Finding Fresh Hope in Fake Fat 

A lot of entrepreneurs can claim they’ve trimmed their online operations in the wake of the dot-com implosion.

But only Greg Halpern, CEO of Circle Group Internet, is doing so with the help of fake fat.

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In an effort to diversify its operations, Circle took an unusual step this fall when it acquired licensing rights to a fat substitute called Z-Trim. The substance, made from fibrous byproducts of processed grains, is intended to replace fat in baked foods, dairy products and other culinary delights.

While it may seem like gelatinous goo to most people, Halpern is convinced that Z-Trim represents a "gorilla-sized breakthrough" for dieters' in their quest for a non-caloric fat replacement.

Circle Group plans to manufacture a few products of its own containing Z-Trim, but Halpern said the main idea is to seek out licensing agreements with large processing companies to use it in their own goods. Based on samples of Z-Trim enriched foods, Halpern mentioned brownie mix, lunch meat and lowfat cheese as possible product lines.

The move is an abrupt switch for Circle Group, which first raised money from public investors in mid-1999 by describing itself in securities filings as "an Internet company with e-finance, website design and multimedia, and e-tailer divisions." Its lines of business included an online bedding retailer and a private label browser.

Although the company hasn't given up on the Web, it's trying to recreate an image as something other than a dot-com and is planning, soon, to drop the word "Internet" from the official company name.

"When you have the name Internet in there it skews the public perception," said Halpern, a former self-help book author and patent-holder of a dental anesthesia device. "We really were never an Internet company per se, but we always had the idea of marketing on the Internet."

A glance at Circle Group's stock (CRGQ) performance provides some explanation of the logic behind the changes. Although the company raised money from public investors in 1999, it only began trading as shares on the over-the-counter exchange in June. In the past five months, the stock has withered from a high of $2 to its current price of around 5 cents.

Such abrupt transformations of name or business model aren't unusual for companies in sectors that have lost appeal with investors. Following the Internet meltdown, scores of public companies with dot-com in their name removed the reviled suffix in a bid to curry favor with shareholders. Others have shut-down Internet divisions and invested their remaining cash in more tried-and-true business ventures.

For Circle Group, however, it may be a move from one risky arena to another.

High fat food, after all, is pretty tasty. And expecting people to replace their grease with a gelatinous glop made from a mixture of water and plant fiber powder can't be an easy task.

Anyone who doubts the difficulties in launching a fake fat product need only recall Procter & Gamble's experience with a substance called Olestra. The company spent years seeking approval for the fat substitute, made from a modified form of sucrose, before launching its first Olestra products in 1998.

The Olestra-fortified chips never caught on, however, after the substance was found to cause diarrhea-like symptoms in some people.

"They were forced to put on the package: 'May cause anal leakage' -- not a popular way to sell a product," Halpern said.

But even if it doesn't cause the same unpleasantness, Z-Trim is just one of several fat replacers currently competing for dieters' dollars.

In addition to Olestra there's Salatrim, marketed as Benefat, a liquid fat-replacer used in chocolate chips and some confections. Simplesse, a fat substitute made from whey protein, has been used in dairy products and dips.

Then there are Oatrim and NuTrimX, two other fat replacers developed by the same scientist who invented Z-Trim.

Jim Daniel, an associate professor of food and nutrition at Purdue University, said the biggest obstacle to creating fat substitutes is getting something that mimics the real thing.

"Most of the time when low-fat foods are one-time purchase items it's because they don't taste good compared to the full fat product," he said.

Still, George Inglett, inventor of Z-Trim, has high hopes for his own fat substitute.

"It has a lot of potential, particularly with the swelling number of people who are obese," said Inglett, a senior scientist at the research arm of the Department of Agriculture.

Z-Trim, developed in the late 1990s, is Inglett's third attempt at a fat substitute. He also created Oatrim, a fat-replacing powder made from oat fiber, and NuTrimX, made from oat and barley fiber.

Halpern said Z-Trim products would probably first be targeted at the health-food industry, where new products commonly get their start. Health food aficionados -- who are known to buy things like soy cheese and vegetarian pepperoni -- tend to be more forgiving of new products than the meat-and-potatoes crowd.

Circle Group was unable to provide a sample of Z-Trim, since the substance is not yet being manufactured in bulk quantities.

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