City company delays McDonald's shipments

EarthShell to conduct more production tests of short-life containers

Food packaging

April 01, 1999|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

EarthShell Corp., a developer of biodegradable and dissolvable packaging for the food service industry, said yesterday that it will delay shipments of its sandwich containers to McDonald's Corp.

Wall Street reacted strongly to the news, sending the Baltimore company's shares down 27 percent. Shares of the company's stock closed yesterday at $9.75, down $2.0625.

EarthShell has a three-year contract worth an undisclosed sum to supply McDonald's with at least 1.8 billion containers for its Big Mac sandwiches.

FOR THE RECORD - An article in yesterday's editions concerning EarthShell Corp. inaccurately reported that the company expected to begin shipping sandwich containers to McDonald's Corp. in the fourth quarter. In fact, the company expects to begin shipments in the current second quarter, which ends June 30.
The Sun regrets the error.

Yesterday, company officials said they want to complete more testing on the production lines that will make the packaging.

Yesterday's deadline was self-imposed and will not threaten the contract, said Vincent J. Truant, Earth-Shell's vice president for marketing and sales. The revised time line calls for shipping the containers by the fourth quarter, he said.

"March 31 was a date we elected to target a while ago. When we told McDonald's we were running behind that date, they were fine with it," Truant said. "They said they would rather have us take our time rather than rush something."

McDonald's did not return phone calls for comment yesterday.

"It's very difficult to rush invention," Truant said. "This material is, in fact, a new material and many view it as revolutionary."

EarthShell manufactures disposable food service packaging such as cups, plates, bowls and hinged-lid containers made out of limestone, potato starch, corn, natural fibers and functional coatings.

After the protective coating is crushed or broken on the environmentally sensitive containers, they begin to immediately biodegrade and disintegrate in the presence of air and moisture. The process should be completed in an hour, the company said.

EarthShell has licensed with Owings Mills-based Sweetheart Cup Co. to make the packaging. EarthShell is close to completing a production plant at the Sweetheart facility, Truant said.

EarthShell had set yesterday as its target date to ship to McDonald's after its initial public offering in March 1998 raised $250 million.

The company's shares are down 54 percent from their IPO price of $21 in March 1998. Shares dipped as low as $5, their 52-week low, on Sept. 1.

Since 1992, Earth-Shell has lost more than $74 million. For the year that ended Dec. 31, the company posted a net loss of $27.4 million, compared with $27.1 million for the year earlier.

EarthShell was formed in 1991. Its principal shareholder is E. Khashoggi Industries LLC, a Santa Barbara, Calif., company owned by Essam Khashoggi. Khashoggi, who is the founder and chairman of EarthShell, owns about 73 percent of the company's outstanding shares and many of its 78 patents.

Khashoggi is the brother of Adnan Khashoggi, a Saudi financier and a key middleman in secret White House arms sales to Iran during the mid-1980s.

EarthShell moved to Baltimore from Santa Barbara last year to be closer to East Coast food service companies and environmental groups based in Washington, Truant said. The company has about two dozen employees.

Recently, the company signed letters of intent with two disposables producers to begin commercial production of an expanded product range in the first quarter of 2000. EarthShell is working on definitive agreements with those two companies, Truant said.

Pub Date: 4/01/99

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