EarthShell files for Chapter 11 bankruptcy

Food-packaging maker EarthShell Corp. (ERTH) has filed for Chapter 11 protection from creditors.

The Lutherville, Md., company listed assets of $16,176 and debt of $11.9 million in its bankruptcy petition, filed Friday in the U.S. Bankruptcy Court in Wilmington, Del.

EarthShell didn’t say in its bare-bones filing why it was seeking bankruptcy protection.

However, EarthShell said in a regulatory filing earlier this month that it had defaulted on a $5 million financing pact from Cornell Capital Partners L.P.

Among the company’s largest unsecured creditors is a firm controlled by founder Essam Khashoggi, who is owed $1.9 million. Khashoggi – brother of Saudi Arabian arms dealer Adnan Khashoggi – owns about 32% of the company, according to the firm’s most recent annual report.

EarthShell also owes bondholder SF Capital Partners $2.4 million.

EarthShell, which has lost money for years, posted a $6.2 million net loss in 2005, the last full year for which results are available, compared with a $7.3 million loss in 2004.

The company funded its operations with a combination of loans and debt. EarthShell shares, which trade over the counter, closed Friday at 21 cents each.

Founded in 1992, EarthShell makes biodegradable foam plates and bowls from materials such as limestone as well as starch from potatoes, wheat and corn. The company’s clients include McDonald’s Corp. (MCD), Aramark Corp. (RMK) and the U.S. Environmental Protection Agency.

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The company’s bankruptcy case will be handled by Whiteford, Taylor & Preston. The case number is 07-10086. Judge Kevin Gross of the Wilmington court has been assigned the case.

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