From the very start,

EarthShell

(ERTH)

looked like a dirty deal. The company originally filed its IPO in October 1996, but didn't actually do the deal until 17 months later. Its accumulated deficit at the time had climbed to more than $62 million, and its auditors had raised serious doubt about EarthShell's ability to continue as a "going concern" if the IPO didn't get done.

And when the deal did get done, the company had an instant market value of $2 billion without profits

or

revenues -- and it wasn't even a dot-com! Investors plunked down $21 per share to invest in the sizzling story that

McDonald's

(MCD) - Get Report

planned to use EarthShell's patented biodegradable containers for its Big Macs.

So what if McDonald's has a "nonbinding" deal that allows it to walk away from EarthShell at any time? So what if the economics of the containers, made from a limestone mixture, hadn't been proven? So what EarthShell hadn't yet figured out how to make the containers for mass production?

That last "so what," which was included as a risk factor in the prospectus, apparently was the one that counted most. According to its prospectus, EarthShell promised it would start delivering "commercial-quality" containers to McDonald's by March 31. That was yesterday, and (you guessed it) they didn't make it. The company issued a press release to say that it's still trying to debug its product line and that the shipments would begin "shortly."

This is the same company that on Jan. 29 issued a press release declaring that it was on target to meet its March 31 deadline. This is the same company whose president, in that same release, was quoted as saying that "we are confident we will achieve our production goals and are not experiencing any problems that are unusual in a normal production startup." This is the same company that two weeks ago allowed an analyst from

Salomon Smith Barney

, the co-underwriter of its IPO, to conclude after a plant tour that it would not have a problem meeting the March 31 deadline.

The analyst, Keith Mullins, had downgraded EarthShell from the equivalent of a buy to a hold in February in part on concerns over the company's ability to meet the March 31 deadline. (It also apparently didn't help that at a growth-stock conference hosted by Salomon, earlier that week, EarthShell distributed containers that were so brittle, according to investors who were there, that quite a few started falling apart. Excessive brittleness was an issue that was supposed to have been dealt with

a year ago.)

Mullins, who didn't return my call, apparently isn't buying the company's line that deliveries will begin shortly. In a memo to clients, he said he believes it will take 60 to 90 days. Word is that there are problems with the sanding and coating process. One analyst familiar with the situation said the containers were cracking when they were sanded. A solution apparently has been to increase the coating, but by doing so "they risk going over the weight threshold McDonald's wants."

McDonald's officials couldn't be reached, but yesterday EarthShell told

Dow Jones

that McDonald's hasn't changed its plans to buy the containers. Maybe so, but according to Mullins (and this is the kicker, folks) the economics of making the product are now in doubt. The plant, in Owings Mills, Md., is expected to cost $54 million when complete; that's three times the original projection. Based on the number of containers EarthShell has been forecasting, with a 20% royalty on the 3.5 cents cost of each container, Mullins figures it will take more than six years and up to 15 years "to get a payback on the investment."

EarthShell officials didn't return my call, but analysts say as recently as a week ago the company said it still had an October target for full commercial rollout.

With its stock valued at a lofty $975 million based on yesterday's close of 9 3/4, and an accumulated deficit of $101 million as of Dec. 31, that's one target it had better not miss.

Tale of two cities, update:

An item

here earlier this week mentioned the differences between

Axent Technologies

(AXNT)

and

ISS Group

(ISSX)

. The bottom line was that one was too cheap, the other was too expensive or a little of both. (Remember? Axent was the security software company that went public several years ago, didn't play up its role with the Internet and is profitable; its market value was about half that of ISS, which went public last year, played up its role with the Internet and isn't profitable.)

Well ... yesterday Axent lost 26% of its value after it made a $50 million acquisition and was downgraded by several firms, including

SG Cowen

. Cowen analyst Drew Brosseau cited several reasons, including this zinger: "The overall spending environment remains weak as highlighted by other recent preannouncements in the enterprise software market." (He was obviously talking about

PeopleSoft's

(PSFT)

latest warning.)

Hello! If Axent is hurt by a spending slowdown by companies, shouldn't ISS? Judging by its stock, which rose yesterday by 5 1/2 to 79 1/2, investors obviously don't think so. But get this: As of yesterday's close, Axent's market value was $601 million vs. $1.47 billion for ISS. In other words,

the spread is getting wider!

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg writes a monthly column for Fortune and provides commentary for CNBC.