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, 2004

              [ ] 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.)


    6740 CORTONA DRIVE, SANTA BARBARA, CALIFORNIA           93117
       (Address of principal executive office)            (Zip Code)

                                 (805) 571-8232
                         (Registrant's telephone number,
                              including area code)

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 [ ] No [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The number of shares outstanding of the Registrant's Common Stock as of May 5,
2004 is 14,128,966.



<PAGE>



                             EARTHSHELL CORPORATION

                                    FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 2004

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES


<TABLE>
<CAPTION>
<S>                <C>                                                                                      <C>
PART I. FINANCIAL INFORMATION
      Item 1.      Consolidated Financial Statements                                                        Page
                   a) Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December
                      31, 2003...........................................................................     1

                   b) Consolidated Statements of Operations for the three months ended March 31,
                      2004 and March 31, 2003 (unaudited) and for the period from November 1, 1992
                      (inception) through March 31, 2004 (unaudited).....................................     2

                   c) Consolidated Statements of Stockholders' (Deficit) Equity for the period
                      from November 1, 1992 (inception) to March 31, 2004 (unaudited)....................     3

                   d) Consolidated Statements of Cash Flows for the three months ended March 31, 2004
                      and March 31, 2003 (unaudited) and for the period from November 1, 1992
                      (inception) through March 31, 2004 (unaudited).....................................     5

                   e) Notes to Consolidated Financial Statements (unaudited).............................     6

      Item 2.      Management's Discussion and Analysis of Financial Condition and Results of
                   Operations............................................................................    11

      Item 3.      Quantitative and Qualitative Disclosures About Market Risk............................    16

      Item 4.      Controls and Procedures ..............................................................    17

PART II. OTHER INFORMATION

      Item 1.      Legal Proceedings.....................................................................    17
      Item 2.      Changes in Securities and Use of Proceeds and Issuer Repurchases of
                   Equity Securities.....................................................................    17
      Item 3.      Defaults Upon Senior Securities.......................................................    17
      Item 4.      Submission of Matters to a Vote of Security Holders...................................    17
      Item 5.      Other Information.....................................................................    17
      Item 6.      Exhibits and Reports on Form 8-K......................................................    17

SIGNATURE................................................................................................    19
</TABLE>


<PAGE>


                             EARTHSHELL CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     MARCH 31,       DECEMBER 31,
                                                                                       2004             2003
                                                                                   -------------    -------------
                                                                                    (UNAUDITED)
<S>                                                                                <C>              <C>
ASSETS
CURRENT ASSETS
      Cash and cash equivalents                                                    $     654,436    $   1,901,639
      Prepaid expenses and other current assets                                          140,123          323,680
                                                                                   -------------    -------------
           Total current assets                                                          794,559        2,225,319

PROPERTY AND EQUIPMENT, NET                                                               34,453           61,794
EQUIPMENT HELD FOR SALE                                                                        1                1

                                                                                   -------------    -------------
TOTALS                                                                                   829,013    $   2,287,114
                                                                                   =============    =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
      Accounts payable and accrued expenses                                        $   4,837,908    $   4,853,413
      Convertible debentures, net of discount of $1,332,014 and $1,505,755
          as of March 31, 2004 and December 31, 2003, respectively                     5,467,986        5,294,245
                                                                                   -------------    -------------
           Total current liabilities                                                  10,305,894       10,147,658

PAYABLES TO RELATED PARTY                                                              2,247,997        1,839,108
NOTES PAYABLE TO RELATED PARTY, NET OF DISCOUNT OF $193,917 AND $219,210 AS
     OF MARCH 31, 2004 AND DECEMBER 31, 2003, RESPECTIVELY                             2,561,083        2,535,790
OTHER LONG-TERM LIABILITY                                                                 20,833           33,333
                                                                                   -------------    -------------
           Total liabilities                                                          15,135,807       14,555,889

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value, 10,000,000 shares authorized;  9,170,000 Series
     A shares designated; no shares issued and outstanding as of
     March 31, 2004 and December 31, 2003                                                     --               --
Common stock, $.01 par value, 25,000,000 shares authorized; 14,128,966
     shares issued and outstanding as of March 31, 2004 and December 31,
     2003                                                                                141,290          141,290
Additional paid-in common capital                                                    302,033,746      302,033,746
Deficit accumulated during the development stage                                    (316,417,538)    (314,350,681)
Accumulated other comprehensive loss                                                     (64,292)         (93,130)
                                                                                   -------------    -------------
      Total stockholders' deficit                                                    (14,306,794)     (12,268,775)
                                                                                   -------------    -------------

TOTALS                                                                             $     829,013    $   2,287,114
                                                                                   =============    =============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       1
<PAGE>

                             EARTHSHELL CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   NOVEMBER 1,
                                                          THREE MONTHS                1992
                                                        ENDED MARCH 31,            (INCEPTION)
                                                ------------------------------    THROUGH MARCH
                                                     2004              2003          31, 2004
                                                -------------    -------------    -------------
<S>                                             <C>              <C>              <C>
Operating Expenses
    Related party license fee and research
        and development expenses                $     300,000    $     353,800    $  71,491,282
    Other research and development expenses           222,538        1,896,986      142,734,609
    Related party general and administrative
        expenses (reimbursements)                          --           (4,074)       2,187,540
    Other general and administrative expenses       1,173,855        1,853,702       69,387,013
    Depreciation and amortization                      27,341          112,640       22,868,720
    Related party patent expenses                          --               --        8,693,105
                                                -------------    -------------    -------------
        Total operating expenses                    1,723,734        4,213,054      317,362,269

Other (Income) Expenses
    Interest income                                    (1,234)         (39,952)     (10,906,043)
    Related party interest expense                    134,182           75,302        5,417,140
    Other interest expense                            209,375          577,767        3,638,111
    Gain on sales of property and equipment                --          (56,000)        (893,353)
    Other (income) expense                                 --          196,529         (399,701)
    Loss on extinguishment of debentures                   --        1,697,380        1,697,380
    Debenture conversion costs                             --          105,847          487,464
                                                -------------    -------------    -------------

Loss Before Income Taxes                            2,066,057        6,769,927      316,403,267
Income Taxes                                              800              800           14,271
                                                -------------    -------------    -------------

Net Loss                                            2,066,857        6,770,727      316,417,538
Preferred Dividends                                        --               --        9,926,703
                                                -------------    -------------    -------------
Net Loss Available to Common
    Stockholders                                $   2,066,857    $   6,770,727    $ 326,344,241
                                                =============    =============    =============
Basic and Diluted Loss Per Common
    Share                                       $        0.15    $        0.55    $       38.13
Weighted Average Number of Common
    Shares Outstanding                             14,128,966       12,358,967        8,559,798
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       2
<PAGE>

                             EARTHSHELL CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                           CUMULATIVE
                                           CONVERTIBLE
                                         PREFERRED STOCK            ADDITIONAL                                       ADDITIONAL
                                             SERIES A                PAID-IN                COMMON STOCK              PAID-IN
                                 ------------------------------      PREFERRED      -----------------------------     COMMON
                                     SHARES          AMOUNT           CAPITAL          SHARES          AMOUNT         CAPITAL
                                 -------------    -------------    -------------    -------------   -------------   -------------
<S>                              <C>              <C>              <C>              <C>             <C>             <C>
 ISSUANCE OF COMMON STOCK AT
    INCEPTION ................              --               --               --        6,877,500   $       3,150   $       6,850
 Sale of preferred stock, net        6,988,850    $         267    $  24,472,734               --              --              --
 Net loss ....................              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------

 BALANCE, DECEMBER 31, 1993 ..       6,988,850              267       24,472,734        6,877,500           3,150           6,850
 Net loss ....................              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------

 BALANCE, DECEMBER 31, 1994 ..       6,988,850              267       24,472,734        6,877,500           3,150           6,850
 Contribution to equity ......              --               --               --               --              --       1,117,723
 Net loss ....................              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------

 BALANCE, DECEMBER 31, 1995 ..       6,988,850              267       24,472,734        6,877,500           3,150       1,124,573
 Contribution to equity ......              --               --               --               --              --         650,000
 Issuance of stock warrants ..              --               --               --               --              --         246,270
 Net loss ....................              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------

 BALANCE, DECEMBER 31, 1996 ..       6,988,850              267       24,472,734        6,877,500           3,150       2,020,843
 Compensation related to
    stock options, warrants
    and stock grants .........              --               --               --               --              --       3,156,659
 Net loss ....................              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------

 BALANCE, DECEMBER 31, 1997 ..       6,988,850              267       24,472,734        6,877,500           3,150       5,177,502
 262 to 1 stock split ........              --            5,557           (5,557)              --          65,625         (65,625)
 Conversion of preferred
    stock into common stock ..      (6,988,850           (5,824)     (24,467,177          582,404           5,824      24,467,177
 Issuance of common stock ....              --               --               --          877,193           8,772     205,979,984
 Preferred stock dividends ...              --               --               --               --              --      (9,926,703)
 Net loss ....................              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------

BALANCE, DECEMBER 31, 1998 ...              --               --               --        8,337,097          83,371     225,632,335
 Net loss ....................              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------

 BALANCE, DECEMBER 31, 1999 ..              --               --               --        8,337,097          83,371     225,632,335
 Issuance of common stock ....              --               --               --          371,431           3,714      10,518,074
 Net loss ....................              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------
 BALANCE, DECEMBER 31, 2000 ..              --               --               --        8,708,528          87,085     236,150,409
 Issuance of common stock ....              --               --               --        1,126,727          11,267      30,542,773
 Compensation related to
    stock options, warrants
    and stock grants .........              --               --               --           25,000             250         986,869
 Net loss ....................              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------
 BALANCE, DECEMBER 31, 2001 ..              --               --               --        9,860,255          98,602     267,680,051
 Issuance of common stock ....              --               --               --        2,025,686          20,257      21,881,459
 Common stock warrants issued
    in connection with
    convertible debentures ...              --               --               --               --              --       1,521,046
 Conversion of convertible
    debentures to common stock              --               --               --          168,696           1,687         998,313
 Debentures conversion costs .              --               --               --               --              --         176,471
 Net loss ....................
 Foreign currency translation
    adjustment ...............              --               --               --               --              --              --


 Comprehensive loss ..........              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------

 BALANCE, DECEMBER 31, 2002 ..              --               --               --       12,054,637         120,546     292,257,340
 Issuance of common stock ....              --               --               --          137,264           1,373         811,267
 Common stock and common
    stock warrants issued in
    connection with issuance
    of convertible debentures               --               --               --          624,747           6,248       2,921,594
 Conversion of convertible
    debentures to common stock              --               --               --        1,312,318          13,123       7,536,877
 Debenture conversion
    costs ....................              --               --               --               --              --      (1,493,332)
 Net loss ....................
 Foreign currency translation
    adjustment ...............              --               --               --               --              --              --


 Comprehensive loss ..........              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------

 BALANCE, DECEMBER 31, 2003 ..              --               --               --       14,128,966         141,290     302,033,746
 Net loss ....................              --               --               --               --              --              --
 Foreign currency translation
    adjustment ...............              --               --               --               --              --              --


 Comprehensive loss ..........              --               --               --               --              --              --
                                 -------------    -------------    -------------    -------------   -------------   -------------
 BALANCE, MARCH 31, 2004 .....              --    $          --    $          --       14,128,966   $     141,290   $ 302,033,746
                                 =============    =============    =============    =============   =============   =============
</TABLE>


                                        3
<PAGE>

<TABLE>
<CAPTION>


                                   DEFICIT
                                 ACCUMULATED       ACCUMULATED
                                    DURING           OTHER
                                 DEVELOPMENT      COMPREHENSIVE
                                     STAGE            LOSS             TOTALS
                                 -------------    -------------    -------------
<S>                              <C>              <C>              <C>
 ISSUANCE OF COMMON STOCK AT
    INCEPTION ................              --               --    $      10,000
 Sale of preferred stock, net               --               --       24,473,001
 Net loss ....................   $  (7,782,551)              --       (7,782,551)
                                 -------------    -------------    -------------

 BALANCE, DECEMBER 31, 1993 ..      (7,782,551)              --       16,700,450
 Net loss ....................     (16,582,080)              --      (16,582,080)
                                 -------------    -------------    -------------

 BALANCE, DECEMBER 31, 1994 ..     (24,364,631)              --          118,370
 Contribution to equity ......              --               --        1,117,723
 Net loss ....................     (13,914,194)              --      (13,914,194)
                                 -------------    -------------    -------------

 BALANCE, DECEMBER 31, 1995 ..     (38,278,825)              --      (12,678,101)
 Contribution to equity ......              --               --          650,000
 Issuance of stock warrants ..              --               --          246,270
 Net loss ....................     (16,950,137)              --      (16,950,137)
                                 -------------    -------------    -------------

 BALANCE, DECEMBER 31, 1996 ..     (55,228,962)              --      (28,731,968)
 Compensation related to
    stock options, warrants
    and stock grants .........              --               --        3,156,659
 Net loss ....................     (18,992,023)              --      (18,992,023)
                                 -------------    -------------    -------------

 BALANCE, DECEMBER 31, 1997 ..     (74,220,985)              --      (44,567,332)
 262 to 1 stock split ........              --               --               --
 Conversion of preferred
    stock into common stock ..              --               --               --
 Issuance of common stock ....              --               --      205,988,756
 Preferred stock dividends ...              --               --       (9,926,703)
 Net loss ....................     (26,620,052)              --      (26,620,052)
                                 -------------    -------------    -------------

BALANCE, DECEMBER 31, 1998 ...    (100,841,037)              --      124,874,669
 Net loss ....................     (44,188,443)              --      (44,188,443)
                                 -------------    -------------    -------------

 BALANCE, DECEMBER 31, 1999 ..    (145,029,480)              --       80,686,226
 Issuance of common stock ....              --               --       10,521,788
 Net loss ....................     (48,911,605)              --      (48,911,605)
                                 -------------    -------------    -------------
 BALANCE, DECEMBER 31, 2000 ..    (193,941,085)              --       42,296,409
 Issuance of common stock ....              --               --       30,554,040
 Compensation related to
    stock options, warrants
    and stock grants .........              --               --          987,119
 Net loss ....................     (62,301,511)              --      (62,301,511)
                                 -------------    -------------    -------------
 BALANCE, DECEMBER 31, 2001 ..    (256,242,596)              --       11,536,057
 Issuance of common stock ....              --               --       21,901,716
 Common stock warrants issued
    in connection with
    convertible debentures ...              --               --        1,521,046
 Conversion of convertible
    debentures to common stock              --               --        1,000,000
 Debentures conversion costs .              --               --          176,471
 Net loss ....................     (39,591,344)                      (39,591,344)
 Foreign currency translation
    adjustment ...............              --    $     (16,632)         (16,632)
                                                                   -------------

 Comprehensive loss ..........              --               --      (39,607,976)
                                 -------------    -------------    -------------

 BALANCE, DECEMBER 31, 2002 ..    (295,833,940          (16,632)      (3,472,686)
 Issuance of common stock ....              --               --          812,640
 Common stock and common
    stock warrants issued in
    connection with issuance
    of convertible debentures               --               --        2,927,842
 Conversion of convertible
    debentures to common stock              --               --        7,550,000
 Debenture conversion
    costs ....................              --               --       (1,493,332)
 Net loss ....................     (18,516,741)                      (18,516,741)
 Foreign currency translation
    adjustment ...............              --          (76,498)         (76,498)
                                                                   -------------

 Comprehensive loss ..........              --               --      (18,593,239)
                                 -------------    -------------    -------------

 BALANCE, DECEMBER 31, 2003 ..    (314,350,681)         (93,130)     (12,268,775)
 Net loss ....................      (2,066,857)              --       (2,066,857)
 Foreign currency translation
    adjustment ...............              --           28,838           28,838
                                                                   -------------

 Comprehensive loss ..........              --               --       (2,038,019)
                                 -------------    -------------    -------------
 BALANCE, MARCH 31, 2004 .....   $(316,417,538)   $     (64,292)   $ (14,306,794)
                                 =============    =============    =============
</TABLE>


                 See Notes to Consolidated Financial Statements


                                       4
<PAGE>

                             EARTHSHELL CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                      NOVEMBER 1,
                                                                       THREE MONTHS ENDED                1992
                                                                            MARCH 31,                (INCEPTION)
                                                                  ------------------------------       THROUGH
                                                                      2004             2003         MARCH 31, 2004
                                                                  -------------    -------------    --------------
<S>                                                               <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................................   $  (2,066,857)   $  (6,770,727)   $(316,417,538)
Adjustments to reconcile net loss to net cash used in operating
activities
  Depreciation and amortization ...............................          27,341          112,640       22,868,720
  Amortization and accretion of debenture issue costs .........         199,034          175,806        1,570,385
  Debenture conversion costs ..................................              --          105,847          487,464
  (Gain) Loss on change in fair value of warrant obligation ...              --          196,529         (399,701)
  Loss on extinguishment of debentures ........................              --        1,697,380        1,697,380
  Beneficial conversion value due to change in debentures
     conversion price .........................................              --          360,000          360,000
  (Gain) Loss on sale, disposal, or impairment of property and
     equipment ................................................              --          (56,000)      50,761,599
  Equity in the losses of joint venture .......................              --          123,288          541,542
  Accrued purchase commitment .................................              --               --        1,645,000
  Compensation related to issuance of stock, stock options and
     warrants to directors, consultants and officers ..........              --               --        4,848,641
  Net loss on sale of investments .............................              --               --           32,496
  Accretion of discounts on investments .......................              --               --         (410,084)
  Other non-cash items ........................................          (7,691)              --           42,507
Changes in operating assets and liabilities
  Prepaid expenses and other current assets ...................         182,608         (369,750)        (124,041)
  Accounts payable and accrued expenses .......................          25,248       (1,031,453)       4,777,845
  Payable to related party ....................................         408,889          (65,358)       2,202,351
  Accrued purchase commitment .................................              --               --       (1,645,000)
  Other long term liability ...................................         (12,500)              --           20,833
                                                                  -------------    -------------    -------------
     Net cash used in operating activities ....................      (1,243,928)      (5,521,798)    (227,139,601)
                                                                  -------------    -------------    -------------


CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of restricted time deposit in connection with
   purchase commitment ........................................              --               --       (3,500,000)
Proceeds from release of restricted time deposit upon
   settlement of purchase commitment ..........................              --               --        3,500,000
Purchase of investments in U.S. government securities .........              --               --      (52,419,820)
Proceeds from sales and redemption of investments .............              --               --       52,797,408
Proceeds from sales of property and equipment .................              --           56,000        1,262,927
Investment in joint venture ...................................              --               --         (541,542)
Purchases of property and equipment ...........................              --               --      (75,799,435)
                                                                  -------------    -------------    -------------
     Net cash provided by (used in) investing activities ......              --           56,000      (74,700,462)
                                                                  -------------    -------------    -------------


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ........................              --               --      284,852,820
Common stock issuance costs ...................................              --               --      (15,178,641)
Proceeds from issuance of common stock and convertible
   debentures, net of issuance costs and discounts
   amounting to approximately $3.4 million ....................              --        8,671,712        8,711,844
Proceeds from issuance of convertible debentures ..............              --               --       10,000,000
Purchase of restricted time deposit in connection with
   issuance of convertible debentures .........................              --               --      (10,000,000)
Proceeds from release of restricted time deposit upon
   conversion of convertible debentures into common stock .....              --          800,000        2,800,000
Proceeds from release of restricted time deposit upon
   exchange of convertible debentures .........................              --        2,000,000        2,000,000
Proceeds from release of restricted time deposit for
   repayment of convertible debentures ........................              --        5,200,000        5,200,000
Repayment of convertible debentures ...........................              --       (5,200,000)      (5,200,000)
Proceeds from issuance of notes payable to related party ......              --        1,010,000       20,105,000
Repayment of notes payable to related party ...................              --               --      (15,325,651)
Proceeds from drawings on line of credit with bank ............              --               --       14,000,000
Repayment of line of credit with bank .........................              --               --      (14,000,000)
Preferred dividends paid ......................................              --               --       (9,926,703)
Proceeds from issuance of preferred stock .....................              --               --       25,675,000
Preferred stock issuance costs ................................              --               --       (1,201,999)
                                                                  -------------    -------------    -------------
     Net cash provided by financing activities ................              --       12,481,712      302,511,670
                                                                  -------------    -------------    -------------
Effect of exchange rate changes on cash and cash equivalents ..          (3,275)             406          (17,171)
                                                                  -------------    -------------    -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..............      (1,247,203)       7,016,320          654,436

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................       1,901,639          111,015               --
                                                                  -------------    -------------    -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD ......................   $     654,436    $   7,127,335    $     654,436
                                                                  =============    =============    =============

<CAPTION>

                                                                                                      NOVEMBER 1,
                                                                       THREE MONTHS ENDED                1992
                                                                            MARCH 31,                (INCEPTION)
                                                                  ------------------------------       THROUGH
                                                                      2004             2003         MARCH 31, 2004
                                                                  -------------    -------------    --------------
<S>                                                               <C>              <C>              <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for
   Income taxes ...............................................   $          --    $          --    $      12,671
   Interest ...................................................           1,256            4,492        3,161,907
Common stock warrants issued in connection with convertible
   debentures .................................................              --          745,562        2,572,776
Conversion of convertible debentures into common stock ........              --        1,464,907        8,550,000
Transfer of property from EKI .................................              --               --           28,745
Conversion of preferred stock to common stock .................              --               --           69,888
Interest paid in common stock .................................              --           74,867           95,339
Commission paid in common stock ...............................              --           29,500           29,500
Common stock issued to service providers in connection with
   the March 2003 financing ...................................              --          484,500          484,500
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

In March 2003, warrants for the purchase of $1.055 million in aggregate
principal amount of convertible debentures and 70,477 shares of common stock
were issued in connection with the issuance of convertible debentures. The
estimated fair value of the warrants of $442,040, based upon the Black-Scholes
method of valuation, was recorded as an original issue discount thereby reducing
the carrying value of the convertible debentures and as an increase in
additional paid-in common capital.

In March 2003, warrants for the purchase of 83,333 shares of common stock were
issued to EKI, in connection with the issuance of convertible debentures, in
consideration for its willingness to subordinate amounts owed to it. The
estimated fair value of the warrants of $303,522, based upon the Black-Scholes
method of valuation, was recorded as an original issue discount thereby reducing
the carrying value of the notes payable to EKI and as an increase in additional
paid-in common capital.

                 See Notes to Consolidated Financial Statements.


                                       5
<PAGE>

                             EARTHSHELL CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                 MARCH 31, 2004

--------------------------------------------------------------------------------

OVERVIEW OF OPERATIONS

Organized in November 1992 as a Delaware corporation,  EarthShell Corporation is
engaged  in the  commercialization  of  composite  material  technology  for the
manufacture of foodservice disposable packaging designed with the environment in
mind. EarthShell Packaging(R) is based on patented composite material technology
(collectively, the "EarthShell Technology"), licensed on an exclusive, worldwide
basis from E. Khashoggi Industries LLC and its wholly owned subsidiaries.

The EarthShell  Technology  has been  developed over many years in  consultation
with  leading  material  scientists  and  environmental  experts  to reduce  the
environmental  burdens of foodservice  disposable  packaging through the careful
selection of raw materials,  processes, and suppliers.  EarthShell Packaging(R),
including hinged-lid sandwich containers,  plates, bowls, foodservice wraps, and
cups, is primarily  made from commonly  available  natural raw materials such as
natural ground limestone and potato starch.  EarthShell believes that EarthShell
Packaging(R) has comparable or superior  performance  characteristics and can be
commercially  produced and sold at prices that are  competitive  with comparable
paper and plastic foodservice disposables.

PRESENTATION OF FINANCIAL INFORMATION

The foregoing interim  financial  information is unaudited and has been prepared
from the books and records of EarthShell Corporation.  EarthShell  Corporation's
consolidated  financial  statements  include the  accounts  of its  wholly-owned
subsidiary,   EarthShell  GmbH.  All  significant   intercompany   balances  and
transactions have been eliminated in consolidation.  Both EarthShell Corporation
and its subsidiary (collectively  "EarthShell" or the "Company") are development
stage  enterprises.  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 the 2003 financial statements to conform to
the 2004 presentation.

The accompanying  unaudited consolidated financial statements and these notes do
not include certain information and footnote  disclosures required by accounting
principles  generally accepted in the United States,  which were included in the
Company's  consolidated  financial  statements  for the year ended  December 31,
2003. 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 the Company's consolidated financial statements and notes thereto
for the year ended December 31, 2003 included in the Company's  Annual Report on
Form 10-K.

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. During the period from November
1, 1992 (inception) to March 31, 2004, the Company has incurred a cumulative net
loss of $316,417,538 and has a stockholders' deficit of $14,306,794 at March 31,
2004. These factors among others may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.

The consolidated financial statements do not include any adjustments relating to
the  recoverability  and classification of recorded asset amounts or the amounts
and  classification of liabilities that might be necessary should the Company be
unable to continue as a going  concern.  The Company's  continuation  as a going
concern is dependent upon its ability to generate  sufficient  cash flow to meet
its obligations on a timely basis, to obtain additional financing or refinancing
as may be required, and ultimately to attain successful operations.


                                       6
<PAGE>

Basic loss per common share is computed by dividing net loss available to common
stockholders by the weighted-average  number of common shares outstanding during
the period.  Diluted  loss per common  share is  computed  by dividing  net loss
available to common stockholders by the weighted-average number of common shares
outstanding  plus  an  assumed   increase  in  common  shares   outstanding  for
potentially  dilutive  securities,  which  consist of options  and  warrants  to
acquire common stock and convertible debentures. Potentially dilutive shares are
excluded  from  the  computation  in loss  periods,  as  their  effect  would be
anti-dilutive.  The dilutive  effect of options and  warrants to acquire  common
stock is measured  using the  treasury  stock  method.  The  dilutive  effect of
convertible  debentures is measured  using the  if-converted  method.  Basic and
diluted loss per common share is the same for all periods  presented because the
impact of potentially dilutive securities is anti-dilutive.

Since March 8, 2004, the Company's common stock has been listed through the Pink
Sheets  published by the National  Quotation  Bureau,  Inc. The Company's common
stock trades under the symbol "ERTH.PK."

RELATED PARTY TRANSACTIONS

E.  Khashoggi  Industries  LLC and its wholly  owned  subsidiaries  ("EKI")  own
approximately 35% of the Company's outstanding shares, and may be deemed to be a
controlling  stockholder.  In connection with the formation of the Company,  the
Company  entered  into a Master  License  Agreement  with EKI (the "EKI  License
Agreement"),  pursuant  to  which  the  Company  has  an  exclusive,  worldwide,
royalty-free  license to use and license the EKI technology to  manufacture  and
sell  disposable,  single-use  containers  for  packaging  or  serving  food  or
beverages  intended for consumption  within a short period of time (less than 24
hours). Effective January 1, 2001, EKI granted to the Company priority rights to
license certain product applications on an exclusive basis from Biotec, a wholly
owned  subsidiary  of EKI,  in  consideration  for  payment by the  Company of a
$100,000 minimum monthly licensing fee to Biotec. In addition,  Biotec agreed to
render technical services to the Company, as required, at Biotec's cost plus 5%.
Effective  July 29, 2002, the Company  restated its agreements  with Biotec in a
definitive  License & Information  Transfer Agreement with Biotec to utilize the
Biotec  technology for  foodservice  applications,  including food wraps used in
foodservice  applications (the "Biotec License  Agreement").  Under the terms of
the Biotec License Agreement,  the Company paid or accrued $300,000 and $353,800
during the three months ended March 31, 2004 and 2003, respectively,  consisting
of the $100,000 per month  minimum  licensing  fee plus  materials  and services
provided by EKI,  which vary based upon the Company's  requirements.  As part of
the new convertible  debenture financing ("2006 Debentures")  completed in March
2003  (see   Convertible   Debentures),   payment  of  this  licensing  fee  was
subordinated to the new debentures with strict covenants governing payment.

In September  2002,  the Company  entered into a Loan Agreement with EKI whereby
EKI agreed to extend certain loans to the Company at EKI's sole  discretion,  at
interest rates of 7% to 10%. As of December 31, 2002 the  outstanding  principal
amount of  outstanding  loans was  $1,745,000.  In  January  2003,  the  Company
borrowed an additional  $1,010,000 from EKI under the Loan  Agreement,  bringing
the total  outstanding  principal amount of the loans to $2,755,000.  As part of
the 2006 Debentures (see Convertible  Debentures),  repayment of these loans and
related  interest was  subordinated to the new debentures with strict  covenants
governing  their  repayment.  Therefore,  at March 31, 2004,  the loans totaling
$2,755,000  and related  interest  of  $392,602  are  classified  as  noncurrent
liabilities.  In March  2003,  the  Company  issued to EKI a warrant,  which was
immediately exercisable, to purchase 83,333 shares of the Company's common stock
at $6.00 per share in connection  with the  subordination  of the loans totaling
$2,755,000.  The fair value of the warrant  was  estimated  to be  approximately
$303,522  using the  Black-Scholes  option  pricing  model and was recorded as a
discount on the outstanding loans.

CONVERTIBLE DEBENTURES

On March 5, 2003, the Company received  proceeds of approximately  $9.0 million,
net of financing  costs of  approximately  $1.5 million,  from the issuance to a
group of  institutional  investors of 416,667  shares of common stock and $10.55
million in aggregate principal amount of secured  convertible  debentures due in
2006 (the "2006  Debentures").  The 2006  Debentures  bear interest at a rate of
2.0% per annum,  payable quarterly in arrears on each January 31, April 30, July
31 and October 31. The holders of the 2006  Debentures have the right to convert
such debentures into the Company's  common stock at a conversion  price of $6.00
per share.  While the 2006 Debentures are  outstanding,  the conversion price is
subject to adjustment in certain instances,  such as a result of stock dividends


                                       7
<PAGE>

and  splits,  distributions  of  property  to common  stockholders,  the sale of
substantially  all of the Company's  assets,  the  consummation of a merger,  or
sales of common  stock or common  stock  equivalents  for per share prices lower
than the  conversion  price in effect.  In addition to the  holders'  conversion
option, the Company has the right to force conversion of all or a portion of the
outstanding  principal  amount of the 2006 Debentures if certain  conditions are
met, including a requirement that the closing price of the common stock has been
equal to or  greater  than  300% of the  conversion  price  for at least  the 10
consecutive days immediately  preceding the conversion.  The principal amount of
the 2006  Debentures  is due and  payable  on March 5,  2006;  however,  earlier
repayment  may occur if the Company  receives  cash  proceeds in excess of $2.65
million  (the  "Excess  Amount")  from  the sale of debt or  equity  securities,
equipment sales to unrelated third parties, or operating revenues. If the Excess
Amount  arises,  the Company can elect to  distribute  one-third  of such Excess
Amount to EKI in payment of amounts  due to EKI under the License  Agreement  or
the Biotec  Agreement that have been  subordinated to the 2006  Debentures,  and
one-third of such Excess Amount, with  the consent of each applicable  debenture
holder, as a 102% prepayment of principal and interest of the 2006 Debentures.

In accordance with Accounting  Principles Board Opinion No. 14,  "Accounting for
Convertible  Debt and Debt Issued  with Stock  Purchase  Warrants,"  the Company
allocated the net proceeds of $9.0 million to the 2006 Debentures and the common
stock based their  relative  fair values.  A discount on the 2006  Debentures of
$3.4  million and a discount on the common stock of $604,000  resulted  from the
fair value  allocation.  Based on the  conversion  price of the 2006  Debentures
relative to the fair market value for a share of the  Company's  common stock at
the date of issue, the conversion  feature of the 2006 Debentures was determined
to have no intrinsic  value to the holders.  If  subsequent to the issuance date
the conversion price of the 2006 Debentures is adjusted  downward,  the value of
the  conversion  feature will be  re-measured  to  determine  if any  beneficial
conversion  value  should be  recorded  as of the date the  conversion  price is
adjusted.  The principal  amount of the 2006  Debentures  of $10.55  million was
recorded as a noncurrent  liability,  net of a $3.4 million discount.  The total
discount on the 2006  Debentures  of $3.4 million,  which is being  amortized to
interest  expense  over the  36-month  term of the  2006  Debentures  using  the
effective interest method, may be subject to downward  adjustments to the extent
partial  conversions  of  the  2006  Debentures  occur.  These  adjustments,  if
required, would reduce the discount and reduce additional paid-in capital.

In addition to the $1.5 million of financing  costs,  the Company also  incurred
approximately $646,000 of non-cash costs attributable to 54,167 shares of common
stock  issued to the lead  purchaser  of the 2006  Debentures  and two  warrants
issued  to  a  placement  agent,  both  of  whom  received  the  instruments  as
compensation for their services rendered in connection with the transaction. The
fair value of the 54,167 shares of common stock issued to the lead purchaser was
determined to be $247,000,  based on the closing price of $4.56 per share of the
Company's  common stock on the NASDAQ SmallCap Market on March 5, 2003. The fair
value of  approximately  $42,000 of the first of the two warrants  issued to the
placement agent,  which expires in March 2006 and is immediately  exercisable by
the placement agent to purchase 28,810 shares of the Company's  common stock for
$10.08 per share, was estimated using the Black Scholes option-pricing model and
is  reflected  in  the  accompanying  financial  statements  as an  increase  in
additional  paid-in  capital and as a component  of the $4.0  million  aggregate
discount  on the 2006  Debentures  and  common  stock  issued in the March  2003
transaction. The second of the two warrants issued to the placement agent, which
expires in March 2006, is  immediately  exercisable  by the  placement  agent to
purchase $1.055 million in aggregate principal amount of the 2006 Debentures and
416,667  shares of the Company's  common stock,  except if, prior to exercise of
the warrant,  all of the 2006  Debentures  have been  redeemed,  repurchased  or
converted,  in which case the portion of the warrant  exercisable  into the 2006
Debentures  becomes  exercisable  into  common  stock as if the 2006  Debentures
included in the warrant had been  converted to common stock.  The exercise price
of the convertible debenture portion of the warrant is $1,200 for each $1,000 of
principal and is subject to  adjustment  consistent  with the  provisions of the
2006  Debentures.  The exercise price of the common stock portion of the warrant
is $7.20 per share.  The  estimated  fair value of this warrant was reflected in
the financial  statements as a warrant obligation and as a component of the $4.0
million aggregate discount on the 2006 Debentures and common stock issued in the
March 2003 financing  transaction.  At September 30, 2003, the Company evaluated
the  current  value  of  this  warrant,   considering   its  current  cash  flow
projections,  continued  operating losses,  the prospects of raising  additional
equity capital,  the significant  excess of the conversion  price to the current
stock price and the  volatility in the Company's  stock price.  Based upon these
factors,  the  Company  determined  that the  likelihood  of the  warrant  being


                                       8
<PAGE>

exercised  was remote and wrote off the balance of the warrant  obligation as of
September  30, 2003,  resulting in a $0.5 million gain in the three months ended
September 30, 2003.

In connection  with the March 2003 financing  transactions,  the Company prepaid
$5.2 million of the $8.2 million principal amount outstanding of the convertible
debentures  due in 2007  (the  "2007  Debentures"),  resulting  in a  prepayment
penalty  of  $208,000.  The  Company  also  issued  to the  holders  of the 2007
Debentures  52,083  shares of common  stock,  valued at $237,500  based upon the
closing price of the  Company's  common stock on the NASDAQ  SmallCap  Market of
$4.56 per share on March 5, 2003.  In  addition,  one of the holders of the 2007
Debentures  exchanged $2.0 million aggregate principal amount of 2007 Debentures
for $2.0 million aggregate principal amount of 2006 Debentures and 78,989 shares
of common stock valued at approximately $360,000 based upon the closing price of
the  Company's  common stock of $4.56 per share on March 5, 2003.  In connection
with the  prepayment  and  exchange  transactions,  the  Company  incurred  cash
transaction costs of approximately  $296,000,  excluding the prepayment penalty.
The Company  recognized  a $1.7  million  loss upon  extinguishment  of the 2007
Debentures  through the  prepayment  and  exchange.  The  prepayment of the 2007
Debentures and the debenture  exchange resulted in the release to the Company of
$2.0 million of restricted cash.

The issuance of the 2006  Debentures,  prepayment of the 2007  Debentures  (from
restricted cash) and the debenture  exchange provided the Company with aggregate
net proceeds of approximately $11.0 million.

During 2003, $5.75 million principal amount of the 2006 Debentures was converted
into 958,334 shares of common stock, resulting in the approximately $4.4 million
carrying amount of the 2006 Debentures being transferred to common stock.

At March 31, 2004, the outstanding principal balance of 2006 Debentures was $6.8
million,  which  is  reflected  on  the  accompanying  balance  sheet  net of an
unamortized discount of approximately $1.3 million.

In October 2003,  $575,000  principal amount of the 2006 Debenture was converted
into 95,833 shares of common stock,  reducing the outstanding  principal balance
of 2006 Debentures to $6.8 million.

In 2003, the Company forced the conversion of $1.3 million  principal  amount of
the 2007  Debentures and debenture  holders  voluntarily  converted $0.5 million
principal  amount of the 2007 Debentures for a total of 353,985 shares of common
stock,  resulting  in the release to the Company of $1.8  million of  restricted
cash.

On March 8,  2004,  the  Company's  common  stock was  delisted  from the Nasdaq
Smallcap Market because the Company's market  capitalization  failed to meet the
minimum  required  standard.  In  addition,  the Company  did not make  interest
payments  related to the 2006  Debentures  as  required  on January 31, 2004 and
April 30,  2004.  These  actions  put the  Company  in  non-compliance  with its
covenants under the 2006  Debentures.  Management is currently  negotiating with
the debenture holders for appropriate  relief or waiver of these covenants.  One
of the  debenture  holders has  notified the Company in writing that they are in
default and has  requested  that the  Company  repurchase  the entire  principal
amount of the 2006  Debentures  that they  hold at the  price  specified  in the
debenture,  along with any accrued and unpaid interest.  Because the Company can
not assure that it will be able to negotiate  appropriate  relief or a waiver of
the applicable  covenants,  the entire outstanding  principal amount of the 2006
Debentures has been  classified as a current  liability as of March 31, 2004 and
December 31, 2003.

In  connection  with the  March  2003  financing  transactions,  EKI  agreed  to
subordinate  the repayment of its outstanding  loans totaling  $2,755,000 to the
Company's payment  obligations under the 2006 Debentures.  In addition,  EKI and
Biotec  agreed to  subordinate  certain  payments  to which they were  otherwise
entitled  under the  Biotec  License  Agreement  (other  than  their  respective
percentages of any royalties received by the Company) to the satisfaction of the
Company's payment obligations under the 2006 Debentures. They further agreed not
to assert any claims  against  the Company  for  breaches of the Biotec  License
Agreement (other than the assertion of certain equitable  remedies to enjoin the
Company from, for example, selling products outside its field of use) until such
time as the Company's  obligations  under the 2006  Debentures  are satisfied in
full. EKI and Biotec also agreed to allow the Company to pledge their respective
interests  in the EKI and Biotec  License  Agreements  to secure  the  Company's


                                       9
<PAGE>

obligations under the 2006 Debentures,  and certain additional  concessions were
made by EKI and Biotec to permit the Company greater  flexibility in selling its
rights  under the EKI and  Biotec  License  Agreements  to third  parties  in an
insolvency context.  These rights terminate upon the satisfaction in full of the
obligations  under the 2006 Debentures.  In consideration for its willingness to
subordinate  the payments  and  advances  that are owed to it, in March 2003 the
Company issued to EKI a warrant, expiring in ten years, to acquire 83,333 shares
of the Company's common stock for $6.00 per share. The fair value of the warrant
was  estimated  to be  approximately  $303,522  using the  Black-Scholes  option
pricing model and was recorded as a discount on the outstanding loans.

COMMITMENTS

During 1998, EKI entered into certain agreements with an equipment  manufacturer
providing  for  the  purchase  by  EKI  of  certain  technology   applicable  to
starch-based  disposable packaging.  EKI licenses such technology to the Company
on a royalty-free  basis pursuant to the License  Agreement.  In connection with
the purchase,  the Company would be required to pay the seller $3.0 million over
the  five-year  period  commencing  January 1, 2004 if EKI, the Company or their
respective  licensees  make active use of the technology and have not purchased,
by December 31, 2003, at least $35.0 million of equipment from the seller. As of
March 31, 2004, the Company and its respective  licensees have neither  actively
used the  technology nor purchased  equipment from the seller.  The Company does
not plan to make active use of the  technology  during the year ending  December
31, 2004.  EKI has agreed to indemnify  the Company to the extent the Company is
required to pay any portion of this $3.0 million  obligation  solely as a result
of EKI's or its  licensees'  active use of such  patents and related  technology
(other than use by the Company or its sublicenses).  The $3.0 million obligation
to the seller of the technology is subject to reduction in an amount equal to 5%
of the purchase  price of any  equipment  purchased  from the seller by EKI, the
Company or their sublicenses  during the five-year period commencing  January 1,
2004.

PROPERTY AND EQUIPMENT AND EQUIPMENT HELD FOR SALE

The cost and  accumulated  depreciation  of property and equipment and equipment
held for sale at March 31, 2004 and December 31, 2003 were as follows:

                                                     MARCH 31,    DECEMBER 31,
                                                       2004          2003
                                                   -----------    -----------
Property and Equipment
     Product development center ................   $ 1,175,394    $ 1,175,394
     Office furniture and equipment ............       356,339        356,339
                                                   -----------    -----------
Total cost .....................................     1,531,733      1,531,733

Less:  Accumulated depreciation and amortization    (1,497,280)    (1,469,939)
                                                   -----------    -----------
Property and equipment - net ...................   $    34,453    $    61,794
                                                   ===========    ===========
Equipment held for sale ........................   $         1    $         1
                                                   ===========    ===========


A commercial production line in Goettingen, Germany was financed and constructed
by the Company.  Because the Company is unable to determine  with  certainty the
proceeds that will be realized upon sale of the equipment, the Company wrote the
line down to $1 as of December  31, 2003 and  reclassified  it to the  long-term
asset account  "Equipment  held for sale." If the equipment is sold, the Company
will recognize a gain equal to the proceeds received for the equipment.


                                       10
<PAGE>

STOCK OPTIONS

The Company  accounts for stock  options in  accordance  with the  provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to  Employees,"  and complies  with the  disclosure  provisions  of Statement of
Financial  Accounting  Standards  ("SFAS") No. 123,  "Accounting for Stock-Based
Compensation."  Under APB Opinion No. 25,  compensation  expense is based on the
difference,  if any,  on the  date of  grant,  between  the  fair  value  of the
Company's  common stock and the  exercise  price of the option.  For  disclosure
purposes,  to measure stock-based  compensation in accordance with SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  the fair value of each option grant
is estimated on the date of grant using the Black-Scholes  option-pricing model.
The fair value of each option grant is then amortized as pro forma  compensation
expense over the vesting period of the options.  The following  table sets forth
the pro forma net loss and loss per share resulting from applying SFAS No. 123.

<TABLE>
<CAPTION>
                                                                      THREE MONTHS
                                                                     ENDED MARCH 31,
                                                                -----------------------
                                                                   2004         2003
                                                                ----------   ----------
<S>                                                             <C>          <C>
Net Loss as reported ........................................   $2,066,857   $6,770,727
Deduct: Stock-based employee compensation expense
   included in reported net loss, net of tax ................           --           --
Add: Total stock-based employee compensation determined under
   fair value based method for all awards, net of tax .......       13,015       79,390
                                                                ----------   ----------
Pro forma net loss ..........................................   $2,079,872   $6,850,117

Net loss per common share
   As reported ..............................................   $     0.15   $      .55
   Pro forma ................................................         0.15         0.55
</TABLE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

FORWARD LOOKING STATEMENTS

Information  contained in this Quarterly Report on Form 10-Q,  including but not
limited to  "Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations," contains  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.  Investors should carefully review the risk factors set forth
in other Company  reports or documents  filed with the  Securities  and Exchange
Commission,  including Forms 10-Q, 10-K, 10-K/A and 8-K. 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.
This  Quarterly  Report on Form  10-Q  should  be read in  conjunction  with the
Company's  Annual  Report on Form 10-K for the fiscal  year ended  December  31,
2003.

CRITICAL ACCOUNTING POLICIES

The  preparation of financial  statements and related  disclosures in conformity
with  generally  accepted  accounting  principles  requires  management  to make
judgments,  assumptions  and estimates  that affect the amounts  reported in the
Company's financial statements and the accompanying notes. The amounts of assets
and  liabilities  reported  in the  Company's  balance  sheet and the amounts of
expenses  reported  for  each  fiscal  period  are  affected  by  estimates  and
assumptions  which are used for,  but not limited to, the  accounting  for asset
impairments.  Actual  results could differ from these  estimates.  The following
critical   accounting   policies  are   significantly   affected  by  judgments,
assumptions and estimates used in the preparation of the consolidated  financial
statements.


                                       11
<PAGE>

Going Concern Basis. The consolidated financial statements have been prepared on
a going concern  basis,  which  contemplates  the  realization of assets and the
satisfaction of liabilities in the normal course of business.  During the period
from November 1, 1992  (inception) to March 31, 2004, the Company has incurred a
cumulative  net  loss of  $316,417,538  and has a  working  capital  deficit  of
$9,511,335 at March 31, 2004.  These  factors,  along with others,  may indicate
that the Company will be unable to continue as a going  concern for a reasonable
period of time.  The  Company  will have to raise  additional  funds to meet its
current  obligations  and to cover  operating  expenses  through the year ending
December  31,  2004.  If the  Company is not  successful  in raising  additional
capital  it may not be able to  continue  as a going  concern  for a  reasonable
period of time.  Management  plans to address  this need by raising cash through
either the  issuance  of debt or equity  securities.  In  addition,  the Company
expects cash to be generated in 2004 through  royalty  payments from  licensees.
Another  possible  source  of funds is the sale or  transfer  of the  commercial
production line in Goettingen,  Germany to an operating  partner.  However,  the
Company can not assure that additional financing will be available to it, or, if
available, that the terms will be satisfactory, that it will receive any royalty
payments in 2004, or that it will be able to negotiate  mutually agreeable terms
for the transfer of its  commercial  production  line to an  operating  partner.
Management  will also  continue in its efforts to reduce  expenses,  but can not
assure  that it  will be able to  reduce  expenses  below  current  levels.  The
consolidated financial statements do not include any adjustments relating to the
recoverability  and  classification of recorded asset amounts or the amounts and
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue as a going concern.

Estimated Net Realizable  Value of Property and Equipment.  The Company has been
engaged in the development of manufacturing  equipment to validate acceptance of
EarthShell  products  and their  pricing.  To this end the  Company  constructed
manufacturing  lines  in  Owings  Mills,   Maryland,   Goleta,   California  and
Goettingen,  Germany.  The Company evaluates the  recoverability of property and
equipment whenever events or changes in circumstances indicate that the carrying
value of an asset may not be  recoverable.  If there is an  indication  that the
carrying value of an asset may not be recoverable and the estimated  future cash
flows  (undiscounted and without interest charges) from the use of the asset are
less than the carrying  value,  a  write-down  is recorded to reduce the related
asset to its estimated fair value.

The commercial  production line in Goettingen,  Germany was originally  financed
and  constructed by the Company for the Company's  joint venture with Huhtamaki.
During  2001,  $1.2  million of the  Goettingen  line was written off to reflect
equipment  that had no further  application  in the product  development  cycle.
During  the  third  quarter  of 2002  the  Company  concluded,  after  obtaining
quotations  from various  machinery  suppliers for an identical  line, that $1.7
million  of the cost of the line  would not be  recoverable  and  therefore  the
carrying  value of the line  was  written  down by this  amount,  of which  $1.6
million was recorded in the third quarter of 2002 and the remaining $0.1 million
was recorded in the fourth  quarter of 2002.  With the  conclusion  of the joint
venture with Huhtamaki in 2003, the Company is seeking other operating  partners
to  purchase  the  production  line.  However,  because the Company is unable to
determine  with  certainty  the proceeds  that will be realized upon sale of the
equipment,  the Company  wrote the line down to $1 as of  December  31, 2003 and
reclassified it to the long-term asset account "Equipment held for sale."

The key accounting  estimates and policies are reviewed with the Audit Committee
of the Board of Directors.

THREE MONTHS ENDED MARCH 31, 2004 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2003.

The Company's net loss  decreased $4.7 million to $2.1 million from $6.8 million
for the three  months  ended March 31, 2004  compared to the three  months ended
March 31,  2003,  respectively.  The most  significant  reasons for the net loss
decrease are set forth below

RESEARCH AND DEVELOPMENT  EXPENSES.  Total research and development expenses are
comprised of Related party license fee and research and development expenses and
Other research and development expenses. Total research and development expenses
for the  development of EarthShell  Packaging(R)  decreased $1.8 million to $0.5
million from $2.3 million for the three months ended March 31, 2004  compared to
the three months ended March 31, 2003, respectively.


                                       12
<PAGE>

     o    Related  party license fee and research and  development  expenses are
          comprised of the  $100,000  monthly  licensing  fee for the use of the
          EarthShell  Technology  and  technical  services,  both of which  were
          payable to EKI, a  stockholder  of the  Company,  or Biotec,  a wholly
          owned  subsidiary  of EKI.  It should be noted  that  payment of these
          related  party  expenses has been deferred  pursuant to  subordination
          agreements  entered  into by the EKI entities in  connection  with the
          convertible debenture financing concluded in March 2003. Related party
          license fee and  research  and  development  expenses  decreased  $0.1
          million to $0.3  million  from $0.4 million for the three months ended
          March 31, 2004  compared  to the three  months  ended March 31,  2003,
          respectively.  This  decrease  was  entirely  due  to  a  decrease  in
          technical services provided to the Company by Biotec.

     o    Other  research and  development  expenses are  comprised of personnel
          costs,  travel and direct overhead for  development and  demonstration
          production,  as well as impairment  charges on manufacturing  property
          and equipment constructed for demonstration production purposes. Other
          research  and  development  expenses  decreased  $1.7  million to $0.2
          million  from $1.9  million for the three  months ended March 31, 2004
          compared to the three months ended March 31, 2003,  respectively.  The
          decrease in other research and development  expenses was primarily due
          to the winding down of on-going demonstration  manufacturing in Goleta
          in the first  quarter of 2003.  In  addition,  the  Company's  expense
          reduction  efforts  resulted in reduced  personnel  and other costs in
          2004.

OTHER GENERAL AND  ADMINISTRATIVE  EXPENSES.  Other  general and  administrative
expenses  are  comprised  of  personnel  costs,  travel and direct  overhead for
marketing, finance and administration. Total general and administrative expenses
decreased  $0.6  million to $1.2  million from $1.8 million for the three months
ended  March  31,  2004  compared  to the three  months  ended  March 31,  2003,
respectively  as a  result  of  efforts  to  significantly  reduce  general  and
administrative  expenses in 2003 including reductions in the following expenses:
personnel  costs by $0.3  million,  facility and support  costs by $0.1 million,
professional fees and services by $0.1 million,  and business insurance costs by
$0.1 million.

INTEREST  EXPENSE.  Interest  expense is  comprised  of Related  party  interest
expense and Other interest expense.

     o    Related  party  interest  expense  was $0.1  million in both the three
          months ended March 31, 2004 and the three months ended March 31, 2003.
          Related  party  interest   expense   includes   interest   accrued  on
          outstanding  loans made to the Company by EKI under the Loan Agreement
          (see Related Party Transactions), accretion of the discount related to
          the  warrants  issued in  conjunction  with the March  2003  financing
          transactions, plus accrued interest payable on amounts owed to EKI for
          monthly licensing fees that were not paid in accordance with the terms
          of the  subordination  agreements  entered into in connection with the
          2006 Debentures (see Related Party Transactions).

          Although the outstanding  loans and monthly licensing fees will accrue
          approximately $0.4 million in annual interest expense,  payment of the
          interest  is  subordinated  to the  2006  Debentures.  Therefore,  the
          related party interest expense will continue to accrue but will not be
          paid in cash  until the 2006  Debentures  have been  converted  or the
          obligation satisfied in full.

     o    Other  interest  expense  decreased  $0.4 million to $0.2 million from
          $0.6 million for the three months ended March 31, 2004 compared to the
          three  months  ended  March 31,  2003,  respectively.  Other  interest
          expense  for the  three  months  ended  March  31,  2004 is  primarily
          composed of accretion of the discount and interest accrued on the 2006
          Debentures.  Other  interest  expense for the three months ended March
          31, 2003 was  primarily  composed of the  accretion of the discount on
          the 2007 Debentures and a beneficial  conversion  charge in the amount
          of $.04  million  due to a change  in the 2007  Debentures  conversion
          price.  In addition,  Other  interest  expense for 2003 also  included
          accretion of the discount on the 2007 debentures and accrued  interest
          payable  on the  2006  and  2007  Debentures.  Interest  expense  from
          accretion of the discount  and accrued  interest  payable for the 2006
          Debentures will be  approximately  $0.8 million per year until the are
          repaid or are converted into common stock.


                                       13
<PAGE>

OTHER (INCOME) EXPENSE. Other expense of $0.2 million for the three months ended
March 31,  2003  represents  the  increase  in the  estimated  fair value of the
warrant obligation from its issuance on March 5, 2003 through March 31. 2003.

LOSS ON EXTINGUISHMENT  OF DEBENTURES.  Loss on extinguishment of debentures was
$1.7 million for the three months ended March 31, 2003. In  connection  with the
March 2003 financing  transactions,  the Company prepaid $5.2 million  aggregate
principal  amount of the 2007 Debentures,  resulting in a prepayment  penalty of
approximately  $0.2  million.  The  Company  also  issued to the  holders of the
prepaid 2007 Debentures  52,083 shares of common stock,  valued at approximately
$0.2 million based upon the closing price of the Company's common stock of $4.56
per  share  on  March 5,  2003.  In  addition,  one of the  holders  of the 2007
Debentures  exchanged $2.0 million aggregate principal amount of 2007 Debentures
for $2.0 million  aggregate  principal amount of 2006 Debentures.  In connection
with the  prepayment  and  exchange  transactions,  the  Company  incurred  cash
transaction  costs of  approximately  $0.3  million,  excluding  the  prepayment
penalty.  In  addition,  the  Company  incurred a charge of  approximately  $0.9
million for the prorated portion of the original discount attributed to the $7.2
million of the 2007  Debentures  repaid and  exchanged.  Therefore,  the Company
recognized  a $1.7  million  loss  upon  extinguishment  of the 2007  debentures
through the prepayment and exchange.

DEBENTURE  CONVERSION COSTS.  Debenture conversion costs of $0.1 million for the
three months ended March 31, 2003 represent the prorated portion of the original
discount  attributed  to the 2007  Debentures  whose  conversion  was  forced by
Company in the respective periods.

LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 2004

Cash Flow. The Company's  principal use of cash for the three months ended March
31, 2004 was to fund  operations.  Net cash used in operations  was $1.2 million
for the three months ended March 31, 2004.  As of March 31, 2004 the Company had
unrestricted cash and related cash equivalents totaling $0.7 million.

Capital Requirements.  The Company made no capital expenditures during the three
months ended March 31,  2004,  nor does the Company  expect to make  significant
capital expenditures in the year 2004.

Sources of Capital.  As part of the Company's  initial public  offering on March
27,  1998,  the Company  issued  877,193  shares of common  stock,  for which it
received  net proceeds of $206  million.  On April 18, 2000 and January 4, 2001,
the Company filed shelf  registrations  statements  for 416,667 and 1.25 million
shares,  respectively,  of the Company's  common  stock.  During the years ended
December 31, 2002, 2001 and 2000 the Company sold approximately 0.1 million, 1.1
million and 0.4 million  shares of common  stock in private  transactions  under
such  registration  statements  and  received  net  proceeds  from such sales of
approximately $2.3 million, $30.5 million and $10.5 million,  respectively.  All
shares available under such registration statements had been sold as of December
2002.

In December of 2001 the Company filed a shelf registration  statement  providing
for the sale of up to $50 million of securities,  including secured or unsecured
debt securities,  preferred stock, common stock, and warrants.  These securities
could be offered,  separately or together,  in distinct series, and amounts,  at
prices  and  on  terms  to be  set  forth  in the  prospectus  contained  in the
registration statement, and in subsequent supplements to the prospectus.  During
the year ended  December 31, 2002, the Company sold 1.9 million shares of common
stock under such  registration  statement  and received  net proceeds  from such
sales of $19.6 million.

On August 12, 2002, the Company issued $10 million in aggregate principal amount
of convertible debentures, due August 2007 (the "2007 Debentures"), and warrants
to purchase 0.2 million shares of common stock, to  institutional  investors for
proceeds of $10.0 million.  The terms of the debentures required the proceeds be
held in restricted  cash  accounts  linked to  irrevocable  letters of credit in
favor of each  debenture  holder such that  unrestricted  access to the proceeds
from the sale of the debentures  generally  occurred only upon conversion of the
debentures  into shares of the Company's  common stock.  These  debentures  bore
interest at a rate of 1.5% per annum.  The holders of these  debentures  had the
right to convert the  debentures  into the Company's  common stock at an initial
conversion price of $15.60 per share,  which was reduced to $6.00 per share as a
result of  anti-dilution  adjustments.  In addition to the  holders'  conversion
option,  under  certain  circumstances,  the  Company  had the  right  to  force


                                       14
<PAGE>

conversion of up to $500,000 of the debentures per week at a 15% discount to the
market price of the Company's stock.  Subject to certain conditions set forth in
the debentures, the debentures could be prepaid upon twenty business days notice
for 104% of the  outstanding  principal  balance of the  debentures.  During the
third quarter of 2002, the Company forced  conversion of $1.0 million  principal
amount of the debentures  for 168,696  shares of common stock,  resulting in the
release  to the  Company of $1.0  million  of  restricted  cash.  Subsequent  to
December 31, 2002, the Company forced  conversion of an additional  $1.3 million
principal amount of the debentures and debenture holders  voluntarily  converted
$0.5 million  principal amount of the debentures,  for a total of 353,985 shares
of common  stock,  resulting  in the release to the  company of $1.8  million of
restricted  cash.  In  March  2003,  as  part  of a  new  convertible  debenture
financing,  the Company prepaid $5.2 million principal amount of the debentures.
In  addition,  one of the  holders  of the  debentures  exchanged  $2.0  million
aggregate  principal  amount  of these  debentures  for $2.0  million  aggregate
principal  amount of 2006  Debentures  and 78,989  shares of common  stock.  The
exchange  resulted in the release to the Company of $2.0  million of  restricted
cash, as the 2006 Debentures are not secured by cash.  There were no outstanding
2007 Debentures as of December 31, 2003.

On March 5,  2003,  the  Company  issued to a group of  institutional  investors
416,667 shares of common stock and $10.55 million in aggregate  principal amount
of secured convertible debentures due in March 2006 (the "2006 Debentures"), for
which the  Company  received  proceeds of  approximately  $9.0  million,  net of
financing costs of approximately $1.5 million. The 2006 Debentures bear interest
at a rate of 2.0% per annum,  payable  quarterly  in arrears on each January 31,
April 30, July 31 and October 31. The  debentures  are secured by the  Company's
rights,  title and interest to the technology and trademarks  covered by the EKI
License  Agreement,  including  all  process  and  product  improvements  of the
Company,  the Company's right to use and to sublicense the  technology,  and all
license fees,  royalties  and/or other forms of compensation  due to the Company
from sublicenses under existing or future  sublicenses.  The holders of the 2006
Debentures have the right to convert such  debentures into the Company's  common
stock at a conversion  price of $6.00 per share.  While the 2006  Debentures are
outstanding, the conversion price is subject to adjustment in certain instances,
such as a result of stock  dividends  and splits,  distributions  of property to
common stockholders,  the sale of substantially all of the Company's assets, the
consummation of a merger,  or sales of common stock or common stock  equivalents
for per share prices lower than the conversion  price in effect.  In addition to
the holders'  conversion option,  after the first anniversary of the issuance of
the 2006  Debentures  the Company has the right to force  conversion of all or a
portion of the  outstanding  principal  amount of the 2006 Debentures if certain
conditions are met, including a requirement that the closing price of the common
stock has been  equal to or  greater  than 300% of the  conversion  price for at
least  the  10  consecutive  days  immediately  preceding  the  conversion.  The
principal  amount of the 2006  Debentures  is due and  payable on March 5, 2006;
however,  earlier  repayment may occur if the Company  receives cash proceeds in
excess of $2.65  million (the "Excess  Amount")  from the sale of debt or equity
securities,  equipment sales to unrelated third parties,  or operating revenues.
If the Excess Amount  arises,  the Company can elect to distribute  one-third of
such  Excess  Amount to EKI in payment of amounts  due to EKI under the  License
Agreement  or the  Biotec  Agreement  that  have been  subordinated  to the 2006
Debentures,  and  one-third  of such  Excess  Amount, with  the  consent of each
applicable  debenture  holder, as a 102% prepayment of principal and interest of
the 2006 Debentures.

In connection  with the March 2003  financing  transactions,  the Company issued
54,167 shares of common stock to the lead  purchaser of the 2006  Debentures and
two warrants to a placement  agent,  both of whom  received the  instruments  as
compensation for their services rendered in connection with the transaction. The
first of the two warrants is immediately  exercisable by the placement  agent to
purchase  28,810 shares of the  Company's  common stock for $10.08 per share and
expires in March 2006. The second of the two warrants is immediately exercisable
by the placement agent to purchase $1.055 million in aggregate  principal amount
of the 2006 Debentures and 416,667 shares of the Company's common stock,  except
if,  prior to  exercise of the  warrant,  all of the 2006  Debentures  have been
redeemed,  repurchased  or  converted,  in which case the portion of the warrant
exercisable into the 2006 Debentures becomes exercisable into common stock as if
the 2006 Debentures  included in the warrant had been converted to common stock.
The exercise price of the convertible debenture portion of the warrant is $1,200
for each $1,000 of principal  and is subject to adjustment  consistent  with the
provisions  of the 2006  Debentures.  The  exercise  price of the  common  stock
portion of the warrant is $7.20 per share.  This  warrant  also expires in March
2006.


                                       15
<PAGE>

In 2003,  $5.75 million  principal  amount of the 2006  Debentures was converted
into 958,334 shares of common stock.

At March 31, 2004, the outstanding principal balance of 2006 Debentures was $6.8
million.  The  remaining  shares  under the  December  2001  shelf  registration
described  above  have been  used to secure  shares  potentially  issuable  upon
conversion of the 2006 Debentures.

On March 8,  2004,  the  Company's  common  stock was  delisted  from the Nasdaq
Smallcap Market because the Company's market  capitalization  failed to meet the
minimum  required  standard and trading was moved to the OTC Bulletin  Board and
then to the Pink Sheets Electronic Quotation Services. In addition,  the Company
did not make  interest  payments  related to the 2006  Debentures as required on
January  31,  2004  and  April  30,  2004.  These  actions  put the  Company  in
non-compliance  with its  covenants  under the 2006  Debentures.  Management  is
currently  negotiating  with the  debenture  holders for  appropriate  relief or
waiver of these covenants. One of the debenture holders has notified the Company
in  writing  that  they  are in  default  and has  requested  that  the  Company
repurchase the entire  principal amount of the 2006 Debentures that they hold at
the  price  specified  in the  debenture,  along  with any  accrued  and  unpaid
interest.  Because the Company can not assure that it will be able to  negotiate
appropriate  relief  or  a  waiver  of  the  applicable  covenants,  the  entire
outstanding  principal  amount of the 2006  Debentures  have been  classified as
current liabilities as of March 31, 2004 and December 31, 2003.

During 2002 and 2003,  the  Company's  largest  shareholder,  EKI,  made various
simple interest working capital loans to the Company.  These loans bear interest
at a rate of 7% or 10% per annum,  and are  payable  on demand.  As of March 31,
2004,  the  outstanding  principal  balance of these  loans was  $2,755,000.  In
connection with the March 2003 convertible  debenture  financing,  the remaining
outstanding balance of these loans was subordinated to the 2006 Debentures, with
strict covenants governing their repayment.  In addition,  EKI and Biotec agreed
to subordinate  certain payments to which they were otherwise entitled under the
Biotec  License  Agreement  (other  than  their  respective  percentages  of any
royalties  received by the Company) to the satisfaction of the Company's payment
obligations  under the 2006  Debentures.  They further  agreed not to assert any
claims against the Company for breaches of the Biotec License  Agreement  (other
than the assertion of certain equitable remedies to enjoin the Company from, for
example,  selling  products  outside  its field of use)  until  such time as the
Company's  obligations  under the 2006 Debentures are satisfied in full. EKI and
Biotec also agreed to allow the Company to pledge their respective  interests in
the EKI and Biotec License Agreements to secure the Company's  obligations under
the 2006  Debentures,  and certain  additional  concessions were made by EKI and
Biotec to permit the Company greater flexibility in selling its rights under the
EKI and Biotec  License  Agreements to third  parties in an insolvency  context.
These rights  terminate upon the  satisfaction in full of the obligations  under
the 2006  Debentures.  In  consideration  for its willingness to subordinate the
payments and advances  that are owed to it, in March 2003 the Company  issued to
EKI a warrant,  expiring in ten years, to acquire 83,333 shares of the Company's
common stock for $6.00 per share.

The Company will have to raise additional funds to meet its current  obligations
and to cover  operating  expenses  through the year ending December 31, 2004. If
the Company is not successful in raising  additional  capital it may not be able
to continue as a going concern for a reasonable period of time. Management plans
to address  this need by raising  cash  through  either the  issuance of debt or
equity securities. In addition, the Company expects cash to be generated in 2004
through royalty payments from licensees. Another possible source of funds is the
sale or transfer of the commercial production line in Goettingen,  Germany to an
operating partner. However, the Company can not assure that additional financing
will be available to it, or, if available,  that the terms will be satisfactory,
that it will  receive any royalty  payments in 2004,  or that it will be able to
negotiate mutually agreeable terms for the transfer of its commercial production
line to an operating  partner.  Management  will also continue in its efforts to
reduce  expenses,  but can not  assure  that it will be able to reduce  expenses
below current levels.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's treasury function controls all decisions and commitments regarding
cash management and financing  arrangements.  Treasury  operations are conducted
within a framework that has been authorized by the board of directors.


                                       16
<PAGE>

The Company is exposed to interest rate risk on its fixed rate long-term working
capital loans to EKI and its fixed rate long-term convertible debentures.  As of
March  31,  2004,   these   long-term  fixed  rate  debt   obligations   totaled
approximately $9.555 million. The working capital loans bear interest at a fixed
rate of 10% per annum. The convertible  debentures bear interest at a fixed rate
of 2% per annum.  While  generally  an  increase in market  interest  rates will
decrease the value of this debt,  and  decreases in rates will have the opposite
effect,  we are unable to estimate  the impact that  interest  rate changes will
have on the value of the substantial majority of this debt as there is no active
public market for this debt.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.  The Company's Chief Executive
Officer and Chief  Financial  Officer have  evaluated the  effectiveness  of the
Company's  disclosure  controls and procedures (as such term is defined in Rules
13a-15(e)  and  15d-15(e)  under the  Exchange  act) as of the end of the period
covered by this quarterly report on Form 10-Q (the "Evaluation Date").  Based on
such  evaluation,  such officers have concluded that, as of the Evaluation Date,
the Company's  disclosure controls and procedures are effective in alerting them
on a timely basis to material information relating to the Company required to be
included in the Company's periodic filings under the Exchange Act.

Changes  in  internal  control  over  financial  reporting.  No  changes  in the
Company's  internal  control over financial  reporting have come to management's
attention  during  the  Company's  last  fiscal  quarter  that  have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Not applicable

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS AND ISSUER REPURCHASES OF
         EQUITY SECURITIES

The Company has not purchased  any of its equity  securities in the period ended
March 31, 2004.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

The  Company  did not  make  required  interest  payments  related  to the  2006
Debentures  on January 31, 2004 and April 30,  2004.  In  addition,  on March 8,
2004, the Company's  common stock was delisted from the Nasdaq Smallcap  Market.
These actions put the Company in  non-compliance  with its  covenants  under the
2006 Debentures.  Management is currently negotiating with the debenture holders
for  appropriate  relief  or  waiver of these  covenants.  One of the  debenture
holders has  notified  the Company in writing that the Company is in default and
has requested  that the Company  repurchase the entire  principal  amount of the
2006  Debentures  held at the price  specified in the debenture,  along with any
accrued and unpaid interest.  Because the Company can not assure that it will be
able to negotiate  appropriate  relief or a waiver of the applicable  covenants,
the entire  outstanding  principal  amount of the 2006 Debentures  totaling $6.8
million plus accrued interest have been classified as current  liabilities as of
March 31, 2004 and December 31, 2003.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

ITEM 5.  OTHER INFORMATION

Not applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

The  Company  filed one report on Form 8-K during the  quarter  ended  March 31,
2004. Information regarding the item reported on is as follows:


                                       17
<PAGE>

      DATE                             ITEM REPORTED ON
---------------     ------------------------------------------------------------

  March 5, 2004     Press release of the Company dated March 5, 2004,  regarding
                    the delisting of the Company's  common stock from the Nasdaq
                    SmallCap Market effective March 8, 2004.


31.1     Certification  of the CEO pursuant to Rules 13a-14 and 15d-14 under the
         Exchange Act, as Adopted Pursuant to Section 302 of the  Sarbanes-Oxley
         Act of 2002.

31.2     Certification  of the CFO pursuant to Rules 13a-14 and 15d-14 under the
         Exchange Act, as Adopted Pursuant to Section 302 of the  Sarbanes-Oxley
         Act of 2002.

32.1     Certification  pursuant to 18 U.S.C.  Section 1350, as adopted pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002.


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<PAGE>


                                    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.


                                    EarthShell Corporation

Date: May 10, 2004                  By:  /s/ D. Scott Houston
                                         --------------------
                                         D. Scott Houston
                                         Chief Financial Officer

                                        (PRINCIPAL FINANCIAL OFFICER AND DULY
                                        AUTHORIZED OFFICER)



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