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June 06, 2001

EarthShell Serves Environment-Friendly Food Packaging
    by Mark Thomsen

Container manufacturer beginning to see fruit of research and development with expanding in-market product tests. -- EarthShell Corporation (ticker: ERTH) is a small company that is pioneering huge innovations in disposable packaging for food. The Santa Barbara, California-based manufacturer uses composite materials to produce containers that biodegrade when exposed to moisture in nature or physically disintegrate in water when crushed or broken. Although the three-year old company still does not have a product on the market and has yet to make a profit, it has good reasons to be optimistic about the future.

Fast-food giant MacDonald's (MCD) likes the concept of EarthShell’s packaging and has been testing containers for a year at over 100 locations in Chicago. EarthShell announced this week that met its commitment to supply McDonald’s a newly designed Big Mac container. To receive approval for the design, the container had to meet McDonald’s world-class performance requirements for distribution, warehousing, store operations and customer expectations.

“Supplying the McDonald’s restaurants, currently using the EarthShell package, with the final product design must be seen as an important milestone,” said Simon K. Hodson, Chief Executive Officer of EarthShell Corporation. “Capacity is being readied for expanded use of the hinged container to more McDonald’s locations in the Midwest and the introduction of the product to the West Coast in the near future.”

The market replied favorably to news of the redesigned product. EarthShell’s stock price rose 60 cents the day after the announcement, about 19 percent, closing at $3.69. At the end of trading today the price was $3.90

The Big Mac containers are made from reclaimed potato starch, natural limestone and post-consumer recycled fiber, biodegradable polymer and wax coatings, and water. The post-consumer recycled fiber means that no trees were cut, a feature McDonald’s seems to value.

Product development has been an expensive process for EarthShell and its founders. More than $25,000,000 has been spent in researching, testing, and developing the environmental attributes of the firm’s packaging.

EarthShell is also beginning to go after the hot beverage cup market, which in the U.S. alone is valued at just over $1 billion annually. It recently announced that after extensive in-house testing of the first EarthShell hot beverage cups, initial in-market testing will begin shortly at a California coffeehouse chain.

The potential popularity of biodegradable food containers revealed itself recently on a college campus. EarthShell disposables used at a “green graduation” at Hampshire College in Massachusetts drew rave reviews for their functionality. Hampshire College cooperates with four other nearby colleges in a recycling effort called the Five College Recycling Program. The Recycling Program managers are recommending that EarthShell products be used at campus dining facilities at all five colleges.

According to its 2001 first quarter earnings report, the company has $6.7 million in cash, no debt, and an on-target cash burn rate. And the company has retained its ability to raise equity capital.

"Our achievement of strategic milestones with regard to the clamshell, bowl and plate is currently allowing us to raise capital on more favorable terms," said Scott Houston, EarthShell Chief Financial Officer.

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