# 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, 2000

# |_| 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) 897-2248

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 9, 2000 is 103,222,044.

---

# EARTHSHELL CORPORATION

# FORM 10-Q

# For the Quarter Ended September 30, 2000

# INDEX

`Part I. Financial Information
     Item 1.    Financial Statements                                                   Page
                a)  Balance Sheets
                    as of September 30, 2000 and December 31, 1999 (unaudited).....      1

                b)  Statements of Operations
                    for the three and nine months ended September 30, 2000 and
                    September 30, 1999 (unaudited) and for the period from November
                    1, 1992 (inception) through September 30, 2000 (unaudited).....      2

                c)  Statements of Stockholders' Equity (Deficit)
                    for the period from November 1, 1992 (inception) to September
                    30, 2000 (unaudited)...........................................      3

                d)  Statements of Cash Flows
                    for the nine months ended September 30, 2000 and September 30,
                    1999 (unaudited) and for the period from November 1, 1992
                    (inception) through September 30, 2000 (unaudited).............      4

                e)  Notes to Financial Statements
                    (unaudited) ...................................................      5

     Item 2.    Management's Discussion and Analysis of Financial
                Condition and Results of Operations................................      6

     Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........     10


Part II. Other Information

     Item 1.    Legal Proceedings..................................................     10
     Item 2.    Use of Proceeds....................................................     11
     Item 3.    Defaults Upon Senior Securities....................................     11
     Item 4.    Submission of Matters to a Vote for Security Holders...............     11
     Item 5.    Other Information..................................................     11
     Item 6     Exhibits and Reports on Form 8-K...................................     11
     Signature ....................................................................     12`

---

`EARTHSHELL CORPORATION
                                       (A Development Stage Enterprise)
                                                BALANCE SHEETS
                                                  (Unaudited)

                                                         September 30,      December 31,
                                                        ----------------   ----------------
                                                             2000               1999
                                                        ----------------   ----------------
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents.......................          $8,841,500        $26,412,553
   Restricted cash.................................           3,500,000          3,500,000
   Short-term investments..........................                   -          8,970,638
   Other assets....................................             595,857            514,662
                                                        ----------------   ----------------
      Total current assets.........................          12,937,357         39,397,853

PROPERTY AND EQUIPMENT, NET........................          48,139,567         47,355,382

INVESTMENT IN JOINT VENTURE........................             233,452            445,318

                                                        ----------------   ----------------
TOTAL .............................................         $61,310,376        $87,198,553
                                                        ================   ================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable and accrued expenses...........          $6,137,886         $5,165,900
   Trade payable to majority stockholder...........             451,939          1,385,737
                                                        ----------------   ----------------
      Total current liabilities....................           6,589,825          6,551,637
                                                        ----------------   ----------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   Common stock, $.01 par value, 200,000,000 shares
      authorized; 101,373,459 issued and
      outstanding          as of September 30, 2000
      and 100,045,166 as of December 31,1999.......           1,013,735          1,000,451
   Additional paid-in common capital                        229,098,885        224,715,255
   Deficit accumulated during the development stage        (175,334,491)      (145,029,480)
                                                        ----------------   ----------------
   Accumulated other comprehensive loss............             (57,578)           (39,310)
   Total stockholders' equity......................          54,720,551         80,646,916
                                                        ----------------   ----------------
TOTAL .............................................         $61,310,376        $87,198,553
                                                        ================   ================

                                      See notes to financial statements.`

---

`EARTHSHELL CORPORATION
                                       (A Development Stage Enterprise)
                                           STATEMENTS OF OPERATIONS
                                                  (Unaudited)


                                                                                                           November 1,
                                                           For the                     For the                1992
                                                         Three Months                Nine Months           (inception)
                                                     Ended September 30,         Ended September 30,         through
                                                                                                          September 30,
                                                   --------------------------  -------------------------  --------------
                                                      2000          1999          2000         1999           2000
                                                   ------------  ------------  -----------  ------------  --------------
         Expenses:

         Related party research and development     $2,053,602    $2,683,696   $6,524,454    $8,041,331     $64,795,430
         Other research and development......        4,888,075     6,151,749   13,866,470    13,480,202      48,448,334
         Related party general and
            administrative  expenses ........           37,147        56,029      117,582       169,017       2,200,491
         Other general and administrative
            expenses.........................        2,096,661     2,607,745    6,322,700    10,306,308      42,787,455
         Depreciation and amortization.......        1,428,242     1,452,276    4,278,338     3,180,227      12,062,626
         Related party patent expenses.......           51,124       167,486      320,897       495,506       8,651,758
                                                  -------------  ------------  -----------  ------------  --------------
         Total expenses......................       10,554,851    13,118,981   31,430,441    35,672,591     178,946,094



         Interest income.....................         (306,572)     (729,826)  (1,126,230)   (2,821,873)    (10,182,144)
         Related party interest expense......                -             -            -             -       4,770,731
         Other interest expense..............                -             -            -             -       1,788,738
                                                  -------------  ------------  -----------  ------------  --------------
         Loss Before Income Taxes............       10,248,279    12,389,155   30,304,211    32,850,718     175,323,419

         Income Taxes........................              800         2,671          800         3,471          11,071
                                                  -------------  ------------  -----------  ------------  --------------
         Net Loss............................       10,249,079    12,391,826   30,305,011    32,854,189     175,334,491
         Preferred Dividends ................                -             -            -             -       9,926,703
                                                  -------------  ------------  -----------  ------------  --------------
         Net Loss Available To Common
            Stockholders.....................      $10,249,079   $12,391,826  $30,305,011   $32,854,189    $185,261,193
                                                  =============  ============  ===========  ============  ==============
         Basic And Diluted Loss Per Common
            Share............................            $0.10         $0.12        $0.30         $0.33           $2.10
         Weighted Average Number Of Common
            Shares...........................      101,352,816   100,045,166  100,595,874   100,045,166      88,117,086

                                                     See notes to financial statements.`

---

`EARTHSHELL CORPORATION
                                       (A Development Stage Enterprise)
                                 STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                                  (Unaudited)

                                 Cumulative
                                Convertible                                                                        Deficit
                              Preferred Stock      Additional                         Additional   Accumulated   Accumulated
                                  Series A          Paid-In        Common Stock         Paid-In     Other Com-     during
                             -------------------   Preferred  -----------------------   Common      prehensive   Development
                              Shares    Amount      Capital      Shares      Amount     Capital        Loss         Stage          Total
                             ---------  --------  ----------- ---------- ------------ -----------  -----------  --------------   ---------

ISSUANCE OF COMMON STOCK AT
   INCEPTION............            -         -            -   82,530,000      $3,150      $6,850           -               -      $10,000
Sale of preferred stock, net 6,988,850      $267  $24,472,734          -           -           -            -               -   24,473,001
Net loss................            -         -            -           -           -           -            -     $(7,782,551)  (7,782,551)
                             ---------  --------  ----------- -----------  ---------- -----------  -----------  --------------   ---------
BALANCE, DECEMBER 31, 1993   6,988,850       267   24,472,734  82,530,000       3,150       6,850           -      (7,782,551)  16,700,450
Net loss................            -         -            -           -           -           -            -     (16,582,080) (16,582,080)
                             ---------  --------  ----------- -----------  ---------- -----------  -----------  --------------   ---------
BALANCE, DECEMBER 31, 1994   6,988,850       267   24,472,734  82,530,000       3,150       6,850           -     (24,364,631)     118,370
Contribution to equity..            -         -            -           -           -    1,117,723           -               -    1,117,723
Net loss................            -         -            -           -           -           -            -     (13,914,194) (13,914,194)
                             ---------  --------  ----------- -----------  ---------- -----------  -----------  --------------   ---------
BALANCE, DECEMBER 31, 1995   6,988,850       267   24,472,734  82,530,000       3,150   1,124,573           -     (38,278,825) (12,678,101)
Contribution to equity..            -         -            -           -           -      650,000           -               -      650,000
Issuance of stock warrants          -         -            -           -           -      246,270           -               -      246,270
Net loss................            -         -            -           -           -           -            -     (16,950,137) (16,950,137)
                             ---------  --------  ----------- -----------  ---------- -----------  -----------  --------------   ---------
BALANCE, DECEMBER 31, 1996   6,988,850       267   24,472,734  82,530,000       3,150   2,020,843           -     (55,228,962) (28,731,968)
Compensation related to
   stock options and
   warrants.............            -         -            -           -           -    3,156,659           -               -    3,156,659
Net loss................            -         -            -           -           -           -            -     (18,992,023) (18,992,023)
                             ---------  --------  ----------- -----------  ---------- -----------  -----------  --------------   ---------
BALANCE, DECEMBER 31, 1997   6,988,850       267   24,472,734  82,530,000       3,150   5,177,502           -     (74,220,985) (44,567,332)
262 to 1 stock split....            -     69,621      (69,621)         -      822,150   (822,150)           -               -           -
Conversion of preferred
   stock to common stock    (6,988,850)  (69,888) (24,403,113)  6,988,850      69,888  24,403,113           -               -           -
Issuance of common stock            -         -            -   10,526,316     105,263 205,883,493           -               -  205,988,756
Preferred stock dividends           -         -            -           -           -   (9,926,703)          -               -   (9,926,703)
Net loss................            -         -            -           -           -           -            -     (26,620,052) (26,620,052)
                             ---------  --------  ----------- -----------  ---------- -----------  -----------  --------------   ---------
BALANCE, DECEMBER 31, 1998          -         -            -  100,045,166   1,000,451 224,715,255           -    (100,841,037) 124,874,669
Net loss................            -         -            -           -           -           -            -     (44,188,443) (44,188,443)
                             ---------  --------  ----------- -----------  ---------- -----------  -----------  --------------
                                                                                                                                 ---------
Foreign currency                    -         -            -           -           -           -      ($39,310)                    (39,310)
   translation loss.....
                                                                                                                                 ---------
Total comprehensive income          -         -            -           -           -           -            -                  (44,227,753)
BALANCE, DECEMBER 31, 1999          -         -            -  100,045,166   1,000,451 224,715,255      (39,310)  (145,029,480)  80,646,916
Net Loss................            -         -            -           -           -           -            -     (30,305,011) (30,305,011)
                             ---------  --------  ----------- -----------  ---------- -----------  -----------  --------------
                                                                                                                                 ---------
Foreign currency                    -         -            -           -           -           -       (18,268)                    (18,268)
   translation loss.....
                                                                                                                                 ---------
Total comprehensive income          -         -            -           -           -           -            -                  (30,323,279)
Issuance of common stock            -         -            -    1,328,293      13,283   4,383,630           -                    4,396,913
                             ---------  --------  ----------- -----------  ---------- -----------  -----------  --------------   ---------
BALANCE, SEPTEMBER 30, 2000         -         -            -  101,373,459  $1,013,735 $229,098,885    $(57,578) $(175,334,491) $54,720,551
                             =========  ========  =========== ===========  ========== ===========  ===========  ==============   =========

                                       See notes to financial statements`

---

`EARTHSHELL CORPORATION
                                       (A Development Stage Enterprise)
                                           STATEMENTS OF CASH FLOWS
                                                  (Unaudited)


                                                               For the            November 1,
                                                          Nine Months Ended          1992
                                                            September 30,        (inception)
                                                                                   through
                                                                                 September 30,
                                                       ------------------------  -------------
                                                         2000         1999           2000
                                                       ----------  ------------  -------------



CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..........................................   (30,305,011) $(32,854,189) $(175,334,491)
Adjustments to reconcile net loss to net cash used in
operating activities:
   Depreciation and amortization..................     4,278,376     3,180,227     12,062,664
   Issuance of stock options to director, consultant
      and officer.................................             -       840,000      3,861,522
   Loss on sale or disposal of property and equipment    194,937     1,835,519      6,712,723
   Loss from investment in joint venture..........       211,866        37,555        281,986
   Other..........................................             -             -       (106,311)
Changes in operating assets and liabilities:
   Other assets...................................       (81,195)      886,873       (595,857)
   Accounts payable and accrued expenses..........       971,986    (3,233,313)     6,098,574
   Trade payable to majority stockholder..........      (933,798)     (610,707)
                                                                                   27,335,152
                                                       ----------  ------------  -------------
   Net cash used in operating activities..........   (25,662,839)  (29,918,035)  (119,684,038)
                                                       ----------  ------------  -------------


CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds (purchase) from short-term investments...     8,970,638             -    (43,449,182)
Purchase of restricted time deposit...............             -             -     (3,500,000)
Proceeds from sales and redemptions of investments             -     6,530,928     43,826,770
Proceeds from sale of property and equipment......             -             -        297,670
Investment in joint venture.......................                    (554,748)      (515,438)
Purchase of property and equipment................    (5,275,768)  (14,838,670)   (68,102,629)
                                                       ----------  ------------  -------------
   Net cash provided by (used in) investing activities 3,694,870    (8,862,490)   (71,442,809)
                                                       ----------  ------------  -------------


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable to
stockholders......................................             -             -     14,270,000
Proceeds from drawings on line of credit with bank             -             -     14,000,000
Proceeds from issuance of common stock............     4,396,916             -    225,459,552
Common stock issuance costs.......................             -             -    (15,178,641)
Preferred dividends paid..........................             -             -     (9,926,703)
Proceeds from issuance of preferred stock.........             -             -     25,675,000
Preferred stock issuance costs....................             -             -     (1,201,999)
Repayment of line of credit with bank.............             -             -    (14,000,000)
Repayment of note payable.........................             -       (22,975)   (39,128,862)


   Net cash provided by and (used in) financing        ----------  ------------  -------------
      activities..................................     4,396,916       (22,975)   199,968,347
                                                       ----------  ------------  -------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..   (17,571,053)  (38,803,500)     8,841,500

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....    26,412,553    86,590,163              -
                                                       ----------  ------------  -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD..........    $8,841,500   $47,786,663     $8,841,500
                                                       ==========  ============  =============


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
     Income taxes.................................           800        $3,471        $11,071
     Interest.....................................             -             -     $3,028,240
Warrants issued with debt.........................             -             -       $306,168
Transfer of property from EKI.....................             -             -        $28,745
Conversion of preferred stock to common stock.....             -             -        $69,888

                                      See notes to financial statements.`

---

## EARTHSHELL CORPORATION

NOTES TO FINANCIAL STATEMENTS  (Unaudited)

SEPTEMBER 30,2000

## Presentation of Financial Information

The foregoing interim 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 of the Company in conformity
with generally accepted accounting principles. All such adjustments were of a
normal recurring nature for interim financial reporting. Certain
reclassifications have been made to prior years financial statements to
conform to the 2000 presentation.

The accompanying unaudited financial statements and these notes
do not include certain information and footnote disclosures required by
generally accepted accounting principles, which were included in the
Companys financial statements for the year ended December 31, 1999. The
information included in this Form 10-Q should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations and financial statements and notes thereto for the year ended
December 31, 1999 included in the Companys Annual Report on Form 10-K.

Basic and diluted loss per common share is calculated based on
the weighted average shares outstanding of 101,352,816 and 100,595,874 for the
three and nine months ended September 30, 2000, respectively and 100,045,166 for
the three and nine months ended September 30, 1999. Basic and diluted are the
same because common stock equivalents are considered anti-dilutive.

## Related Party Transactions

For the three months ended September 30, 2000 and 1999, the
Company paid or accrued $2,053,602 and $2,683,696 respectively, and for the nine
months ended September 30, 2000 and 1999, $6,524,454 and $8,049,405,
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 during each of the
respective three month and nine month periods ended September 30, 2000 and 1999.

Pursuant to resolutions adopted by the Board of Directors on
February 4, 1999, the Company reimbursed $88,458 to EKI for salaries and
benefits paid by EKI for administrative support personnel during the nine months
ended September 30, 2000.

Under the Amended and Restated Agreement for Allocation of
Patent Costs effective October 1, 1997, legal fees related to patents of $51,124
and $167,486 were paid to or on behalf of EKI for the three months ended
September 30, 2000 and 1999, respectively, and $320,897 and $495,506 for the
nine months ended September 30, 2000 and 1999, respectively.

---

## EARTHSHELL CORPORATION

NOTES TO FINANCIAL STATEMENTS  (Unaudited) - continued

SEPTEMBER 30,2000

## Property and Equipment

`At September 30, 2000, property and equipment consisted of the following:

Commercial Manufacturing Equipment:  Construction in progress...... $46,303,110

Product Development Center:
     Equipment.....................................................   3,241,991
     Construction in progress......................................   7,354,298
     Leasehold improvements........................................     521,253
                                                                   -------------
                                                                     11,117,542

Office equipment and furniture.....................................     425,893
Office leasehold improvements......................................      50,108

Less: accumulated depreciation.....................................  (9,757,086)
                                                                   -------------

Property and equipment - net....................................... $48,139,567
                                                                   =============`

## Item  2.  Management's  Discussion and Analysis of
Financial Condition and Results of Operations

Information contained in this Quarterly Report on Form 10-Q
including Managements Discussion and Analysis of Financial Condition
and Results of Operations contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, as amended.
These statements may be identified by the use of forward-looking terminology
such as may, will, expect,
anticipate, estimate, or continue, or the
negative thereof or other comparable terminology. Any one factor or combination
of factors could cause the Companys actual operating performance or
financial results to differ substantially from those anticipated by management
that are described herein. Factors influencing the Companys operating
performance and financial results include, but are not limited to, changes in
the general economy, the availability of financing, governmental regulations
concerning, but not limited to, environmental issues, and other risks and
unforeseen circumstances affecting the Companys business and should be
read in conjunction with other factors discussed in the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.

## Results of Operations

The Company was organized in November 1992, as a Delaware
corporation and remains a development stage enterprise. E. Khashoggi Industries
LLC, the Companys principal stockholder, or its predecessors
(EKI), has been involved since July 1985, in the development of
various new material technologies including the new composite material. The
Company was formed to develop, license and commercialize foodservice 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 continue to license
or joint venture with existing manufacturers of foodservice 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.

The Company has experienced aggregate net losses of
approximately  $175  million  from its  inception  on November  1, 1992  through
September  30, 2000.  The Company has been  unprofitable  to date and expects to
continue  to  incur   operating   losses  until  its  products  have  been  used
commercially more broadly and have achieved greater market acceptance and market
penetration.  Since its  inception,  the Company has not  generated any revenues
from operations.  Successful  future  operations will depend upon the ability of
the Company, its licensees and joint venture partners to commercialize  multiple
EARTHSHELL Products.  Since inception,  the Company has relied on EKI to provide
extensive  management and technical support. The Company and EKI entered into an
Amended  and  Restated   Technical   Services  and   Sublease   Agreement   (the
Technical  Services  Agreement) which continues through December 31,
2002. Under the terms of the Technical Services Agreement,  the Company pays EKI
for all direct  project  labor hours  incurred by EKI  technical  personnel  and
direct expenses incurred on approved projects. In addition, under an Amended and
Restated  Agreement  for  the  Allocation  of  Patent  Costs  (the  Patent
Agreement),  the  Company  reimburses  EKI for the costs and  expenses  of
filing,  prosecuting,  acquiring  and  maintaining  certain  patents  and patent
applications relating to the technology licensed to the Company under an Amended
and Restated License Agreement (the License Agreement).

## Key Customer

As the first step in its strategy, the Company worked closely
with McDonalds Corporation (McDonalds) in developing and
testing prototype sandwich containers. As a result of this work, McDonalds
primary packaging purchaser, Perseco, entered into a supply agreement in 1997
with the Companys licensee, Sweetheart Cup Company Inc.
(Sweetheart), pursuant to which Perseco committed to purchase not
less than 1.8 billion EarthShell Big Mac® sandwich
containers over a three-year period, subject to certain conditions. At the time
the supply agreement was signed, there was no existing commercial capacity to
manufacture EARTHSHELL Products. To support the supply agreement between
Sweetheart and Perseco to supply McDonalds U.S. restaurants with
EARTHSHELL containers for the Big Mac® sandwich, the Company
agreed to build commercial manufacturing equipment that would be operated by
Sweetheart. Sweetheart and Perseco, with input from EarthShell and
McDonalds are currently in the process of moving toward a structure that
is consistent with Persecos normal supplier relationships.

## First Commercial Manufacturing Facility

In 1998 and 1999, the Company built its first commercial
manufacturing plant at Sweethearts facility in Owings Mills, Maryland to
produce the EarthShell Big Mac® sandwich container for sale to
Perseco/McDonalds. During the third quarter, the Company and its operating
partner, Sweetheart, have been running two of the three installed EarthShell Big
Mac® sandwich container manufacturing lines. One of these lines
is being operated in a production mode to meet the customers order
requirements, and the second line is being used primarily to improve and
optimize the effectiveness of the manufacturing process. Current production
volumes are manufactured only to support Persecos immediate demand for
product.

The Company and Sweetheart are progressing through a product
validation process with Perseco with respect to the EarthShell Big
Mac® sandwich container. The original relationship was for a
term of three years. EarthShell containers have been in daily use in 128
McDonalds stores since late April 2000, and over 3.0 million containers
have been used to date. The Company continues to believe it will meet all of the
validation criteria for approval for future expansion to supply Big
Mac® containers within the U.S. McDonalds system. The
quantities of product currently being used in the validation process are small
relative to the intended capacity of the lines. Although additional improvements
are needed to achieve the design capacity of the production manufacturing lines,
the Company believes these three lines will be sufficient to meet the
Perseco/McDonalds system requirements. The third line will be enabled only
after the first two lines are running at near full capacity.

The Company is in discussions with McDonalds/Perseco with
respect to its commitment to supply product to the McDonalds system. Upon
successful completion of the validation process, McDonalds intends to use
the EarthShell Big Mac® container in its US restaurants,
although there can be no assurance of minimum purchase commitments going
forward. In addition, the Company is free to seek other customers for the
sandwich container produced at the Sweetheart facility before McDonalds
full system demand is met.

Although the Company believes that the production from the first
three lines will be profitable once they have been optimized and reach full
design capacity, due to the protracted time delays and additional costs to
initially commercialize its first plant, the Company may not realize the full
economic potential of the technology with this first facility. Because the
Owings Mills facility is the Companys first commercial implementation of
the EarthShell technology, the Company believes that the cost incurred on the
manufacturing lines in this facility will be significantly higher than the cost
of manufacturing lines in subsequent facilities. The Company believes the
estimated capitalized cost of the Sweetheart lines will be approximately $52.0
million upon completion. The Company expects to have expensed approximately
$10.8 million of process development, design and engineering costs and
approximately $14.9 million in start-up and debugging expense associated with
preparing the Sweetheart facility for full-scale production. As of September 30,
2000, the total project cost for this facility upon completion is estimated to
be approximately $80 million.

## Next Generation Manufacturing Development

With the benefit of its experience at Sweethearts Owings
Mills facility and the broad manufacturing experience of its partners, the
Company is developing a next generation manufacturing approach that utilizes, as
much as possible, commercially available conventional processing equipment. This
next generation commercial product set will include bowls, plates, cups and
other hinged-lid containers in addition to the Big Mac®
container.

The Companys manufacturing process is comprised of four
core operations: mixing, forming, coating and printing. These operations must be
integrated in a continuous process through the use of material handling and
conveyance systems. The Company is utilizing conventional, commercially
available process equipment for mixing, forming and printing that it believes
can meet its next generation manufacturing goals. Additionally, the Company has
contracted with conventional film thermoforming equipment suppliers to develop a
process to apply biodegradable film as a coating for EARTHSHELL Products. Pilot
equipment has been built and used to manufacture and coat products such as
plates, bowls and trays on a small scale. These products have been used in
demonstration projects with the U.S. Department of the Interior and other users
to evaluate the performance and customer acceptance of products. Initial trials
with conventional commercial scale machinery have also been encouraging. The
Company believes it is well positioned to source competitively priced
biodegradable films for the middle and higher selling price markets for plates,
bowls and cups.

Under the terms of existing and contemplated joint venture
agreements, EarthShell and its partners will invest jointly in commercial
facilities based on projected economic returns.

The Company is currently in the process of expanding its
relationship with Sweetheart. The Company began construction of a new prototype
manufacturing line at Sweetheart to produce bowls. The forming section is
complete and in final factory performance testing. The trimming, coating, and
printing equipment for this line is being tested for acceptance at the original
suppliers prior to shipment to the Owings Mills facility. Sweetheart and
EarthShell may add additional lines in the future to manufacture plates, cups
and hinged-lid containers.

The Company and its other joint venture partners, Huhtamäki
Van Leer and Prairie Packaging, do not intend to commit to the next series of
commercial plant investments until they have demonstrated, using commercial
scale equipment in integrated demonstration lines, that the next generation
products can be manufactured at a cost that will produce returns acceptable to
both EarthShell and its partners.

Based on its current product costing models, the Company
believes its products will be able to compete in the middle and higher selling
price market segments at higher profit margins when compared to competitive
foodservice disposables. Additional value engineering and a lower total cost of
coating will be required to be competitive in lower selling price markets.

## Comparison of the Three Months and Nine Months Ended
September  30, 2000,  to the Three Months and Nine Months  Ended  September  30,
1999

Total Research and Development ExpensesTotal
research and development expenditures for the development of EarthShell Products
decreased $1.2 million to $20.3 million from $21.5 million for the nine months
ended September 30, 2000 compared with the nine months ended September 30, 1999,
and decreased $1.9 million to $6.9 million from $8.8 million for the three
months ended September 30, 2000 compared to the three months ended September 30,
1999. The Company was billed by EKI for research and development services
totaling $6.5 million and $8.0 million for the nine months ended September 30,
2000 and 1999, respectively and $2.0 million and $2.7 million for the three
months ended September 30, 2000 and 1999, respectively.

Total  General and Administrative  Expenses Total
general and administrative  expenses decreased $4.0 million to $6.4 million from
$10.4 million for the nine months ended  September 30, 2000 compared to the nine
months ended  September 30, 1999, and decreased $.5 million to $2.1 million from
$2.6 million for the three months ended September 30, 2000 compared to the three
months ended September 30, 1999. For the three and nine months ended comparison,
there  has been a  reduction  in  compensation  and  benefits  related  to fewer
employees in the 2000 period,  particularly at the senior management level, than
in the 1999 period.  The remaining  decrease,  when comparing the nine and three
months ended September 30, 2000 to the nine and three months ended September 30,
1999,  was due to  controlling  costs in  connection  with  operating a publicly
traded-company,  such as those related to investor relations and the creation of
an annual report.

Depreciation and Amortization Expense
Depreciation and amortization expense increased $1.1 million to $4.3 million
from $3.2 million for the nine months ended September 30, 2000 compared with the
nine months ended September 30, 1999. The increase in depreciation expense was
primarily the result of the Companys commercial manufacturing equipment at
Sweethearts Owings Mills facility being placed in service after the three
months ended March 31, 1999.

Related Party Patent ExpensesLegal fees
reimbursed to EKI under the Amended and Restated Agreement for Allocation of
Patent Costs with EKI decreased $0.18 million to $0.32 million from $0.50
million for the nine months ended September 30, 2000 compared with the nine
months ended September 30, 1999. This cost varies with the number of patents
filed, researched and/or abandoned during the period.

Interest IncomeInterest Income decreased $1.7
million to $1.1 million from $ 2.8 million for the nine months ended September
30, 2000 compared to the nine months ended September 30, 1999. The decrease was
a result of less cash invested during the period as cash was used for the
Companys Owings Mills facility and to fund operations.

## Liquidity and Capital Resources at September 30,
2000

Cash Flow.The Companys principal uses of cash for
the nine months ended September 30, 2000 was to fund operations and purchase
equipment to facilitate the development of manufacturing capacity for EARTHSHELL
Products. Net cash used in operations was $25.6 million for the nine months
ended September 30, 2000 and $29.9 million for the nine months ended September
30, 1999. Net cash provided by and used in investing activities was $3.7 million
and ($8.8) million for the nine months ended September 30, 2000 and 1999,
respectively. Net cash provided by and used in financing activities was $4.4
million and ($.023) million for the nine months ended September 30, 2000 and
1999, respectively. As of September 30, 2000 the Company had cash and short-term
investments totaling $8.8 million.

The Company expects to spend less than $2 million in capital
expenditures for the balance of 2000, related to completing development of
Sweethearts Owings Mills facility and developing the next generation
manufacturing equipment.

Sources of Capital. As part of the Companys initial
public offering on March 27, 1998, the Company issued 10,526,316 shares of its
common stock, $.01 par value, for which the Company received net proceeds of
$206 million. The Company has used $206 million of the net proceeds through
September 30, 2000. A portion of the proceeds was used to repay indebtedness to
the majority stockholder of $36.6 million, bank debt of $14.0 million and to pay
accrued dividends on the Companys Series A preferred stock of $9.9
million.

The Company has used the proceeds: (i) for general corporate
purposes, including the continued design and development of EARTHSHELL Products
and anticipated operating losses; (ii) to complete the development of its first
commercial manufacturing capacity at Sweetheart; (iii) to complete the
development and construction of its next generation manufacturing lines for
demonstration to its licensees or joint ventures; and (iv) to launch an initial
public relations and advertising campaign.

On March 31, 2000, the Company filed a Registration Statement on
Form S-3 to register 5,000,000 shares of its common stock, which became
effective April 19, 2000. On May 3, 2000, the Company signed an agreement with
Acqua Wellington North American Equities Fund, LTD (Acqua
Wellington), pursuant to which EarthShell may, from time to time and in
its sole discretion during the 12 months following the date of the agreement,
present Acqua Wellington with draw-down notices requiring Acqua Wellington to
purchase up to $2,500,000 of EarthShell common stock in respect of each
draw-down notice. EarthShell will issue and sell the shares to Acqua Wellington
at a per share price equal to the average price of EarthShell common stock over
a period of time after the draw-down notice less a discount of 5%. EarthShell
may present Acqua Wellington with up to 12 drawdown notices during the term of
the agreement. In addition, the agreement gives Acqua Wellington the option to
purchase an additional $2.5 million of the Companys common stock per month
for the same twelve months, subject to certain conditions.

On June 2, 2000, the Company issued its first draw-down notice
to Acqua Wellington in respect of an aggregate of approximately $2.5 million
worth of common stock, and as of June 30, Acqua Wellington had exercised call
options to purchase an aggregate of an additional approximately $1.8 million
worth of common stock for an aggregate total of $4.3 million worth of draw down
and call option exercises during the first draw-down period. In September 2000,
the Company issued its second draw down notice, pursuant to which Acqua
Wellington purchased $75,000 worth of common stock prior to September 30, 2000.

The Company believes that its existing cash and the financing
provided by Acqua Wellington will enable it to continue funding the facility at
Sweetheart, proceed with its next generation development and fund its share of
design and development of its next commercial facilities over the next nine
months.

## Item 3. Quantitative and Qualitative Disclosures
About Market Risk

Not applicable

# Part II. Other Information

## Item 1. Legal Proceedings

On August 2, 1999, Novamont S.p.A., an Italian company
specializing in the manufacture of a biodegradable plastic resin and products,
filed a complaint in the United States District Court for the Northern District
of Illinois alleging four counts of infringement of three patents. The Company
has analyzed all three patents and believes it has strong meritorious defenses
and has been vigorously defending the lawsuit. During calendar 2000, Novamont
agreed to dismiss three of the four claims without prejudice. The Company will
continue to defend the remaining infringement claim. The Company believes this
legal proceeding will not have a material adverse effect on the Companys
financial condition or results of operations. However, the ultimate resolution
of this claim is subject to many uncertainties. It is possible that the Company
could suffer an adverse determination in this proceeding which could have a
material adverse effect on the Companys financial position, operating
results or cash flows when resolved in a future reporting period.

## Item 2. Use of Proceeds

In connection with the Companys initial public offering
(the IPO), the Company issued 10,526,316 shares of its common stock,
$.01 par value (the IPO Shares), on March 27, 1998. 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. In
addition, selling stockholders sold 2,673,684 shares of common stock. Net
offering proceeds to the Company were $205,873,995.

As of September 30, 2000, the Company has applied all of the
$205.9 million in net offering proceeds from the IPO Shares. During the three
months ended September 30, 2000, the Company applied the remaining $5.6 million
of such net offering proceeds towards the purchase of manufacturing equipment,
for operating costs associated with the demonstration and prototype facility,
and for other operating expenses. The Company has received over $10 million in
interest income since inception and $4.4 million at September 30, 2000 from sale
of common stock to Acqua Wellington.

The cost of the Companys first manufacturing lines at
Sweetheart has exceeded the Companys initial estimates as discussed in
Managements Discussion and Analysis of Financial Conditions and
Results of Operations. As a result, although the Company believes that the
production from these first three lines will be profitable once they reach full
capacity and have been optimized, due to the protracted time delays and
additional costs to initially commercialize its first plant, the Company may not
realize the full economic potential of the technology with this first facility.
The Company intends to demonstrate the performance and manufacturing economies
of its next generation manufacturing systems in advance of the next tier of
commercial plant investment by building and demonstrating commercial scale pilot
modules. The Company has refined its business strategy to utilize joint ventures
in which the joint venture partner generally will share equally the cost and
operating risks of turnkey equipment lines. The Company believes using joint
ventures in which both venturers generally assume equal responsibility and risk,
as well as share equally any upside opportunities, better aligns its interests
with the interests of its partners while maintaining a favorable return on
investment to the Company. As a result of those and other changed circumstances,
the actual use of initial public offering proceeds will vary from the
anticipated use of proceeds described in the prospectus dated March 23, 1998 in
connection with the Companys IPO (the Companys
Prospectus). For example, the Company plans now to use most of the $7.4
million initial public offering proceeds that were shown in the Companys
Prospectus as anticipated to be used for patent enforcement and protection for
the development of its next generation manufacturing systems and to fund
operations.

## Item 3. Defaults Upon Senior Securities

Not applicable

## Item 4.  Submission of Matters to a Vote of Security Holders

None

## Item 5. Other Information

Not applicable

## Item 6. Exhibits and Reports on Form 8-K

(a)     27.1 Financial Data Schedule

(b)     Reports on Form 8-K

EarthShell filed no reports on Form 8-K during the quarter ended
September 30, 2000.

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 14, 2000             By:_____________________
                                         D. Scott Houston
                                         Chief Financial Officer

                                     (Principal Financial and Accounting Officer
                                      and Duly Authorized Officer)`