EarthShell is going to zero out in less than 1 year...............
Anyone who read the prospectus thoroughly knows that this Co. is a ticking timebomb.
My top 5 reasons to short this Company (which is also easier now because they listed options last month).
1. Can't trust Chmn. Esam Khashoggi. The Limited Liability Company owned by Mr. Khashoggi has ERTH under some questionable obligations.
A large amount of the IPO proceeds went directly to Mr. Khashoggi to satisfy high interest payments due for loans made long ago to "HIS" Company, ERTH. Reading into this in the prosp. is very interesting. 2. The Company has done nothing except forge some sort of agreement with McDonalds, which may or may not come to pass, and spent millions each quarter on R&D for the design of the product which doesn't seem to warrant the kind of research $ that, say, a small biotech's R&D should be. Hey, I'm no EarthShellian engineer, but the R&D costs seem incredibly high, especially for a simple, biodegradeable product.
I'd like to take a closer look at the actual breakout of R&D expenses, as they seem very shady. I'm not accusing Khashoggi of putting the books on the hamburger grill, but hey, Something smells funny here, and it may be smoke.
3. The Company promised to call the remaining conv. preferred stock by 6/98. Well, that deadline has come and passed. This red flag is a clear signal, straight from the prospectus, not to buy this stock.
I don't need to mention how many other companies have promised the same thing and then have watched the stock be converted by cash hungry Institutions and Private Capital groups, driving the stock down to 1/32.
4. Even if a facility is ever built, production ever started, and units ever shipped (any of the 3 would amaze me), the Company will never be profitable. I estimate that cost of goods sold will eclipse
over 100% of sales for the first 2 years, at best. The current suppliers of containers for Mcdonalds will simply lower their prices to the point where ERTH cannot profitably manufacture their silly item. The current suppliers are surely not going to sit by and watch ERTH become a mammoth container powerhouse (yeah, right). It is absolutely impossible for ERTH to price a container as cheaply as a
standard styrofoam model. McDonald is not going to pass the costs onto the customers, either. They'll tell ERTH very simply, "sell us them for the same price as styrofoam or take a hike." 5. This is all an EarthScam capitalizing on the public's environmental worries. The whole environmental fad of anti-styrofoam and plastic to save the ozone layer is weakening, and the ozone layer isn't finite anyway, as they would have you believe. That's just a come-on for the scammers to get research grants. Why doesn't the govt. grant $ to ERTH if it's such an important product anyway?
My heartfelt sympathy goes out to anyone who coughed up $21/share for revenues and earnings that might never come, and if they do are years
away. |
