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December 03, 2007 01:00 AM

Despite setbacks, Eco2 outlines major plans

Mike Verespej
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    Following three years of stops and starts, mounting financial losses, a change in top management and almost no revenue, Eco2 Plastics Inc. appears ready to make an impact on recycling with its water-free PET recycling plant in Riverbank, Calif.

    Rod Rougelot, who took over as chief executive officer 14 months ago, said the San Francisco-based company expects to recycle 70 million pounds of PET in 2008 and anticipates sales of $26 million to $30 million next year.

    That's quite a contrast to the first three quarters of 2007 when Eco2's sales totaled $2 million - $1.45 million of that in the third quarter - and losses totaled $23.3 million, on the heels of losses of $21 million in 2006 and $15 million in 2005.

    But all that is changing as the company expects to achieve its first-ever operating profit in December, Rougelot said in a Nov. 28 telephone interview.

    ``We have hit the point where our fixed costs are covered. We are producing at commercial levels this quarter for the first time'' and expect to reach maximum daily volumes before the end of the year, he said.

    Rougelot said Eco2 also plans to build a 90,000-square-foot PET recycling plant in the greater Los Angeles area in 2008, submit an application in the first quarter to the Food and Drug Administration for permission to sell its resin as food-grade for food-contact applications, and introduce and install the second generation of its proprietary technology in April.

    Rougelot - who 20 years ago founded Resource Recycling LLC, which now is part of Tomra Pacific Inc. - has raised $20 million in capital since his arrival and assembled a management team comprising mostly former GE Plastics managers. In addition, William Whittaker, chairman and CEO of Whittaker Asset Management, was brought in as chairman in October.

    Yet cash for expansion remains a challenge. In a Nov. 5 filing with the Securities and Exchange Commission, Eco2 said as of Sept. 30 it did not have ``sufficient cash to meet its needs for the next 12 months.''

    ``However, the company management anticipates being able to raise sufficient cash to meet the company's needs in the next 12 months,'' Rougelot said. The company is working with investment bankers and three state agencies in California to secure financing.

    ``We want to rapidly scale our operations in order to build shareholder value,'' Rougelot said. Eco2 stock has been trading at about 9 cents per share, as investors have been waiting for promised capacity to come on stream at the 7-year-old company.

    The Riverbank plant originally was scheduled to achieve full capacity a year ago, and the planned purchase of two plants from Waste Management Recycle America LLC in April 2006 also fell through.

    Rougelot said the company will benefit from the second-generation technology, which is expected to come on stream in April. It will enable Eco2 to switch from a batch process to a more efficient continuous-flow system, Rougelot said.

    ``We are already the lowest-cost producer and this drives us further into that position,'' he said.

    Eco2 immerses its shredded PET bottles in ethyl lactate, a biodegradable solvent made from beets and corn, and then blasts the material with liquid carbon dioxide to remove the solvent. Both the solvent and the liquid carbon dioxide are captured and reused in a closed-loop system that Eco2 said removes contaminants and odors from the finished flake.

    A conventional PET recycling plant operating around the clock typically uses 40 million gallons of water annually and needs to deal with the disposal problems posed by that water.

    Eco2's water-free technology is licensed exclusively worldwide by Eco2 from Honeywell International Inc. and the Department of Energy. It also can be adapted for high density polyethylene recycling.

    Eco2's system will compete primarily with the Hybrid unPET process, a chemical cleaning technology developed by United Resource Recovery Corp. The unPET process uses half the water of conventional PET recycling system. It was developed in 1994 and has been approved for food-grade applications since 2000.

    ``Our system will change the way plastics are recycled worldwide,'' Rougelot said. ``We foresee 10 of these facilities in the U.S. in the next five years,'' and the possibility of plants in South America, Europe, India and the Pacific Rim. ``Five years from now, if we are successful, we will be in the $300 million to $400 million range in [sales].''

    Obtaining the letter of nonobjection from the FDA to sell food-grade resin is critical because it will enable Eco2 to obtain higher prices for its recycled PET resin.

    ``The premium price is for resin that represents bottle-to-bottle use'' for beverage container production, Rougelot said.

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