# UNITED STATES SECURITIES AND EXCHANGE COMMISSION 
WASHINGTON, D.C. 20549

---

# FORM 10-Q

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                                                OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2001

|_| 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)

|Deleware                                                      | 77-0322379                         
|------------------------------------------------------------- | -----------------------------------
|(State or other jurisdiction ofincorporation or organization) | (I.R.S. EmployerIdentification No.)

800
Miramonte Drive, Santa Barbara, California 93109
(Address of principal executive office)
            
(Zip Code)

Registrant's telephone number, including area code: (805) 897-2248

| | Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes |X|   No |_|
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The number of shares outstanding of the registrant's common stock as of November 13, 2001 is 115,269,194.

# EARTHSHELL
CORPORATIONFORM 10-Q
For the Quarter Ended September 30, 2001
INDEX

`Part I. Financial Information
      Item 1.      Financial Statements                                                                    Page
                   a)   Balance Sheets
                        as of September 30, 2001 (unaudited) and December 31, 2000 (unaudited)               1

                   b)   Statements of Operations
                        for the three and nine months ended September 30, 2001 and September 30, 2000
                        (unaudited) and for the period from November 1, 1992 (inception) through
                        September 30, 2001 (unaudited)..............................................         2

                   c)   Statements of Stockholders' Equity (Deficit)
                        for the period from November 1, 1992 (inception) to September 30, 2001
                        (unaudited).................................................................         3

                   d)   Statements of Cash Flows
                        for the nine months ended September 30, 2001 and September 30, 2000 (unaudited)
                        and for the period from November 1, 1992 (inception) through September 30, 2001
                        (unaudited).................................................................         4

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

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

      Item 3.      Quantitative and Qualitative Disclosures About Market Risk.......................         8


Part II. Other Information

      Item 1.      Legal Proceedings................................................................         8
      Item 2.      Change in Securities.............................................................         9
      Item 3.      Defaults Upon Senior Securities..................................................         9
      Item 4.      Submission of Matters to a Vote for Security Holders.............................         9
      Item 5.      Other Information................................................................         9
      Item 6       Exhibits and Reports on Form 8-K.................................................         9
      Signature...................................................................................          10`

# EARTHSHELL
CORPORATION
(A Development Stage Enterprise)BALANCE
SHEETS

`September 30,         December 31,
                                                                                2001                 2000
                                                                             (Unaudited)
                                                                         -------------------  --------------------
ASSETS
CURRENT ASSETS:
      Cash and cash equivalents......................................            $1,919,465            $7,791,654
      Prepaid expenses and other current assets......................               581,941               492,889
                                                                         -------------------  --------------------
           Total current assets......................................             2,501,406             8,284,543

RESTRICTED CASH......................................................             3,500,000             3,500,000

PROPERTY AND EQUIPMENT, NET..........................................            35,906,362            36,265,647

INVESTMENT IN JOINT VENTURE.............................                            578,428               423,428

                                                                         -------------------  --------------------
TOTAL................................................................           $42,486,196           $48,473,618
                                                                         ===================  ====================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable and accrued expenses...........................            $5,464,671            $5,910,897
     Trade payable to majority stockholder...........................            -                        266,312
                                                                         -------------------  --------------------
         Total current liabilities...................................             5,464,671             6,177,209
                                                                         -------------------  --------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
      Preferred Stock, $.01 par value, 10,000,000 shares authorized;
          9,170,000 Series A shares designated; no shares issued and
          outstanding as of September 30, 2001 and December 31, 2000.
                                                                                          -                     -
      Common stock, $.01 par value, 200,000,000 shares authorized;
          114,169,194 and 104,502,335 shares issued and outstanding as
          of September 30, 2001 and December 31, 2000................
                                                                                  1,141,692             1,045,023
      Additional paid-in common capital..............................           257,895,465           235,192,471
      Deficit accumulated during the development stage...............         (222,015,632)         (193,941,085)
                                                                         -------------------  --------------------

Total stockholders' equity...........................................        37,021,525            42,296,409
                                                                         -------------------  --------------------

TOTAL................................................................           $42,486,196           $48,473,618
                                                                         ===================  ====================`

See notes to financial statements.

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

`November 1,
                                                               For the                           For the                     1992
                                                            Three Months                       Nine Months               (inception)
                                                         Ended September 30,               Ended September 30,             through
                                                                                                                        September 30,
 ----------------------------------------------------------------------------------   ------------------------------   -----------------
                                                        2001             2000             2001            2000               2001
 ------------------------------------------------------------------  --------------   --------------  --------------   -----------------
 Expenses:

 Related party research and development......             $401,055      $2,053,602       $1,092,197      $6,524,454         $68,020,645

 Other research and development..............            6,756,532       4,888,075       15,186,975      13,866,470          78,376,736

 Related party general and administrative
    expenses.................................                    -          37,147                -         117,582           2,240,502

 Other general and administrative expenses...            2,367,682       2,096,661        8,445,850       6,322,700          51,596,383

 Depreciation and amortization...............            1,138,516       1,428,242        3,648,965       4,278,338          17,136,884

 Related party patent expenses...............                    -          51,124                -         320,897           8,693,105
                                                      --------------  --------------   --------------  --------------   -----------------
 Total expenses..............................           10,663,785      10,554,851       28,373,987      31,430,441         226,064,255



 Interest income.............................             (95,058)       (306,572)        (299,440)     (1,126,230)        (10,619,163)

 Related party interest expense..............                    -               -                -               -           4,770,731

 Other interest expense......................                    -               -                -               -           1,788,738
                                                      --------------  --------------   --------------  --------------   -----------------
 Loss Before Income Taxes....................           10,568,727      10,248,279       28,074,547      30,304,211         222,004,561



 Income Taxes................................                    -             800                -             800              11,071
                                                      ---------------  --------------   --------------  --------------   -----------------
 Net Loss....................................           10,568,727      10,249,079       28,074,547      30,305,011         222,015,632

 Preferred Dividends ........................                    -               -                -               -           9,926,703

                                                   ----------------  --------------   --------------  --------------   -----------------
 Net Loss Available To Common
    Stockholders.............................          $10,568,727     $10,249,079     $28,074,547     $30,305,011         $231,942,335
                                                   ================  ==============   ==============  ==============   =================
 Basic And Diluted Loss Per Common
    Share....................................                $0.09           $0.10            $0.25           $0.30               $2.56

 Weighted Average Number Of Common
     Shares..................................          114,169,194     101,352,816      110,746,927     100,595,874          90,460,367`

See notes to financial statements.

# EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)(Unaudited)

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

ISSUANCE OF COMMON STOCK AT
   INCEPTION.................          -           -             -    82,530,000       $3,150          $6,850             -      $10,000
Sale of preferred stock, net.  6,988,850        $267   $24,472,734             -            -               -             -   24,473,001
Net loss.....................          -           -             -             -            -               -   $(7,782,551)  (7,782,551)
                               ----------  ----------  ------------  ------------  -----------   -------------  ------------  -----------
BALANCE, DECEMBER 31, 1993     6,988,850         267    24,472,734    82,530,000        3,150           6,850   (7,782,551)   16,700,450
Net loss.....................          -           -             -             -            -               -   (16,582,080)  (16,582,080)
                               ----------  ----------  ------------  ------------  -----------   -------------  ------------  -----------
BALANCE, DECEMBER 31, 1994     6,988,850         267    24,472,734    82,530,000        3,150           6,850   (24,364,631)     118,370
Contribution to equity.......          -           -             -             -            -       1,117,723             -    1,117,723
Net loss.....................          -           -             -             -            -               -   (13,914,194)  (13,914,194)
                               ----------  ----------  ------------  ------------  -----------   -------------  ------------  -----------
BALANCE, DECEMBER 31, 1995     6,988,850         267    24,472,734    82,530,000        3,150       1,124,573   (38,278,825)  (12,678,101)
Contribution to equity.......          -           -             -             -            -         650,000             -      650,000
Issuance of stock warrants...          -           -             -             -            -         246,270             -      246,270
Net loss.....................          -           -             -             -            -               -   (16,950,137)  (16,950,137)
                               ----------  ----------  ------------  ------------  -----------   -------------  ------------  -----------
BALANCE, DECEMBER 31, 1996     6,988,850         267    24,472,734    82,530,000        3,150       2,020,843   (55,228,962)  (28,731,968)
Compensation related to stock
   options and warrants......          -           -             -             -            -       3,156,659             -    3,156,659
Net loss.....................          -           -             -             -            -               -   (18,992,023)  (18,992,023)
                               ----------  ----------  ------------  ------------  -----------   -------------  ------------  -----------
BALANCE, DECEMBER 31, 1997     6,988,850         267    24,472,734    82,530,000        3,150       5,177,502   (74,220,985)  (44,567,332)
262 to 1 stock split.........          -      69,621      (69,621)             -      822,150       (822,150)             -            -
Conversion of preferred stock
   to common stock...........  (6,988,850)  (69,888)   (24,403,113)    6,988,850       69,888      24,403,113             -            -
Issuance of common stock.....          -           -             -    10,526,316      105,263     205,883,493             -   205,988,756
Preferred stock dividends....          -           -             -             -            -     (9,926,703)             -   (9,926,703)
Net loss.....................          -           -             -             -            -               -   (26,620,052)  (26,620,052)
                               ----------  ----------  ------------  ------------  -----------   -------------  ------------  -----------
BALANCE, DECEMBER 31, 1998             -           -             -   100,045,166    1,000,451     224,715,255   (100,841,037) 124,874,669
Net loss.....................          -           -             -             -            -               -   (44,188,443)  (44,188,443)
                               ----------  ----------  ------------  ------------  -----------   -------------  ------------  -----------
BALANCE, DECEMBER 31, 1999             -           -             -   100,045,166    1,000,451     224,715,255   (145,029,480) 80,686,226
Net Loss.....................          -           -             -             -            -               -   (48,911,605)  (48,911,605)
Issuance of common stock.....          -           -             -     4,457,169       44,572      10,477,216                 10,521,788
                                                                                                                              -----------
                               ----------  ----------  ------------  ------------  -----------   -------------  ------------
BALANCE, DECEMBER 31, 2000             -           -             -   104,502,335    1,045,023     235,192,471   (193,941,085) 42,296,409
Net Loss.....................          -           -             -             -            -               -   (28,074,547)  (28,074,547)
Issuance of common stock.....          -           -             -     9,666,859       96,669      22,702,994             -   22,799,663
                               ----------  ----------  ------------  ------------  -----------   -------------  ------------  -----------
BALANCE, SEPTEMBER 30, 2001            -           -             -   114,169,194   $1,141,692    $257,895,465   $(222,015,632)$37,021,525
                               ==========  ==========  ============  ============  ===========   =============  ============  ===========`

See notes to financial statements.

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

`For the                November 1,
                                                                        Nine Months Ended              1992
                                                                          September 30,             (inception)
                                                                                                      through
                                                                                                   September 30,
                                                                  ------------------------------  ----------------
                                                                      2001            2000             2001
                                                                  -------------   --------------  ----------------



CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................      $(28,074,547)   $(30,305,011)    $(222,015,632)
Adjustments to reconcile net loss to net cash used in operating
activities:
   Depreciation and amortization............................         3,648,965        4,278,376        17,136,884
   Issuance of stock options and grants to director, consultant        751,724                -         4,613,246
and officer.................................................
   Amortization of debt issue costs.........................                 -                -           271,277
   Loss on sale or disposal of property and equipment.......                 -          194,937        18,486,753
   Loss from investment in joint venture....................            45,000          211,866           137,010
   Net loss on sale of investments..........................                 -                -            32,496
   Accretion on discounts on investments....................                 -                -         (410,084)
Changes in operating assets and liabilities:
   Other assets.............................................          (89,052)         (81,195)         (581,941)
   Accounts payable and accrued expenses....................         (446,226)          971,986         5,464,671
   Trade payable to majority stockholder....................         (266,312)        (933,798)                 -
                                                                  -------------   --------------  ----------------
    Net cash used in operating activities...................      (24,430,448)     (25,662,839)     (176,865,320)
                                                                  -------------   --------------  ----------------


CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds (purchase) from short-term investments.............                 -        8,970,638      (52,419,820)
Purchase of restricted time deposit.........................                 -                -       (3,500,000)
Proceeds from sales and redemptions of investments..........                 -                -        52,797,408
Proceeds from sale of property and equipment................                 -                -           297,670
Investment in joint venture.................................         (200,000)                          (715,438)
Purchase of property and equipment..........................       (3,289,680)      (5,275,768)      (72,699,404)
                                                                  -------------   --------------  ----------------
    Net cash (used in) provided by investing activities.....       (3,489,680)        3,694,870      (76,239,584)
                                                                  -------------   --------------  ----------------


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable to stockholders.....                 -                -        14,270,000
Proceeds from drawings on line of credit with bank..........                 -                -        14,000,000
Proceeds from issuance of common stock......................        22,047,939        4,396,916       253,632,363
Common stock issuance costs.................................                 -                -      (15,178,641)
Preferred dividends paid....................................                 -                -       (9,926,703)
Proceeds from issuance of preferred stock...................                 -                -        25,675,000
Preferred stock issuance costs..............................                 -                -       (1,201,999)
Repayment of line of credit with bank.......................                 -                -      (14,000,000)
Repayment of note payable...................................                 -                -      (12,245,651)

                                                                  -------------   --------------  ----------------
    Net cash provided by financing activities...............        22,047,939        4,396,916       255,024,369
                                                                  -------------   --------------  ----------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............       (5,872,189)     (17,571,053)         1,919,465

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..............         7,791,654       26,412,553                 -
                                                                  -------------   --------------  ----------------

CASH AND CASH EQUIVALENTS, END OF PERIOD....................        $1,919,465       $8,841,500        $1,919,465
                                                                  =============   ==============  ================


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

See notes to financial statements.

EARTHSHELL CORPORATION

NOTES TO FINANCIAL STATEMENTS  (Unaudited)
SEPTEMBER 30, 2001

## Presentation
of Financial Information

The foregoing interim
financial information is unaudited and has been prepared from the books and
records of EarthShell Corporation (the Company). In the opinion of
management, the financial information reflects all adjustments necessary for a
fair presentation of the financial condition, results of operations and cash
flows of the Company in conformity with generally accepted accounting
principles. All such adjustments were of a normal recurring nature for interim
financial reporting.

The accompanying unaudited
financial statements and these notes do not include certain information and
footnote disclosures required by generally accepted accounting principles, which
were included in the Companys financial statements for the year ended
December 31, 2000. The information included in this Form 10-Q should be read in
conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and financial statements and notes thereto
for the year ended December 31, 2000 included in the Companys Annual
Report on Form 10-K.

Basic and diluted loss per
common share is calculated based on the weighted average shares outstanding of
114,169,194 and 110,746,927 for the three and nine months ended September 30,
2001, respectively and 101,352,816 and 100,595,874 for the three and nine months
ended September 30, 2000. Basic and diluted is the same because common stock
equivalents are considered anti-dilutive. Incremental dilutive shares which
would be issuable using the treasury stock method would be 425,691 and 0 at
September 30, 2001 and 2000, respectively.

## Related Party
Transactions

E. Khashoggi Industries, LLC
 ("EKI") is the Company's principal stockholder. For the nine months ended
September 30, 2001 and 2000, the Company paid or accrued $1,092,197 and $6,524,454
respectively, and $401,454 and $2,053,602 for the three months ended September
30, 2001 and 2000, respectively for services performed by EKI under the Amended
 and Restated Technical Services Agreement as amended October 1, 1997,
between the Company and EKI. During January, 2001 the Company
directly hired the EKI personnel critical to the Companys future
development programs resulting in a significant reduction in the use of EKI technical
services and related expenses. The remaining related party expenses are attibutable to researcha and
develoment programs for sandwich wraps and films being performed for the Company by
 Bio-tec Holding GmbH, which is a wholly owned subsidiary of EKI.

For the nine months ended
September 30, 2001 and 2000, the Company paid or accrued $0 and $320,897
respectively, and $0 and $51,124 for the three months ended September 30, 2001
and 2000, respectively for the allocation of patent costs under the Amended and
Restated Agreement for Allocation of Patent Costs effective October 1, 1997.
Effective January 1, 2001 the Company has assumed direct responsibility to
manage the maintenance of the patent portfolio underlying its license with EKI.

EARTHSHELL
CORPORATION

NOTES TO FINANCIAL STATEMENTS  (Unaudited) - continued

SEPTEMBER 30, 2001

`Property and Equipment

At September 30, 2001, property and equipment consisted of the following:

Commercial Manufacturing Equipment: Construction in progress
Sweetheart Cup Company............................................................           $36,359,127

Product Development Center:
     Equipment....................................................................            3,793,737
     Construction in progress.....................................................            9,752,512
     Leasehold improvements.......................................................              571,361
                                                                                           ----------------
                                                                                             14,117,610

Office equipment and furniture.....................................................             774,146

Less: accumulated depreciation and amortization....................................          (15,344,521)
                                                                                           ----------------

Property and equipment - net.......................................................          $35,906,362
                                                                                           ================`

## Contingencies

On August 2, 1999, Novamont
S.p.A., an Italian company specializing in the manufacture of a biodegradable
plastic resin and products, filed a complaint in the United States District
Court for the Northern District of Illinois alleging four counts of infringement
of three patents. On August 3, 2001 the Company entered into a Settlement
Agreement with Novamont wherein the lawsuit by Novamont was dismissed with no
material adverse financial effect on the Company, and the Companys rights
to manufacture and distribute the foodservice disposable through its operating
partners are fully protected and expanded to include the application of Novamont
technology.

The Company periodically
evaluates its property and equipment for impairment. As the Company moves
into the manufacturing commercialization phase and continues to refine and
optimize the manufacturing processes, certain purchased equipment may become
unusable, which may lead to periodic write-offs of manufacturing property
and equipment.

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

Information contained in
this Quarterly Report on Form 10-Q including Managements Discussion
and Analysis of Financial Condition and Results of Operations 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.
Factors influencing the Companys operating performance and financial
results include, but are not limited to, changes in the general economy, the
availability of financing, governmental regulations concerning, but not limited
to, environmental issues, and other risks and unforeseen circumstances affecting
the Companys business and should be read in conjunction with other risk
factors discussed in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.

## Overview of
Operations

The Company was organized
in November 1992 as a Delaware corporation and is a development stage company
engaged in the commercialization of disposable food service packaging designed
with the environment in mind (EarthShell Packaging). Based on
patented composite material technology, licensed on an exclusive basis from EKI,
and manufactured using standard industry equipment and EarthShell ingenuity
(collectively, the EarthShell technology), EarthShell Packaging
products are high-performing disposable food service packaging designed to be
price-competitive to todays paper and plastic alternatives. The Company
licenses the EarthShell technology to, or joint ventures with, leading
manufacturers of foodservice disposables to produce and distribute EarthShell
Packaging products, including plates, bowls, hinged-lid sandwich containers and
sandwich wraps. The Company expects to derive revenues primarily from license
royalties from these partners and/or through profit distributions from joint
ventures.

To date, the Company has
relied primarily upon its manufacturing partner Sweetheart Cup Company
(Sweetheart) in Owings Mills, Maryland, and its own pilot facilities in
Goleta, California, to produce EarthShell Packaging products for the
McDonalds Big Mac® sandwich container and plates and bowls to the
U.S. Department of Interior, Bon Appetit Management Company, Green Earth Office
Supply, and numerous colleges and universities. Under the terms of its agreement
with Sweetheart, sales of the EarthShell Big Mac® sandwich container are
recorded on Sweethearts books as revenue, and are credited to the Company
as an offset to the cost of start-up manufacturing operations.

The Company has incurred
aggregate net losses of approximately $222 million from its inception through
September 30, 2001 and expects to continue to incur operating losses until the
capacity to produce EarthShell Packaging products increases and the products use
becomes more widespread.

Comparison of the Three and
Nine Months Ended September 30, 2001, to the Three and Nine Months September 30,
2000.

Total Research and
Development ExpensesTotal research and development expenditures for the
development of EarthShell Packaging decreased $4.1 million to $16.3 million from
$20.4 million for the nine months ended September 30, 2001 compared to the nine
months ended September 30, 2000. This $4.1 million decrease is the result,
primarily, from the shift in activities from the development of the EarthShell
Big Mac® sandwich container and related manufacturing processes
into manufacturing commercialization. It consists of approximately $2.3 million
in reduction of operating costs of the Owings Mills facility, approximately
$0.8 million from a reduction of other research and development efforts, and
approximately $1.0 million of the reduction results from a non-recurring
equipment abandonment charge related to a production equipment reconfiguration
whcih occured during the quarter June 30, 2000.For the three months ended September
30, 2001 compared to the three months ended September 30, 2000, total expenditures
increased $0.3 million to $7.2 million from $6.9 million. The increase for the
third quarter is directly related to the development of increased manufacturing
capacity at Owings Mills in support of the commercialization of the EarthShell
 Big Mac® sandwich container.

Expenditures for research
and development provided by EKI decreased $5.4 million to $1.1 million from $6.5
million for the nine months ended September 30, 2001 and 2000, respectively and
decreased by $1.7 million to $0.4 million from $2.1 million for the three months
ended September 30, 2001 and, 2000, respectively. . The decrease is due to a
shift away from contracting development programs to EKI, and is partially offset
by some of the development programs being performed in-house.

The Company periodically
evaluates its property and equipment for impairment. As the Company moves
into the manufacturing commercialization phase and continues to refine and
optimize the manufacturing processes, certain purchased equipment may become
unusable, which may lead to periodic write-offs of manufacturing property
and equipment.

Total General and
Administrative ExpensesTotal general and administrative expenses
increased $2.0 million to $8.4 million from $6.4 million for the nine months
ended September 30, 2001 compared to the nine months ended September 30, 2000,
respectively, and increased $0.3 million to $2.4 million from $2.1 million for
the three months ended September 30, 2001 compared to the three months ended September 30 2000,
respectively. Approximately $0.6 million of the increase results from the
reclassification to general and administrative expense for technical personnel
which was recorded as related party expense for the comparitive nine month period, $1.0 million of the increase is a result
of reclassification of related party patent expenses to general and
administrative expenses effective January 1, 2001 as well as from legal expenses
related to the settlement of the lawsuit with Novamont, and approximately $0.4
million is due to an increase from professional services provided to the Company
for the nine month comparative period. The $0.2 million increase for the quarter
ended September 30, 2001 compared to the quarter ended September 30, 2000
is a result of the reclassification to general and administrative expense for technical
personnel which was recorded as related party expense for the comparitive three
month period.

Depreciation and
Amortization ExpenseDepreciation and amortization expense
decreased $0.7 million to $3.6 million from $4.3 million for the nine months
ended September 30, 2001 compared with the nine months ended September 30, 2000
and decreased $0.3 million to $1.1 million from $1.4 million for the three
months ended September 30, 2001 compared with the three months ended September
30, 2000 resulting from the full depreciation of certain assets during 2001.

Related Party Patent
ExpensesLegal fees reimbursed to EKI under the Amended and
Restated Agreement for Allocation of Patent Costs with EKI decreased $0.3
million to $0 million from $0.3 million for the nine months ended September 30,
2001 compared with the nine months ended September 30, 2000 and decreased $.05
million from $.05 million to $0 for the three months ended September 30, 2001
compared to the three months ended September 30, 2000, respectively. At January
31, 2001 the Company assumed direct responsibility to manage the maintenance of
the patent portfolio underlying the license with EKI, and accordingly these
costs are now being recorded within general and administrative expense for the
Company.

Interest IncomeInterest Income decreased $0.8 million to $0.3 million from $1.1 million for
the nine months ended September 30, 2001 compared to the nine months ended
September 30, 2000 and decreased $0.2 million to $0.1 million from $0.3 million
for the three months ended September 30, 2001 compared to the three months ended
September 30, 2000, respectively due to decreased cash balances on hand.

Net LossThe Companys net loss decreased $2.2 million to $28.1
million from $30.3 million for the nine months ended September 30, 2001 compared
to the nine months ended September 30, 2000 and decreased $0.4 million to $10.6
from $10.2 million for the three months ended September 30, 2001 compared to the
three months ended September 30, 2000 for the reasons discussed above.

## Liquidity and
Capital Resources at September 30, 2001

Cash Flow.The Companys principal use of cash for the nine months ended September
30, 2001 was to fund operations, including the continued development and
purchase of equipment to facilitate the development of manufacturing capacity
for EarthShell Packaging. Net cash used in operations was $24.4 million for the
nine months ended September 30, 2001 and $25.7 million for the nine months ended
September 30, 2000. Net cash (used in) provided by investing activities was
($3.5) million and $3.7 million for the nine months ended September 30, 2001 and
2000, respectively. Net cash provided by financing activities was $22.0 million
and $4.4 million for the nine months ended September 30, 2001 and 2000,
respectively. As of September 30, 2001 the Company had cash totaling $1.9
million.

Capital
Requirements.The Company expects to spend approximately $6.0 to
$8.0 million in capital expenditures in the year 2001 related to developing the
manufacturing facilities and prototypes for the line of EarthShell Packaging products. The
Company paid or accrued approximately $3.3 million in capital expenditures for
the nine months ended September 30, 2001. The Company spent approximately $6.6
million in capital expenditures for the year ended December 31, 2000.

Sources of
Capital. As part of the Companys initial public offering on
March 27, 1998, the Company issued 10,526,316 shares of common stock, for which
it received net proceeds of $206 million. The Company has an agreement with
Acqua Wellington North American Equities Fund, LTD (Acqua
Wellington), providing an equity draw-down facility (the
Facility) pursuant to which the Company may, from time to time and
in its sole discretion present draw-down notices requiring Acqua Wellington to
purchase up to $2.5 million of the Companys common stock in respect to
each draw-down notice at a per share price reflecting a discount of 5% from
market. Acqua Wellington also has the right to purchase an additional $2.5
million of the Companys common stock per month, subject to certain
conditions. As of September 30, 2001 up to $20.0 million remains available to
the Company under the Facility, with $10.0 million of that amount available at
the Companys request. Although the Facility provides that the Company may
not request draw-downs unless its common stock is trading for at least $3.00 per
share, Acqua Wellington has continued to purchase stock from the Company from
time to time at negotiated prices. During the nine months ended September 30,
2001 the Company sold approximately 9.4 million shares of common stock to Acqua
Wellington and received net proceeds from such sales of approximately $22.0
million. The Facility expires on August 3, 2002.

As the Company accomplishes
its core goals, it continues discussions with certain financing institutions to
secure additional sources of long-term funding. The Company believes that its
existing cash, the financing provided through the Acqua Wellington equity
draw-down facility, as well as new sources, will enable it to continue funding
its operations, including the Owings Mills facility, as well as continue with
its next generation development of EarthShell Packaging products over the
remainder of the fiscal year. The Company cannot assure, however, that
commitments can be obtained on favorable terms, if at all.

The Company continues to focus its resources on those activities that are critical
to demonstrate the commercial viability of the EarthShell business model. These
activities include modifying and optimizing the Owings Mills manufacturing equipment,
ramping up commercial production of the EarthShell Big Mac® sandwich container, and
continuing to develop new EarthShell Packaging products and manufacturing processes

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

Not applicable

Part II. Other Information

## Item 1. Legal
Proceedings

On August 2, 1999, Novamont
S.p.A., an Italian company specializing in the manufacture of a biodegradable
plastic resin and products, filed a complaint in the United States District
Court for the Northern District of Illinois alleging four counts of infringement
of three patents. On August 3, 2001 the Company entered into a Settlement
Agreement with Novamont wherein the lawsuit by Novamont was dismissed with no
material adverse financial effect on the Company, and the Companys rights
to manufacture and distribute the foodservice disposable through its operating
partners are fully protected and expanded to include the application of Novamont
technology.

## Item 2. Changes
in Securities

Not applicable

## Item 3.
Defaults Upon Senior Securities

Not applicable

## 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

Not applicable

The Company filed no
reports on Form 8-K during the quarter ended September 30, 2001.

Signature

Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.

`EarthShell Corporation


Date: November 13, 2001                       By:    /s/ D. SCOTT HOUSTON
                                                 --------------------------------------
                                                  D. Scott Houston
                                                  Chief Financial Officer

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