Hoping to cash in on the trend toward healthier foods, Andrew J. Wilks and Edward H. Walker thought they had a sure thing: a tasty meat substitute that could help wean Americans off fatty meats.
So did the state of Maryland, Carroll County and two area venture capital funds, which together chipped in about $1 million to help the pair set up Litetrends Inc. in Eldersburg.
But after struggling for three years, the company, burdened by $1.2 million in debt, collapsed two months ago and tomorrow auctioneers are slated to sell off its remaining assets to satisfy creditors' claims.
Mr. Wilks, 36, and his partner Mr. Walker, 40, now face financial disaster, with combined debts of $150,000 accumulated during their 10-year effort. The state stands to lose more than half a million in a loan and guarantees made to the fledgling company. And the venture capital firms are out their investment.
"There's been a lot of sadness about it," said Mr. Wilks, who was Litetrends president.
"We wanted to build a successful business and now it is cataloged for sale at an auction," he said, referring to the stainless steel equipment that had transformed soybean curd -- otherwise known as tofu -- into products that could be substituted for hamburger, cooked strips of beef and sausage topping.
With more people eating less meat and the backing of the state and investment funds, how could Litetrends fail?
"It all looked quite good at the beginning," said Arthur A. Drea, assistant secretary for financial programs at the state Department Economic and Employment Development.
For their part, Mr. Wilks and Mr. Walker say they were hindered by insufficient investment and a food distribution system that is difficult to break into.
But a key investor blames the failure on an inexperienced management that took on too much risk by trying to do everything itself.
The former employees of a Catskills hotel that promoted transcendental meditation started their quest in 1985 by making individual ready-to-eat imitation meat dinners in the kitchen of the Talmudical Academy of Baltimore, a Jewish high school on Old Court Road.
Sold in health and kosher stores under the name "Ed and Andy's Original," sales reached $100,000 a year by 1987 -- enough to convince them to aim higher and look for financial backers.
Their quest led them in 1989 to the Technology Advancement Program, an incubator service at the University of Maryland. During the three years they spent there, Mr. Wilks and Mr. Walker, both Silver Spring residents, refined their production methods and business skills and adopted the Litetrends name.
Everything appeared to come together early in 1992. With a half a million dollars from the Calvert Social Venture Partners LP and Triad Investors, two prominent area investment funds, and another half million in state loans and guarantees, Litetrends moved into a 6,000-square-foot facility in the Eldersburg
Business Center in Carroll County.
Production used as samples
But over the next three years, the company never successfully connected with the institutional food service operations, the target of its sales effort. Instead, most of its production was used as samples to prospective customers.
The work force peaked at 12 in early 1992, and annual sales never got above a paltry $14,000, Mr. Wilks said.
John A. May, Calvert's managing partner, said in hindsight that Litetrends' had built-in problems as a stand-alone company with no relations to distributors or producers.
"This was a classic raw start-up and product launch," Mr. May said. "All of the risks and all of the resources were funnelled into one entity."
These problems were aggravated by an "inexperienced" management team that didn't have enough money and took too long to get established, he said.
"I think the flawed structure without the alliances, the strategic partner, the limited resources, the too-much risk in the plan, and the youthfulness and the inexperience of the management team, all conspired to make it not work," Mr. May said.
Yet, when the investment group first looked at the company, it seemed to make sense, he said.
"We believed the business plan and the product launch into the institutional food market, as opposed to the retail market, of this particular product was a potential winner," he said. "We always liked the product."
Officials at Triad did not return phone calls.
In Mr. Wilks' view, the problems stemmed from listening to investors and focusing on production rather than trying to raise more money.
"It's a Catch-22. When you're financially weak, who's going to be involved in buying a product from you?" Mr. Wilks said. "Who's going to make that kind of commitment?"
The company's dilemma was complicated by its shortage of funds. Unable to build up its inventory enough to allow credit sales to companies, Litetrends was forced to ask prospective customers to prepay for the tofu products -- something they would not agree to.
Marriott made stipulation
Litetrends also found it difficult to break into the food distribution network. In the case of Marriott Corp., the company was told by the giant Bethesda-based food service and hotel company that it vTC would sign on as a customer if Litetrends could sell 40 cases a month of each of its three product lines to individual Marriott operations.
"That was just a big undertaking that required a lot of energy, and at this time we were always struggling just to stay afloat," Mr. Wilks said. "We could never get enough sales momentum."
When the money began to run out at the end of 1993, tensions developed between Litetrends and Calvert and Triad. As a condition of additional loans of $100,000 from Calvert and $50,000 from Triad, the investors were given tighter control.
"When we ran out of money, they took us and put our backs to the wall and really took over the company and lent money at a high interest rate and really screwed the whole momentum of the company, the whole feeling of the company," Mr. Wilks said about the change at the company. "They actually ran it during that period of time."
Mr. May, who prefers to characterize the arrangement as keeping closer tabs on the company with more meetings and more information, said he nevertheless understood Mr. Wilks' reaction. "The operators always prefer to be independent and not have any strings," he said.
Not expecting to recover its investment in Litetrends, Mr. May said it was all part of the venture capital game. "Sometimes you win, and sometimes you lose."
State out its money
And, Mr. Drea says the state holds out little hope of recovering any of the $395,000 provided to Litetrends through a Community Development Block Grant.
Likewise, the state will also probably have to make good on the $120,000 that the state guaranteed on a $200,000 loan made to Litetrends by Taneytown Bank & Trust Co., said Mr. Drea, who noted that less than 4 percent of state's loans and guaranties to businesses go bad.
While Mr. Wilks still harbors hopes that a last-minute investor may yet save Litetrends, he has found a job with an unnamed company, and Mr. Walker has been sending his resume around.
Yet, they are still working on new tofu formulations that they hope might be tried in yet another effort.
"This is part of the American dream," said Richard B. Frank, director of the Technology Program at the University of Maryland and an early Litetrends supporter. "They have the right to fail."