# 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 March 31, 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.)

# 9020 Junction Drive Suite D, Annapolis Junction, Maryland 20701

(Address of principal executive office)             (Zip Code)

Registrant's telephone number, including area code: (301) 957-1300

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 May 10, 2000 was 100,045,166.

`EARTHSHELL CORPORATION

                                      FORM 10-Q

                        For the Quarter Ended March 31, 2000

                                        INDEX


Part I. Financial Information

     Item 1.      Financial Statements                                            Page
                  a)   Balance Sheets
                       as of March 31, 2000 and December 31, 1999 (unaudited) ..   1

                  b)   Statements of Operations for the three months ended
                       March 31, 2000 and March 31, 1999 (unaudited) and
                       for the period from November 1, 1992 (inception)
                       through March 31, 2000 (unaudited) ......................   2

                  c)   Statements of Stockholders' Equity (Deficit)
                       for the period from November 1, 1992 (inception) to
                       March 31, 2000 (unaudited) ..............................   3

                  d)   Statements of Cash Flows for the three months ended
                       March 31, 2000 and March 31, 1999 (unaudited) and
                       for the period from November 1, 1992 (inception) through
                       March 31, 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 ..............................................   10

     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 ......................................................................   11`

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

                                                                      March 31             December 31
                                                                        2000                  1999
ASSETS
CURRENT ASSETS:
      Cash and cash equivalents ................................     $13,321,606           $26,412,553
      Restricted cash ..........................................       3,500,000             3,500,000
      Short-term investments ...................................      11,071,924             8,970,638
      Other assets .............................................         759,633               514,662
          Total current assets .................................      28,653,163            39,397,853
PROPERTY AND EQUIPMENT, NET ....................................      47,237,596            47,355,382
INVESTMENT IN JOINT VENTURE ....................................         395,452               445,318
TOTAL ..........................................................     $76,286,211           $87,198,553
                                                                     ===========           ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
       Accounts payable and accrued expenses ...................      $4,288,335            $5,165,900
       Trade payable to majority stockholder ...................         534,796             1,385,737
          Total current liabilities ............................       4,823,131             6,551,637
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
       Common stock, $.01 par value, 200,000,000 shares
         authorized; 100,045,166 issued and
         outstanding as of March 31, 2000 and
       December 31,1999 ........................................       1,000,451             1,000,451
       Additional paid-in common capital .......................     224,715,255           224,715,255
       Deficit accumulated during the development stage ........    (154,195,048)         (145,029,480)
       Accumulated other comprehensive income (loss) ...........         (57,578)              (39,310)
          Total stockholders' equity ...........................      71,463,080            80,646,916
TOTAL ..........................................................     $76,286,211           $87,198,553
                                                                     ===========           ===========`

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




                                                                                              November 1, 1992
                                                                 For the Three Months            (inception)
                                                                    Ended March 31,           through March 31,
                                                                2000              1999              2000       


Expenses:
   Related party research and development ...............    $1,984,423        $2,400,310        $60,255,399
   Other research and development .......................     4,069,721         3,301,905         38,651,584
   Related party general and administrative
      expenses ..........................................        44,301            16,800          2,127,210
   Other general and administrative expenses ............     1,987,910         3,001,856         38,452,666
   Depreciation and amortization ........................     1,422,254           263,658          9,206,542
   Related party patent expenses ........................       143,390           301,747          8,474,251
      Total expenses ....................................     9,651,999         9,286,276        157,167,652

Interest income .........................................      (486,431)       (1,027,043)        (9,542,344)
Related party interest expense ..........................             -                 -          4,770,731
Other interest expense ..................................             -                 -          1,788,738
Loss Before Income Taxes ................................     9,165,568         8,259,233        154,184,777

Income Taxes ............................................             -               800             10,271
Net Loss ................................................     9,165,568         8,260,033        154,195,048
Preferred Dividends .....................................             -                 -          9,926,703
Net Loss Available To Common Stockholders ...............    $9,165,568        $8,260,033       $164,121,751
                                                            ===========       ===========       ============
Basic And Diluted Loss Per Common Share .................         $0.09             $0.08              $1.90

Weighted Average Number Of Common Shares ................   100,045,166       100,045,166         86,421,042`

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


                                  Cumulative Convertible                                                                            Deficit
                                      Preferred Stock     Additional                                Additional    Accumulated     Accumulated
                                                            Paid-In            Common Stock           Paid-In        Other          during
                                         Series A          Preferred                                  Common     Comprehensive    Development
                                    Shares       Amount     Capital        Shares        Amount       Capital    Income (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
Foreign currency
   translation loss .............          -           -            -             -            -             -        ($39,310)             -          (39,310)
Net loss ........................          -           -            -             -            -             -               -    (44,188,443)     (44,188,443)
BALANCE, DECEMBER 31, 1999 ......          -           -            -   100,045,166    1,000,451   224,715,255         (39,310)  (145,029,480)      80,646,916
Foreign currency
   translation loss .............          -           -            -             -            -             -         (18,268)             -          (18,268)
Net loss ........................          -           -            -             -            -             -               -     (9,165,568)      (9,165,568)

BALANCE, MARCH 31, 2000 .........          -   $       -  $         -   100,045,166   $1,000,451  $224,715,255        ($57,578) $(154,195,048)     $71,463,080
                                  ==========   =========  ===========  ============  ===========  ============    ============= ==============    =============`

`EARTHSHELL CORPORATION
                                     (A Development Stage Enterprise)
                                         STATEMENTS OF CASH FLOWS
                                                (Unaudited)
                                                                                               November 1,
                                                                                                  1992
                                                                                               (inception)
                                                             For the Three Months Ended          through
                                                                      March 31,                  March 31,
                                                                2000             1999             2000     


CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................. $(9,165,568)     $(8,260,033)    $(154,195,048)
Adjustments to reconcile net loss to net cash
used in operating activities:
   Depreciation and amortization ..........................   1,422,254          263,658         9,206,542
   Issuance of stock options to director,
      consultant and officer ..............................           -                -         3,861,522
   Loss on sale or disposal of property and equipment .....     194,937          267,562         6,712,723
   Loss from investment in joint venture ..................      31,598                -           101,718
   Other ..................................................           -                -          (106,311)
Changes in operating assets and liabilities:
   Other assets ...........................................    (244,971)        (272,490)         (759,633)
   Accounts payable and accrued expenses ..................    (877,565)      (1,039,312)        4,249,023
   Trade payable to majority stockholder ..................    (850,941)        (300,094)       27,418,009 
       Net cash used in operating activities ..............  (9,490,256)      (9,340,709)     (103,511,455)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments ........................  (2,101,286)               -       (54,521,106)
Purchase of  restricted time deposit ......................           -                -        (3,500,000)
Proceeds from sales and redemptions of investments ........           -                -        43,826,770
Proceeds from sale of property and equipment ..............           -                -           297,670
Investment in joint venture ...............................           -                -          (515,438)
Purchase of property and equipment ........................  (1,499,405)      (8,106,512)      (64,326,266)

       Net cash used in investing activities ..............  (3,600,691)      (8,106,512)      (78,738,370)
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 ....................           -                -       221,062,636
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 .................................           -                -       (39,128,862)

       Net cash provided by financing activities ..........           -                -       195,571,431 
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................... (13,090,947)     (17,447,221)       13,321,606
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ....................................................  26,412,553       86,590,163                 - 
CASH AND CASH EQUIVALENTS, END OF
PERIOD .................................................... $13,321,606      $69,142,942       $13,321,606
                                                            ============    =============     =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
     Income taxes .........................................           -             $800           $10,271
     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`

EARTHSHELL CORPORATION

NOTES TO FINANCIAL STATEMENTS(Unaudited)

MARCH 31,
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 100,045,166 and 100,045,166
for the three  months ended March 31, 2000 and 1999,  respectively.  Basic and diluted are the same  because  common stock  equivalents
are considered anti-dilutive.

Related Party Transactions

For the three months ended March 31, 2000 and 1999, the Company paid or accrued $1,984,423 and $2,400,310,  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 in sublease payments to EKI for each of the respective periods.

Pursuant to resolutions  adopted by the Board of Directors on February 4, 1999, the Company  reimbursed $27,501 to EKI for salaries and
benefits paid by EKI for administrative support personnel during the three months ended March 31, 2000.

Under the Amended and Restated  Agreement for Allocation of Patent Costs  effective  October 1, 1997,  legal fees related to patents of
$143,390 and $301,747 were paid to or on behalf of EKI for the three months ended March 31, 2000 and 1999, respectively.

EARTHSHELL CORPORATION

NOTES TO FINANCIAL STATEMENTS(Unaudited) - continued

MARCH 31,
2000

`Property and Equipment

At March 31, 2000, property and equipment consisted of the following:

Commercial Manufacturing Equipment:  Construction in progress .......     $45,283,642
Product Development Center:
     Equipment ......................................................       2,746,723
     Construction in progress .......................................       5,147,915
     Leasehold improvements .........................................         521,253
                                                                         ------------
                                                                            8,415,891

Office equipment and furniture ......................................         388,959
Office leasehold improvements .......................................          50,108

Less: accumulated depreciation ......................................      (6,901,004)
                                                                         ------------

Property and equipment - net ........................................     $47,237,596
                                                                         ============`

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  $154 million from its inception on November 1, 1992 through March
31,  2000.  The  Company  has been  unprofitable  to date and expects to continue to incur  operating  losses  until its  products  are
commercially  introduced  and achieve  broader  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 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(R)sandwich containers over a three-year period,  subject to certain conditions.  To support
the supply agreement between Sweetheart and Perseco to supply McDonald's U.S.  restaurants with EarthShell  containers for the Big Mac(R)
sandwich,  the Company agreed to provide  EarthShell-owned  manufacturing  equipment to be used by Sweetheart with adequate capacity to
fulfill  the  Perseco/McDonald's  supply  contract.  At the time the supply  agreement  was signed,  there was no  existing  commercial
capacity to manufacture EarthShell Products.

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(R)sandwich  container for sale to Perseco.  The debugging and startup of the first line has taken longer
than  originally  anticipated.  The  Company's  operating  partner,  Sweetheart,  is now running the line and the Company  believes the
current  production  volumes are sufficient to support near term demand. The Company has begun the start-up and debugging of the second
line. As these lines achieve their design  capacity,  the Company believes they will be sufficient to meet the Perseco supply agreement
requirement.

Additionally,  the Company and  Sweetheart  are  progressing  through a product  validation  process  with  Perseco with respect to the
EarthShell Big Mac(R)sandwich container,  which is typical for all new product  introductions into the McDonald's system. The quantities
of product  used in the  validation  process are small  relative to the  intended  capacity.  Although  the Company  believes  that the
production from the 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.

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 March 31,  2000,  the total  project  cost for this  facility  upon  completion  is estimated to be
approximately $77.7 million.

Second Generation Manufacturing Development

With the benefit of its  experience at  Sweetheart's  Maryland  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(R)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 the
commercial  facilities based on projected economic returns.  The Company and its partners 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.

The Company is  currently  in the process of  expanding  its  relationship  with  Sweetheart.  The Company is adding new  equipment  at
Sweetheart to produce bowls and may add additional  equipment in the future to  manufacture  plates,  cups and  hinged-lid  containers.
These new manufacturing  lines will utilize industry standard equipment and, based on the proposed  relationship with Sweetheart,  will
help minimize the capital requirement.

The Company  believes it will be able to prove next  generation  manufacturing  economics  for plates,  bowls and hot cups during 2000.
Based on its current  product  costing  models,  the Company  believes  its  products  will be able to compete in the middle and higher
selling price markets 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 Ended March 31, 2000, to the Three Months Ended March 31, 1999

Total  Research and  Development  Expenses Total  research and  development  expenditures  for the  development of EarthShell  Products
increased  $0.4 million to $6.1 million  from $5.7  million for the three  months ended March 31, 2000  compared  with the three months
ended March 31, 1999. The Company was billed by EKI for research and  development  services  totaling $2.0 million and $2.4 million for
the three months ended March 31, 2000 and 1999, respectively.

Total General and Administrative  Expenses Total general and  administrative  expenses decreased $1.0 million to $2.0 million from $3.0
million for the three months ended March 31, 2000  compared with the three months ended March 31, 1999.  Approximately  $0.6 million of
the  decrease  was due to  compensation  and  benefits  related  to fewer  employees  in the 2000  period,  particularly  at the senior
management  level,  than in the 1999 period.  The majority of the remaining  decrease,  when comparing the three months ended March 31,
2000 to the three months ended March 31, 1999, was due to lower expenses 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 $1.4  million from $0.3
million for the three months ended March 31, 2000  compared  with the three months ended March 31, 1999.  The increase in  depreciation
expense was primarily the result of the Company's  commercial  manufacturing  equipment at Sweetheart's  Maryland facility being placed
in service after the three months ended March 31, 1999.

Related Party Patent  Expenses Legal fees  reimbursed to EKI under the Amended and Restated  Agreement for  Allocation of Patent Costs
with EKI  decreased  $0.2 million to $0.1 million from $0.3 million for the three months ended March 31, 2000  compared  with the three
months ended March 31, 1999.  This cost varies with the number of patents filed, researched and/or abandoned during the period.

Interest  Income Interest  income  decreased  $0.5 million from $1.0 million for the three months ended March 31, 1999 to $0.5 million
for the three months ended March 31, 2000.  The decrease was a result of less cash invested  during the period as cash was used for the
Company's Sweetheart facility and to fund operations.

Liquidity and Capital Resources at March 31, 2000

Cash Flow.  The  Company's  principal  uses of cash for the three  months  ended March 31, 2000 were to fund  operations  and  purchase
equipment to facilitate  the  development  of  manufacturing  capacity for  EarthShell  Products.  Net cash used in operations was $9.5
million for the three  months  ended  March 31,  2000 and $9.3  million for the three  months  ended March 31,  1999.  Net cash used in
investing  activities was $3.6 million and $8.1 million for the three months ended March 31, 2000 and 1999,  respectively.  As of March
31, 2000 the Company had cash and short-term investments totaling $27.9 million.

Capital  Requirements.  The Company expects to spend approximately $18 million in capital expenditures in the year 2000,  approximately
$8 million of which will be related to completing  development  of  Sweetheart's  Maryland  facility and  approximately  $10 million of
which will be related to designing and developing the next generation  manufacturing  facilities and prototypes for an expanded line of
products.

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 $187.3 million of the
net proceeds  through March 31, 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 expects to use the remaining 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.

The Company  has reduced its  spending  and is  focusing  its  resources  on those  activities  that are  critical to  demonstrate  the
commercial  viability of the EarthShell  business model.  These  activities  include  completing the start-up of the Sweetheart  lines,
achieving customer  acceptance of its products,  and demonstrating the first of its next generation  products and manufacturing  lines.
As part of its cost  reduction  efforts,  the  Company  has  consolidated  its  Maryland  operations  and is scaling  down its  Goleta,
California development facility.

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  draw-down  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.

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 twelve months.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk



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  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.  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 reasonably  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 March 31,  2000,  the Company had applied  $187.3  million of the $205.9  million in net offering  proceeds  from the IPO Shares.
During the three months ended March 31, 2000, the Company  applied $11.5 million of such net offering  proceeds.  Of this amount,  $4.7
million was used for the purchase of manufacturing  equipment,  $0.8 million was used for the demonstration and prototype facility, and
$6.0 million was used for other operating expenses.

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)      Exhibits
         10.1     Employment Agreement dated April 15, 2000 by and between the Company
                  and Richard M. DiPasquale.
         10.2     Common Stock Purchase Agreement dated, May 3, 2000 by and between the
                  Company and Acqua Wellington North American Equities Fund, LTD.
         27.1     Financial Data Schedule

(b)      Reports on Form 8-K

No reports on Form 8-K were filed by EarthShell during the quarter ended March 31, 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: May 10, 2000                          By:/s/ D. Scott Houston
                                                  D. Scott Houston
                                                  Chief Financial Officer

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