<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
/ / TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d)
OF SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______to_________
----------------
Commission File Number 333-13287
EARTHSHELL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0322379
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 MIRAMONTE DRIVE, SANTA BARBARA, CALIFORNIA 93109
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (805) 897-2294
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
The number of shares outstanding of the registrant's common stock as of
November 10, 1998 was 100,045,166.
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<PAGE>
EARTHSHELL CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
----
<S> <C>
a) Balance Sheets
as of September 30, 1998 (unaudited) and December 31, 1997 ........ 1
b) Statements of Operations
for the Three and Nine Months Ended September 30, 1998 and
1997 (unaudited) and for the period from November 1, 1992
(inception) through September 30, 1998 (unaudited) ................ 2
c) Statements of Stockholders' Equity
for the Nine Months Ended September 30, 1998 (unaudited) ......... 3
d) Statements of Cash Flows
for the Nine Months Ended September 30, 1998 and 1997
(unaudited) and for the period from November 1, 1992
(inception) through September 30, 1998 (unaudited) ................ 4
e) Notes to Financial Statements (unaudited) ......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................... 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds .................... 15
Item 6. Exhibits and Reports on Form 8-K. ............................ 16
SIGNATURE ............................................................................... 17
</TABLE>
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
BALANCE SHEETS (Unaudited)
September 30, 1998 and December 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 105,671,740 $ 8,437
Restricted cash 3,500,000
Short-term investments 4,999,091
Prepaid insurance 146,257 9,248
Other assets 125,453 19,288
-------------- --------------
Total current assets 114,442,541 36,973
PROPERTY AND EQUIPMENT, Net 29,709,128 3,741,129
-------------- --------------
TOTAL $ 144,151,669 $ 3,778,102
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 9,160,682 $ 3,182,534
Payable to majority stockholder 841,240 622,090
Note payable to majority stockholder 32,060,887
Notes payable to banks 23,977 11,843,855
Accrued interest to majority stockholder 636,068
-------------- --------------
Total current liabilities 10,025,899 48,345,434
-------------- --------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value, 10,000,000 shares authorized; 9,170,000
Series A shares designated; 6,988,850 Series A shares issued and
outstanding as of December 31, 1997 69,888
Additional paid-in preferred capital 24,403,113
Common stock, $.01 par value, 200,000,000 shares
authorized, 82,530,000 and 100,045,166 issued and
outstanding as of December 31, 1997 and September 30, 1998, respectively 1,000,451 825,300
Additional paid-in common capital 224,600,494 4,355,352
Deficit accumulated during the development stage (91,475,175) (74,220,985)
-------------- --------------
Total stockholders' equity (deficit) 134,125,770 (44,567,332)
-------------- --------------
TOTAL $ 144,151,669 $ 3,778,102
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
1
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended September 30, 1998 and 1997
For the Nine Months Ended September 30, 1998 and 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
For the Three Months For the Nine Months through
Ended September 30, Ended September 30, September 30,
-------------------- -------------------- -------------
1998 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EXPENSES:
Related party research and development $ 2,492,976 $ 1,685,966 $ 6,297,348 $ 5,562,162 $ 44,021,460
Other research and development 2,164,243 261,944 6,468,140 679,478 11,144,136
Related party general and administrative expenses 16,800 16,800 50,400 50,400 1,852,000
Other general and administrative expenses 4,184,697 508,589 6,267,785 1,357,615 21,845,378
Depreciation and amortization 224,868 131,696 612,993 369,161 2,872,370
Related party patent expenses 33,024 70,997 118,125 551,370 7,318,732
----------- ----------- ----------- ----------- ------------
Total expenses 9,116,608 2,675,992 19,814,791 8,570,186 89,054,076
INTEREST (INCOME)/EXPENSE:
Interest income (1,704,025) (16) (3,647,518) (51) (4,142,857)
Related party interest expense 593,676 651,586 1,549,109 4,770,731
Other interest expense 692 256,150 434,531 872,568 1,788,425
----------- ----------- ----------- ----------- ------------
LOSS BEFORE INCOME TAXES 7,413,275 3,525,802 17,253,390 10,991,812 91,470,375
INCOME TAXES 800 800 4,800
----------- ----------- ----------- ----------- ------------
NET LOSS 7,413,275 3,525,802 17,254,190 10,992,612 91,475,175
ASSUMED PREFERRED DIVIDENDS 533,500 776,813 1,600,500 9,926,703
----------- ----------- ----------- ----------- ------------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ 7,413,275 $ 4,059,302 $18,031,003 $12,593,112 $101,401,878
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
BASIC AND DILUTED LOSS PER COMMON SHARE $ 0.07 $ 0.05 $ 0.19 $ 0.15
WEIGHTED AVERAGE NUMBER OF SHARES USED IN
COMPUTING LOSS PER COMMON SHARE 99,883,320 82,530,000 94,178,427 82,530,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
Convertible
Preferred Stock Additional
Series A Paid-In
---------------------- Preferred
Shares Amount Capital
------ ------ -------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1998 6,988,850 $69,888 $24,403,113
------------ --------- ------------
Conversion of preferred stock to
common stock (6,988,850) (69,888) (24,403,113)
Issuance of common stock
Preferred stock dividend
Net loss
BALANCE, SEPTEMBER 30, 1998 $ - $ - $ -
------------ --------- ------------
------------ --------- ------------
<CAPTION>
Deficit
Additional Accumulated
Common Stock Paid-In during
--------------------- Common Development
Shares Amount Capital Stage Total
------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
82,530,000 $825,300 $4,355,352 ($74,220,985) ($44,567,332)
BALANCE, JANUARY 1, 1998 ----------- ---------- ------------ ------------ ------------
Conversion of preferred stock to
common stock 6,988,850 69,888 24,403,113
Issuance of common stock 10,526,316 105,263 205,768,732 205,873,995
Preferred stock dividend (9,926,703) (9,926,703)
Net loss (17,254,190) (17,254,190)
BALANCE, SEPTEMBER 30, 1998 100,045,166 $1,000,451 $224,600,494 ($91,475,175) $134,125,770
----------- ---------- ------------ ------------ ------------
----------- ---------- ------------ ------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION> Inception
For the Nine Months through
Ended September 30, September 30,
------------------------------- ------------------
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,254,190) $ (10,992,612) $ (91,475,175)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 612,993 369,161 2,872,370
Issuance of stock options to director and consultant 3,096,761
Issuance of stock options to officer 205,225 650,000
Amortization of debt issue costs 271,277
Loss on sale or disposal of property and equipment 265,840 2,131,479
Net loss on sale of investments 32,496
Accretion of discounts on investments (410,084)
Changes in operating assets and liabilities:
Prepaid expenses and other assets (243,174) 14,579 (271,710)
Accounts payable and accrued expenses 5,978,148 (137,018) 9,160,681
Accrued interest on note payable to majority stockholder (636,068) 162,535
Payable to majority stockholder (25,476,182) 7,512,064
-------------- -------------- --------------
Net cash used in operating activities (36,752,633) (2,866,066) (73,941,905)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (4,999,091) (41,917,345)
Proceeds from sales and redemptions of investments 37,295,842
Proceeds from sale of property and equipment 297,670
Purchase of property and equipment (26,846,832) (48,135) (35,882,382)
-------------- -------------- --------------
Net cash used in investing activities (31,845,922) (48,135) (40,206,214)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable to stockholders 1,450,000 2,125,000 14,270,000
Proceeds from drawings on line of credit with bank 2,150,000 1,890,000 14,000,000
Proceeds from issuance of common stock 221,052,636 221,062,636
Common stock issuance costs (15,180,580) (15,180,580)
Preferred stock dividends paid (9,926,703) (9,926,703)
Proceeds from issuance of preferred stock 25,675,000
Preferred stock issuance costs (1,201,999)
Repayment of notes payable (21,783,495) (850,000) (25,378,495)
-------------- -------------- --------------
Net cash provided by financing activities 177,761,858 3,165,000 223,319,859
-------------- -------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 109,163,303 250,799 109,171,740
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,437 21,179
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 109,171,740 $ 271,978 $ 109,171,740
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (Unaudited) - continued For the Nine Months Ended
September 30, 1998 and 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION> Inception
For the Nine Months through
Ended September 30, September 30,
------------------------- --------------
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Income taxes $ 800 $ 800 $ 4,800
Interest $1,722,201 $411,193 $3,027,890
Non-cash transactions:
Warrants issued with debt $ 306,168
Transfer of property from EKI $ 28,745
Conversion of preferred stock to common stock $ 69,888 $ 69,888
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
EARTHSHELL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
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1. PRESENTATION OF FINANCIAL INFORMATION
The foregoing financial information is unaudited and has been prepared
from the books and records of EarthShell Corporation (the "Company"). In
the opinion of management, the financial information reflects all
adjustments necessary for a fair presentation of the financial condition,
results of operations and cash flows in conformity with generally
accepted accounting principles. All such adjustments were of a normal
recurring nature for interim financial reporting.
Certain information and footnote disclosures which were included in the
Company's financial statements for the year ended December 31, 1997 have
been condensed or omitted from this report. The information included in
this Form 10-Q should be read in conjunction with Management's Discussion
and Analysis and financial statements and notes thereto for the year
ended December 31, 1997 included in the Company's Prospectus, dated March
23, 1998.
In addition, all references in the financial statements to number of
shares outstanding and per share amounts of the Company's common and
preferred stock have been restated to reflect a 262-for-one stock split
(see Note 9).
Certain reclassifications have been made to the 1997 financial statements
to conform to 1998 classifications.
Basic and diluted loss per common share is calculated based on weighted
average shares outstanding of 99,883,320 and 94,178,427 for the three and
nine months ended September 30, 1998, respectively, and 82,530,000 for
the three and nine months ended September 30, 1997, respectively. Basic
and diluted are the same because common stock equivalents are considered
anti-dilutive.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, funds invested in money market
mutual funds and cash invested temporarily in various instruments with
maturities of three months or less at the time of purchase. The carrying
value of cash equivalents approximates fair value. The money market
mutual fund deposits have an investment objective to provide high current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity.
At March 30, 1998, a certificate of deposit for $3,500,000 was opened as
collateral on the letter of credit related to the Company's obligation
under a letter agreement between E. Khashoggi Industries, LLC, the
Company's majority stockholder ("EKI"), and the Company relating to a
patent purchase agreement between EKI and a third party as discussed in
Note 7 and is classified as restricted cash on the balance sheet.
3. SHORT-TERM INVESTMENTS
Investments are accounted for in accordance with Statement of Financial
Accounting Standards No. 115 and are classified as available for sale.
This standard requires that certain debt and equity securities be
adjusted to market value at the end of each accounting period. Unrealized
gains and losses are charged or credited to a separate component of
stockholders' equity. At September 30, 1998, the market value of
short-term investments approximates cost.
6
<PAGE>
EARTHSHELL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
For the three months ended September 30, 1998 and 1997, the Company
paid or accrued $2,492,976 and $1,685,966, respectively, and for the
nine months ended September 30, 1998 and 1997, the Company paid or
accrued $6,297,348 and $5,562,162, respectively, for services
performed by EKI under the Amended and Restated Technical Services
and Sublease Agreement effective October 1, 1997, between the Company
and EKI and $16,800 and $50,400 in sublease payments to EKI for each
of the respective three month and nine month periods.
Under the Amended and Restated Agreement for Allocation of Patent Costs
("Patent Cost Allocation Agreement") effective October 1, 1997, legal
fees related to patents of $33,024 and $70,997 were paid to or on behalf
of EKI for the three months ended September 30, 1998 and 1997,
respectively, and $118,125 and $551,370 for the nine months ended
September 30, 1998 and 1997, respectively.
The Company repaid the total indebtedness to its majority stockholder
through March 27, 1998 totaling $36,630,548, which includes $32,875,887
in promissory notes, $1,287,654 in accrued interest, and $2,467,007 in
accounts payable.
5. PROPERTY AND EQUIPMENT
At September 30, 1998, property and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Commercial Manufacturing Equipment: Construction in progress
Sweetheart Cup Company - Lines 1-3 $ 21,697,655
Future lines 1,874,137
--------------
23,571,792
Product Development Center:
Equipment 3,884,605
Construction in progress 1,587,250
Leasehold improvements 615,042
--------------
6,086,897
Office equipment & furniture 349,505
Office leasehold improvements 422,453
Less: accumulated depreciation (721,519)
---------------
Property and equipment - net $ 29,709,128
--------------
--------------
</TABLE>
6. NOTE PAYABLE TO BANK
On March 27, 1998, the Company repaid the $14,000,000 Imperial Bank line
of credit.
7
<PAGE>
EARTHSHELL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
7. COMMITMENTS
The Company has committed to capital equipment expenditures for the
Sweetheart installation of $6,682,194 and infrastructure improvement and
installation costs of $3,429,453 as of September 30, 1998 in addition to
the construction in progress of $23,571,792 (see Note 5).
Effective July 1, 1998 and August 1, 1998, the Company entered into
operating leases for development facilities and headquarter office space
in California and Maryland, respectively, which expire over the next
eight years. Both leases provide the Company with options to renew the
leases for five years subject to certain conditions.
Future minimum lease payments required under leases as of September 30,
1998 were as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $200,749
1999 807,029
2000 811,062
2001 764,695
2002 751,928
Thereafter 1,058,064
------------
Total $ 4,393,527
------------
------------
</TABLE>
On February 16, 1998, EKI entered into certain agreements with an
equipment manufacturer providing for the purchase by EKI of certain
technology applicable to starch-based disposable packaging. EKI
licenses such technology to the Company on a royalty-free basis
pursuant to the Amended and Restated License Agreement dated February
28, 1995, as amended. In connection with the purchase, and pursuant to
the terms of the Patent Cost Allocation Agreement, the Company agreed
to pay the seller of the technology $3,500,000 on or about December
31, 2003, which obligation is secured by a letter of credit.
The Company's obligation will be reduced by 5% of the purchase price of
any equipment purchased by EKI, the Company or its licensees or joint
venture partners from the seller of the technology. In addition, the
Company is required to pay $3,000,000 over the five year period
commencing January 1, 2004 if EKI, the Company or the Company's licensees
or joint venture partners have not purchased, by December 31, 2003, at
least $35,000,000 of equipment from the seller of the technology and EKI,
the Company or the Company's licensees or joint venture partners make
active use of the purchased technology. EKI has agreed to indemnify the
Company to the extent the Company is required to pay any portion of this
$3,000,000 obligation solely as a result of EKI's or its licensees'
active use of such patents and related technology (other than use by the
Company or its sublicensees).
8. COMMON STOCK OFFERING
Pursuant to the Company's prospectus dated March 23, 1998, on March 27,
1998, the Company issued an additional 10,526,316 shares of its common
stock in a public offering for $205,873,995 after deducting underwriting
discounts and commissions and offering expenses.
8
<PAGE>
EARTHSHELL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
9. STOCK SPLIT
On March 23, 1998, the Company declared a 262-for-one stock split of its
common stock. Common stock and additional paid-in common capital have
been restated to reflect this split. The par value of the common stock
remained unchanged at $.01 per share. In accounting for the stock split,
the Company recorded an increase in common stock of $822,150, with a
corresponding reduction in additional paid in common capital. The number
of shares issued and outstanding at December 31, 1997, after giving
effect to the split, was 82,530,000 (315,000 shares were issued and
outstanding before the stock split and common stock offering).
10. CUMULATIVE CONVERTIBLE PREFERRED STOCK
To facilitate the sale by stockholders of Series A preferred stock in the
initial public offering of common stock, 3,993,404 shares of the
6,988,850 shares of outstanding Series A preferred stock were converted
to 3,993,404 shares of common stock, on a post-split basis. A portion of
the converted shares was sold in the initial public offering by
stockholders.
The other 2,995,446 shares of Series A preferred stock remained
convertible to common stock after the initial public offering. In the
Company's Prospectus dated March 23, 1998, the Company disclosed its
intent to redeem all Series A preferred stock shortly following the
initial public offering. In anticipation of the preferred stock
redemption, on April 15, 1998, the Board of Directors declared a cash
dividend to preferred stockholders of $1.40 per share based on the
dividend rate of 8% per annum on the liquidation preference of the
shares. The total dividends paid were $9,725,201. By notice dated May
13, 1998, the Company called for redemption, effective July 14, 1998,
the remaining 2,995,446 shares of Series A preferred stock. On August
6, 1998, the Board of Directors declared a cash dividend to former
preferred stockholders of $.0033 per share based on the dividend rate
of 8% per annum of the liquidation preference pursuant to the
Certificate of Designation, Preferences Relative, Participating,
Optional and Other Special Rights for Series A Cumulative Senior
Convertible Preferred Stock, which provides for dividends to accrue
until the time of conversion, together with interest thereon at the
rate of 8% per annum from the date of conversion until the date of
payment. Total dividends and interest paid on September 17, 1998
amounted to $201,502. As of September 30, 1998, all outstanding shares
of Series A preferred stock had been converted to common stock.
11. STOCK OPTIONS
During the second and third quarters of 1998, options to purchase
660,000 shares were granted to certain officers and employees at an
exercise price of $21.00 per share. These options vest equally over four
years from the date of the grant. Stock option activity was as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Balance - Beginning of period 1,158,040 990,360
Granted 660,000 455,880
Exercised - -
Canceled (31,440) (288,200)
--------- ---------
Balance - End of period 1,786,600 1,158,040
--------- ---------
--------- ---------
Exercisable - End of period 1,064,506 973,068
--------- ---------
--------- ---------
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Any statements in this quarterly report concerning the Company's business
outlook or future economic performance; anticipated profitability, revenues,
expenses or other financial items; together with other statements that are not
historical facts, are "forward-looking statements" as that term is defined under
the Federal Securities Laws. Forward-looking statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from those stated in such statements. The Company's financial
condition and the results of its operations are subject to a number of factors
that are set forth in the prospectus filed with the Company's Registration
Statement on Form S-1 (Commission File No. 333-13287; effective March 23, 1998),
(the "Prospectus") and should be read in conjunction with this quarterly report.
RESULTS OF OPERATIONS
OVERVIEW
The Company was organized in November 1992 as a Delaware corporation and
remains a development stage enterprise. EKI, the Company's principal
stockholder, or its predecessor, has been involved since July 1985 in the
development of various new material technologies. The Company was formed to
develop, license and commercialize food service disposables made of
EarthShell composite material ("EarthShell Products"). The Company has an
exclusive, worldwide, royalty-free license from EKI to use certain technology
for this purpose. The Company intends to license or joint venture with
existing manufacturers of food service disposables for the manufacture and
distribution of EarthShell Products. The Company expects to derive revenues
primarily from license royalties and distributions from joint ventures that
are licensed to manufacture EarthShell Products.
DEVELOPMENT OF FIRST COMMERCIAL MANUFACTURING FACILITY
One of the Company's licensees, Sweetheart Cup Company Inc. ("Sweetheart"),
has secured a contract with Perseco (McDonald's Corporation's primary
packaging purchasing agent), to supply McDonald's US restaurants with a
minimum of 1.8 billion Big Mac sandwich containers made from the EarthShell
material over a three-year period. To support this initial commercial
EarthShell application, EarthShell has agreed with Sweetheart to provide
manufacturing equipment to Sweetheart with adequate capacity to fulfill the
Perseco/McDonald's order.
In cooperation with Sweetheart, the Company has engaged The Food Group, a
division of CH2M Hill, to provide detailed engineering, procurement and
construction management services relating to the installation of three
commercial sandwich container production lines at Sweetheart's Owings Mills,
Maryland facility. These lines have been designed to enable Sweetheart to
produce Big Mac sandwich containers in sufficient quantities to fulfill
Sweetheart's supply agreement with Perseco. The development and installation
of equipment lines at this facility has been the Company's major focus since
Sweetheart secured the Perseco supply agreement relating to Big Mac sandwich
containers in October 1997. The Company anticipates that it will begin
start-up and debugging of the first line before year-end.
As the Owings Mills facility is the first commercial production of the
EarthShell technology, the Company believes that the cost incurred on these
first lines is significantly higher than the cost of subsequent lines. At the
time of the initial public offering, the Company estimated that the cost
associated with the initial installation at Sweetheart, if approximately $19
million in costs that were estimated for initial development and engineering
of commercial scale production capability are included, would be between $25
million and $30 million.
Management now estimates that the capitalized cost of the first three lines,
including infrastructure improvement not reimbursed by Sweetheart, will
approximate $36 million at completion. In addition, the
10
<PAGE>
Company expects to expense approximately $7 million of process development,
design and engineering costs. The Company also anticipates incurring
approximately $3.5 million of cost associated with future lines at Owings
Mills.
The Company believes a significant portion of the incremental capitalized
cost of the Sweetheart installation is non-recurring. These non-recurring
costs include portions of plant engineering and design costs, expediting
premiums to meet the customer's timetable, oversizing of system components to
allow for margins of safety or capacity flexibility, instrumentation and
monitoring equipment to provide input for future value engineering, and
premiums paid on component equipment for first time, single item purchases.
The Company believes these factors account for the higher than anticipated
capital cost of its first commercialization. The Company also believes
manufacturing process design and development expenses will be reduced in
future sites. Based on internal analysis, and supported by external
engineering studies, the Company believes that future results in the
relationship between capital cost and the level of revenue dollars that are
generated by its licensees or joint venture partners will meet, and then
exceed industry norms. Based on vendor trials of the actual commercial
machinery components of the first manufacturing line, the Company believes
that the first three commercial lines will meet or exceed the total
throughput specified in the original four line design basis, and will meet or
exceed the requirements of its first customer, McDonald's.
With respect to future lines at the Owings Mills site, the Company is
confident that an agreement can be concluded with Sweetheart to build the
additional lines.
OTHER CUSTOMERS AND LICENSEES
In addition to discussions with Sweetheart, the Company is engaged in
discussions with additional converters for the creation of new licensing or
joint venture agreements to further commercialize its technology. On October
26, 1998 the Company announced it signed a letter of intent to establish a
joint venture to commercialize EarthShell Products throughout Europe, Asia
(except Japan), Australia and New Zealand with Huhtamaki Oyj, a leading
international food and food packaging firm headquartered in Finland which
commands leading market shares in several of the major markets of Europe,
Asia and Australia. The Company also announced on November 9, 1998 that it
had signed a letter of intent with Prairie Packaging Inc. ("Prairie") to
establish production of an array of products. The proposed arrangement
encompasses the production of plates, hinged lid containers and cups,
initially to be sold to Sysco Corporation, the leading food service
distributor in North America. Based on these letters of intent, the Company
has initiated engineering design work for the next commercial installations
that will manufacture a broadened commercial product set.
While the Company intends to use its best efforts to enter into definitive
agreements based on these letters of intent with Huhtamaki Oyj and Prairie,
there can be no assurance that such definitive agreements will be entered into.
TRANSITION ACTIVITIES IN PREPARATION FOR MANUFACTURING RAMP-UP
The Company is transitioning from being a development stage company primarily
engaged in product development to a company engaged in licensing and
supporting the commercial implementation of its technology. Concurrent with
the development of the first commercial EarthShell production facility and in
response to anticipated market demand, the Company is planning and preparing
for the rapid growth.
During the second and third quarters of 1998, the Company hired several senior
executives to expand core competencies and fill critical on-going positions:
William F. McLaughlin, President and Chief Operating Officer; William F.
Spengler, Senior Vice President of Corporate Planning and Business Development;
Vincent J. Truant, Vice President of Marketing, Sales and Public Relations; and
Michael M. Hagerty, Vice President and Chief Technology Officer. These hirings
reflect the Company's intensified efforts to build a
11
<PAGE>
highly experienced management team to execute the Company's strategy and
enhance the creation of shareholder value. It is anticipated that additional
employees will be hired during the next six months in the areas of
manufacturing process and product development, construction management,
marketing and finance.
To better address and service the geographical concentration of the Company's
initial and anticipated commercial activities and to minimize projected
operating costs, the Company's corporate headquarters has been relocated to
Baltimore, Maryland from Santa Barbara, California. Accordingly, the Company has
entered into a long-term lease agreement for office space in downtown Baltimore
where the Company's senior management team will be located. The Company has also
decided to transition its product development center to the Baltimore region to
be closer to the Company's headquarters. Basic research activities, which will
continue to be supported by the EKI technical staff, will remain in the Santa
Barbara, California area.
During the third quarter of 1998, the Company also concluded a strategic
business planning review with the Boston Consulting Group and has further
developed its execution strategy to exploit its food service disposable
technology on a global basis.
COMPARISON OF THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998, TO THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenditures for the development of EarthShell Products increased $6.5
million to $12.8 million from $6.3 million for the nine months ended
September 30, 1998 compared with the nine months ended September 30, 1997,
and increased $2.7 million to $4.7 million from $2.0 million for the three
months ended September 30, 1998 compared with the three months ended
September 30, 1997. The increase in the nine month period was anticipated as
part of the Company's commercialization activities and was due primarily to
$3.4 million in design and engineering fees and $1.8 million in abandoned
early generation prototype equipment related to the development of the
Company's first commercial manufacturing line. The increase in the three
month period was due primarily to planned increases in continuing support of
commercializing the EarthShell Products. The Company was billed by EKI for
research and development services totaling $6.3 million for the nine months
ended September 30, 1998 and $5.6 million for the nine months ended September
30, 1997 and $2.5 million and $1.7 million for each of the three months ended
September 30, 1998 and 1997, respectively.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES. When comparing the nine months ended
September 30, 1998 to the nine months ended September 30, 1997 other general and
administrative expenses increased $4.9 million to $6.3 million from $1.4
million. Approximately $3.3 million was due to planned executive staffing
additions and start-up activities related to the new Baltimore headquarters,
$1.3 million was due to strategic business planning efforts with the Boston
Consulting Group and $0.2 million was due to planned increases in various
insurance coverages.
When comparing the three months ended September 30, 1998 to the three months
ended September 30, 1997 other general and administrative expenses increased
$3.7 million to $4.2 million from $0.5 million. Approximately $2.6 million was
due to planned executive staffing additions and start-up activities related to
the new Baltimore headquarters, $1.0 million was due to strategic business
planning efforts with the Boston Consulting Group, and $0.1 million was due to
planned increases in various insurance coverages.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $244,000 to $613,000 from $369,000 for the nine months ended September
30, 1998 compared with the nine months ended September 30, 1997, and increased
$93,000 to $225,000 from $132,000 for the three months ended September 30, 1998
compared with the three months ended September 30, 1997. The increase in
12
<PAGE>
depreciation expense was primarily the result of the purchase of pilot
manufacturing equipment for the Company's product development center.
As the commercial manufacturing equipment is being installed at Sweetheart, it
is anticipated that depreciation and amortization will increase significantly
when the equipment is placed in service.
RELATED PARTY PATENT EXPENSES. Legal fees reimbursed to EKI under the Amended
and Restated Agreement for Allocation of Patent Costs with EKI decreased
$433,000 to $118,000 from $551,000 for the nine months ended September 30, 1998
compared with the nine months ended September 30, 1997, and decreased $38,000 to
$33,000 from $71,000 for the three months ended September 30, 1998 compared with
the three months ended September 30, 1997. The decrease was primarily a result
of filing fewer new patent applications than the previous period.
INTEREST INCOME. Interest income was $1.7 million and $3.6 million for the three
and nine months ended September 30, 1998, respectively, and reflects investment
earnings on the net proceeds of the Company's initial public offering completed
at the end of March 1998. The Company's investment policy requires that the
proceeds from the initial public offering be invested in investment grade money
market instruments with average maturities of less than one year.
INTEREST EXPENSE. Interest expense decreased $1.3 million to $1.1 million from
$2.4 million for the nine months ended September 30, 1998 compared with the nine
months ended September 30, 1997, and decreased $0.8 million to zero from $0.8
million for the three months ended September 30, 1998 compared with the three
months ended September 30, 1997. Following the initial public offering in March
1998, a majority of the outstanding debt was repaid. As a result, interest
expense was minimal in the second and third quarters of 1998.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 1998
Pursuant to the Company's prospectus dated March 23, 1998, on March 27, 1998,
the Company issued 10.5 million shares of its common stock in a public
offering in which the Company received $205.9 million net of issuance costs.
A portion of the proceeds was used to repay indebtedness to the majority
stockholder of $36.6 million and bank debt of $14.0 million. The remaining
proceeds are being used to: (i) facilitate the development of
manufacturing capacity for the Company's products by engineering, developing
and constructing manufacturing lines for lease to licensees or contribution
to joint ventures; (ii) expand the EarthShell product development center;
(iii) launch an initial public relations campaign; (iv) secure additional
patent protection for the Company's licensed technology; and (v) for general
corporate purposes, including the employment of additional personnel, the
continued design and development of EarthShell Products and anticipated
operating losses. As of September 30, 1998 the Company had cash and
short-term investments of $114.2 million. During the remainder of 1998, the
Company expects to incur operating expenses significantly in excess of
amounts incurred in prior years based on the Company's operating plans as
discussed in Results of Operations above.
Net cash used in operations was $36.8 million and $2.9 million for the nine
months ended September 30, 1998 and 1997, respectively. Net cash used in
investing activities was $31.8 million and $48,000, for the nine months ended
September 30, 1998 and 1997, respectively. In addition to the repayment of
indebtedness, the Company used the public offering proceeds to repay outstanding
payables and purchase equipment to facilitate the development of manufacturing
capacity for EarthShell Products.
Subsequent to December 31, 1997 and prior to the public offering, the Company
borrowed an additional $1.5 million and $2.2 million from its majority
stockholder and its credit line bank, respectively. These additional borrowings
were repaid on March 27, 1998.
The Company has been advised by its software vendors that the release/version of
the software being implemented or used by the Company is Year 2000 compliant.
Therefore, the Company believes that the cost of completing any modifications
necessary to become Year 2000 compliant will not be material. There can be no
assurance, however, that the Company will be able to identify all aspects of its
business that are subject to Year 2000 problems, or identify Year 2000 problems
of customers or suppliers that affect the Company's business. There also can be
no assurance that the Company's software vendors are correct in their
assertions, or that the Company's estimate of the cost of systems preparation
for Year 2000 compliance will ultimately prove to be accurate.
The Company anticipates that it will borrow from third-party lenders a portion
of the funds required to purchase manufacturing equipment and construct
manufacturing lines for its licensee and joint venture partners. The Company
believes that the remaining proceeds from the initial public offering together
with such third party financing will be sufficient to meet its foreseeable
working capital requirements through at least the next 12 months.
The Company has no commitments for any additional financing, and there can be no
assurance that any such commitments can be obtained on favorable terms, if at
all. If the Company is unable to obtain additional financing as needed after
demonstrating the commercial viability of its manufacturing equipment, the
Company may be required to reduce the scope of its anticipated manufacturing
ramp-up and products introduction, which could have an adverse effect on the
Company's business, financial condition and results of operations.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
CHANGES IN SECURITIES -
Effective March 27, 1998, the number of authorized common shares increased
from 1,000,000 to 200,000,000 and the number of authorized preferred shares
increased from 100,000 to 10,000,000. On that day, the Company issued an
additional 10,526,316 shares of its common stock in a public offering in
which the Company received $205,873,995, net of issuance costs. In addition,
the Company declared a 262-for-one stock split of its common stock.
Furthermore, in connection with the Company's public offering of common
stock, selling stockholders sold 2,673,684 shares of common stock. After
giving effect to the split, 3,993,404 shares of Series A Preferred Stock were
converted to common stock to allow for the sale of stock by preferred
stockholders. The Company did not receive any proceeds from the sale of
common stock by the selling stockholders.
In the Company's Prospectus dated March 23, 1998, the Company disclosed its
intent to redeem all Series A convertible preferred stock shortly following
the initial public offering. By notice dated May 13, 1998, the Company called
for redemption, effective July 14, 1998, of the remaining 2,995,446 shares of
Series A preferred stock. As of September 30, 1998, all outstanding shares of
Series A Preferred Stock had been converted to common stock.
All stockholders who were not selling stockholders in the Company's initial
public offering (other than one stockholder who owns 262 shares of common
stock), including all officers, directors or affiliates, entered into agreements
with the underwriters of the offering, in which such stockholders agreed,
subject to certain exceptions, not to sell or otherwise dispose of any shares of
common stock for a period of 180 days from March 27, 1998 (the closing date of
the offering) without the prior written consent of Salomon Brothers Inc., an
affiliate of Smith Barney Inc. This 180 day period expired on September 22,
1998, at which time (i) non-selling stockholders holding 7,384,732 shares of
common stock were free of any restrictions under such agreements and free of any
resale limitations under Rule 144 and (ii) affiliates of the company holding
73,464,800 shares of Common Stock, 73,398,252 shares of which are held by E.
Khashoggi Industries, LLC or its affiliates, were also free of any restrictions
under such agreements, but remain subject to the resale limitations set forth in
Rule 144. All stockholders who were selling shareholders in the initial public
offering entered into similar agreements with the underwriters of the offering
not to sell or otherwise dispose of any shares of common stock for a period of
270 days from the close of the offering without prior written consent. This 270
day period expires December 22, 1998 at which time stockholders holding
4,965,006 shares of common stock may sell shares free of any restrictions under
such agreements and free of any resale limitations under Rule 144. The Company
is unable to estimate the number of shares that may be sold by such stockholders
after December 22, 1998 or the effect, if any, that sales of shares by such
stockholders will have on the market price of the common stock prevailing from
time to time. Sales of substantial amounts of shares of common stock by such
stockholders could adversely effect prevailing market prices.
USE OF PROCEEDS -
As part of the Company's initial public offering, the Company issued 10,526,316
shares of its common stock, $.01 par value (the "IPO Shares"), on March 27,
1998. The offering terminated on April 23, 1998 upon the underwriters' election
not to exercise their overallotment option. The IPO Shares were issued in a
registered offering pursuant to a Registration Statement on Form S-1 (Commission
File No. 333-13287; effective March 23, 1998) through a syndicate of
underwriters, the representatives of which were Salomon Smith Barney Inc. and
Credit Suisse First Boston Corporation. The IPO Shares were offered and sold by
the underwriters at an initial public offering price of $21.00 per share,
resulting in aggregate offering proceeds of $221,052,636.
15
<PAGE>
The Company incurred expenses in connection with this offering as follows:
<TABLE>
<CAPTION>
<S> <C>
Underwriting discounts and commissions $13,815,790
Other expenses 1,362,851
-----------
Total expenses $15,178,641
-----------
-----------
</TABLE>
None of the above expenses was paid either directly or indirectly to directors,
officers, general partners of the Company or its associates, or to persons
owning more than 10% of any class of equity security of the Company or to
affiliates of the Company.
Through September 30, 1998, the Company has applied $95,641,062, of the
$205,873,995 in net offering proceeds as follows:
<TABLE>
<CAPTION>
<S> <C>
Repayment of indebtedness owed to principal stockholder $36,630,548
Repayment of indebtedness owed to bank 14,000,000
Repayment of past due legal fees 1,669,658
Demonstration and prototype facility 2,991,587
Payment of cash dividend to preferred stockholders 9,926,703
Deposits on manufacturing equipment 15,342,829
Engineering costs related to Sweetheart facility 5,841,639
Other operating expenses 9,238,098
-------------
Total proceeds applied $95,641,062
-------------
-------------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27.1 Financial Data Schedule
10.8 First Amendment to Amended and Restated License Agreement
(B) Reports on Form 8-K
No reports on Form 8-K were filed by EarthShell during the quarter
ended September 30, 1998.
Items 1, 3, 4 and 5 are not applicable and have been omitted.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EarthShell Corporation
Date: November 11, 1998 By: /s/ Scott Houston
----------------- ------------------------------
Scott Houston
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
AND DULY AUTHORIZED OFFICER
17
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
LICENSE AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LICENSE AGREEMENT (this
"Amendment") is entered into as of this 2nd day of June, 1998, by and between
E. KHASHOGGI INDUSTRIES, LLC, a Delaware limited liability company ("EKI"),
and EARTHSHELL CORPORATION, a Delaware corporation ("ECC").
RECITALS:
A. EKI is the owner of: (i) certain technology related to
cementitious, inorganically filled and starch-based containers for the
packaging, storing, portioning and dispensing of food or beverages and
cementitious, inorganically filled and starch-based compositions formed in
sheets or rolls and which can be converted into food or beverage containers;
(ii) additional technology which deals with hydraulically settable,
inorganically filled or starch-based compositions and the methods and systems
for using and manufacturing such compositions; and (iii) certain know-how,
trade secrets and other proprietary information and data which are related or
complementary to such technologies.
B. Pursuant to the terms of that certain Amended and Restated License
Agreement, dated as of February 28, 1995 (the "License Agreement"), EKI
granted to ECC (i) an exclusive, worldwide, license to manufacture, use,
sell, sublicense and otherwise commercialize Food Service Disposables (as
defined in the License Agreement) that employ or utilize the above-referenced
technologies or proprietary information and ALI-ITE-TM- Paper (as defined in
the License Agreement) for conversion into Food Service Disposables, and (ii)
a non-exclusive,
<PAGE>
worldwide license to use certain trademarks owned by EKI in connection with
the marketing, distributions and sale of Food Service Disposables and/or
ALI-ITE-TM- Paper.
C. EKI and ECC desire to amend the License Agreement in certain
respects as set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals, and the
mutual promises and covenants set forth herein, together with other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby amend the License Agreement as
follows:
1. DEFINITIONS.
1.1 Paragraph 1(b) of the License Agreement is hereby deleted in
its entirety and replaced with the following:
The term "Moldable Compound Technology" shall mean all of the
confidential, secret, or proprietary technology now or hereafter owned
by or licensed to EKI involving inorganically filled and starch-based
composites, including without limitation moldable compounds (both foam
and non-foam applications), articles manufactured from inorganically
filled and starch-based composites, the compositions and uses of such
inorganically filled and starch-based composites or articles made
therefrom, and apparatus and methods for manufacturing same, which are
described or claimed in (i) any of the patents or patent applications
listed in Exhibit "B" hereto, including without limitation, any
continuations, divisionals or continuations-in-part, reissues and
extensions thereto, and any
2
<PAGE>
patents issued therefrom, and (ii) any future patent applications under
the Patent Cooperation Treaty, any future European Patent applications,
and/or any future national patent applications in or for any country
that are based on any of the applications listed in Section B or D of
Exhibit "B" hereto, and any patents issued therefrom.
1.2 Paragraph 1(d) of the License Agreement is hereby deleted in its
entirety and replaced with the following:
The term "ALI-ITE-TM- Paper Technology" shall mean all of the
proprietary technology now or hereafter owned by or licensed to EKI
involving hydraulically settable, inorganically filled or starch-based
sheets, articles made from hydraulically settable, inorganically filled
or starch-based sheets, and apparatus and methods for manufacturing
same, which are described or claimed in (i) any of the patents or patent
applications listed in Exhibit "C", including without limitation, any
continuations, divisionals or continuations-in-part, reissues and
extensions thereto, and any patents issued therefrom, and (ii) any
future patent applications under the Patent Cooperation Treaty, any
future European Patent applications, and/or any future national patent
applications in or for any country that are based on any of the
applications listed in Sections B or D of Exhibit "C" hereto, and any
patents issued therefrom.
1.3 Paragraph 1(e) of the License Agreement is hereby deleted in its
entirety and replaced with the following:
The term "Core Technology" shall mean all of the proprietary technology
now or hereafter owned by or licensed to EKI involving compositions,
articles of
3
<PAGE>
manufacture, and methods and apparatus for manufacturing articles of
manufacture which are described or claimed in (i) any of the patents or
patent applications listed in Exhibit "A" hereto, including without
limitation, any continuations, divisionals or continuations-in-part,
reissues and extensions thereto, and any patents issued therefrom, and
(ii) any future patent applications under the Patent Cooperation Treaty,
any future European Patent applications, and/or any future national
patent applications in or for any country that are based on any of the
applications listed in Section B or D of Exhibit "A" hereto, and any
patents issued therefrom.
2. THE LICENSE.
Paragraph 2 of the License Agreement is hereby amended by adding a new
subparagraph (f) as follows:
Notwithstanding anything set forth herein to the contrary, (i) any
technology and related intellectual property that EKI licenses from
third parties will be included in the Technology licensed hereunder to
the extent the following conditions are satisfied: (A) such technology
and related intellectual property rights may be sublicensed to ECC
without violating any obligation owed by EKI to the licensor of such
technology and intellectual property rights; and (B) such technology and
related intellectual property rights that cannot be practiced or
exploited without the payment of royalties or other compensation to the
third party licensor thereof shall be included in the Technology
licensed hereunder to ECC subject to ECC's timely paying all such
compensation and performing all other obligations owing to such third
party licensor in connection therewith and (ii) if, pursuant to the
4
<PAGE>
terms of the Amended and Restated Agreement for Allocation of Patent
Costs entered into as of October 1, 1997 by EKI and ECC, ECC is required
to pay for or reimburse EKI in respect of particular Costs (as defined
therein) that EKI incurs in connection with filing, prosecuting,
acquiring or maintaining certain patents or patent applications, but ECC
elects under Section 5 thereof not have such Costs incurred by EKI, such
patents and/or patent applications will not be included in the
Technology licensed to ECC hereunder.
3. PATENT MATTERS.
Paragraph 6(a) of the License Agreement is hereby amended by adding
subparagraph (a) thereto as follows:
PATENT RIGHTS FOR THE TECHNOLOGY. EKI shall have the exclusive right
(but not the obligation) to seek and obtain patent protection for the
Technology both in the United States and in all foreign jurisdictions;
provided, however, that EKI will use commercially reasonable efforts to
prosecute the pending United States patent applications listed on
Exhibits "A"-"C" hereto. All decisions concerning the process of
seeking and obtaining such patent protection shall be within the sole
and exclusive discretion of EKI, including but not limited to decisions
concerning those jurisdictions in which such protection shall be sought
and the identity of legal counsel and other professionals who will be
retained to assist EKI in seeking such protection. However, if ECC
requests, in writing specifically referring to this subparagraph, that
EKI seek patent protection for the Technology in particular
jurisdictions, and if EKI determines in its reasonable discretion that
seeking such protection will not adversely affect its use of or rights
to the technology in
5
<PAGE>
question, EKI will seek the protection requested by ECC, provided that
all costs and expenses associated with filing, prosecuting and
maintaining such patent protection shall be paid by ECC. Any and all
patents which are obtained under this paragraph shall be and shall
remain the sole and exclusive property of EKI, subject only to the
License. EKI shall keep ECC fully and promptly informed of the status
of the prosecution of each patent application provided for by this
paragraph and shall consult with ECC on all material aspects of the
prosecution of each such application; provided, however, that the final
decisions in regard to all amendments to and abandonment of such patent
applications shall be made by EKI, in its sole discretion. Nothing
herein shall affect the rights and obligations of EKI and ECC under the
Amended and Restated Agreement for Allocation of Patent Costs entered
into as of October 1, 1997.
4. REPRESENTATIONS AND WARRANTIES OF EKI.
Paragraph 10(a) of the License Agreement is hereby amended by deleting
the first sentence thereof and replacing it with the following:
EKI is a limited liability company duly organized, validly existing and
in good standing under the laws of the State of Delaware.
5. ENTIRE AGREEMENT. Paragraph 25 of the License Agreement is hereby
amended by deleting it in its entirety and replacing it with the following:
This Agreement supersedes any prior understandings or agreements,
whether written or oral, and any contemporaneous oral agreements,
between the parties hereto in regard to the subject matter hereof and
contains the entire agreement between the parties in regard to the
subject matter hereof. Notwithstanding the
6
<PAGE>
foregoing, the parties hereto acknowledge and agree that the Amended and
Restated Agreement for Allocation of Patent Costs entered into as of
October 1, 1997 by EKI and ECC (the "Amended Patent Cost Allocation
Agreement") shall continue in full force and effect, and that all
references therein to the "License Agreement" shall be treated as
references to this Agreement, as amended from time to time pursuant to
the terms and conditions hereof; provided that this Agreement, as so
amended, shall control to the extent that anything herein shall be
inconsistent with the Amended Patent Cost Allocation Agreement. This
Agreement may not be changed or modified orally, but only by an
agreement, in writing, signed by both the parties hereto.
6. EXHIBITS.
Exhibits A, B and C to the License Agreement are hereby deleted in their
entirety and replaced with Exhibits A, B and C attached hereto.
7. NO OTHER AMENDMENT.
Subject to the amendments expressly made hereby, the License Agreement is
not affected hereby and continues in full force and effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their duly authorized representatives upon the date
first herein written.
EKI:
E. KHASHOGGI INDUSTRIES, LLC,
a Delaware limited liability company
By:
----------------------------------
Its:
----------------------------------
ECC:
EARTHSHELL CORPORATION,
a Delaware corporation
By:
----------------------------------
Its:
----------------------------------
8
<PAGE>
EXHIBIT "A"
CORE TECHNOLOGY
<TABLE>
<CAPTION>
A. ISSUED UNITED STATES LETTERS PATENT
TITLE PATENT # DATE
----- -------- ----
<S> <C> <C> <C>
1. Methods of Manufacture and Use for Hydraulically Bonded Cement 5,358,676 10/25/94
2. Compressed Hydraulically Bonded Composite Articles 5,637,412 6/10/97
3. Methods of Manufacture and Use for Low Density Hydraulically Bonded 5,356,579 10/18/94
Cement Compositions
4. Compressed Low Density Hydraulically Bonded Cement Compositions 5,635,292 6/3/97
5. Design Optimized Compositions and Computer Implemented Processes 5,527,387 6/18/96
for Microstructurally Engineering Cementitious Mixtures
6. Hydraulically Settable Containers and Other Articles for Storing, 5,385,764 1/31/95
Dispensing, and Packaging Food and Beverages and Methods for their
Manufacture
7. Coated Hydraulically Settable Containers and Other Articles for 5,514,430 5/7/96
Storing, Dispensing, and Packaging Food and Beverages
8. Cementitious Materials for Use in Packaging Containers and Their 5,453,310 9/26/95
Methods of Manufacture
9. Coated Cementitious Packaging Containers 5,631,052 5/20/97
10. Methods for the Extrusion of Novel, Highly Plastic and Moldable 5,549,859 8/27/96
Hydraulically Settable Compositions
11. Articles Formed by Extruding Hydraulically Settable Compositions 5,658,624 8/19/97
12. Methods for Manufacturing Articles from Sheets of Unhardened 5,766,525 6/16/98
Hydraulically Settable Compositions
13. Methods for Manufacturing Containers and Other Articles of 5,676,905 10/14/97
Manufacture From Hydraulically Settable Mixtures
14. Sealable Liquid-Tight, Thin-Walled Containers Made from 5,543,186 8/6/96
Hydraulically Settable Materials
B. PENDING UNITED STATES PATENT APPLICATIONS
TITLE
-----
1. Methods for Manufacturing Containers and Other Articles from
Hydraulically Settable Compositions
</TABLE>
Exhibit A - Page 1
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
C. ISSUED FOREIGN PATENTS
TITLE PATENT # COUNTRY
----- -------- -------
<S> <C> <C> <C>
1. Methods for the Extrusion of Highly Plastic, Moldable Hydraulically 25356 Iran
Settable Compositions
2. Hydraulically Settable Containers and Other Articles for Storing, 49958/93 Australia
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
3. Hydraulically Settable Containers and Other Articles for Storing, 225538 Peru
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
4. Hydraulically Settable Containers and Other Articles for Storing, 93/5462 South
Dispensing and Packaging Food and Beverages and Methods for Their Africa
Manufacture
5. Hydraulically Settable Containers and Other Articles for Storing, 069669 Taiwan
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
6. Hydraulically Settable Containers and Other Articles for Storing, 1186-93 Venezuela
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
7. Sealable Hydraulically Settable Containers 99/94 Zimbabwe
8. Sealable Hydraulically Settable Containers 25092 Iran
9. Sealable Hydraulically Settable Containers 94/5285 South
Africa
10. Design Optimized Compositions and Processes for Microstructurally 679784 Australia
Engineering Cementitious Mixtures
11. Design Optimized Compositions and Processes for Microstructurally 103/94 Zimbabwe
Engineering Cementitious Mixtures
12. Design Optimized Compositions and Processes for Microstructurally 25100 Iran
Engineering Cementitious Mixtures
13. Design Optimized Compositions and Processes for Microstructurally 94/5497 South
Engineering Cementitious Mixtures Africa
</TABLE>
Exhibit A - Page 2
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
D. PENDING FOREIGN PATENT APPLICATIONS
TITLE COUNTRY
----- -------
<S> <C> <C>
1. Hydraulically Bonded Cement Compositions and Their Methods of Canada
Manufacture and Use
2. Methods for the Extrusion of Highly Plastic, Moldable Hydraulically Egypt
Settable Compositions
3. Methods for the Extrusion of Highly Plastic, Moldable Hydraulically India
Settable Compositions
4. Methods for the Extrusion of Highly Plastic, Moldable Hydraulically Philippines
Settable Compositions
5. Hydraulically Settable Containers and Other Articles for Storing, Canada
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
6. Hydraulically Settable Containers and Other Articles for Storing, EPO
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
7. Hydraulically Settable Containers and Other Articles for Storing, Japan
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
8. Hydraulically Settable Containers and Other Articles for Storing, South
Dispensing and Packaging Food and Beverages and Methods for Their Korea
Manufacture
9. Hydraulically Settable Containers and Other Articles for Storing, New
Dispensing and Packaging Food and Beverages and Methods for Their Zealand
Manufacture
10. Hydraulically Settable Containers (divisional) New
Zealand
11. Hydraulically Settable Containers and Other Articles for Storing, Russia
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
12. Hydraulically Settable Containers and Other Articles for Storing, Argentina
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
13. Hydraulically Settable Containers and Other Articles for Storing, Chile
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
14. Hydraulically Settable Containers and Other Articles for Storing, China
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
15. Hydraulically Settable Containers and Other Articles for Storing, Colombia
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
16. Hydraulically Settable Containers and Other Articles for Storing, India
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
</TABLE>
Exhibit A - Page 3
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE COUNTRY
----- -------
<S> <C> <C>
17. Hydraulically Settable Containers and Other Articles for Storing, Mexico
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
18. Hydraulically Settable Containers and Other Articles for Storing, Philippines
Dispensing and Packaging Food and Beverages and Methods for Their
Manufacture
19. Design Optimized Compositions and Processes for Microstructurally Brazil
Engineering Cementitious Mixtures
20. Design Optimized Compositions and Processes for Microstructurally Canada
Engineering Cementitious Mixtures
21. Design Optimized Compositions and Processes for Microstructurally EPO
Engineering Cementitious Mixtures
22. Design Optimized Compositions and Processes for Microstructurally Japan
Engineering Cementitious Mixtures
23. Design Optimized Compositions and Processes for Microstructurally So. Korea
Engineering Cementitious Mixtures
24. Design Optimized Compositions and Processes for Microstructurally New
Engineering Cementitious Mixtures Zealand
25. Design Optimized Compositions and Processes for Microstructurally Russia
Engineering Cementitious Mixtures
26. Design Optimized Compositions and Processes for Microstructurally Georgia
Engineering Cementitious Mixtures
27. Design Optimized Compositions and Processes for Microstructurally Argentina
Engineering Cementitious Mixtures
28. Design Optimized Compositions and Processes for Microstructurally Chile
Engineering Cementitious Mixtures
29. Design Optimized Compositions and Processes for Microstructurally China
Engineering Cementitious Mixtures
30. Design Optimized Compositions and Processes for Microstructurally Colombia
Engineering Cementitious Mixtures
31. Design Optimized Compositions and Processes for Microstructurally Egypt
Engineering Cementitious Mixtures
32. Design Optimized Compositions and Processes for Microstructurally India
Engineering Cementitious Mixtures
33. Design Optimized Compositions and Processes for Microstructurally Israel
Engineering Cementitious Mixtures
34. Design Optimized Compositions and Processes for Microstructurally Mexico
Engineering Cementitious Mixtures
35. Design Optimized Compositions and Processes for Microstructurally Peru
Engineering Cementitious Mixtures
</TABLE>
Exhibit A - Page 4
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE COUNTRY
----- -------
<S> <C> <C>
36. Design Optimized Compositions and Processes for Microstructurally Philippines
Engineering Cementitious Mixtures
37. Design Optimized Compositions and Processes for Microstructurally Saudi
Engineering Cementitious Mixtures Arabia
38. Design Optimized Compositions and Processes for Microstructurally Taiwan
Engineering Cementitious Mixtures
39. Design Optimized Compositions and Processes for Microstructurally Venezuela
Engineering Cementitious Mixtures
</TABLE>
Exhibit A - Page 5
May 18, 1998
<PAGE>
EXHIBIT "B"
MOLDABLE COMPOUND TECHNOLOGY
<TABLE>
<CAPTION>
A. ISSUED UNITED STATES LETTERS PATENT
TITLE PATENT # DATE
----- -------- ----
<S> <C> <C> <C>
1. Methods for Manufacturing Food and Beverage Containers Made from 5,766,525 5/19/98
Inorganic Aggregates and Polysaccharide, Protein or Synthetic
Organic Binders
2. Food and Beverage Containers Made from Inorganic Aggregates and 5,580,624 12/3/96
Polysaccharide, Protein or Synthetic Organic Binders, and Methods
for Manufacturing Such Containers
3. Coated Food and Beverage Containers Made from Inorganic Aggregates 5,705,242 1/6/98
and Polysaccharide, Protein or Synthetic Organic Binders
4. Molded Articles Having an Inorganically Filled Organic Polymer 5,545,450 8/13/96
Matrix
5. Coated Articles Having an Inorganically Filled Organic Polymer 5,691,014 11/25/97
Matrix
6. Molded Articles Having an Inorganically Filled Organic Polymer 5,702,787 12/30/97
Matrix
7. Molded Articles Having an Inorganically Filled Organic Polymer 5,705,239 1/16/98
Matrix
8. Systems for Molding Articles Having an Inorganically Filled Organic 5,658,603 8/19/97
Polymer Matrix
9. Hinged Articles Having an Inorganically Filled Matrix 5,631,053 5/20/97
10. Method of Manufacturing Hinges Having a Highly Inorganically Filled 5,707,474 1/13/98
Matrix
11. Inorganically Filled, Starch-Bound Compositions for Manufacturing 5,660,900 8/26/97
Containers and Other Articles Having a Thermodynamically Controlled
Cellular Matrix
12. Methods for Uniformly Dispersing Fibers Within Starch-Based 5,618,341 4/8/97
Compositions
13. Compositions for Manufacturing Fiber-Reinforced, Inorganically 5,662,731 9/2/97
Filled, Starch-Bound Articles Having a Foamed Cellular Matrix
14. Articles Having A Starch-Bound Cellular Matrix Reinforced With 5,683,772 11/4/97
Uniformly Dispersed Fibers
15. Methods and Systems for Manufacturing Articles Having A Starch-Bound 5,709,827 1/20/98
Cellular Matrix Reinforced With Uniformly Dispersed Fibers
16. Starch-Based Compositions Having Uniformly Dispersed Fibers Used to 5,679,145 10/21/97
Manufacture High-Strength Articles Having a Fiber-Reinforced,
Starch-Bound Cellular Matrix
17. Method of Forming a Sand-Based Article Using a Decomposable Binder 5,569,514 10/29/96
and the Article Formed Thereby
18. Oven Safe Disposable Food Container 5,317,119 5/31/94
</TABLE>
Exhibit B - Page 1
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE PATENT # DATE
----- -------- ----
<S> <C> <C> <C>
19. Method of Forming a Sand-Based Article Using a Decomposable Binder 5,108,677 4/28/92
and the Article Formed Thereby
20. Methods for Treating the Surface of Starch-Based Articles With 5,716,675 2/10/98
Glycerin
22. Systems for Molding Articles Which Include a Hinged Starch-Bound 5,707,203 1/6/98
Cellular Matrix
23. Biodegradable Ribbed Dish 5,242,078 9/7/93
24. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 5,376,320 12/27/94
Starch
25. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped 5,576,049 11/19/96
Elements
26. Process for Manufacturing Compositible Thin-Walled Molded Articles 5,711,908 1/27/98
Based on Starch
B. PENDING UNITED STATES PATENT APPLICATIONS
TITLE
-----
1. Methods of Molding Articles Having an Inorganically Filled Organic
Polymer Matrix
2. Inorganically Filled, Starch-Based Compositions for Manufacturing
Containers and Other Articles Having a Thermodynamically Controlled
Cellular Matrix
3. Methods and Systems for Manufacturing Containers and Other Articles
Having an Inorganically Filled, Starch-Bound Cellular Matrix
4. Dispersion of Cellulose Fibers
5. Articles Which Include a Hinged Starch-Bound Cellular Matrix
6. Methods for Molding Articles Which Include a Hinged Starch-Bound
Cellular Matrix
7. Molded Starch Articles
C. ISSUED FOREIGN PATENTS
TITLE PATENT # COUNTRY
----- -------- -------
<S> <C> <C> <C>
1. Hydraulically Settable Inorganically Filled Articles and Methods 28/94 Zimbabwe
2. Hydraulically Settable Inorganically Filled Articles and Methods 30080 Iran
3. Hydraulically Settable Inorganically Filled Articles and Methods 94/1018 South
Africa
4. Hydraulically Settable Inorganically Filled Articles and Methods 0251-94 Venezuela
5. Dispersion of Cellulose Fibers 169728 Denmark
6. Dispersion of Cellulose Fibers 683831 EPO
7. Dispersion of Cellulose Fibers 683831 Austria
</TABLE>
Exhibit B - Page 2
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE PATENT # COUNTRY
----- -------- -------
<S> <C> <C> <C>
8. Dispersion of Cellulose Fibers 683831 Germany
9. Dispersion of Cellulose Fibers 683831 France
10. Dispersion of Cellulose Fibers 683831 Italy
11. Dispersion of Cellulose Fibers 683831 UK
12. Foamed Inorganically Filled Starch-Bound Articles and Methods 24269 Iran
13. Fiber Reinforced Foamed Starch-Bound Articles & Methods 25424 Iran
14. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 96396 Austria
Starch
15. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 167213 Poland
Starch
16. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 513106 Sweden
Starch
17. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 513106 EPO
Starch
18. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 513106 Belgium
Starch
19. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 513106 Switzerland
Starch
20. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 59100537 Germany
Starch
21. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 513106 Denmark
Starch
22. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 513106 Netherlands
Starch
23. Process of Producing Rottable Thin-Walled Shaped Bodies Made of 2539125 Japan
Starch
25. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped 672080 EPO
Elements
26. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped 59307028 Germany
Elements
D. PENDING FOREIGN PATENT APPLICATIONS
TITLE COUNTRY
----- -------
1. Hydraulically Settable Inorganically Filled Articles and Methods Australia
2. Hydraulically Settable Inorganically Filled Articles and Methods Australia
(divisional)
3. Hydraulically Settable Inorganically Filled Articles and Methods Brazil
4. Hydraulically Settable Inorganically Filled Articles and Methods Canada
5. Hydraulically Settable Inorganically Filled Articles and Methods EPO
6. Hydraulically Settable Inorganically Filled Articles and Methods Japan
7. Hydraulically Settable Inorganically Filled Articles and Methods So. Korea
8. Hydraulically Settable Inorganically Filled Articles and Methods New
Zealand
</TABLE>
Exhibit B - Page 3
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE COUNTRY
----- -------
<S> <C> <C>
9. Hydraulically Settable Inorganically Filled Articles and Methods Russia
10. Hydraulically Settable Inorganically Filled Articles and Methods Georgia
11. Hydraulically Settable Inorganically Filled Articles and Methods Argentina
12. Hydraulically Settable Inorganically Filled Articles and Methods Argentina
(divisional)
13. Hydraulically Settable Inorganically Filled Articles and Methods Chile
14. Hydraulically Settable Inorganically Filled Articles and Methods China
15. Hydraulically Settable Inorganically Filled Articles and Methods Colombia
16. Hydraulically Settable Inorganically Filled Articles and Methods Egypt
17. Hydraulically Settable Inorganically Filled Articles and Methods India
18. Hydraulically Settable Inorganically Filled Articles and Methods Israel
19. Hydraulically Settable Inorganically Filled Articles and Methods (Div.) Israel
20. Hydraulically Settable Inorganically Filled Articles and Methods Mexico
21. Hydraulically Settable Inorganically Filled Articles and Methods Peru
22. Hydraulically Settable Inorganically Filled Articles and Methods Philippines
23. Hydraulically Settable Inorganically Filled Articles and Methods Saudi
Arabia
24. Hydraulically Settable Inorganically Filled Articles and Methods Taiwan
25. Fiber Reinforced Foamed Starch-Bound Articles & Methods Australia
26. Fiber Reinforced Foamed Starch-Bound Articles & Methods Brazil
27. Fiber Reinforced Foamed Starch-Bound Articles & Methods Canada
28. Fiber Reinforced Foamed Starch-Bound Articles & Methods EPO
29. Fiber Reinforced Foamed Starch-Bound Articles & Methods Japan
30. Fiber Reinforced Foamed Starch-Bound Articles & Methods Korea
31. Fiber Reinforced Foamed Starch-Bound Articles & Methods New
Zealand
32. Fiber Reinforced Foamed Starch-Bound Articles & Methods Russia
33. Fiber Reinforced Foamed Starch-Bound Articles & Methods Egypt
34. Fiber Reinforced Foamed Starch-Bound Articles & Methods India
35. Fiber Reinforced Foamed Starch-Bound Articles & Methods Philippines
36. Methods for Molding Articles Which Include a Hinged Starch-Bound PCT
Cellular Matrix
</TABLE>
Exhibit B - Page 4
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE COUNTRY
----- -------
<S> <C> <C>
37. Process of Producing Rottable Thin-Walled Shaped Bodies Made of Starch Canada
38. Process of Producing Rottable Thin-Walled Shaped Bodies Made of Starch Hungary
39. Process of Producing Rottable Thin-Walled Shaped Bodies Made of Starch Yugoslavia
40. Process of Producing Rottable Thin-Walled Shaped Bodies Made of Starch Australia
41. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Canada
Elements
42. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Czech Rep.
Elements
43. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Hungary
Elements
44. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Poland
Elements
45. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Slovakia
Elements
46. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Austria
Elements
48. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Austria
Elements
49. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Austria
Elements
50. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Sweden
Elements
51. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Netherlands
Elements
52. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Belgium
Elements
53. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Denmark
Elements
54. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Switzerland
Elements
55. Process of Manufacturing Rottable Thin-Walled Starch-Based Shaped Japan
Elements
56. Process for Manufacturing Compositible Thin-Walled Molded Articles Austria
Based on Starch
57. Process for Manufacturing Compositible Thin-Walled Molded Articles Croatia
Based on Starch
58. Process for Manufacturing Compositible Thin-Walled Molded Articles EPO
Based on Starch
</TABLE>
Exhibit B - Page 5
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE COUNTRY
----- -------
<S> <C> <C>
59. Process for Manufacturing Compositible Thin-Walled Molded Articles Canada
Based on Starch
60. Process for Manufacturing Compositible Thin-Walled Molded Articles Australia
Based on Starch
61. Process for Manufacturing Compositible Thin-Walled Molded Articles Japan
Based on Starch
62. Process for Manufacturing Compositible Thin-Walled Molded Articles Korea
Based on Starch
63. Biodegradable, Thin-Walled Molding Production, e.g., Cup, Plate or EPO
Packaging Using Starch-Based Baking Mixture Containing Powdered
Hydraulic Vegetable Fibers Pre-Mixed Dry with Release Agent to
Reduce Requirements
64. Biodegradable, Thin-Walled Molding Production, e.g., Cup, Plate or Canada
Packaging Using Starch-Based Baking Mixture Containing Powdered
Hydraulic Vegetable Fibers Pre-Mixed Dry with Release Agent to
Reduce Requirements
65. Biodegradable, Thin-Walled Molding Production, e.g., Cup, Plate or Australia
Packaging Using Starch-Based Baking Mixture Containing Powdered
Hydraulic Vegetable Fibers Pre-Mixed Dry with Release Agent to
Reduce Requirements
66. Biodegradable, Thin-Walled Molding Production, e.g., Cup, Plate or Austria
Packaging Using Starch-Based Baking Mixture Containing Powdered
Hydraulic Vegetable Fibers Pre-Mixed Dry with Release Agent to
Reduce Requirements
67. Biodegradable, Thin-Walled Molding Production, e.g., Cup, Plate or Japan
Packaging Using Starch-Based Baking Mixture Containing Powdered
Hydraulic Vegetable Fibers Pre-Mixed Dry with Release Agent to
Reduce Requirements
68. Biodegradable, Thin-Walled Molding Production, e.g., Cup, Plate or Korea
Packaging Using Starch-Based Baking Mixture Containing Powdered
Hydraulic Vegetable Fibers Pre-Mixed Dry with Release Agent to
Reduce Requirements
69. Production, of Degradable Thin-Walled Cups, Plates, Trays, Etc., by PCT
Mixing Starch with Alcohol, Water and Optional Thickener and Other
Additives, and Baking in Mold
70. Production, of Degradable Thin-Walled Cups, Plates, Trays, Etc., by EPO
Mixing Starch with Alcohol, Water and Optional Thickener and Other
Additives, and Baking in Mold
71. Production, of Degradable Thin-Walled Cups, Plates, Trays, Etc., by Australia
Mixing Starch with Alcohol, Water and Optional Thickener and Other
Additives, and Baking in Mold
72. Production, of Degradable Thin-Walled Cups, Plates, Trays, Etc., by Canada
Mixing Starch with Alcohol, Water and Optional Thickener and Other
Additives, and Baking in Mold
</TABLE>
Exhibit B - Page 6
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE COUNTRY
----- -------
<S> <C> <C>
73. Production, of Degradable Thin-Walled Cups, Plates, Trays, Etc., by Austria
Mixing Starch with Alcohol, Water and Optional Thickener and Other
Additives, and Baking in Mold
74. Production, of Degradable Thin-Walled Cups, Plates, Trays, Etc., by Austria
Mixing Starch with Alcohol, Water and Optional Thickener and Other
Additives, and Baking in Mold
75. Production, of Degradable Thin-Walled Cups, Plates, Trays, Etc., by Japan
Mixing Starch with Alcohol, Water and Optional Thickener and Other
Additives, and Baking in Mold
76. Production, of Degradable Thin-Walled Cups, Plates, Trays, Etc., by Korea
Mixing Starch with Alcohol, Water and Optional Thickener and Other
Additives, and Baking in Mold
77. Dispersion of Cellulose Fibers Canada
78. Dispersion of Cellulose Fibers Japan
79. Dispersion of Cellulose Fibers Norway
80. Dispersion of Cellulose Fibers Hungary
81. Dispersion of Cellulose Fibers Poland
82. Dispersion of Cellulose Fibers Finland
83. Foamed Inorganically Filled Starch-Bound Articles and Methods Australia
84. Foamed Inorganically Filled Starch-Bound Articles and Methods Canada
85. Foamed Inorganically Filled Starch-Bound Articles and Methods EPO
86. Foamed Inorganically Filled Starch-Bound Articles and Methods New
Zealand
87. Foamed Inorganically Filled Starch-Bound Articles and Methods Japan
88. Foamed Inorganically Filled Starch-Bound Articles and Methods India
89. Fiber Reinforced Foamed Starch-Bound Articles & Methods Australia
90. Fiber Reinforced Foamed Starch-Bound Articles & Methods Brazil
91. Fiber Reinforced Foamed Starch-Bound Articles & Methods Canada
92. Fiber Reinforced Foamed Starch-Bound Articles & Methods EPO
93. Fiber Reinforced Foamed Starch-Bound Articles & Methods Japan
94. Fiber Reinforced Foamed Starch-Bound Articles & Methods So. Korea
95. Fiber Reinforced Foamed Starch-Bound Articles & Methods New
Zealand
96. Fiber Reinforced Foamed Starch-Bound Articles & Methods Russia
97. Fiber Reinforced Foamed Starch-Bound Articles & Methods Egypt
</TABLE>
Exhibit B - Page 7
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE COUNTRY
----- -------
<S> <C> <C>
98. Fiber Reinforced Foamed Starch-Bound Articles & Methods India
99. Fiber Reinforced Foamed Starch-Bound Articles & Methods Philippines
100. Methods for Molding Articles Which Include a Hinged Starch-Bound PCT
Cellular Matrix
</TABLE>
Exhibit B - Page 8
May 18, 1998
<PAGE>
EXHIBIT "C"
ALI-ITE -TM- PAPER TECHNOLOGY
<TABLE>
<CAPTION>
A. ISSUED UNITED STATES LETTERS PATENT
TITLE PATENT # DATE
----- -------- ----
<S> <C> <C> <C>
1. Hydraulically Settable Containers and Other Articles for Storing, 5,705,237 1/6/98
Dispensing, and Packaging Food or Beverages
2. Cementitious Packaging Containers 5,654,048 8/5/97
3. Methods for Manufacturing Sheets from Hydraulically Settable 5,720,913 2/24/98
Compositions
4. Sealable Liquid-Tight Containers Comprised of Hydraulically 5,714,217 2/3/98
Settable Materials
5. Sheets Made from Moldable Hydraulically Settable Materials 5,626,954 5/6/97
6. Sheets Made from Moldable Hydraulically Settable Materials 5,614,307 3/25/97
7. Methods for Manufacturing Articles of Manufacture from 5,580,409 12/3/96
Hydraulically Settable Sheets
8. Systems for Manufacturing Sheets from Hydraulically Settable 5,679,381 10/21/97
Compositions
9. Articles of Manufacture Fashioned from Hydraulically Settable 5,665,439 9/9/97
Sheets
10. Sheets Having a Highly Inorganically Filled Organic Polymer Matrix 5,508,072 4/16/96
11. Laminated Sheets Having a Highly Inorganically Filled Organic 5,665,442 9/9/97
Polymer Matrix
12. Sheets Having a Highly Inorganically Filled Organic Polymer Matrix 5,660,903 8/26/97
13. Methods for the Manufacture of Sheets Having A Highly Inorganically 5,582,670 12/10/96
Filled Organic Polymer Matrix
14. Methods for the Manufacture of Sheets Having A Highly Inorganically 5,660,904 8/26/97
Filled Organic Polymer Matrix
15. Articles of Manufacture Fashioned From Sheets Having A Highly 5,506,046 4/9/96
Inorganically Filled Organic Polymer Matrix
16. Articles of Manufacture Fashioned From Sheets Having A Highly 5,705,238 1/6/98
Inorganically Filled Organic Polymer Matrix
17. Articles of Manufacture Fashioned From Sheets Having A Highly 5,709,913 1/20/98
Inorganically Filled Organic Polymer Matrix
18. Compositions and Methods for Manufacturing Sealable Liquid-Tight 5,738,921 4/14/98
Containers Comprising an Inorganically Filled Matrix
19. Compositions Having a High Ungelantinized Starch Content and Sheets 5,736,209 4/7/98
Molded Therefrom
</TABLE>
Exhibit C - Page 1
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
B. PENDING UNITED STATES PATENT APPLICATIONS
TITLE
-----
<S> <C>
1. Hinges for Highly Inorganically Filled Composite Materials
2. Articles of Manufacture and Methods for Manufacturing Laminate
Structures Including Inorganically Filled Sheets
3. System for Manufacturing Sheets Having A Highly Inorganically Filled
Organic Polymer Matrix
4. Methods for the Manufacture of Sheets Having A Highly Inorganically
Filled Organic Polymer Matrix
5. Laminated Articles of Manufacture Fashioned From Sheets Having A
Highly Inorganically Filled Organic Polymer Matrix
6. Methods for Manufacturing Articles From Sheets Having A Highly
Inorganically Filled Organic Polymer Matrix
7. Compositions for Manufacturing High Starch - Containing Sheets
8. High Starch - Containing Sheets
9. Method for Manufacturing Molded Sheets Having a High Starch Content
C. ISSUED FOREIGN PATENTS
TITLE PATENT # COUNTRY
----- -------- -------
1. Inorganically Filled Compositions, Articles of Manufacture Made Of 675687 Australia
Highly Inorganically Filled Compositions, and Methods for Making
Same
2. Inorganically Filled Compositions, Articles of Manufacture Made Of 259123 New
Highly Inorganically Filled Compositions, and Methods for Making Zealand
Same
3. Inorganically Filled Compositions, Articles of Manufacture Made Of 93/8770 South
Highly Inorganically Filled Compositions, and Methods for Making Africa
Same
4. Inorganically Filled Compositions, Articles of Manufacture Made Of 1775-93 Venezuela
Highly Inorganically Filled Compositions, and Methods for Making
Same
5. Highly Inorganically Filled Compositions, Articles of Manufacture 160/93 Zimbabwe
Made of Highly Inorganically Filled Compositions, and Methods for
Making Same
6. Highly Inorganically Filled Compositions, Articles of Manufacture 15436 Iran
Made of Highly Inorganically Filled Compositions, and Methods for
Making Same
</TABLE>
Exhibit C - Page 2
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
D. PENDING FOREIGN PATENT APPLICATIONS
TITLE COUNTRY
----- -------
<S> <C> <C>
1. Inorganically Filled Compositions, Articles of Manufacture Made of Australia
Highly Inorganically Filled Compositions, and Methods for Making Same
2. Inorganically Filled Compositions, Articles of Manufacture Made of Brazil
Highly Inorganically Filled Compositions, and Methods for Making Same
3. Inorganically Filled Compositions, Articles of Manufacture Made of Canada
Highly Inorganically Filled Compositions, and Methods for Making Same
4. Inorganically Filled Compositions, Articles of Manufacture Made of EPO
Highly Inorganically Filled Compositions, and Methods for Making Same
5. Inorganically Filled Compositions, Articles of Manufacture Made of Japan
Highly Inorganically Filled Compositions, and Methods for Making Same
6. Inorganically Filled Compositions, Articles of Manufacture Made of So. Korea
Highly Inorganically Filled Compositions, and Methods for Making Same
7. Inorganically Filled Compositions, Articles of Manufacture Made of Russia
Highly Inorganically Filled Compositions, and Methods for Making Same
8. Inorganically Filled Compositions, Articles of Manufacture Made of Argentina
Highly Inorganically Filled Compositions, and Methods for Making Same
9. Inorganically Filled Compositions, Articles of Manufacture Made of Chile
Highly Inorganically Filled Compositions, and Methods for Making Same
10. Inorganically Filled Compositions, Articles of Manufacture Made of China
Highly Inorganically Filled Compositions, and Methods for Making Same
11. Inorganically Filled Compositions, Articles of Manufacture Made of Colombia
Highly Inorganically Filled Compositions, and Methods for Making Same
12. Inorganically Filled Compositions, Articles of Manufacture Made of India
Highly Inorganically Filled Compositions, and Methods for Making Same
13. Inorganically Filled Compositions, Articles of Manufacture Made of Mexico
Highly Inorganically Filled Compositions, and Methods for Making Same
14. Inorganically Filled Compositions, Articles of Manufacture Made of Peru
Highly Inorganically Filled Compositions, and Methods for Making Same
15. Inorganically Filled Compositions, Articles of Manufacture Made of Philippines
Highly Inorganically Filled Compositions, and Methods for Making Same
16. Inorganically Filled Compositions, Articles of Manufacture Made of Taiwan
Highly Inorganically Filled Compositions, and Methods for Making Same
17. Highly Inorganically Filled Compositions, Articles of Manufacture Made of Georgia
Highly Inorganically Filled Compositions, and Methods for Making Same
18. Highly Inorganically Filled Compositions, Articles of Manufacture Made of Egypt
Highly Inorganically Filled Compositions, and Methods for Making Same
19. Highly Inorganically Filled Compositions, Articles of Manufacture Made of Israel
Highly Inorganically Filled Compositions, and Methods for Making Same
</TABLE>
Exhibit C - Page 3
May 18, 1998
<PAGE>
<TABLE>
<CAPTION>
TITLE COUNTRY
----- -------
<S> <C> <C>
20. Highly Inorganically Filled Compositions, Articles of Manufacture Made Israel
of Highly Inorganically Filled Compositions, and Methods for Making Same
(divisional)
21. Highly Inorganically Filled Compositions, Articles of Manufacture Made Saudi
of Highly Inorganically Filled Compositions, and Methods for Making Same Arabia
22. Compositions and Methods for Manufacturing Sealable Liquid-Tight PCT
Containers Comprising an Inorganically Filled Matrix
23. Compositions Having a High Ungelantinized Starch Content and Sheets PCT
Molded Therefrom
24. Method for Manufacturing Molded Sheets Having a High Starch Content PCT
</TABLE>
Exhibit C - Page 4
May 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFROMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS FOUND ON PAGES 1 AND 2 OF THE COMPANY'S FORM
10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 109,171,740
<SECURITIES> 4,999,091
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 114,442,541
<PP&E> 30,430,647
<DEPRECIATION> 721,519
<TOTAL-ASSETS> 144,151,669
<CURRENT-LIABILITIES> 10,025,899
<BONDS> 0
0
0
<COMMON> 1,000,451
<OTHER-SE> 133,125,319
<TOTAL-LIABILITY-AND-EQUITY> 144,151,669
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,814,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,086,117
<INCOME-PRETAX> (17,253,390)
<INCOME-TAX> 800
<INCOME-CONTINUING> (17,254,190)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,031,003)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
