn, tapioca, wheat and potatoes starches. The price per pound of Cereplast Hybrid Resins™ is
comparable to traditional polyolefin. Cereplast Hybrid Resins™ products can be processed in the same cycle time as
traditional plastics, but require less energy since machine temperatures are lower.

The first bio-based resin introduced as part of the Cereplast Hybrid Resins™ line, BiopropyleneTM is based on 50%
petroleum-based polypropylene and 50% starches. It has properties similar to traditional polypropylene in the fol-
lowing areas: heat deflection temperature; modulus and impact strength. Cereplast Hybrid ResinsTM are an effec-
tive, affordable alternative for brand owners and converters interested in replacing petroleum-based resins and can
be used in a variety of applications and markets, including automotive, consumer electronics, toys, medical, enter-
tainment packaging, furniture, cosmetic packaging, consumer goods and construction.

Cereplast Hybrid Resins™ were introduced in October 2007. Since then, over 25 companies have requested samples
for testing, and many plastics industry trade publications have printed articles highlighting the performance, cost and
environmental benefits of the new resin.

For its work on Biopropylene™, CERP was awarded the inaugural AUTOPLAST SPEICON award for 2007. This
award recognizes the top industry contribution in plastic materials developed for the auto industry.

Marketing and strategic relationships

CERP builds demand for its resins by developing products that deliver a performance comparable or better than
petroleum-based plastics at competitive prices, working with its converter customers to increase end-user demand
and licensing its resin technology to strategic manufacturing partners.

The Company is continually seeking new strategic partners. As of September 31, 2007, CERP had formal relationships
with five of the nation’s top six thermoforming converters and its new business pipeline is expanding. At present,
some 65 prospective customers are evaluating more than 100 different product applications for the Compostables™
and Hybrid Resins™ lines. Of these prospects, approximately 30 have advanced to prototype product testing and
qualification. These are in addition to 57 bio-plastic products already commercialized and used by leading packaging
manufacturers such as Alcoa, Genpak, Innoware, and SoloCup.

Genpak, a leader in producing single-use food service items, introduced its “Harvest Collection™” in early spring
2007. This complete line of biodegradable, compostable food service ware is made exclusively from Cereplast resins.

Alcoa has signed a multi-year supply agreement with CERP and recently began marketing a new thermoformed
sheet, brand named PlasTerra™ and specifically designed for Cereplast resins.

In the summer of 2007, Innoware, Inc. began marketing a new line of bio-plastics material made from Cereplast resins
under the brand name “ECO”. The first products in this new line, ECO-Expressions containers, are being used by
several Innoware clients.

Cereplast, Inc. (OTCBB: CERP) 6

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Manufacturing facilities
The Company manufactures its bio-based resins at an 80,000 square feet facility in Hawthorne, California. CERP’s
facility has a manufacturing area with commercial production capacity of 45 million pounds per year, an area for stor-
ing materials and bio-based resins, and also serves as the corporate headquarters. In the fourth quarter of 2006, CERP
began producing commercial quantities of resins. The Hawthorne, CA facility is sufficient to meet the Company’s
current manufacturing needs and anticipated 2008 orders.

To address future demand, CERP is establishing a new manufacturing plant at an existing industrial site in Seymour,
Indiana on more than 12 acres. The new facility will add half a billion pounds a year to bio-plastic resin production
capacity when it reaches full capacity in 2010 and also allows CERP to better serve customers in the Midwest and
on the East Coast. The new plant will employ up to 200 full-time workers and be the world’s largest bio-plastic resin
production facility.

Competition
Competition among resin providers is intense. The Company competes with BASF, DuPont, Eastman Chemical, No-
vamont and Dow Chemical. All of these competitors have greater financial and marketing resources than CERP and
many have long-standing supply, production and distribution relationships.

In addition, a few emerging companies such as Plantic Technologies and Metabolix have introduced bio-plastics
product lines that compete with CERP resins. CERP also competes with companies that provide petroleum-based
resins to plastic manufacturers. Several disposable paper and plastic packaging manufacturers and converters are
making efforts to increase recycling of these products. Increased recycling would reduce the environmental impact
and make these products more competitive with bio-based plastics.

Cereplast, Inc. (OTCBB: CERP) 7

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Industry Outlook
Advances in bio-plastics technology have created efficiencies that are helping to make bio-plastics price-competitive
with petroleum-based plastics. Rising oil prices are increasing the attractiveness of bio-based plastics and environ-
mental concerns have resulted in government incentives to encourage the industry’s adoption of biodegradable
plastics.

The global plastics market is estimated at 250 million tons2 and is growing approximately 5% annually. According
to the American Chemistry Council3, the US plastics industry produced an estimated 57 million tons of conventional
plastic resins such as polystyrene and polyethylene in 2006.

The biodegradable plastics market is over 20 years old but still at a very early development stage. The market has
yet to address major issues such as the lack of an infrastructure for effective composting – a necessary precursor to
market success. Bio-plastics consumption increased four-fold between 2004 and 2006. According to BCC Research4,
the global market for bio-plastics reached 541 million pounds in 2007 and is expected to increase 17.3% annually to 1.2
billion pounds by 2012. These statistics cover only resins designed to compost and not those that are direct substitutes
for polyolefin, such as Biopropylene™.
Exhibit 1: Global bio-plastics market, lbs

1400
1,203
1200
1000
800
541
600
400
200
0
2007 2008 2009 2010 2011 2012

Source: www.euroinvestor.co.uk/news/shownewsstory.aspx?storyid=9675502

The bio-plastics industry consists of both material developers and application developers. BASF (Germany), Cargill
Dow (USA), Novamont (Italy) and Rodenburg Biopolymers (Netherlands) together represent about 90% of the global
bio-plastics market.

Rising oil prices encourage bio-plastics deployment

Two key drivers for bio-plastics market growth are rising oil prices and increasing environmental concerns. Statistics
indicate that 7% of oil is converted into plastics. Oil prices have increased 600% since the 1990’s and, for every four
barrels of oil consumed today, only one new barrel is discovered.

Prices for benchmark West Texas Intermediate (WTI) crude are projected to increase from an average of $66.025 per
barrel in 2006 to $71.36 per barrel in 2007 and to nearly $80 per barrel in 2008. November 2007 crude oil futures ap-
2 www.european-bioplastics.org/media/files/docs/en-pub/050203_Highlights_in_Bioplastics_en.pdf
3 www.iht.com/articles/2007/11/02/business/mplastics.php?page=2
4 www.euroinvestor.co.uk/news/shownewsstory.aspx?storyid=9675502
5 www.eia.doe.gov/emeu/steo/pub/contents.html

Cereplast, Inc. (OTCBB: CERP) 8

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

proached the psychological barrier of $100/barrel, although future prices have since retreated to $96/barrel in Decem-
ber. Rising oil prices are making bio-plastics more affordable. At oil prices exceeding $95 a barrel, bio-plastics become
less expensive than polyethylene terephthalate plastics.
Exhibit 2: NYMEX Crude Oil Futures Close (Front Month)

$100
$95.97

$90

$80
$/Barrel

$70

$60

$50
12/01/2006 02/02/207 04/04/2007 06/05/2007 08/03/2007 10/03/2007 12/03/2007
01/03/2007 03/06/2007 05/04/2007 07/05/2007 09/04/2007 11/01/2007
Dec. 1. 2006 - Dec 26.2007

Source: http://www.wtrg.com/daily/crudeoilprice.html

Prices for petroleum-based resins move in concert with oil prices and rose to record levels in 2007.
Exhibit 3: Polypropylene prices, $/lb

$0.71
$0.70
$0.69 HoPP Inj - 20 melt
$0.68 CoPP Inj - 20 melt
$0.67
$0.66
$0.65
$0.64
$0.63
Price

$0.62
$0.61
$0.60
$0.59
$0.58
$0.57
$0.56
$0.55
$0.54
$0.53
$0.52
Dec 29
Jan 12
Jan 26
Feb 09
Feb 23
Mar 09
Mar 23
Apr 06
Apr 20
May 04
May 18
Jun 01
Jun 15
Jun 29
Jul 13
Jul 27
Aug 10
Aug 24
Sep 07
Sep 21
Oct 05
Oct 16
Nov 02
Nov 16
Nov 30
Dec 14

Source: http://www.theplasticsexchange.com/Research/WeeklyReview.aspx#Polypropylene

With oil inventories currently at five-year lows, it is likely petroleum prices will continue to climb in 2008. The use
of bio-plastics could reduce US petroleum consumption by 7% which is the percentage of consumption currently al-
located for plastics production.

Cereplast, Inc. (OTCBB: CERP) 9

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Greater environmental concerns

American citizens generate 210 million tons6 of trash per year. This trash contaminates ground water and soil and
releases hazardous methane into the environment. The best solutions for reducing environmental risks are recycling
and the use of biodegradable products. According to the US Environmental Protection Agency, less than 6% of waste
plastic is currently recycled, versus recycling rates of 50% for paper, 37% for metals and 22% for glass.

According to an EF Consumer Survey, 88% of US consumers rate environmental issues as either important or very
important. This strong concern for the environment will help speed industry adoption of bio-plastics.

2% 2%
8%

46%

42%

Uninportant Very uninportant Neutral

Very important Important

Source: EU Bioplastic Conference, 2007 (www.cereplast.com/cmspage.php?pgid=82)

Many cities are encouraging the replacement of conventional plastics with alternatives, including bio-plastics. For
example, San Francisco has banned7 the use of plastic carry bags, New York is considering a ban on plastic bags
and Chicago legislators recently voted to impose a five cent tax on plastic water bottles. Large corporations are also
responding to environmental concerns. McDonalds has adopted bio-plastics packaging for its Big Mac sandwiches,
Biota has begun making biodegradable water bottles and research regarding plastics alternatives is underway in the
medical and automotive sectors.

Bio-plastics applications
At present, bio-plastics are used primarily in disposable packaging for food service items, and compost bags. While
these applications will continue to constitute large markets, advances in bio-plastic technology are enabling a vari-
ety of new applications and market opportunities. Compost bags have the largest market share; in this market bio-
plastics are quickly replacing low-density polyethylene (LPDE). Given the size of the LDPE market (242 million lbs in
2007), this represents a huge bio-plastics market opportunity expected to reach 586 million lbs by 2012.

Packaging is a complex, continually evolving product and a $185.8 billion industry, including the $60.1 billion North
American packaging market. The global packaging market is growing rapidly - 18-26% annually- as a result of high
GDP growth rates in developing nations.

Packaging is currently the second largest market for bio-plastics. However, bio-plastics presently represent less than
1% of the market (in terms of tonnage). According to European Bioplastics8, bio-plastic packaging could potentially
6 www.taipanfinancialnews.com/ac/AMC20071026.html
7 www.fuji-keizai.com/e/report/bio_plastic_e.html
8 www.cereplast.com/cmspage.php?pgid=82

Cereplast, Inc. (OTCBB: CERP) 10

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

capture as much as 10% of the traditional plastic packaging market. A report by Pira International9 indicates that
16,047 tons and 19,350 tons of biodegradable packaging were consumed in North America and Western Europe, re-
spectively, in 2006. At present, biodegradable packaging is mainly used for fresh food products with short shelf lives.
Demand for biodegradable packaging is expected to grow 23% annually and reach 450 million pounds by 2012.
Exhibit 4: Per capita bio-plastics consumption (lbs)

350 326
300 2001 2010
300 256
250 223 208 194
200
150
100 53 68 53
44 29
50 26 18 22
0
North Western Eastern Japan Latin Africa/Middle Southeast
America Europe Europe America east Asia

Source: BASF AG, http://www.fuji-keizai.com/e/report/bio_plastic_e.html

There are a variety of bio-plastics technologies and several different types of polymers. The most popular are:
• PLA - Polylactic acid, a biodegradable thermoplastic polymer derived from renewable resources, mainly starch;
• PHA - Polyhydroxy alkanoates, produced by bacterial fermentation of sugars;
• PVOH - Polyvinyl alcohol, a water-soluble synthetic polymer;
• PCL – Polycaprolactone, a biodegradable polymer used as co-polymer or plasticiser in starch-based biopoly-
mers;
• TPS - Thermoplastic starch.
Exhibit 5: Market shares by polymer type

0% 15%

38% PHA
Syntetic
Starch
PLA

47%

Source: Libertas Capital (www.liberatscapital.com)

Cost of bio-plastic resins

Today, basic polyethylenes, polypropylenes and polystyrenes cost between $1.55 and $1.75/kg. Excluding PS, these
prices have risen on average 42% over the past twelve months, reflecting higher oil prices. The spot price for PET
plastic is $2.00/kg.

9 www.cee-foodindustry.com/news/ng.asp?n=73891-eastern-europe-biodegradable-packaging

Cereplast, Inc. (OTCBB: CERP) 11

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

In general, bio-plastics still cost more than traditional petroleum-based plastics. However, over time, rising oil prices
and manufacturing efficiencies resulting from technology advances will likely make bio-plastics an affordable alter-
native for many applications.

PHA: The major challenge in commercializing PHA is high production costs. Raw materials alone represent 40%-
50% of total production costs. Prices on large volume orders currently average around $7-8/kg. For PHA to become
commercially viable, prices would need to drop to around $3-5/kg. This price reduction could be achieved by using
recombinant E-coli to produce PHA. Tianan Biologic has quoted PHA prices at around $4.40/kg. Using transgenic
plants to produce PHA, the price could come down to only $0.2/kg but this process is in a very early development
stage.

PLA: NatureWorks LLC estimates resin prices at $2.50/kg for resin although prices may vary considerably depend-
ing on commercial terms and technical grade selections. However, PLA must be converted into sheet to be used in
commercial applications. The additives necessary to accomplish this would likely add another $0.60/kg to PLA resin
prices, resulting in a total price exceeding $3.00/kg.

Starch-based polymers: Bioplast quoted $5.25/kg for finished product and expects prices to rise by over 10% in 2008.
Dupont is in the process of putting together a price list. Plantic sheet costs about $2.95/kg; resin suitable for higher
value-added applications cost around $4.50/kg10. Cereplast resins are sold at an average price of approximately $1.45/
kg , providing CERP with a distinct competitive advantage.

10 Libertas Capital

Cereplast, Inc. (OTCBB: CERP) 12

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Financial Analysis

Revenues
During the fourth quarter of 2006, CERP shifted its business model from selling finished products to manufacturing
and marketing bio-based resins. As of September 30, 2007, the Company was marketing a total of 57 products. CERP
is extending its market reach by: (1) educating converters about its proprietary bio-based resins, (2) positioning CERP
as the solutions provider and leading supplier of bio-based resins and (3) building brand awareness and exploring
applications for bio-based resins outside the food service industry.

The Company generated revenues approaching $0.7 million in the third quarter of 2007. During the first nine months
of 2007, Cereplast increased gross revenues 258% year-over-year to $1.6 million. The sales gains were attributable to
the commercial launch of two product lines, which resulted in new customer wins and increased order volume from
existing customers.
Exhibit 6: Net revenues, $ thousands

1100
977.3
1000
900
800
700 632.2
600
484.8
500
400 326.1
277.5
300
160.0 169.1
200 119.9
100
0
Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007e

Source: SEC Filings

CERP’s customer base continues to grow. As of September 30, 2007 the Company had approximately 65 prospec-
tive customers evaluating more than 100 different potential applications for both the Compostables™ and Hybrid
Resins™ product lines. Of these prospects, approximately 30 have already advanced to various stages of prototype
product testing and qualification. Therefore, we expect additional new customer wins in 2008 and continued robust
revenue growth.

Operating and net profit

The shift in the business model from finished products to resins affected the Company’s profit margins. Steps taken
by CERP to support the commercial launch of its bio-based resins have resulted in significantly increased operating
expenses. The Company has expanded its sales and marketing team and contracted with outside professionals to
assist with fundraising, development of new resins, patent applications, ISO certification and the implementation of
new manufacturing software.

Cereplast, Inc. (OTCBB: CERP) 13

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Exhibit 7: Income statement, $ thousands

$ Thousands Q3 2006 Q3 2007 % Chg 9 months 2006 9 months 2007 % Chg

Revenue 169.1 632.2 274.0% 448.9 1,443.2 221.5%
Cost of revenue 93.5 514.7 450.6% 276.8 1,329.2 380.1%
Gross profit 75.6 117.5 55.5% 172.1 114.0 -33.8%
Operating expenses 1,198.4 1,845.3 n/m 2,265.2 5,139.5 n/m
Operating profit (1,122.8) (1,727.7) n/m (2,093.1) (5,025.5) n/m
Other income (13.1) 125.7 n/m (33.4) 120.8 n/m
Net profit (1,136.0) (1,602.1) n/m (2,126.5) (4,904.6) n/m
Diluted EPS -0.006 -0.006 n/m -0.01 -0.02 n/m

Gross margin 44.7% 18.6% -26.1% 38.3% 7.9% -30.4%

Operating margin -664.2% -273.3% 390.9% -466.3% -348.2% 118.0%
Net Margin -671.9% -253.4% 418.5% -473.7% -339.9% 133.9%
Source: SEC Filings

Because of higher operating expenses, CERP’s net loss increased 130.6% year-over-year to $4.9 million in the first nine
months of 2007 from $2.1 million in the same period one year ago. However, we expect operating and net margins to
improve in the future as the Company ramps up manufacturing capacity and reaps the benefits of investments made
in the Indiana facility which will increase production capacity by one half billion pounds of resins per year.

Liquidity
The Company has a strong balance sheet with cash balances approaching $11 million at September 30, 2007. In addi-
tion, the Company has positive working capital of $12.2 million and modest debt at only $0.2 million.

The increase in operating expenses has required CERP to pursue external financing. During the first nine months of
2007, the Company consumed $4.0 million of cash in operations and spent $1.3 million to purchase manufacturing
equipment. CERP raised $16.1 million through financing activities during the first nine months of 2007 primarily
consisting of equity private placements and tapping its equity line of financing.
Exhibit 8: Balance sheet, $ thousands

$ Thousands 31-Mar-07 30-Jun-07 30-Sep-07

Current Assets, including 3,163 14,707 13,234
Cash and equivalents 1,569 12,892 10,973
Property and Equipment, net 1,309 1,799 2,236
Other Assets 49 44 60
Total Assets 4,521 16,550 15,530

Liabilities, including 1,193 743 1,081

Debt 592 217 199
Equity, including 3,328 15,808 14,449
Accumulated Deficit (6,722) (8,248) (9,850)

Net Working Capital 2,095 14,102 12,267

Source: SEC Filings

Cereplast, Inc. (OTCBB: CERP) 14

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Valuation and Summary

Outlook
Currently, bio-plastics represent less than 1% of plastics industry tonnage but demand for bio-plastics is growing three
times faster than demand for petroleum-based plastics. Bio-plastics technology is advancing rapidly; this progress,
combined with increasing market demand, is enabling efficiencies which are helping to reduce bio-plastics prices to
levels comparable with conventional plastics. In addition, rising oil prices and increasing demand for “green” prod-
ucts will support market share gains for bio-plastics. By substituting bio-plastics for conventional plastics, manufac-
turers could reduce global petroleum consumption by the 7% that currently goes into plastic production.

Cereplast has introduced two lines of resins: Cereplast Compostables™ and Cereplast Hybrid Resins™, commercial-
ly available since the fourth quarter of 2006 and the third quarter of 2007, respectively, and is experiencing strong de-
mand for both product lines. Cereplast Compostables™ address the needs of the food service disposable packaging
market. Cereplast Hybrid Resins™ may replace traditional petroleum-based plastic in a variety of markets, including
automotive, consumer electronics, toys, medical, entertainment packaging, furniture, cosmetic packaging, consumer
goods and construction sectors. As a result of the launch of its Hybrid Resins™ product line, CERP becomes one of
a handful of competitors offering bio-plastics as substitutes for petroleum-based plastics in a wide range of market
applications.

The Company has successfully introduced 57 products and has a pipeline of 65 prospective customers. Going forward,
its long-standing relationships with leading converters such as Alcoa, Genpak, Innoware and SoloCup; its growing
new customer pipeline; the commercial launch of its Hybrid ResinsTM product line, and expanded manufacturing
capacity support our expectations of triple-digit annual revenue growth for CERP over the next 3-5 years.
Exhibit 9: Revenue forecast, $ million

60
51.4
50

40

30
24.2

20

9.0
10
2.4
0.5 0.7
0
2005 2006 2007e 2008e 2009e 2010e

Source: Analyst estimates.

Peer Comparison
There are relatively few publicly-traded companies that have product offerings comparable to CERP. However, the
industry’s strong growth momentum and new, bio-based products being introduced by Metabolix, BioSolar and
Plantic Technologies have helped drive peer group forward Price/Sales multiples higher to a current range of 15 times

Cereplast, Inc. (OTCBB: CERP) 15

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

to 21 times projected 2008 sales.

Exhibit 10: Peer valuation

Company Name Ticker Share Mkt Cap. P/S

12/24/2007 Symbol Price Millions 2007 2008
Metabolix, Inc. MBLX $ 23.15 $ 519 463.57 21.49
Plantic Technologies PLNT.L 66 p. GPB 53 29.22 15.38
BioSolar, Inc. BSRC $1.04 $ 138 N/M 18.16
Cereplast, Inc. CERP $ 0.60 $ 155 64.04 17.16
Median 64.04 17.66
Source: SEC Fil Source: Yahoo Finance, Analyst estimates ings

Considering peer valuations and the Company’s unique growth prospects, we think Cereplast should trade at a 12
times P/S multiple to our 2009 revenue estimate. This suggests a price target of $1.12 for Cereplast shares.

Accordingly, we are initiating coverage of Cereplast Inc. with a Speculative Buy rating and a $1.12 price target. Given
its innovative technology and the environmental benefits of its bio-based resins, we think the Company is well-posi-
tioned for triple-digit revenue growth and significant market share gains in the years ahead. However, we strongly
encourage investors to carefully consider the risk factors described below before investing, since the Company will
face many obstacles in achieving its growth targets.

Investment Risks

History of losses
The Company has a history of net losses and expects to continue to report net losses for the next several quarters due
to stepped-up investments in marketing and manufacturing capacity. While demand for its products appears strong,
the Company may be years away from profitability. Lack of profitability may make it difficult for CERP to attract
external financing.

Low market penetration for bio-plastics

At present, bio-plastics account for less than 1% of plastics industry volume. While demand is growing rapidly, there
is no assurance that CERP’s bio-based resins will gain large-scale acceptance, enabling the Company to increase rev-
enues and market share.

Competitive pressure
Competition among resin providers serving the food service packaging industry is intense. The Company competes
with BASF, DuPont, Eastman Chemical, Novamont and Dow Chemical. All of these competitors have greater fi-
nancial and marketing resources than CERP and many have well-established supply, production and distribution
relationships. Some of these companies may opt to reduce their resin prices or increase marketing expenditures in an
attempt to prevent CERP from gaining market share.

Cereplast, Inc. (OTCBB: CERP) 16

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Management
The Company has attracted top industry talent, including several well-known scientists and process engineers, and
has 43 full-time employees.
Frederic Scheer, Mr. Scheer became involved in the biodegradable plastics industry in 1994 when,
President, serving as a financial consultant, he organized the buyout of Novamont, SpA, then a
CEO and Director division of Montedison, an Italian resin manufacturer and research company. Subse-
quently, Mr. Scheer secured exclusive North American distribution rights for Mater-
Bi™, a 100% biodegradable resin patented and produced by Novamont, and began
distributing Mater-Bi™ in North America. Mr. Scheer later founded the Biodegrad-
able Products Institute (BPI). Prior to his involvement in the biodegradable plastics
industry, Mr. Scheer was employed by ING and Credit Suisse in Europe. Mr. Scheer
holds a Doctorate in Law from the University of Paris and Masters degrees in Finance
and Political Science from the Institut d’Etudes Politiques in Paris, France. Mr. Scheer,
a US citizen, is fluent in French, Spanish, Italian and English.

Stephan Garden, Mr. Garden has over 10 years experience in consulting, investment banking and private
Senior Vice-President, equity. Mr. Garden was a Vice-President in the Investment Banking Division of Citi-
Finance and
group in New York in the Financial Sponsor Group and was also recently employed
Business Development
by Allied Capital, a $4.0 billion publicly-traded private equity fund, where he was re-
sponsible for executing debt and equity investments in middle-market companies. Mr.
Garden holds a BS from Boston University and a MBA from Columbia University.

William Kelly, Mr. Kelly has worked as a specialist in polymer product development for the past 27
Senior Vice-President, years and has been involved in the development of thermoplastic materials. From 1999
Technology to 2002, Mr. Kelly served as the Technical Service and Development Manager for
Hycail BV. From 1995 to 1998, he served as the Technical Service Manager for Chro-
nopol Inc. Mr. Kelly graduated in 1976 from SUNY-Albany with a BS in Chemistry.

Mr. Kelly led technical efforts at Chronopol to develop a fiber-forming polylactide ma-
terial with a unique property set. He also established process parameters for numerous
grades of polylactic acid polymers. He directed activities that led to the commercial
launch of over 50 new polymer systems and products.

Shriram Bagrodia, Dr. Bagrodia brings more than 30 years experience in polymers/materials research. Dr.
PhD Bagrodia directs research and development activities concerning blends and chemis-
Senior Vice-President, try at CERP, including intellectual capital management. Prior to joining Cereplast, he
R&D Blends and
served as Senior Research Associate at Eastman Chemical Company where he was
Chemistry
responsible for developing new products, processes, and applications. At Eastman, he
received 50+ US patents. Dr. Bagrodia is a “Fellow” member of the Society of Plas-
tics Engineers (SPE) and was the recipient of the SPE 2005 Engineering/Technology
award. Dr. Bagrodia holds a PhD from Virginia Tech, an MS from Princeton Univer-
sity, and a BS from IIT, Kanpur, India, all in Chemical Engineering.

Cereplast, Inc. (OTCBB: CERP) 17

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Charles Hoop, Prior to joining CERP, Mr. Hoop was a Director at UBS Investment Bank, responsible
Senior Vice-President, for strategic sourcing and contract negotiations relating to $250 million of bank invest-
Operations Control
ments in the data center, energy and telecommunications sectors in Europe, Asia and
North America. Prior to UBS, he co-founded a sales and distribution company based
in Vietnam that markets industrial, construction and consumer goods throughout In-
dochina. His role included negotiating representation agreements with global Fortune
100 companies, regional manufacturers and commodities suppliers as well as develop-
ing and controlling integrated sales, marketing and distribution programs. Additional
experience Mr. Hoop brings to his position at Cereplast includes executing a success-
ful North American market entry for a Brazilian cement producer, analyzing Africa
- Middle East product positioning for a premier American consumer goods marketer,
and conducting pan-Asian brand perception research for an American broadcast net-
work. Mr. Hoop holds a MBA from Columbia Business School and a BS from Miami
University.

Michael Muchin, Mr. Muchin has over 14 years experience in sales and operations with Acutek and
Vice-President, Scapa. Most recently, he served as Vice-President for Scapa Medical, a global manu-
Global Sales facturer of specialty thermoplastic films and adhesive-coated products. Mr. Muchin
was directly involved in key account management, and guided the efforts of a global
sales and marketing team. Mr. Muchin holds a BA from UCLA.

Cereplast, Inc. (OTCBB: CERP) 18

 Analyst: Victor Sula, PhD
Initial Report
January 7th, 2008

Disclaimer
Beacon Equity Reserach (otherwise known as BER) is an independent research firm specializing in small and micro capitalization compa-
nies. BER has no investment banking or consultation conflicts thereby minimizing the inherent conflicts of interest between the research
analysts and the companies they cover. BER is not a registered investment advisor or broker dealer. No information in this report should
be construed as an endorsement to either buy or sell any securities mentioned in this report. The analyst(s) who prepared this report rely
on publicly avail¬able information which neither the analyst, nor BER, can guarantee to be error-free or factually accurate. All conclusions
in this report are deemed reasonable and appropriate by the author. The Private Securities Litigation Reform Act of 1995 provides inves-
tors a “safe harbor” in regard to forward-looking statements. To fully comply with the requirements of this law, BER cautions all investors
that such forward-looking statements in this report are not guarantees of future performance. Unknown risk, uncertainties, as well as
other uncontrollable or unknown factors may cause actual results to materially differ from the results, performance or expectations ex-
pressed or implied by such forward-look¬ing statements. Investors should exercise good judgment and perform adequate due-diligence
prior to making any investment. BER and its affiliates have been compensated a total of fifteen thousand dollars by a non-controlling 3rd
party, and not the company directly. Ratings and price targets in this report should not be construed as recommendations or stock price
predictors. Readers of this report are urged to use due-diligence in any purchase of security listed herein. Readers should consult the
Company’s SEC filings as well as our initial report on the firm to better understand the inherent risks associated with this security. There
may be many uncontrollable or unknown factors which may cause actual results to materially differ from the results, performance or
expectations expressed or implied by such forward-looking statements. Investors should exercise good judgment and perform adequate
due-diligence prior to making any investment.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, PhD, the author of this report, certify that the material and views presented herein represent my personal opinion regard-
ing the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compen-
sation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own
and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst

Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004,
Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assis-
tance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization
and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D.
degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level
III candidate in the CFA program.

Cereplast, Inc. (OTCBB: CERP) 19