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Food Irradiation Firm Closing Vernon Plant Amid Slow Sales

With legal and financial challenges mounting, SureBeam looks for ways to cut costs.

September 09, 2003|Melinda Fulmer | Times Staff Writer

SureBeam Corp. is zapping its Vernon plant.

The nation's largest food irradiation company said Monday that it would close the 1-year-old plant, citing sluggish demand on the West Coast for food treated by SureBeam's electronic germ-killing technology.

Sales were "slower than we anticipated," SureBeam spokesman Mark Stephenson said.

The Vernon plant -- one of four that SureBeam operates in the U.S. -- brings in just 1% of the company's domestic revenue. Five full-time employees have been laid off.

Although the U.S. Department of Agriculture has approved the irradiation of raw meat, produce and spices, it isn't required. Most consumers aren't asking for irradiated food, analysts say, despite well-publicized outbreaks in recent years of E. coli bacteria and salmonella.

What's more, the federal government has yet to approve irradiation for use on processed meats such as hot dogs and luncheon meat, something SureBeam had been counting on to boost its business. And some activist groups have petitioned the government to block any wider use of irradiation.

SureBeam's technology kills dangerous germs on meat and produce by exposing them to ionizing radiation from electrons or X-rays.

This year, SureBeam is processing more ground beef in the U.S. than a year ago, selling mostly to suppliers of supermarket chains in the Midwest and Northeast.

Still, sales are running behind projections. The company has yet to turn a profit, and its stock has lost 69% of its value this year.

"They're not making money and are trying to cut costs," said Robert Norfleet, an analyst with Davenport & Co.

SureBeam has been in turmoil since March, when Chief Executive Larry Oberkfell resigned to join Schwan Food Co., a frozen food firm.

In the last month, SureBeam's accounting methods have come under scrutiny. It fired its third accountant, Deloitte & Touche, after the firm raised questions about the food processor's method of booking revenue from its contracts.

SureBeam also faces a slew of lawsuits seeking class-action status that allege these accounting methods misled investors, inflating the company' stock price. SureBeam officials say the suits are without merit.

Because of its accounting problems, SureBeam has not released its second-quarter results.

Its stock could be delisted from Nasdaq, pending a hearing Sept. 18, because the company didn't file its quarterly results on time.

In its first quarter ended March 31, SureBeam narrowed its net loss to $6.7 million, down from $9 million a year earlier, while revenue declined 13% to $6.1 million. The company had $20.2 million in cash and cash equivalents on hand at the end of the quarter.

It went public in March 2001 at $10 a share. The stock, which traded as high as $6.65 last November, dropped 6 cents to $1.26 on Monday on Nasdaq.

With all the challenges SureBeam faces, some analysts have begun questioning its longevity.

"You have a company that is still in the development stage" two years after its public offering, said Mark Jordan, an analyst with A.G. Edwards & Co., which co-managed SureBeam's IPO and now rates the stock a "sell."

SureBeam, he said, is at a crossroads. He said the company should hire a new auditor. And because consumers in the U.S. have been slow to warm to irradiated foods, he added, it also needs to "sign new international equipment contracts."

SureBeam said it was working on hiring a new auditor and taking other steps to enhance sales.

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