ERTH - about one more quarter until 0 cash
By ELIZABETH CROWLEY
Staff Reporter of THE WALL STREET JOURNAL
For EarthShell Corp., hope springs eternal that billions of McDonald's Big
Mac sandwiches will soon be eaten out of clamshell boxes made of
limestone and potato starch.
EarthShell, based in Santa Barbara, Calif., raised $206 million in an initial
public offering in 1998 as investors bought into the plan that the company
would sell 1.8 billion Big Mac containers to McDonald's Corp.,
Oakbrook, Ill., during three years. Surely, if McDonald's, the biggest user
of disposable food packaging, bought from EarthShell, then others would
follow, many investors believed.
EarthShell estimates the global market for disposable food-service packaging at more
than $20 billion. It wants a big piece of that.
It hasn't worked out that way, however, and EarthShell shares have fallen steadily
since the IPO, with occasional upticks on encouraging
news releases from the company. One such release came on March 30. EarthShell
announced that, after more than two years of testing and validation, McDonald's had
finally signed off on the performance of the so-called hinged-lid sandwich containers.
"The debugging and start-up of the manufacturing facility have taken much
longer and cost more money than originally anticipated," EarthShell added
in a filing with the Securities and Exchange Commission on April 2. Indeed,
the sandwich clamshells have proven brittle, hard to make and hard to
ship.
"It is anticipated," EarthShell said in the SEC filing, that use of its containers
will expand beyond certain McDonald's test stores in the Chicago area to
the entire Chicago area "to confirm full manufacturing capability."
known as Environmental Defense Fund), applauds the innovation behind
EarthShell materials. But, he says, it is "unclear whether the application to
packaging or food-service packaging" makes sense.
The company has losses of $194 million since 1992, hasn't booked any
revenue, and had just $7.8 million of cash remaining on Dec. 31, according
to the SEC filing. It has cut costs and has been trying to raise additional
cash to fund its operations.
Passing Muster
Getting past McDonald's, a stickler for packaging uniformity, hasn't been
easy.
"If we were to rethink the business plan, we might start with a smaller
customer," says Vincent J. Truant, a senior vice president at EarthShell.
McDonald's insists, for instance, the clamshells be able to open and close
at least 12 times without cracking.
Says a McDonald's spokesman: "There's a huge difference between the
drawing board and the front counter at a restaurant."
Indeed, a hoped-for rollout across the Chicago market is a far cry from
being in every McDonald's restaurant, and consumer complaints about
packaging have grown quieter in recent years. EarthShell says it hopes the
latest approval from McDonald's helps it raise additional funding to keep
its business afloat.
Write to Elizabeth Crowley at elizabeth.crowley@wsj.com
April 11, 2001 |
