EarthShell Corp., an environmentally friendly food packaging company that has burned through more than $300 million of investors' money since it was founded 13 years ago, is closing its Santa Barbara corporate office on upper State Street and moving to Maryland.
During its heyday, the company was based on Miramonte Drive and employed more than 100 people. Today it has slimmed to around a dozen staff and will consolidate operations at its Baltimore office by the end of this year, says Chief Financial Officer Scott Houston.
In the late '90s, Maryland was a hub of EarthShell activities, and the company has strong links there through the Sweetheart Cup Co., a manufacturer of disposable food service products.
"There is really no compelling reason to remain in California," according to Mr. Houston, who says transition plans are being worked through and that nothing has been finalized regarding the handful of employees in Santa Barbara.
EarthShell is not a manufacturer. Instead, it licenses the technology needed to create its range of biodegradable cups, plates, bowls, hinged-lid containers and sandwich wraps, which are made using natural limestone and starch from potatoes, wheat or corn.
In addition to its relocation plans, EarthShell has just completed a reshuffle involving the two founders, Simon Hodson and Essam Khashoggi, and President Vince Truant.
After serving on the board since 1992, Mr. Khashoggi has stepped down. With his wife, Layla, and his company, E. Khashoggi Industries, he remains by far the most dominant of EarthShell's estimated 30,000 shareholders.
Mr. Houston says Mr. Khashoggi still owns or controls about 6.5 million shares, or 34 percent, of EarthShell's roughly 18 million shares. Earlier this week those shares were worth $2.50 each, giving the company a market capitalization of about $45 million.
Mr. Hodson remains board chairman, but Mr. Truant has taken over as chief executive officer, a position Mr. Hodson had held since the company started.
Mr. Truant, 57, was previously president and chief operating officer, and Mr. Houston says the company has no plans at present to fill those positions.
Mr. Truant will be paid a base salary of $400,000 per year and be eligible for a $400,000 bonus "upon the satisfaction of certain performance criteria." In addition, he has been given options for 350,000 shares of common stock at $2.10, the closing price on Aug. 26.
Company filings show that last year, Mr. Hodson's base salary was $500,000 and Mr. Houston's was $327,200. Both men also received company 401(k) plan payments and stock options and are eligible for bonuses. Last year, the pair also agreed to defer part of their salaries to help conserve cash while the company moves to an income stream from production royalties.
Mr. Truant was employed at the Sweetheart Cup Co. for 15 years. Sweetheart worked with EarthShell in the early stages of its new technology but the partnership dissolved when, says Mr. Houston, Sweetheart was bought by the Solo Cup Co. and taken in a different direction.
Since then, EarthShell has courted a number of potential partners, including Green Earth Packaging of Malaysia and Meridian Business Solutions from the Bay Area, but those deals have fallen by the wayside and the missteps involved have eaten up a lot of time and money.
However, Mr. Houston rejects suggestions that the company would have been better off doing the manufacturing itself, even though it did reach the stage of setting up a pilot production line and followed with a trial run of about 50 million units for McDonald's and Wal-Mart.
"Our concept was always to have others do the manufacturing," he said, adding that part of any deal involves EarthShell working "hand in hand" with the licensee to provide training and marketing and to support the products' underlying environmental claims.
In those earlier trials, EarthShell made more than 20 million clamshell containers for McDonald's and a similar number of other environmentally friendly items for sale through various Wal-Mart outlets.
Although the products were well-received, production hiccups with Sweetheart and Green Earth meant manufacturing equipment was not in place to satisfy demand.
"Commercialization takes time and money," Mr. Houston said. "It's all about efficiency and effectiveness."
Mr. Houston says time has passed but it hasn't been wasted. Despite some mistakes, he says EarthShell has learned as it's gone along and made advances in product development and machinery. After more than a decade of expensive research and development, EarthShell says it is now better placed than ever to move ahead with licensing its technology.
Mr. Houston sees scope for multiple manufacturers working with different products and within market sectors such as fast food and retailing. And he says EarthShell is on the cusp of generating its first significant income through one-off licensing fees followed by ongoing royalties on sales.
The company is currently pursuing manufacturing arrangements with two partners -- ReNewable Products Inc., or RPI, and EarthShell Hidalgo, a company formed by a group of Mexican businessmen to manufacture, distribute and sell the company's packaging throughout Mexico.
Mr. Houston says Hidalgo is working on an order for machines while RPI is in the process of installing and bringing on-line commercial equipment bought from Detroit Tool & Engineering. RPI and Detroit Tool share a common owner and are located near each other in Springfield, Mo.
Mr. Houston says RPI should start production before the end of this year.
The company intends to sell EarthShell plates and bowls to customers such as Wal-Mart, Costco, Target, Kmart and various government departments, schools, colleges and universities.
After years of hemorrhaging money, EarthShell has stanched the flow. Losses dropped from $62 million in 2001 to $7.2 million last year; in the first half of this year the company was $2.9 million in the red. That's a sign, says Mr. Houston, of the shift away from "heavy development mode" and toward licensing support.
So far, EarthShell has recorded only minimal income. The company is set to receive around $1.5 million in prepaid technology fees, but payments are being spread over the life of the agreements so that to date, only about $250,000 has shown up on the balance sheet.
EarthShell, which went public in 1998, was delisted from the Nasdaq in 2003 after it failed to meet basic criteria covering the share price and company value. Today the company trades on the Bulletin Board (ERTH.OB), though Mr.
Houston says EarthShell hopes to return to the Nasdaq "when the fundamentals suggest it's the right time."Santa Barbara News-Press
